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A Credit Squeeze for Small Business Owners

Posted on June 19, 2009 by Jason

The New York Times,  June 18th, 2009

Louis Licata has shelved plans to hire three more employees for his
Cleveland law firm. Jeannie Macone, of Florida, is cutting back on
inventory for her trinket and home décor business. In Ohio, Patrick
Allen has slashed employee travel and begun paying cash for work
dinners with clients of the marketing firm that he started from scratch.

A crackdown on credit limits by card companies is squeezing the
nation’s 27 million small businesses, exacerbating the problems brought
on by a stagnant economy.

Owning a small business has always been
a challenge — half wind up failing within the first few years. But the
financial crisis has dealt them a one-two punch, as big banks cut the credit card lines that many entrepreneurs were forced to lean on when a once-abundant supply of loans dried up.

As
of April, 59 percent of America’s small firms relied on credit cards to
help finance their day-to-day operations, up from 44 percent at the end
of last year, according to the National Small Business Association.

The
number of small-business owners who depend on a credit card to buy
items as varied as paper clips and heavy equipment has climbed steadily
over the years, from just 16 percent in 1993. Today, that group makes
up 11 percent of the revenue for Visa and MasterCard, from 3 percent in 1998, according to David Robertson, who publishes The Nilson Report on the credit card industry.

Read more of this article.

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Tracking The Second Great Depression

Posted on June 18, 2009 by Jason

The Business Insider, June 17th, 2009

So far, the collapse of the world economy since April 2008 has been
worse than the collapse in the Great Depression.  One glance at the
fall world output, trade, and stock prices puts the recent “green
shoots” in perspective.

The government policy response to the collapse, however, has been
much more aggressive.  Thus, we will soon collectively learn whether
the economic historians are right that the original Great Depression
was caused by “policy errors” after the collapse…or whether, as some
suspect, there is simply no way to avoid catastrophe after a financial
bubble the size of the one we just had.

Professors Barry Eichengreen (Berkeley) and Kevin O’Rourke (Trinity)
have updated their series of charts that compare the progress of this
“Depression event”, as they’re calling it, with the Great Depression. 
The originals and a more detailed write-up can be found here, at Vox.  We’ve arranged them into a quick slideshow below.

Read more of this article.

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Retirees may well worry about health-care reform

Posted on June 18, 2009 by Jason

Marketwatch, June 16th, 2009

If things weren’t bleak before, they certainly are
now. Men and women retiring today will need truckloads of money to pay
for health-care expenses over the course of their retirement, according
to a new study.

And that was the case long before we learned that President Barack
Obama plans to cut $313 billion in Medicare and Medicaid spending and
reform this nation’s health-care system. It’s anybody’s guess what
retirees might need if those reform plans become a reality.

For the time being, at least, the reality is this: Men retiring at
age 65 in 2009 will need from $68,000 to $173,000 in savings to cover
health-insurance premiums and out-of-pocket expenses in retirement if
they want a 50/50 chance of being able to have enough money, and
$134,000 to $378,000 if they prefer a 90% chance, according to a study
published last week by the Employee Benefits Research Institute.

Meanwhile, women — with their greater longevity — will need even more
money. A women retiring at age 65 in 2009 will need from $98,000 to
$242,000 in savings to cover insurance premiums and out-of-pocket
expenses in retirement for a 50/50 chance of having enough money, and
$164,000 to $450,000 for a 90% chance, said Paul Fronstin, an EBRI
researcher, in the report. Read the report on the EBRI site.

But it gets worse. Many Americans may need even more money than the
amounts cited above, Fronstin said, because his “analysis does not
factor in the savings needed to cover long-term care expenses, nor does
it take into account the fact that many individuals retire prior to
becoming eligible for Medicare.”

Simply opening one’s eyes to the issue is key, said Stephen Huth of CCH
Inc., a Riverwoods, Ill., publisher and unit of Wolters Kluwer. “Just
knowing this is a problem is a good first step,” he said. “Few
individuals plan for retirement at all, and a small percentage of those
even think about health-care costs.

“Even with all the talk about health-care reform, little has been said
about the looming crisis for many older individuals,” he said.

