This sounds like quite the opportunity for some of you!
Afshan Mantoo is organizing a conference in Melbourne Australia on Islamic Finance. And the best part? Some expenses may be paid for qualified participants! What could be better? A finance conference in Australia that is partially paid!
She is looking for those interested in participating. Obviously you must be qualified to speak on Islamic finance and you should be fluent in English.
If you know of an Islamic Finance expert or if you are one yourself, please contact Afshan Mantoo.
BTW I would like to add my congratulations to Afshan for being named citizen of the year in Moreland AU. To quote the article:
"Afshan Mantoo has been the driving force behind the Islamic Girls and Women’s Group, a not-for-profit group in Moreland that addresses social, economic, justice and employment issues.
Afshan has been praised by people of many faiths and backgrounds, and her history of involving people from different faiths supports the diversity that we hold dear in Moreland,” Cr Higginbotham said."
Afsan Mantoo may be contacted by email.
Monday, February 28, 2005
Refund-anticipation loans still a lousy deal--from Houston Chronicle
Personal finance tip: don't use refund-anticipation loans!
HoustonChronicle.com - Refund-anticipation loans still a lousy deal: "A refund-anticipation loan is a bank loan, short-term borrowing based on the amount you expect from your federal tax refund. It is also a popular marketing tool for the big tax-preparation companies, appealing especially to people living from paycheck to paycheck.... But for most people, 'they're completely unnecessary, an extremely expensive drain on expected refund money,' said Jean Ann Fox, director of consumer protection at the Consumer Federation of America.
....With classic refund-anticipation loans, consumers get their money in one to two days, Block spokeswoman Nancy Wagoner said. An instant refund-anticipation loan, which costs an extra $20, means you get the money the same day.
Either way, that translates into rates between 31 percent and 520 percent — that is not a typo — and that doesn't even count the $24.95 upfront fee.
The rates are somewhat skewed because the percentage is calculated on an annualized basis, even though the loan is outstanding for about 10 days. Still, you'll pay anywhere from $29.95 to $129.90....."
As I said, be patient,don't use these!
HoustonChronicle.com - Refund-anticipation loans still a lousy deal: "A refund-anticipation loan is a bank loan, short-term borrowing based on the amount you expect from your federal tax refund. It is also a popular marketing tool for the big tax-preparation companies, appealing especially to people living from paycheck to paycheck.... But for most people, 'they're completely unnecessary, an extremely expensive drain on expected refund money,' said Jean Ann Fox, director of consumer protection at the Consumer Federation of America.
....With classic refund-anticipation loans, consumers get their money in one to two days, Block spokeswoman Nancy Wagoner said. An instant refund-anticipation loan, which costs an extra $20, means you get the money the same day.
Either way, that translates into rates between 31 percent and 520 percent — that is not a typo — and that doesn't even count the $24.95 upfront fee.
The rates are somewhat skewed because the percentage is calculated on an annualized basis, even though the loan is outstanding for about 10 days. Still, you'll pay anywhere from $29.95 to $129.90....."
As I said, be patient,don't use these!
HoustonChronicle.com - If you haven't been saving for retirement, start now
An interesting (non technical) article that reminds people while earlier is better, late is better than never! Start now! HoustonChronicle.com - If you haven't been saving for retirement, start now
"Financial adviser David Bach also advocates that people try to break up the big task of saving for retirement into manageable portions.
Bach, author of the book Start Late, Finish Rich, says there are strategies to build a retirement cushion, regardless of the age people start.
For example, can you wring just $10 a day out of your budget to set aside in a savings account, perhaps by cutting out expensive coffees or carrying your lunch or reducing cell phone use? That seemingly small amount can build to more than $227,000 in 20 years, assuming a 10 percent annual return, Bach calculates. Bump the savings up to $15 a day, and the results grow to nearly $342,000.
Bach recommends that workers aim at putting the equivalent of one hour a day of income into a retirement account. If you earn $50,000 a year, that works out to about $25 an hour, so your goal should be setting aside $25 a day in retirement savings."
