Wise Article Roundup #1


I can only write so much content for Free Money Wisdom.  I know, so sad right?

I just don’t have time to cover the vast topic of personal finance.  I have committed to write articles for you guys every other day and it’s been going great.  However, I’m going to start sharing some of my favorite articles in what I like to call a “Wise Article Roundup.”

This will be a reoccurring post in the future.  It won’t have a strict timeline, I’ll just post up this roundup whenever I feel like I have enough quality articles to share with you.

Without further ado, here is the ground breaking Wise Article Roundup #1!

  1. Hate Clipping Coupons?  Try these 2 Strategies Instead @ BudgetsAreSexy
  2. Retirement Calculators: Your Roadmap for Saving @ Faith & Finance
  3. Worry: The Other Stage 5 Clinger @ Blonde and Balanced
  4. Will your Small Business Survive Death? @ PT Money
  5. Debt Score, What is it and Does it Matter? @ Debt Free Adventure
  6. 7 Tips for Saving Money on Pet Costs @ Bargaineering
  7. Brokers Should be Legally Liable to Act in the Best Interest of Their Customers @ Free From Broke
  8. Fixed Income Investments for Low Risk Investors @ Dinks Finance
  9. 7 Reasons your Budget Might Fail @ Bible Money Matters
  10. Glenn Beck and Unions: A Misguided View on Work @ One Money Design
  11. Social Welfare Program Payments Account for Over 1/3 of US Wages! @ Faithful With a Few
  12. Have You Ever Had a Black and White Infomercial Experience? @ MoneyMamba
  13. The Richest Man in the World: Carlos Slim Helu @ Life and my Finances
  14. Options for Paying Your Taxes @ Cash Money Life
  15. What is your Passion @ Thousandaire

Ok folks, that’s my first Article Roundup!  These are articles that have garnered my  “stamp of approval.”  Each of these blogs are great resources.  All free advice from bloggers who devote their time to helping other people just like Free Money Wisdom.  Now it’s time to get your finances in order!


Invest in Both Fitness and Finances

fitness and finances

Do you ever find yourself at the gym staring at someone who is completely jacked and wonder why you don’t look like that?  Kind of depressing isn’t it?  Well, you can take this one of two ways from how I look at it.  You could slouch your shoulders, walk away is self-pity and leave the gym early. Or you could decide right then and there that you’re going to transform your life and proceed to get on the treadmill and run like the wind.  Yup, the second one sounds better!

Now, you might be asking “why is this guy talking about fitness on a personal finance website?” That’s a good question for which I have an answer for!  My hobby and one of my passions is bodybuilding.  No, no, not that kind (I’d like to be able to run thank you very much).  Finances and fitness are intertwined in numerous ways.

American culture doesn’t put a lot of emphasis on your personal fitness.  But to be honest, it should be a priority.  I mean, what’s the point of saving money for retirement, then finding out that all those twinkies were the cause of your stroke?!  All kidding aside, it really should be your first investment with your time.

Fitness and finance go hand and hand.  The parallels between the two are astonishing. Like I mentioned above, your mindset is the most critical element to success in both the fitness world and your personal investment decisions.  Take a couch potato for example.  Void of pride and discipline, the couch potato rots life away eating junk food, watching TV, and lives in denial.  This parallels the American with thousands of dollars worth of credit card debt and zero savings.  Without initiative, things are just going to get worse and worse.  On the other hand, if you take an individual who is a doer, he or she conquers goals, reduces debt and saves for the future.


Don’t jump for the latest fad.

I like to use diet pills for this example.  Those late night “extreme fat burning solutions” ads crack me up.  I feel bad for people who buy into this non-sense. Slow, steady and repetitive wins the race!  An ample amount of cardio and cutting down on calories is the tried and true solution!  Yes, it’s really that simple.  Finances are like this too!  You’ve heard it before and you’ll hear it again from me: don’t chase returns or fall into the too good to be true stock pick, it never works out in the long run!  If you’re saving for retirement, investing in “boring” choices like Roth-Ira’s and employer 401k plans are the best way to go and will always be that way.  Wall Street is after your wallet and they will tell you what you want to hear, but will never tell you what’s in your best interest. There’s no magic cure, only discipline and diversifying your money.


With repetitive discipline, comes a time of frivolous cheating.

