World Financial Blog

Choosing the right consolidation company is an important decision that you need to make during debt consolidation. There are both for-profit and non-profit debt consolidation companies operating in the market.

Debt consolidation in a non-profit way:

There are debt consolidation non profit firms that are certified by the IRS as charitable organizations that can help you in consolidating your debts. These companies have obtained 501(c)(3) charitable status from the IRS. Check the company’s ‘About us’ page to make sure that they are indeed a non profit organization.

How do they manage to work in non profit manner?

The word “non profit” may create an illusion in the mind of the customer. In this world where nothing comes for free, how can these companies survive as non profit? Well, the word non profit doesn’t necessarily mean that the service is free of cost rather it only means that there wouldn’t be any overall profit for the company at the end of the negotiation.

These debt consolidation non profit companies are normally funded by donation from the customers as well as creditors. Creditors would pay a percentage of the settled amount to the non profit organization for their services. Some companies may also charge nominal fees from the customer.

How would they help you?

The debt consolidation non profit companies don’t work very differently than the for-profit ones. You would be assigned to a case manager who would look into your debt situation and guide you accordingly.

You would then be presented with an agreement which would explain how your consolidation program would work and how much you would need to spend for it. Once you agree to the contract, the counselor would then negotiate with the creditors to lower your interest rates.

You are required to make monthly payments which then will be disbursed amongst your creditors to satisfy your debt obligation. The advantage of this program is that it will stop harassment from the creditors.

Anyway, even to do debt consolidation non profit way you must look at few companies before joining one since there can be many sham companies too. Hence, check out the past record as well the authenticity of the IRS certificate before joining their program.

This is a guest article by author Robin Williams.

I think, it was the most influential and most wide-raging decision the treasury department ever made. Till now scientists can´t agree if the decision of letting Lehman fall was right or not. The scientist Luigi Zingales for examples considers that the fall of Lehman was right, because barley regulated credit institutions have to face the risk of a bankruptcy permanently. Also Mr. Zingales accents that Lehman was a symptom of the crisis and not the cause.

That´s right and of course it´s not acceptable to endow incompetence, but in my opinion letting Lehman fall was the biggest failure the treasury department ever made. It seems like some of these people need to go back for further education at an accounting college. I hold this opinion because of several reasons. The rescue of Lehman would have cost the taxpayer 20 to perhaps 40 billion USD. Till the end of 2009 the financial crisis the fall of Lehman triggered and caused the destruction of 10,5 trillion USD. Of course, also without the fall of Lehman this destruction of assets would have been high because Lehman wouldn´t have been the only institution the treasury department had to rescue and that also wouldn´t had stopped the economic downturn. But the whole process of the economic downturn would have been clearly more controlled and the government had won what would have been most of value: time. But instead of that the government had to wave through a 700 USD bailout plan immediately in order to save system from a total collapse.

Another point is that the fall of Lehman caused a shock which lead into a collateral situation in which the whole bank lending froze. This situation was extremely dangerous and threatened the international financial system in a massive way. Banks didn´t trust each other anymore and didn´t lend money to anyone anymore because they were afraid that they wouldn´t get their money back again. The danger that the credit flow dried up grew which also had lead into a total collapse of the financial system. So the FED had no choice but to lower the base rate historic value of 0 %. But even this was not enough to stabilize the financial system. Again the FED widened the central bank credit to a incredible extent and pumped 100 of billions of dollars into the financial system.

So in my opinion the way the treasury department saved the financial system was O.K. but it also  would have worked in a much much cheaper way for the taxpayers around the globe. But I also think that Henry Paulson knew this but he had no choice. In times of elections it´s not good to endow the incompetence of greedy bankers, also you can´t bring though a billion dollar bailout plan if the financial system doesn´t stand on the total brink. At least we also have to mention that the consultants of Paulson came from the Goldman Sachs faction and in my opinion they were happy with the decision of letting Lehman fall. Also Paulson came from this faction and he and Richard Fuld the former CEO of Lehman weren´t the best friends so this could also have lead to this tragical decision.