"Financial adviser David Bach also advocates that people try to break up the big task of saving for retirement into manageable portions.
Bach, author of the book Start Late, Finish Rich, says there are strategies to build a retirement cushion, regardless of the age people start.
For example, can you wring just $10 a day out of your budget to set aside in a savings account, perhaps by cutting out expensive coffees or carrying your lunch or reducing cell phone use? That seemingly small amount can build to more than $227,000 in 20 years, assuming a 10 percent annual return, Bach calculates. Bump the savings up to $15 a day, and the results grow to nearly $342,000.
Bach recommends that workers aim at putting the equivalent of one hour a day of income into a retirement account. If you earn $50,000 a year, that works out to about $25 an hour, so your goal should be setting aside $25 a day in retirement savings."
Thursday, February 24, 2005
Muhammad Yunus, Banker to the World's Poorest Citizens, Makes His Case - Knowledge@Wharton
Muhammad Yunus, Banker to the World's Poorest Citizens, Makes His Case - Knowledge@Wharton
Sometimes finance need not be about millions of dollars. A perfect example is in microlending. Often by giving only a few hundred dollars of financing, microlenders can make a huge difference. Wharton and the Nightly Business Report provide fascinating interview with Muhammad Yunus, managing director of Grameen Bank in Bangladesh and a pioneer in the practice of microcredit lending.
It is well worth your time!
A few highlights:
* "I saw how people suffered for a tiny amount of money....So I made a list of people who needed just a little bit of money. And when the list was complete, there were 42 names. The total amount of money they needed was $27. I was shocked. Here we were talking about economic development, about investing billions of dollars in various programs, and I could see it wasn't billions of dollars people needed right away. They needed a tiny amount of money."
* "This is business money. Business money is limitless. And then, you can reach out to many more people than you would otherwise do....This is not charity. This is business: business with a social objective, which is to help people get out of poverty. Other banks were not giving loans to these people. "
* "If we start with that $27, and you add on all the money that we have loaned, it's nearly $5 billion that we have given over time. Now we have come to a stage where every two years we are giving $1 billion. So half a billion dollars a year. That's the stage we are in."
* "NBR: We have recently seen elections in Iraq for the first time. Self determination is the hope there. In a sense, is that what your program does? It changes people?
Yunus: Definitely. Actually, if you look at it one way, the microcredit we give to the women is a tool to explore one's self, how much capacity that is stored up inside: 'I never knew that I had the capacity. That creativity. That ingenuity. To make money to express myself. So that money gives, for the first time, an occasion for me to find out how much I can do.' When you were successful in the first round, when you took tiny amounts -- $30, $35 -- and went into business and paid back the loan, you are now much more equipped to do better. Bigger. So you ask for a $50 loan, a $60 loan, because you think you can do bigger business and more challenging business than when you first took out an easy loan.
NBR: It gives you that self confidence."
To those of you who think financiers are just bad people, read the full article, it will change your mind. Finance is important and done correctly really does make the world a better place :)
Sometimes finance need not be about millions of dollars. A perfect example is in microlending. Often by giving only a few hundred dollars of financing, microlenders can make a huge difference. Wharton and the Nightly Business Report provide fascinating interview with Muhammad Yunus, managing director of Grameen Bank in Bangladesh and a pioneer in the practice of microcredit lending.
It is well worth your time!
A few highlights:
* "I saw how people suffered for a tiny amount of money....So I made a list of people who needed just a little bit of money. And when the list was complete, there were 42 names. The total amount of money they needed was $27. I was shocked. Here we were talking about economic development, about investing billions of dollars in various programs, and I could see it wasn't billions of dollars people needed right away. They needed a tiny amount of money."
* "This is business money. Business money is limitless. And then, you can reach out to many more people than you would otherwise do....This is not charity. This is business: business with a social objective, which is to help people get out of poverty. Other banks were not giving loans to these people. "
* "If we start with that $27, and you add on all the money that we have loaned, it's nearly $5 billion that we have given over time. Now we have come to a stage where every two years we are giving $1 billion. So half a billion dollars a year. That's the stage we are in."