I’ll take myself for example.  I eat mainly vegetables, meat, and natural carbohydrates like oatmeal.  But time to time, I do feel my steering wheel telling to pull into McDonald’s. But here’s the thing, it’s OK to cheat a little bit!  If you are working out regularly, that fast food splurge is going to do diddly squat to your personal fitness goals.  This ties back into personal finances.  You go out of your way to save money, invest a large amount of your income, and live a frugal lifestyle. To be honest, if you did JUST THAT your whole life, it would be pretty boring.  This is where the splurging comes in.  It’s totally OK to buy nice things.  If you save up for it and it does not put you in debt or take your retirement accounts for a detour, go for it!  If anything, it will keep you sane haha.


Keeping track of your progress is crucial.

It makes sense to keep a daily log of what you did at the gym.  You should be constantly improving, no excuses.  I make notes when I get home from my workouts and use Nike + to keep track of my running times and goals.  If I didn’t keep track, where would I know where I stand?  Oh, another great tool is the scale because it doesn’t lie! Tracking tools are necessary for physical fitness success.  Tracking tools are necessary for your investments also.  Even if you are saving for the long term, it’s important to keep track of successful funds and the losers.  Looking at what is working and what isn’t, you should re-balance on a yearly basis for your goals.  Tracking can also help you  achieve  goals as simple as saving for an emergency fund.


Yes, even saving on costs is applicable.

Who wants to overpay for their gym membership?  When I relocate, I do a  Google search of the local gyms and find a couple with the lowest prices.  Then I find out without a joining fee.  Personally, I think new member fees are ridiculous and a scam.  If you are limited to gyms with new member fees, you can talk them out of charging you. This is similar to fees for index and mutual funds.  You should NEVER pay high fees for your investments (most notably, load-mutual funds).  Actively managed funds are bunk.  Instead, manage your own investments, avoid the high fees and choose index and ETF funds.

In closing, treat exercise like an investment.  Make it a priority just like you do with personal finances.  Go ahead, treat your waistline AND your wallet with a treat this week, pack your lunch!

photo by US Navy


Top Tips to Recycle Unwanted Gifts

You have heard of white elephants and we all have them, but the real question is how to recycle them. Throwing an unwanted gift away is not just plain bad manners; it is downright wrong. The landfills are overflowing with legitimate trash but the gift is not trash; it is simply not something you desire. Cycle unwanted gifts back into the gift pool. Be creative, have fun and recycle your gifts this season.

Re-gifting Party
Have a re-gifting party this holiday season. Everyone must bring one gift, wrapped and identified as a gender neutral, male or female gift. Further separate into other categories such as kitchen items, bath items, jewelry and so on. Collect the gifts as the guests arrive and place on a table. Each guest will later choose one gift. A great party game is to have each guest guess what it might be and from whom. The stories here can get pretty outlandish. Great fun and no one spends any money.

Have a Black Friday Sale
Place ads in the local paper or online for a Black Friday Sale. Plan this event way in advance to assure plenty of opportunity for shoppers to include your special sale on their shopping agendas. Collect all the new and unwanted gifts you have been storing in the hall closet for the last several years. Plan to be up early, serve coffee and be prepared. The economy has shoppers looking for the best deals. Don’t be shy about publicizing your sale; put some super deal details in your ad and think like the large retailers. Market your sale for maximum traffic. One family, who was moving shortly after the holidays, planned a Black Friday Yard Sale. They were well organized and very well attended. They sold not only their unwanted gifts but also new and nearly new household and clothing items, including books and DVDs. They netted over $2,100 in less than six hours. However, that is not the half of it. The items they didn’t have to pack saved them another $550 on the moving company’s overall bill. Twelve hours of planning, pricing and organizing netted one family $2,650.

Clothing Exchange
A clothing exchange party gives a whole new meaning to shopping in your girlfriend’s closet. It’s a great way to get your girlfriends together and have fun. Set the mood for your event, choose a great music CD, have fun finger food and several bottles of wine or sparkling cider. Set up a clothing rack in your living room and as each guest arrives she places her new and nearly new unwanted clothing gifts on the rack. A little mood music, a little bargain basement shopping and voila, an instant fashion show. Each guest has to model at least one newly acquired item!