Read more of this article.

Congress Airs Concerns on Long-Term Care Insurance

Posted on June 17, 2009 by Jason

The New York Times, June 16th, 2009

As many as 7 million Americans have long-term care insurance
policies, and many states confronting burgeoning deficits are urging
consumers to buy this type of insurance as a way to protect Medicaid
budgets. But at a recent Senate hearing, lawmakers and watchdog groups cautioned that greater consumer protections are needed.

“There are no guarantees that the policies purchased today will
serve your needs 20 to 30 years down the road,” Diane Rowland,
executive vice president of the Kaiser Family Foundation, told the
Senate Special Committee on Aging earlier this month.

Consumers must balance premium affordability with the types of
services they may want, the daily benefit amount, the length of
coverage and other options, such as inflation protection. But personal
needs and the marketplace can change in the decades between purchasing
and using a policy, Ms. Rowland said.

Moreover, some purchasers find they can no longer afford the
premiums, even after years of payments. And it is even more expensive
to acquire coverage late in life. A long-term care policy costs almost
twice as much when purchased at age 70 than it would have at age 60,
according to a Kaiser policy brief (PDF).

Given this uncertainty and the increasing number of state Medicaid
and private long-term care insurance partnerships, greater consumer
protections are needed nationally, said Senator Herb Kohl, Democrat of
Wisconsin and chairman of the aging committee.

Read more of this article.

Supplemental Medicare Insurance: work with a pre-screened insurer
to find the right Medicare Advantage program for you and your medical
needs.

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Credit Bailout: Issuers Slashing Card Balances

Posted on June 16, 2009 by Jason

The New York Times, June 15th, 2009

The banks
were bailed out last fall, the automobile companies last winter. For
Edward McClelland, a writer in Chicago, deliverance finally arrived a
few days ago.

Mr. McClelland’s credit card
company was calling yet again, wondering when it could expect the next
installment on his delinquent account. He proposed paying half of his
$5,486 balance and calling the matter even.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

As they confront unprecedented numbers of troubled customers, credit
card companies are increasingly doing something they have historically
scorned: settling delinquent accounts for substantially less than the
amount owed.

The practice started last fall as the economy
worsened. But in recent months, with unemployment topping 9 percent and
more people having trouble paying their bills, experts say this
approach has risen drastically.

They say many credit card
issuers have revised internal guidelines to give front-line employees
the power to cut deals with consumers. The workers do not even have to
wait for customers to call and ask for a break.

Read more of this article.

Seniors Drawn to Mortgages That Give Back

Posted on June 15, 2009 by Jason

Yahoo Finance, June 12th, 2009

Here’s one segment of the mortgage market that’s still hot:
federally insured reverse mortgages, which enable senior citizens to
take money out of their homes.

In March and April, the number of
reverse mortgages backed by the government jumped nearly 20% from the
same period last year. In April alone, the government insured 11,660
reverse mortgages, the highest monthly total since the
government-backed program began in 1990. By contrast, the number of new
home-equity loans, which similarly allow homeowners to tap the equity
in their homes, fell around 70% in the first quarter from the
prior-year period, according to Inside Mortgage Finance.

More seniors are turning to reverse mortgages to supplement their
retirement savings, which in some cases have been decimated by
stock-market losses. At the same time, more seniors now qualify for a
reverse mortgage since Congress in February raised the maximum home
value that seniors can borrow against to $625,500 from $417,000. The
bill also capped reverse-mortgage origination fees at 2% on the first
$200,000 and 1% on any amount over that, with fees not to exceed
$6,000. Other upfront costs include an insurance premium and closing
costs.

In a reverse mortgage, the bank makes payments to the
homeowner instead of the homeowner making payments to a bank. To
qualify for such a mortgage, a senior must be at least 62 years old and
have a lot of equity in the home.

The way it works is this: Say a
senior owns a house worth $500,000 that has a $50,000 mortgage. The
senior might get a $250,000 reverse mortgage to pay off the existing
loan and then have $200,000 left over. The homeowner could get that as
a lump sum or a line of credit, and wouldn’t have to pay it back until
he moved or died and the house was sold. The bank is repaid, including
interest, from proceeds of the sale.