* "NBR: We have recently seen elections in Iraq for the first time. Self determination is the hope there. In a sense, is that what your program does? It changes people?
Yunus: Definitely. Actually, if you look at it one way, the microcredit we give to the women is a tool to explore one's self, how much capacity that is stored up inside: 'I never knew that I had the capacity. That creativity. That ingenuity. To make money to express myself. So that money gives, for the first time, an occasion for me to find out how much I can do.' When you were successful in the first round, when you took tiny amounts -- $30, $35 -- and went into business and paid back the loan, you are now much more equipped to do better. Bigger. So you ask for a $50 loan, a $60 loan, because you think you can do bigger business and more challenging business than when you first took out an easy loan.
NBR: It gives you that self confidence."
To those of you who think financiers are just bad people, read the full article, it will change your mind. Finance is important and done correctly really does make the world a better place :)
Wednesday, February 23, 2005
BBC NEWS | Business | Leeson's legacy lives on in Singapore
It has been ten years since Nick Leeson brought down the Barings bank. TNow the BBC looks back at the events of 2005. VERY interesting! Watch the video :)
BBC NEWS | Business | Leeson's legacy lives on in Singapore
BBC NEWS | Business | Leeson's legacy lives on in Singapore
Why acting ethically is good business.
In my corporate finance classes I always make a point to stress that in the absence of large information asymmetries, acting ethically is generally also acting in shareholders' best long-run interests.
Why? Because the market place is a hard disciplinarian and few people (customers, suppliers, or investors) want to do business with firms that are not acting ethically.
Consider for a second, if you knew XYZ company was dumping toxic wastes, would you willingly do business with them when there are alternatives? MBA Depot (which incidentally is just a great site) provided a bit more evidence on this topic this week with a 2003 paper by Montgomery and Ramus, they conclude:
Why? Because the market place is a hard disciplinarian and few people (customers, suppliers, or investors) want to do business with firms that are not acting ethically.
Consider for a second, if you knew XYZ company was dumping toxic wastes, would you willingly do business with them when there are alternatives? MBA Depot (which incidentally is just a great site) provided a bit more evidence on this topic this week with a 2003 paper by Montgomery and Ramus, they conclude:
"more than 97% of the MBAs in the sample said they were willing to forgo financial benefits to work for an organization with a better reputation for corporate social responsibility and ethics."Of course any survey is at least somewhat suspect and it is easy to say one thing and do another, but 97% is a pretty high number! It is also pretty encouraging!
Competition, credit crunch push Winn-Dixie to Chapt. 11 - Food - Food & Beverages - Company Announcements
Competition, credit crunch push Winn-Dixie to Chapt. 11 - Food - Food & Beverages - Company Announcements
Given my background (my family owns a grocery store), it is always sad to see a grocery store declare bankruptcy. However at least the timing was good for my classes as we do capital structure and bankruptcy.
A few things to note from the article:
*Credit ratings do matter in the since that other creditors are less willing to lend money(in this case reducing trade credit). As the article says: "...widening losses...led to credit downgrades and a tightening of the screws by its vendors, further cutting into cash availability"
*Bankruptcy allows the firm to get out of many contracts. For instance "Winn-Dixie also said it would seek a bankruptcy judge's permission to immediately terminate the leases of two warehouses and 150 stores that could save about $60 million annually. "
*As a marketing observation it is worth noting that this is another example of how difficult it is to compete with Wal Mart and how Wal Mart has changed the once stable industry. (It should also be noted that increased competition from restaurants---about 50% of US food dollar is now spent at restaurants--has also played a major role.)
Given my background (my family owns a grocery store), it is always sad to see a grocery store declare bankruptcy. However at least the timing was good for my classes as we do capital structure and bankruptcy.