Sell your unwanted CDs online

Another idea to find a new purpose for your unwelcome gifts comes from the services of  Music Magpie. All you have to do is enter or scan the barcode of your CDs, DVD or even games and proceed to the check out. A nice and simple way to get rid of those annoying tunes while make that extra money that you need.  

How I Graduated College Debt Free and Survived

I graduated college debt free. Most people would say it’s impossible, but I’m living proof that it’s not!  It’s so rare these days that most people I tell my story to don’t believe me. Maybe I should write a book on this haha.

I attended the prestigious University of Washington for four years and graduating without a single dollar of debt.  I actually graduated with a large surplus in my checking account! Although it was a lonely, hard road, you too can do it.  It takes sacrifice, perseverance, a little creativity, and lots of hard work.

The key is to ignore the people around you.  No, no, not like that.  I mean ignore what other people are DOING AROUND YOU.  This means ignoring friends buying new cars, friends taking out loans for tuition, ignoring friends eating out all the time, and ignoring friends with expensive hobbies.  All these things take a significant amount of money.  If you don’t have the money to do it, don’t go into debt when you have a tuition bill looming over your head!  It’s all about your frame of mind.

If you are focused on the long term goal, which was graduating debt free for me, then the actions of people around you now shouldn’t phase you!  If anything this type of thinking should excite you! You’re doing something completely against the “American way” and doing something totally unique.  And if anything else, you will have an amazing story to tell your friends, family, and children someday.

These are simple, common steps I took to prevent college debt:

I drove an old car

During my senior year in high school I was blessed with the opportunity to buy a friend’s Geo Prizm for $500.  Yes, it was a Geo, you heard me right.  My pride is still intact!  The key here is to drive a low maintenance vehicle that gets good gas mileage.  This is especially crucial if you live off campus and commute.

I lived at home

This is a no-brainer.  Free food, free cable, free internet, free EVERYTHING. Thankfully, I am blessed to have been raised in a wonderful family, so living at home was an easy choice for me.  Living at home will cut out hundreds of dollars in expenses every month.

I worked A LOT

I did some type of work at least 5 days a week for all four years of college.  It seems like I worked everywhere.  Let’s look at the laundry list: produce clerk at Safeway, desk manager at a local gym, carpenter, and multiple paid internships.

Ran my own side gigs

The beauty of side gigs is that your pay is significantly higher than typical college jobs.  I consistently ran two side gigs, landscaping services and furniture moving services.  I made roughly $15/hour mowing lawns, weeding yards, and pruning bushes.  I would bring a radio and lanscape away.  You can;t be afraid to get your hands dirty!  The real money maker for me was furniture relocation.  I make $25/hour pretty consistently and never had trouble finding clients for weekend work.  I advertised on Craig’s List and even set up my own website.  It was a hard way to make money, but you can’t beat $25/hour!

Rarely ate out

I remember time after time, friends asking me to go eat out at restaurants.  And I remember time after time saying “No thanks!”  I’m sure some thought I was being rude, but I had a goal and a silly thing like eating out was not going to stop me!  I packed brown bag lunches and brought snacks from home as many times as I could.  Thank you Mom!

I had a cheap hobby 

Having a cheap hobby is critical during college.  My finances were tight so I didn’t want to get into any expensive hobbies.  Mine ended up (and still is) being bodybuilding. Since I worked out at my college gym, it was free. Also, food wasn’t that expensive due to living at home.

Shopped at Ross for clothes

Ross is still my favorite place to shop!  When everyone around me was buying $200 designer jeans, I was buying $20 Levi’s.  I’ve never been a materialistic person, so maybe that helped.  I’m not going to lie, I was definitely tempted at times to buy expensive clothes.  To be honest, it’s not worth it.  Over the years, I’ve learned that improving your personality is far more important than trying to impress people, let alone, people you don’t even know.

Attended an in-state University

When I was researching colleges, I considered out of state schools.  But I just couldn’t justify the cost difference.  University of Washington was $6,000/year where as most out of state schools averaged $20,000/year. Quite the savings huh?

And there you have it guys! These are tried and true ways I graduated college with zero dollars of debt.  It is possible!  Comment below if you have more tips.

The Quest for a Million Bucks

One of my favorite websites, Budgets are $exy, organized a challenge to anyone on the quest for the big “million.”  Welcome to the Million Dollar Club.  Today is the day I announce my membership into this elite club.  Ok, well maybe it’s not that elite haha, anyone can join!