Well, to sum up the facts in the end the incompetence of the banking sector had been endowed yet again and in my opinion the world has learned nothing. Stock quotes of AIG, Fannie MAE, Freddie MAC are starting to rise again, when I wrote “Facing a world economic crisis” one year ago I thought the government had decided to choose the quick and painful way to solve the huge macroeconomic imbalances . However instead of choosing this way it seems that the governments decided to solve the macroeconomic imbalances not a bit.

Within 12 days the Dow has went up more than 1000 points and is now above 9000 again. A reason for this little summer rally could be the banks making gains again, and some signs predict that the economy brightens up again. It seems that the optimism is back. And that’s also my opinion, the enormous cyclical programs are doing their work.

But is this really the beginning of the end of the worst economic crisis after 1929? I don’t think so, because a second recession seems to appear in the year 2010.

But let me explain. The cause of the current crash was the collapse of the global growth model, which was handled by the industrialized countries for years. The model was based on consumption which was financed by credit. Huge current account deficits, a dept bubble and finally the world financial crisis were the results of this model. But the model also had positive affects, for years the Anglo-Saxon consumers had been the locomotive of the world economy. Everybody had a benefit from this model. Developing countries could produce huge amounts of goods and established new jobs for their people and the people of the industrialized countries lived a life in decadence and wastage. Suddenly artists like 50 Cent earned more than 400 Million USD at the stock markets and a company of a 23 year old guy was valued by 15 Billion USD.

But in my opinion this is over now and it won’t come back for a long time. Now the world has to pay the price for the excesses of the past. The governments of the industrialized countries can’t afford to pump more money into the system, solely the USA have accumulated a gross debt of 12.000.000.000.000 USD. However exactly here is the problem: the world needs a draft horse which gives strong impulses when the economy starts to recover in the year 2010, but the governments of the industrialized countries have to darn their budgetary holes by stopping their expenditures and higher taxes. Also the Federal Reserve can’t pump money into the system endlessly and BRIC counties like China or India are just not strong enough to play the role of the draft horse for the world.

Well, to assume the facts I agree with economists like Nouriell Roubini, Robert Shiller or Barry Eichengreen who also don’t believe that this crisis will be over that fast. Even if it seems like the current crisis has reached the bottom, which perhaps might be true. To achieve the growth we are used to, we will probably have to wait many, many years.

Recently, I received a very interesting e-mail by Scott Moore, an artist from California. He sent me a picture of his latest painting called “The Money Game” which illustrates the current crisis and the bailouts and busts which took place. The image includes the key elements of the economic crisis in the United States. Just take a deeper look and you will, for example, recognize the cars representing the auto industry or you will see that the overall structure of the landscape is a chess field, which gives the painting its name.

If you like “The Money Game” by Scott Moore, you can purchase it on the artist’s website.

Also, please leave a comment to tell us what you think about the painting and how you see the current economic crisis!

18 months ago Las Vegas was one of the fastest growing areas of the United States. Now the economic downturn is hitting the city hard causing unemployment, abandoned casino projects and evicting people from their homes.

The economy collapsed and Las Vegas fells it. This 25 minutes long documentation shows various examples what happens in Sin City. The reporter interviews and joins several people living in the city, amongst them police men who throw people out of their homes. Some people are forced to leave their homes even if they have the money, but rented the place and unfortunately the actual owner can’t pay his mortgage, resulting in having only 20 minutes to pack their stuff and get out. Another example of radical life changes are women once working at mortgage firms and now dancing as a strippers. The city and state is also suffering from budget cuts for hospitals, universities and so on.

I recommend watching the video if you have no first hand experiences to know what’s actually going on down there. People clearly made the mistakes to thing that the boom will last forever and that real estate is a good investment which will always raise in value making it pay for itself.

The Black Swan by Nassim Nicholas Taleb is a book about randomness in life and economy, concentrating and explaining the Black Swan phenomenon. Basically the Black Swan is a highly improbable event with huge influence on it’s surroundings. Although not foreseeable, the book teaches the reader how to deal with randomness and gives valuable tips on how to live a life which is open to opportunity.