A few things to note from the article:
*Credit ratings do matter in the since that other creditors are less willing to lend money(in this case reducing trade credit). As the article says: "...widening losses...led to credit downgrades and a tightening of the screws by its vendors, further cutting into cash availability"
*Bankruptcy allows the firm to get out of many contracts. For instance "Winn-Dixie also said it would seek a bankruptcy judge's permission to immediately terminate the leases of two warehouses and 150 stores that could save about $60 million annually. "
*As a marketing observation it is worth noting that this is another example of how difficult it is to compete with Wal Mart and how Wal Mart has changed the once stable industry. (It should also be noted that increased competition from restaurants---about 50% of US food dollar is now spent at restaurants--has also played a major role.)
Tuesday, February 22, 2005
SSRN-Who Receives IPO Allocations? An Analysis of 'Regular' Investors by Ekkehart Boehmer, Raymond Fishe
SSRN-Who Receives IPO Allocations? An Analysis of 'Regular' Investors by Ekkehart Boehmer, Raymond Fishe
Boehmer and Fishe examine IPO participation. Consistent with previous literature, they find that there are regular (that is those who frequently participate) customers. These "regulars" are made up of both institutions and retail clients.
These regulars do not get their favored status for free as they often have to buy shares in "cold" IPOs as well as being allowed to buy in for hot IPOs.
A few highlights:
*"sample IPOs were completed during a “hot” cycle in the U.S. IPO market (Ritter and Welch (2002)). Although this period is unusual, there is no reason to believe that regular investors are treated differently during this period."
*""We find a sizable set of both institutional and retail investors who receive frequent allocations in IPOs. These regular investors receive greater monetary first-day gains, but lower average returns than other investors. This suggests that underwriters require regular investors to participate in weak offerings, but compensate them with continued access to underpriced shares."
* "...those accounts receiving only one allocation represent 22.8% of the sample....we find that nearly 39% of the sample receives allocations in nine or more IPOs. This increases to 55.6% for institutions and decreases to 34% for retail investors."
* "Thus, institutions receive more frequent allocations. What is surprising is that there are a large absolute percentage of retail investors in the higher allocation count quintiles. In terms of numbers, the top two quintiles contain twice as many retail as institutional accounts. This suggests that underwriters value both institutional and retail accounts as regular investors."
*"Overall, our results show that regular investors are an important beneficiary of initial IPO returns. They obtain larger wealth gains than infrequent investors, which are due to more frequent (but smaller) allocations in the best-performing IPOs....These results are generally consistent with Cornelli and Goldreich (2001) and Jenkinson and Jones (2002), who find that frequent participants receive more favorable allocations relative to investors’ demand schedules. Our analysis complements their results in that we can show that a cross-section of U.S. underwriters also treats regular investors favorably."
Interesting stuff!
Suggested Citation
Boehmer, Ekkehart and Fishe, Raymond P.H., "Who Receives IPO Allocations? An Analysis of 'Regular' Investors" (March 14, 2004). AFA 2005 Philadelphia Meetings. http://ssrn.com/abstract=517302
SSRN-Municipal Bond Liquidity by Lawrence Harris, Michael Piwowar
SSRN-Municipal Bond Liquidity by Lawrence Harris, Michael Piwowar:
Harris and Piwowar look at the liquidity of Municipal Bonds. Not surprisingly they find that the bonds are not as liquid as stocks and that transaction costs are MUCH higher.
While much of this illiquidty may be a function of the market itself, at least some may be blamed on the issuers (and more importantly their investment bankers). How? The authors report that transactions costs increase with the complexity of the bonds. Why? If people do not understand what the bond is offering, they are less likely to buy it. As more people do not understand the bond, liquidity drops, and the investors who are willing to trade the security demand a higher premium. So it appears that simple plain vanilla bonds may be a better option afterall.
In the authors' words:
The rule change?
Suggested Citation
Harris and Piwowar look at the liquidity of Municipal Bonds. Not surprisingly they find that the bonds are not as liquid as stocks and that transaction costs are MUCH higher.