With a goal you have to take very deliberate steps to make it happen. For me, writing things down and seeing it on paper helps me visualize the goal in my head.

I have a goal of retiring with a couple million dollars across my retirement savings accounts.  Unlike the  average  American, my goal isn’t to retire so I can travel and spend my money until I keel over and die…  I’d rather use my money to help people less fortunate than myself, spread the Gospel, volunteer, and make an impact on people’s lives.  At the same time, I don’t want to retire at a late age and be broke. Thankfully, God has blessed me with a promising and fulfilling career path.  It’s my duty to be responsible with what God has given me.

To  achieve  my goal of becoming a millionaire, I have outlined some steps to make this happen.  Although your situation might be different than mine, certain aspects of the following steps will be similar to steps you might take.

My personal To-Do list:

  1. Max out my Roth-Ira at $5,000/year.  I’m with Vanguard and hold a simple group of assets: US stocks index, total bond index, and international index.  I manage my investment accounts through tradeMONSTER.
  2. Pay off the last $5,000 on my auto loan.  My goal is to pay this off in the coming months and keep my car for 10+ years.  It’s a 2004 Acura TL with 80k miles, so it should last a long long time.
  3. Take full advantage of my employer’s 401k matching plan.  Goal is to contribute $10k of my own money and my employer to match.  I will  commit to investing at least $10k/year and raising this amount if I’m able to in the future.
  4. Invest every dollar of every company bonus I receive.  What better way to treat yourself than to invest your bonus and possibly retire months or years earlier?
  5. Sell all my unwanted stuff.  I’m huge into living life as a minimalist.  My rule of thumb is if I haven’t used something in a year, I sell it if I can.
  6. I will take full advantage of credit card offers and make as much money off these companies as I can without incurring a cent of owed interest to them.  Cash back, hotel points, air miles, it all adds up.  Since I’ve started, I’ve made roughly $1500 a year in credit card rewards and bonuses.  Over 30+ years, these few dollars now will be a large number later.
  7. Avoid purchasing items that are not necessities.  Do I want a 60″ flat screen television?  Sure, that would be sweet, but do I need it?  No, definitely not.  The key here is to think twice before I buy expensive items.
  8. Check my accounts on a daily basis and keep track of my financial progress and goals.  I use Mint.com to help with this.
  9. Live frugally and seek discount on everything from clothing to groceries.  This means using coupons, site like Groupon, and waiting until the off seasons to buy clothes.  I’m willing to take a hit to the pride and make a million bucks.
  10. Keep working away on Free Money Wisdom.  I’m new to blogging and have a passion for helping people with personal finance.  I’m excited to not only help people but also make some side money along the way.

I’m well on my way.  Using CNN’s millionaire calculator, I should make my first million in 14 years at age 37.  My goal is to retire at age 55.

And there it is.  Before you, my 10 pledges I’m making to become a  millionaire.  Like anything in life, this will take perseverance and sacrifice.  BRING IT ON!

Simple Guide to Finding Your Credit Score

Finding my credit score used to be a confusing process for me.  Blog after blog has sent me in very different directions, and many links have pointed me in the direction of scam companies.  Getting your credit score should not be hard.  After much research, I have come to the conclusion that finding your credit score depends on what kind you’re looking for, as various websites provide you with a different type of report.

Here are the basics you should know.  A “credit report” is different than a “credit score.”  A credit report only details the state of your credit but does not give you an actual score in number format.  A credit score will provide you with a concrete number.

Here are the three types of paths you can take:

1-Credit Report. The federal government has mandated that every American can see their credit report free of charge once a year from the top 3 reporting companies.  Remember, only use AnnualCreditReport.com for this purpose.  All others are scam artists and a waste of time/money.


2-FAKO Scores. FAKO scores are estimates and do not represent your real credit score with 100% accuracy.  They are a rough resemblance of your actual credit score.  Go with CreditKarma.com for your FAKO score.


3-Real FICO Score. This is your actual FICO score calculated using the Fair Isaac algorithm method.  You do have to pay for this score, but is well worth the money one a year or so.