Throughout the first chapters of The Black Swan: The Impact of the Highly Improbable you get an introduction to randomness and Black Swans. The author describes various situations where randomness is a huge factor and unleashes some common mistakes in human thinking regarding this topic. Nassim Taleb explains why so called experts are wrong and why the future can not be predicted by looking at the past. Instead, the really important events are rare and unpredictable, he calls them Black Swans.

The book goes on until you can’t take it any longer and start to have the nagging question in your head: “Dear author, what the heck should I do then?” The answer is provided in the practical chapter with some simple rules to handle life better with the knowledge of random events and their effects.

The book ends with some chapters about formulas and theory. Although there is a technical part, this book is not at all technical. If you are not interested in formulas, just skip these chapters, the author himself recommends that.

All in all, the Black Swan highly influenced my thinking about randomness and I think you should read it, too.

Go get it at Amazon.com

In the book “The Snowball” - a wonderful biography of Warren Buffett’s life and absolutely worth reading in my opinion - Warren Buffett summed up the actual situation of the world’s economy in the last chapter “Coupons” using the words: “It’s a hard time. This is now another world, and nobody knows what will happen to the world.”
But let’s take a look on what happened in the last months. After the fall of Lehman a big shock wave spread over the financial markets inexorably. In the course of that shock wave, the Dow Jones fell from its all-time high of 14,000 Points to 8,000 Points and bank titles such as Bank of America or Citygroup have lost 85% of their former market capitalisation. The former chairman of the NASDAQ Bernard Madoff was able to dupe his investors to the tune of $50,000,000,000. Several personalities of the financial world have committed suicide, including the German investor and multibillionaire Adolf Merckle.

What will happen now? Will we really face a crisis just like the crisis in 1929? First of all, I want to say that nobody can predict the future but the similarities to the year 1929 are really frightening. The crash of 1929 for example had it’s roots in much too high stock values caused by the wide range of credit offers banks offered the people in order to achieve larger profits. Four years after the crash the U.S. government passed a sequence of central economic planning programmes called “New Deal” in order to stabilize the economy and above all regulate the completely runaway stock market. The deal worked and as banks weren’t allowed to spread credits to everyone in order to fund huge financial bubbles, governments did’t have to deal with the consequences of such enormous financial bubbles for more than 75 years - until now. But in the year 2000 bankers had a new exciting idea on how to offer  credits to the masses. Instead of giving direct credits to the people like in 1929 they now gave mortgages to nearly everybody. This had the effect of raising housing prices and when the price of your home is very high you are also more creditworthy. But of course this bubble also had to burst and now we are facing a huge credit-funded pile of fragments again. The story of Bernard Madoff has also already existed, albeit in a slightly weakened form: Richard Whitney, who was the chairman of the N.Y. stock exchange in 1929 was sentenced to 5 years prison in 1938 for embezzling millions of dollars from his clients between 1929-1930.

But let’s sum up the facts: The advantage this time around is that our governments know how to deal with recession much better than they did in 1929. Sir John Maynard Keynes developed his theories on fiscal policy and instead of making things more worse our governments know that they have to invest in order to get the economy going again. The disadvantage of this policy is that national debts have to be paid back one day, or governments have to abandon their currency.  But the economical supremacy of the U.S.A. can’t be defeated when the government will start to pay back their 14 trillion dollar debt. On the other hand, the disadvantage is that this crisis is a different type of crisis: This crisis has hit the economy at its weakest spot: its banks. The cash flow between banks and companies has been nearly zero for a long time. Many banks have securities which nobody knows how much they are worth - or better said if they are worth anything. Now the U.S. government finally created a “Badbank” worth $2,000,000,000,000 which should release the credit markets from their state of shock. Nevertheless it has to be said that the consequences of this “Badbank” on the international bank sector can’t be predicted yet. Another problem is that people often forget the past in times of crises. The “Buy American clause” for example would in my opinion be the first step into a catastrophe. Because when the first country starts to protect their markets, others will follow and that would have unpredictable consequences in our fully globalized world.

In conclusion it can be said that we are definitely facing a deep deep recession which will either hit quick and painful or slow and painful. Unemployment rates will be very high for a long time and the average rate of return for securities won’t be over 4% for many years. But if the crisis really turns into a depression like in the years 1929-1935 can’t be said, yet. In my opinion that depends on our governments now.