While much of this illiquidty may be a function of the market itself, at least some may be blamed on the issuers (and more importantly their investment bankers). How? The authors report that transactions costs increase with the complexity of the bonds. Why? If people do not understand what the bond is offering, they are less likely to buy it. As more people do not understand the bond, liquidity drops, and the investors who are willing to trade the security demand a higher premium. So it appears that simple plain vanilla bonds may be a better option afterall.
In the authors' words:
"Unlike in equities, municipal bond transaction costs decrease with trade size and do not depend significantly on trade frequency. Municipal bond trades are also substantially more expensive than similar sized equity trades. We attribute these results to the general lack of price transparency in the bond markets. Additional cross-sectional analyses show that bond liquidity increases with credit quality and decreases with instrument complexity, time to maturity, and time since issuance. The results suggest that investors, and perhaps ultimately issuers, could benefit if issuers issued simpler bonds. "Interestingly this topic and, indirectly, this study was recently (2/17/05) mentioned in the Houston Chronicle. Why? Because new changes (Undoubtedly brought about in part by this study) have increased the transparency (and hopefully will bring down the transactions costs for the muni-bond market.
The rule change?
With the real-time pricing, which began Jan. 31, dealers are required to report all trades within 15 minutes to the Municipal Securities Rulemaking Board, which oversees the muni market. The board posts the information on its Web site, www.investinginbonds.com.The Houston Chronicle reports that the new rule is working:
"Things have gotten better with next-day price transparency," Olson says. "There aren't as many rogue practices. Brokers and traders know they're being watched."So it appears that Harris and Piwowar have helped to make a difference! Good job!
Suggested Citation
Harris, Lawrence and Piwowar, Michael S., "Municipal Bond Liquidity" (February 13, 2004). AFA 2005 Philadelphia Meetings. http://ssrn.com/abstract=503062
Friday, February 18, 2005
Wall Street Bonus Babies (Gotham Gazette. January, 2005)
You know the stereotype: Work on Wall Street, get rich. The Gotham Gazette shows a differing view.
The article points out that while average compensation is very high, this is skewed by a relative few who make a great deal. Using medians and quartile data from the 2000 Census, sociologist Andrew Beveridge shows that not everyone on Wall Street is rich. (Be forewarned, this is not a finance article, but a newspaper piece).
Wall Street Bonus Babies (Gotham Gazette. January, 2005)
A quick taste of the article:
* Finance-related jobs are significantly better paying than other positions.
* 93% of those making over $347,000 are white while 86% are male--two facts that none of us should be proud of.
* 93% of those making over $347,000 have at least 4 year college degrees.
The article points out that while average compensation is very high, this is skewed by a relative few who make a great deal. Using medians and quartile data from the 2000 Census, sociologist Andrew Beveridge shows that not everyone on Wall Street is rich. (Be forewarned, this is not a finance article, but a newspaper piece).
Wall Street Bonus Babies (Gotham Gazette. January, 2005)
A quick taste of the article:
A few of his other findings:"So who are the Wall Street bonus babies?
Overwhelmingly they are involved in securities and investments, according to an analysis of Census and other data. They either help make markets, make sales, make deals, or give advice – brokers, investment bankers, traders, financial analysts, financial advisers, portfolio managers, and a few chief executive officers.
Working on Wall Street does not guarantee a high income, as most any Wall Street secretary, food service worker, or techie can attest. So can the average auditor and accountant; one-quarter of the 11,000 auditors and accountants who work in the investment and securities industries in Manhattan make $38,500 or less; the worst-paid brokers make little more than that."
"An investment banking analyst right out of college will make about $65,000 salary, plus a $35,000 bonus, while an associate just out of business school might make $85,000 in salary and $115,000 in bonus."
* Finance-related jobs are significantly better paying than other positions.
* 93% of those making over $347,000 are white while 86% are male--two facts that none of us should be proud of.