The Mortgage Crisis and How it Happened

Good evening Free Money Wisdom readers!  I thought I’d change it up a little bit and have a great friend of mine guest post on here.  He is far more knowledgeable in the business realm than I am and will be giving his opinion on a wide range of financial topics in the future.  Matt is one of the smartest guys I know.  When I have a complicated finance question, I go to him.  He’s been a great resource.  He also runs his own blog at www.templeoffinance.com. His blog’s focus is analysis of the global markets.  If you’re interested in more than personal finance, his blog is a great read.

With the after-effects of the mortgage crisis still affecting Americans today, I thought I’d have Matt give some insight into this topic.  The following is a guest post on the groundwork that lead up to the mortgage crisis, and lessons America has learned.  Enjoy!  -JE


As we endeavor to summarize and analyze the economy in 2007 and 2008.   Let us explore how, and perhaps more importantly, why financial institutions are so elaborately constructed.   Have you ever thought about why you need to tell the manager at your local bank whether you  own or  rent when applying for a credit card?   What other information may be pertinent in seeking a financial product?

What majorly explains this is the fact that banks use every piece of information possible in valuing their customers and making a judgment on the apparent  risks  presented.   Now with our financial light bulbs warmed up, we can start the fun stuff!   I feel the most effective way to present the following information based on the various  financial institutions involved.

(FI) = Financial Institution

Subprime Mortgages

Let’s start with the mortgage originators.   Mortgage originators are the financial institutions (FIs) that initiate the mortgage transaction.   Mortgage originators are often not name brand banks such as Chase or Bank of America, but instead work behind the scenes.   These mortgage originators work with the consumer (directly or indirectly) to determine appropriate rates and an amortization schedule (amortization = killing❠the mortgage).

In leading up to the mortgage crisis, regulation had become increasingly lax.   There existed the idea at this time (1970s through the mid-2000s), that every American had the right to own a home, a part of the American Dream.   The slogan of Fannie Mae (a government-sponsored mortgage lender) was Our Business is the American Dream.❠Augmenting this idea was the Fed’s removal of the interest rate cap in the 1980s, which meant mortgages could be charged at higher rates.   After this, the Fed created the Tax Reform Act of 1986, which denied individuals from deducting personal loan interest and instead, encouraged the deduction of the home mortgage interest.   In the 1990s, mortgage originators started creating the subprime loan for those individuals who didn’t qualify for prime rates.   Subprime loans had varying definitions but for the most part shared in common that they were issued to individuals with a FICO credit rating of less than  620.   Subprime mortgages typically charged the individual 200 to 300 basis points (2-3%) higher than the related prime rates.   Subprime mortgages were often issued to low-income families not capable of fulfilling such obligations.   One important aspect of subprime loans is that you could use them to refinance existing loans.   This is important because it portrays the idea of overleveraging, a significant factor in the mortgage crisis.   It is illustrated as follows;

-You decide to purchase a home and take out a 30 year 6% home mortgage loan

-After paying off the mortgage for 5 years, some of the debt (about 15%) has transferred into equity and you decide to take out another loan: a subprime home equity loan.

-This second loan holds the equity from the first loan as collateral.

-After paying off this loan, which is at a higher interest rate needless to say, you could even decide to get a third loan based off the second.

-This process continues and individuals could become very stretched out❠in this way

As time went on, subprime mortgages increased in number.   Most subprime mortgages were based off of a low introductory rate and then transformed into a higher variable rate.   In 2005, 72% of subprime loans were constructed this way.  By 2006, approximately 20% of all mortgages were subprime and 80% of all subprime mortgages were securitized.

Securitization  was the process of attaching a security to the loan or group of loans for the purpose of trading or holding these loans as an investment.   Although some mortgage originators could choose to hold on to their issued subprime mortgages, most were sold to investment banks.   Investment banks would then take the subprime mortgages and bundle and package them into special purpose entities (SPE) and special purpose vehicles (SPV).   Many were bundled into more complex financial instruments, collateralized debt obligations (CDO) and collateralized mortgage obligations (CMO).

*If you saw the new Wall Street movie, Wall Street: Money Never Sleeps❠you will recognize many of these acronyms in Michael Douglas’ speech to the college youth and young professionals.   I believe he stated (jokingly) that only 75 people in the world understand what all these acronyms refer to.