Read more of this article.

America’s Sea of Red Ink Was Years in the Making

Posted on June 15, 2009 by Jason

The New York Times, June 9th, 2009

There are two basic truths about the enormous deficits that the federal government will run in the coming years.

The first is that President Obama’s
agenda, ambitious as it may be, is responsible for only a sliver of the
deficits, despite what many of his Republican critics are saying. The
second is that Mr. Obama does not have a realistic plan for eliminating
the deficit, despite what his advisers have suggested.

The New York Times analyzed Congressional Budget Office
reports going back almost a decade, with the aim of understanding how
the federal government came to be far deeper in debt than it has been
since the years just after World War II. This debt will constrain the
country’s choices for years and could end up doing serious economic
damage if foreign lenders become unwilling to finance it.

Mr.
Obama — responding to recent signs of skittishness among those lenders
— met with 40 members of Congress at the White House on Tuesday and
called for the re-enactment of pay-as-you-go rules, requiring Congress
to pay for any new programs it passes.

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.

Read more of this article.

Mortgage crisis robbing seniors of golden years

Posted on June 5, 2009 by Jason

USA Today, June 5th, 2009

Howard Weiss is 77 and scared.

This year, the semiretired distributor from Phoenix
ran into financial problems and stopped making his mortgage payments.
He was told his home was scheduled for a foreclosure auction in May.

So Weiss scraped together more than $2,000 to
stave off the foreclosure. He’s still trying to figure out if he can
get a mortgage modification so he can afford his home.

“This is the biggest mess I’ve had in my life,”
Weiss says. “I could break down and cry. I was about to lose
everything. I’ve been through (the Korean War), through a lot of crises. Now I’ve turned everything over to the Lord. … I’m so stressed this is going to kill me.”

The worst economic crisis since the Great Depression
has slashed home values and triggered an unprecedented surge in
foreclosures across the nation. It’s also taking an especially harsh
toll on an often overlooked demographic: seniors who are retired or
nearly so.

Conventional wisdom holds that most seniors have
paid off their mortgages or have significant equity in their homes, but
in reality hundreds of thousands are suffering in the housing crisis.

This population is being hit on all fronts. More
than 600,000 seniors are delinquent or in foreclosure, according to
AARP. A separate report by AARP found that 25.5 million seniors ages 50
and older have a mortgage. Unlike younger people, many are on fixed
incomes and lack the money or job opportunities to catch up on payments
when they fall behind.

Some seniors have been victimized by predatory
lenders or made bad financial decisions, taking on adjustable-rate
mortgages that reset to payment levels they couldn’t afford. For
others, their mortgage problems grew out of other financial pressures,
such as staggering medical bills or helping adult children through
financial difficulties.

Read more of this article.

Kohl Seeks Regulation of Long-Term Care Insurance

Posted on June 3, 2009 by Jason

Bloomberg, June 3rd, 2009

Long-term care insurance may not be a
“cure-all” for the estimated 12 million Americans who will
require such care by 2020, according to Senator Herb Kohl,
chairman of the Senate Special Committee on Aging.

Providers such as Genworth Financial Inc. are reporting
losses and others such as Conseco Inc. are increasing premiums,
which raises questions about the viability of the industry, Kohl
said at a Washington hearing today.

“We need to boost consumer protections and ensure the
solvency of these products in the long run, and even then long-
term care insurance may not be right for everyone,” said Kohl.
“Long-term care insurance should not be considered as a cure-
all.”

The Wisconsin Democrat introduced legislation today to
provide a uniform way of handling claims, transferring policies
between states and increasing premiums. Long-term care insurance
should reflect standards set by the National Association of
Insurance Commissioners, Kohl said.

The policies provide coverage to help pay for home-health
aides or residence in a nursing home or assisted-living
facility. Insurers have sold about 10 million of the policies
since 1987, according to the Menlo Park, California-based Kaiser
Family Foundation. Private insurance accounted for 9 percent of
the almost $180 billion spent on long-term care services in
2006, said Kaiser, a nonprofit group focused on health-care
policy.

Read more of this article.

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