* 93% of those making over $347,000 have at least 4 year college degrees.
SSRN expands database :)
There is research site that I use more than SSRN so I was glad to get the following from Michael Jensen:
SSRN's Economic Research Network is pleased to
announce that theWorld Bank will now post their working papers in SSRN's Government & Public Agency Research Paper Series. This new series enables Government & Public Agencies to disseminate their research worldwide and to encourage the exchange of ideas about development issues, governance, and their relation to the behavior and performance of banks, the structure of the U.S. banking system, and other national banking systems as well as the international banking
system, and the interaction between financial institutions and the real economy.
The new World Bank Research Paper Series (which now contains over 1,900 working papers) can be viewed at the [...]:
link:
-----------------------------------------
SSRN's ELIBRARY
SSRN's searchable electronic library contains
abstracts, full
bibliographic data, and author contact information for
more than
88,000 papers, over 46,500 authors, and full text for
over 62,000
papers. The elibrary can be accessed at
http://papers.ssrn.com/
Thursday, February 17, 2005
SSRN-Disclosure Standards and Market Efficiency: Evidence from Analysts' Forecasts by Hui Tong
SSRN-Disclosure Standards and Market Efficiency: Evidence from Analysts' Forecasts by Hui Tong:
Short version: increased transparency reduces need (and hence profitability) of analysts. Therefore following increased disclosure rules, the number of analysts falls. Overall the net effect of increased transparency rules is unclear.
The author "examine[s] the effect of transparency by focusing on the interaction between
public information availability and private information acquisition"
With this in mind, Tong examines what happens when countries adopt stricter disclosure requirements that increase transparency. Of course, you know my basic stance that transparency is good. But Tong makes me re-examine that position. My conclusion? Transparency is still good, but increasing transparency is not without its costs.
Longer version: Unintended consequences...often when one thing changes, other things (that at first were seen as unaffected) change as well. This is one danger of static analysis: we might overestimate the benefits of some change.
Hui Toing "examine[s] the effect of transparency by focusing on the interaction between
public information availability and private information acquisition"
Rather than using spreads (a transparency measure used by previous researchers), Tong " considers how international standards affect analysts’ forecasts of listed companies’ earnings, where the accuracy (dispersion) of these forecasts is used as a measure of information accuracy (dispersion)."
Tong finds "that disclosure standards enhance forecast accuracy directly but at the same time reduce the number of analysts per stock (the variable that serves as my proxy for private investments in information). The net effect of disclosure standards on forecast accuracy and dispersion thus ranges from weak to nonexistent"
That is really an important insight! But I maintain that increasing transparency is still good even if dispersion is not significantly increased, this same level is being achieved with fewer analysts (and hence lower costs--of course this assumes that the regulations that increased the transparency are not more costly than the cost of employing the analysts, but that topic will have to wait) .
Suggested Citation
Short version: increased transparency reduces need (and hence profitability) of analysts. Therefore following increased disclosure rules, the number of analysts falls. Overall the net effect of increased transparency rules is unclear.
The author "examine[s] the effect of transparency by focusing on the interaction between
public information availability and private information acquisition"
With this in mind, Tong examines what happens when countries adopt stricter disclosure requirements that increase transparency. Of course, you know my basic stance that transparency is good. But Tong makes me re-examine that position. My conclusion? Transparency is still good, but increasing transparency is not without its costs.
Longer version: Unintended consequences...often when one thing changes, other things (that at first were seen as unaffected) change as well. This is one danger of static analysis: we might overestimate the benefits of some change.
Hui Toing "examine[s] the effect of transparency by focusing on the interaction between
public information availability and private information acquisition"
Rather than using spreads (a transparency measure used by previous researchers), Tong " considers how international standards affect analysts’ forecasts of listed companies’ earnings, where the accuracy (dispersion) of these forecasts is used as a measure of information accuracy (dispersion)."