Looking back to CDOs and CMOs, these were financial instruments in which the separated the mortgages into tranches❠where there was a small amount, perhaps 10%, of highly rated (AAA) mortgages placed at the top.   Then the rest of the mortgages were placed in their corresponding tranches according to their rating.   This method of presenting a variety of debt appealed to all sorts of investors since it offered both high risk-high return investments as well as low risk-low return investments.   After investment banks bought and packaged these mortgages, they would then sell the bundled products to both domestic and foreign investors: hedge funds, pension funds, et cetera.

The housing market is viewed as a bubble because as all these aforementioned parties profited from the housing market and specifically, subprime mortgages, the real estate market increased proportionately.   The Fed could afford to increase interest rates to fight deter against inflation.

The housing market peaked in late 2005.   Towards the end of 2007 is where the  mortgage crisisstarted or became apparent, although its symptoms may have been predicted before this point.   As one might expect with subprime mortgages, many individuals defaulted on their loans.   In late 2007, the rates of the subprime adjustable rate mortgages (ARM) had increased monthly payments by an average of  30% compared to their initial rates.   Later in January of 2008, 21% of subprime ARM mortgages were 90 days behind or in delinquency.   There were even lawsuits taken against mortgage lenders.   According to a 2007 Wall Street Journal article, one couple in Michigan filed a lawsuit against a Lehman Brothers broker, claiming to have been confused and pressured❠into signing a loan whose rate would increase to  17.5%.   One mortgage broker’s opinion captured some of the ideologies of the time among mortgage lenders, But legally, we don’t have a responsibility to tell him this probably isn’t going to work out.   It’s not our obligation to tell them how they should live their lives.❠It should be noted that, though individuals were at fault for imprudently accepting loans outside of their mean of living, they only account for a small portion of the mortgage puzzle.

The defaults first reduced the value of the subprime mortgage-related securities (CDOs).   The credit agencies in turn downgraded these mortgage securities and this ended up hurting many parties who had contractual obligations, which I will go into more detail later.   The investors who bought the securities ended up having to sell the securities at a loss or take a huge write-down on their investments.   With the credit devaluations and the write-offs from investors and banks, this created a double negative effect on the perception of such securities.

New Century Financial

Over 150 prime and subprime mortgage lenders failed in 2007 with the pop of the real estate bubble.   One mortgage originator in particular, New Century Financial Corporation, placed immense value of issuing as many loans as possible.   New Century Financial sold its mortgages to investment banks at rates lower than the elevated subprime rates issued to individuals.   All mortgages lenders were required to hold excess capital for the purpose of repurchasing their loans.   The intent behind this was that they could be held accountable for their loans.   New Century Financial would sometimes deposit additional collateral to their mortgage securities to offset the apparent, unavoidable risks associated with the subprimes.   This process was called, overcollateralization.â

Looking again at 2007, during January, New Century Financial had miscalculated its loan repurchase reserves since the 2nd quarter of 2006.   Amid a myriad of other problems during 2007 (both effect-related and symptom-related) including postponing its 10-k, failing to satisfy 70 million of 150 million dollars, worth of margin calls, and additional inaccurate accounting records.   On April 2nd, 2007, New Century Financial filed for bankruptcy.

There were many problems associated with New Century Financial.   Two very significant ones were in that its loan quality had always been an issue.  Employees were pressured to sell as many loans as possible to whomever possible.   Management failed to address this throughout the entirety of their subprime mortgage operations.   The second significant problem was accounting-related.   Its repurchase reserves had been severely overstated, its lower of cost or margin accounting calculation in the valuation of its loans had been defective, and there were problems with its residual interest valuations.   These topics are too detailed to be discussed here.   The failure of New Century Financial was just another piece of the mortgage puzzle.   What I’m stressing throughout this is that there were multiple parties at fault.

Bear Sterns

Bear Sterns was the fifth-largest United States investment bank in the beginning of 2008.   In its history, Bear Sterns had developed a culture of being a hard-working bank for the street-smart types.   This was supposed to contrast the Wall Street’s white-shoe❠investment banks.   During the 1998 bailout of Long Term Capital Management (on which I hope to blog in the future), Bear Sterns was viewed as self-serving in opting not to engage in the Fed-encouraged bailout.   It is important to note though that may not have reflected its philosophy at the time, but instead was a competitive strategy.   During 2006, many banks bought out a great deal of the mortgage originators in order to be closer to the loan origination.   Bear Sterns acquired EMC Mortgage, Merrill Lynch acquired First Franklin, and Morgan Stanley acquired HomEq Servicing.   In 2004, 2005, and 2007 Bear Sterns was the leading underwriter of U.S. mortgage-backed securities (MBS).   In 2006, it fell 2nd to Lehman Brothers by a slim 100,000 margin.   From 2005 to 2006, Bear Sterns increased its investments in mortgage-related special investment vehicle (SIV) assets by 15 billion dollars.   Its financial instruments to be sold increased from 2004 to 2006 roughly by 25 billion a year and in 2007 roughly by 13 billion.