Tong finds "that disclosure standards enhance forecast accuracy directly but at the same time reduce the number of analysts per stock (the variable that serves as my proxy for private investments in information). The net effect of disclosure standards on forecast accuracy and dispersion thus ranges from weak to nonexistent"
That is really an important insight! But I maintain that increasing transparency is still good even if dispersion is not significantly increased, this same level is being achieved with fewer analysts (and hence lower costs--of course this assumes that the regulations that increased the transparency are not more costly than the cost of employing the analysts, but that topic will have to wait) .
Suggested Citation
Tong, Hui, "Disclosure Standards and Market Efficiency: Evidence from Analysts' Forecasts" (March 8, 2004). AFA 2005 Philadelphia Meetings. http://ssrn.com/abstract=641842
Wednesday, February 16, 2005
SSRN-Corporate Bond Market Transparency and Transaction Costs by Amy Edwards, Lawrence Harris, Michael Piwowar
SSRN-Corporate Bond Market Transparency and Transaction Costs by Amy Edwards, Lawrence Harris, Michael Piwowar
YES! If you love it when theory is found to be true as much as I do, then Edwards, Harris, and Piwowar have given us a reason to celebrate!
Not only do they show that transaction costs for corporate bonds are higher than for equities (a finding which helps explain the preference for firms to have less leverage than other models would suggest), but they also show that transaction costs of corporate bonds decrease when transparency increases! Yeah!!!
YES! If you love it when theory is found to be true as much as I do, then Edwards, Harris, and Piwowar have given us a reason to celebrate!
Not only do they show that transaction costs for corporate bonds are higher than for equities (a finding which helps explain the preference for firms to have less leverage than other models would suggest), but they also show that transaction costs of corporate bonds decrease when transparency increases! Yeah!!!
Private Retirement Accounts--by Jim Finnegan at FEN
Ever since the election we have been bombarded with largely emotional and in some cases purely idiotic comments on the proposed social security reforms. (indeed there have been some so bad that I could not even force myself to read them--I will not give you names but if you search the Buffalo News you may find the articles. Be forewarned, they are really really bad.
I have pondered a reply. Indeed I almost thought about writing to the Buffalo News criticizing their choice of articles. However, true to form I ran out of time. ANd it is a good thing I did for now Jim Finnegan writing his editorial in Financial Engineering News says largely what I would have said and says it much better than I would have!
Private Retirement Accounts Could Use Some Financial Engineering
Some highlights:
I have pondered a reply. Indeed I almost thought about writing to the Buffalo News criticizing their choice of articles. However, true to form I ran out of time. ANd it is a good thing I did for now Jim Finnegan writing his editorial in Financial Engineering News says largely what I would have said and says it much better than I would have!
Private Retirement Accounts Could Use Some Financial Engineering
Some highlights:
- "What if private retirement accounts had existed when I first entered the workforce and began Social Security contributions (in 1975 as a college student summer shift worker in a factory)? How would I have fared?"
- "Personally, I favor private retirement accounts despite three key concerns:
1. The short-term saving caps and longer-term four percent of earnings savings limit in the current plan are insufficient to provide most workers with even the opportunity to build a meaningful “nest egg” for retirement needs.
2. The real transition costs will be much more than the $750 billion White House report estimate (And, I recognize this concern and the former one about limited rates of contributions are directly correlated.)
3. The shift to private retirement accounts could discourage personal risk taking and entrepreneurship: As I noted earlier, I’m a 49 year old entrepreneur investing in FEN with very little current income to divert to a private investment account- when retirement is certainly on my mind. - "Not withstanding these concerns, I believe the existing transfer payment system (current workers paying for today’s retiree benefits) looks more like a collapsing Ponzi scheme as the ratio of workers to retirees continues to decline."
- "But when it comes to their retirement, I don’t believe most people want to own a lifecycle retirement fund worth an uncertain future dollar value "
- The field of financial engineering has the tools to bridge this gap between private retirement accounts that offer an “uncertain future value” versus “certain future financial security.”
WELL SAID!!! Read the entire letter here.
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