As the mortgage crisis set in, Bear Sterns was very  heavily  invested in the mortgage industry.   It owned and operated two large hedge funds.   High-Grade Structured Credit Strategies Fund and High-Grade Structured Credit Strategies Enhanced Leverage Fund.   As the name of the second suggests they were  high leveraged.   These funds were able to borrow 60 dollars of illiquid CDO securities for every 1 dollar of their own money.   This is about a 1.67% margin maintenance requirement.   Compare this to 30-40% margin maintenance requirement most brokerages use now!   During March of 2007, these funds suffered their first losses after their huge earlier returns during the boom.   Bear Sterns attempted to transfer this leveraged debt/investment through the unsuccessful IPO of a holding company, Everquest Financial. In February of 2008, approximately 15% of middle-tier mortgages of Bear Sterns were delinquent by over 2 months or already in foreclosure.      As investor’s demanded their money back, the two funds ended up going bankrupt in July 2008.

While it’s arguable that Bear Sterns had the chance to get rid of many of its worthless assets at a cheap price, it’s evident that it did not take advantage of this.   January 2008 brought a 50% decline in its stock price.   In the middle of March, the Fed extended to Bear Sterns a loan through JPMorgan Chase (JPMC) by which Bear would stay afloat.   The idea behind this bailout was that letting Bear Sterns collapse quickly was a risk not worth taking, because the consequences were simply unknowable.â


JPMC was created out of a number of mergers over the years.   Jamie Dimon was acting in his second year in command at JPMC and was instrumental in strengthening it for the coming crisis.   In late 2007, stress test results caused JPMC to increase cash liquid to two years’ sufficiency.   Dimon was also a strong advocate of conservative accounting and pushed to defer revenue until recognized, although JPMC sacrificed a few points on its ROE for this.   Under management’s vision, JPMC avoided investing in or financing SIVs, which would carry pools of mortgages and other types of liabilities off-balance sheet.   They did not believe the return justified the significant risks apparent.   JPMC also avoided CDOs and CMOs because of the risks presented.   Though JPMC did have some exposure to the mortgage markets through Real Estate Investment Trusts (REIT) and through its retail banking operations, Dimon helped JPMC to manage its risk throughout the crisis.


American Insurance Group’s role in the mortgage crisis was very significant, perhaps the greatest by certain standards.   Speaking before Congress, Bernanke said, If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG.❠AIG issued credit default swaps (CDS) to investors to give them a hedge against loan defaults or devaluation of securities for other reasons.   CDS works very similarly to insurance.   The investor pays the CDS issuer (AIG) a predefined set of payments and in the case of a bad investment, the CDS issuer will refund the value of the investment back to the original party.

CDS were very popular with investors during years approaching the crisis.   CDOs engaged in CDS to offset against the subprime risks.   It was estimated that through financial modeling, 99.85% of the time CDS would not have to be paid out.   In 2005, 20% of CDS were based off of subprime CDOs.   During the third quarter of 2007, AIG started to experience problems.   As a result of the downgrade of many CDO products by the three credit agencies, AIG had to post a considerable amount of additional collateral as backup to their CDS.   This is since AIG’s auditor, Pricewaterhousecooper found a number of internal control problems within AIG, resulting in losses of 4.9 billion in AIG’s CDS portfolio.   With the drastic increase in collateral among a host of other aforementioned market-related problems, S&P downgraded AIG three levels on September 15th, 2008.   This downgrade was the killing factor for AIG as they would be required to deposit an additional 14.5 billion in collateral to these CDOs, many of which would go bad.   On the same day, the U.S. Government agreed to lend AIG 85 billion to keep it afloat, giving the government a 79.9% stake in AIG (this loan was later increased to 170 billion).

When this bailout is contrasted with the allowance of Lehman Brothers to go bankrupt, the Fed holds that AIG presented a much more systemic risk that would have affected everyone, even on a global level.

In conclusion, the mortgage crisis proved to be a huge learning experience for me.   It seems to me that really  no ONE party is responsible for the mortgage crisis.   Individuals should not have bought unaffordable loans, lenders should not have been so greedy, the Fed should have had rules in place to keep lenders and insurers in line, investment banks should have done more due diligence regarding the mortgage securities, and investors should not have accepted the CDO securities so blindly.   I guess all we can do in the future is to think about how people would have reacted in the past to our actions we take.

Achieving Financial Peace in God’s Eyes


Happy Sunday to all my readers!   To all who don’t know, this website is Christian based, so much of my advice comes straights out of Biblical principles.   The Bible has a plethora of financial advice and God intended it for your benefit!   I wanted to write up an article today in reference to this morning’s sermon.   The sermon was on stewardship and the fact that God views our finances like an open field with freedom and joy.   God wants us to honor Him by giving to Him and His kingdom our first fruits of our labor.   This will look different for everyone.   The Bible doesn’t have a set standard on how to give your money away.   It really is a heart issue.   If the Holy Spirit is challenging you to up your monthly amount for giving, you should give that number joyfully!   This is one of the few instances in the scriptures where God tells his people to test him.

“â¦Test me in this,” says the Lord Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that you will not have room enough for it.” Malachi 3:10.❠  If that doesn’t get you excited, I don’t know what will.   Throughout my own life, I have seen this principle happen time after time.   Once you release the bondage of control❠over your finances, God will grant you peaceful protection, which is mentioned in Malachi 3:10.   Following these scriptures will get you one step closer to financial peace.

Alright, time to get off my soap box.   I’m glad I got this opportunity to share with you the convicting sermon I heard this morning.   It also made me think about my time and how I use it.   Am I using my time in a manner that glorifies God?   If not, how can I change it?   In closing, my challenge to myself and to all of you is this: if God promises that we won’t be disappointed in a financial step of faith, why don’t you and I try it?

God Bless and Happy Saving!


Cardpool Review

Gift cards, gift cards.  Like em’ or hate em’ they will always be around.  Nearly all stores carry or offer them.  There is a huge market for unused gift cards and exchanging them.  This is where Cardpool comes in.  It’s a sort of gift cards exchange.  They buy and sell gift cards, helping consumers to make better decisions to use their gift cards.

How it works

-Cardpool buys your gift cards then sells them to  other  people

-You can get hugely discounted gift cards through their site with relative ease!

-There is free shipping on all purchases.  You will receive a free shipping E-label to help out with the shipment.

-You get a cardpool purchase guarantee which means that you are guaranteed satisfaction up to 100 days after your purchased the cards.


You can buy gift cards from Cardpool

You can find huge  discounted  prices for gift cards!  Here is a short list as an example!

  • Abercrombie & Fitch (9% off)
  • Aeropostale (13% off)
  • AMC Theaters (20% off)
  • American Airlines (5% off)
  • Ann Taylor (15% off)
  • Anthropologie (15% off)
  • Barnes & Noble (12% off)
  • Bed Bath & Beyond (8% off)
  • Build-A-Bear (15% off)
  • Chili’s (10% off)
  • CVS (5% off)
  • JC Penney (14% off)
  • Macy’s (8% off)
  • Michael’s (15% off)
  • Office Max (9% off)
  • Outback Steakhouse (10% off)
  • Panera (7% off)
  • Pottery Barn (10% off)
  • Target (3% off)
  • Toys R Us (8% off)
  • Victoria’s Secret (9% off)


-They offer free shipping for all gift card purchases
-It’s extremely simple.  They offer no expiration dates and the website does not have ads and banners.
-You can trade them in for Amazon credit instead of cash.  This is huge for Amazon addicts!


-You won’t find certain retailer’s cards in stock.  Not all companies will be available!
-There is no search function so it’s hard to find the card you’re looking for right off the bat.  Other than this, it’s a streamlined and extremely efficient website.
-Sometimes, Cardpool will buy your gift cards for a 20% discount.  Beware of this before you make any big moves.

Final Word

You have tons of options if you’re looking to get rid of your gift cards and try to turn a profit.  Cardpool is the go-to guy if you want very little hassle and maximum cash benefit.  Cardpool offers wonderful features and I highly recommend that you get in on the fun!