The Great AIG Bonus Fiasco

Having worked in the financial services industry, I understand the rationale behind giving employees retention bonuses, as an incentive for knowledgeable staff to stay with the firm. When my then employer, CIBC World Markets, purchased Merrill Lynch Canada, they paid the top brokers a retention bonus to prevent the Merill brokers from leaving for other competitors, taking their valuable client books with them. Many were paid six-figure (and a few seven-figure) bonuses.

However, that was normal business practise in normal economic times. The current AIG (and allegedly applicable to Fannie Mae and Merrill Lynch) bonus payouts are reprehensible, because of a number of reasons. The obvious and number one reason, is that it is an inappropriate use of taxpayer money to pay obsence amounts when millions of hard-working Americans are losing their job. Secondly, if these people are responsible for the near collapse of AIG, then to reward them for putting the company and their fellow 100,000 AIG colleagues in peril, is beyond comprehension. This amounts to the epitome of rewarding failure.

For the recipients of these bonuses to not feel shame in accepting the payouts underscores the greed and me-first attitude of Wall Street. Any ethical and moral person would have rejected the bonuses in the first place, or at the very least, donated the proceeds to a charity. The swift passage of a bill in Congress to massively tax these bonuses is merely a visceral reaction to the issue.

Let's hope that it will deter future obsence payouts (until the economic situation has dramatically approved) and shame those financial wizards to put the nation's interest ahead of their own. And while the US remains the land of opprtunity, hopefully, there will be a greater sense of country first, individual pursuits second.

Looking Beyond Loose Change Under Your Sofa Cushions

Over the weekend, I steam cleaned my sofa - a long overdue chore that I kept putting off. Upon removing the cushions, I discovered about $6 in loose change which was a pleasant surprise. That made me think of how much money we may have, but may not know or remember where we put it. I had a girlfriend who used to leave money all over the place and then forgot where she put it, only to find it months or even years later. She would find it in books, drawers, pockets, cupboards, boxes and files. To her, it was 'found' money, so she was a happy camper when she made the discovery. I, on the other hand, thought it to be poor money management on her part. But who was I to be so judgmental?
It made me think of the numerous bank accounts I had opened (and closed) in the past 30 years and whether I had left any money behind in forgotten, dormant accounts. I do recall one account that had a few dollars and I could not muster enough energy or enthusiasm to close the account and retrieve my hard-earned cash - I'm certain that there was less than ten bucks in it.

Lo and behold, I am not alone. Apparently, the Bank of Canada has almost $300 million in forgotten cash in dormant accounts - the largest amount is over $400,000. So, how does one forget almost a half million dollars, or fails to take the initiative to claim their money? If typical ratios hold true, then in the US, it must be over a few billion dollars in unclaimed money. In my brief time working in the investment industry, I've seen more than a few dormant mutual fund accounts with over $50,000 in them, so I know that these are not isolated instances. I, like most average Joes, would certainly know if my portfolio were missing fifty grand.

I now endeavour to check my pockets, drawers and files for missplaced cash, or I'll try these websites below:

Canada

www.bank-banque-canada.ca

United States

www.missingmoney.com

Either that, or steam clean my sofas more often.

Pondering a Life on the Water

Lately, I have been thinking about something that has long been on my list of things to do - live on a boat. This past winter in Toronto has not been particularly pleasant, and like millions of my fellow Canadians, can;t wait for it to end. However, the annual ritual of having to endure through a winter does not appeal to my sensibilities. Why do something that you don't like? Sure, there are 'snowbirds' - those retirees that live in Canada for 6-9 months of the year, and as the name suggests, fly south to warmer climates when the first blast of arctic air arrive. Compared to most people in this category, I am, at 45 years old, about 10-20 years too young.

What has been exciting is my search for a boat large enough for me to live comfortably without getting claustrophobic, yet small enough that marina fees and other associated costs do not make this experiment prohibitively expensive. This is an extremely good time to look for a used boat, with many owners being unable to afford their 'toys' and liquidating at below normal market value prices.

I am hoping that it is also an opportune time to rent out a condo, as more people either cannot afford to buy a home or decide to delay a potential purchase with expectations that the prices will continue to fall for another 6 to 12 months. With many workers fearful of losing their jobs, they are renting rather than committing themselves to the largest purchase of their lives at a particularly volatile economic environment.

Also, the prospect of me renting out my condo, either for the full year or half a year, has me already evaluating everything that I own. To that end, I have already started purging my things, and it is very interesting how I have started to look at all my possessions with a critical eye, and begun to sell them. Many things that I have carted with me for close to twenty years, now do not look as valuable to me anymore.

I have been very successful in getting rid of things on free classifieds on the internet such as Craigslist and Kijiji. Having been a successful eBay seller, I have a fairly good knowledge of how to ascertain fair pricing, and my sales to date have proven that the public find my items to be attractively priced. Through eBay, the auction waiting times, commissions saved and hassles of shipping have now been eliminated. As a fair number of things that I have been selling has been large and heavy, it would've been impractical to list it on eBay anyway. The prices that I am getting are better than I would be able to get selling them at a yard sale, where many things are sold for only a few dollars. In this economic environment, I'm finding more and more people buying used items on Craigslist and Kijiji. I am quite amazed at what people are willing to buy and the distances they will travel to get a good deal.

The one thing that I am really looking forward to, is simplifying my possessions, as well as the excitement of planning my first long-term winter getaway. I foresee that, in a few years, I will be able to live 6 months in Canada, and the other 6 months in a tropical country with a low cost of living such as Mexico, Belize, Costa Rica, India, Thailand or Indonesia. Right now, I know that I will miss my family and friends, as well as I would like to continue to do some work while I am still young. Hopefully, this weaning process will not take too long.

Should I find the tropical paradise that I seek, I can consider a purchase of a property when real estate markets are hurting, and when the US dollar is quite high against most currencies.

The way I look at it, I am still invested in the real state market, and will earn a positive (and maximize) net return on my investment, I will minimize my expenses and get the chance to travel in search of my winter home. Will keep you posted.

Two Phone Calls = $500 in Savings

I recently made two phone calls in one day that literally put $500 in my pocket. Having been with the same insurance company for almost 10 years now, I saw that my car insurance would rise a little every year. The first time the rates were raised, I checked around and found that my insurance company still offered the best rates possible. The second time yielded the same result, so I stayed with my insurer. I guess that made me a bit complacent, as for the past few years, I haven't been doing any comparative pricing. But this year, with the help of online comparative pricing websites, I was able to finally get a cheaper rate, finally saving me $200 per year. In fact, I am now paying a lower car insurance rate than I did four years ago. It took me mere minutes on the computer and about 15 minutes on the phone with an underwriter.

Likewise with my Internet provider. Because I was self-employed at the time and needed fast and reliable Internet service, I have had high speed DSL service when many people were still using dial-up. At the time, in 2001, there were only a few big players in the market and I tried high speed Internet through cable as well as through phone lines, and found the latter to be more reliable, and so I had been with my current provider for the past seven years. I have done comparative shopping lately, and while some new entrants have entered the market with attractive pricing, some of the reviews of their service levels and reliability have given me the impression that their service delivery has been inconsistent at best. By the way, the most misleading part of any Internet ad, and the one you have to be the most careful of, is the one where there preface the speed by using the words "up to ..... Mbps", there providing them an iron-clad excuse when the Internet response is as slow as molasses. You seldom get the maximum speed advertised by your provider. So, in comparing the well-established providers with one another, there wasn't much of a price incentive to switch. But, knowing that it is far more expensive to attract a new customer than keep an existing one, and that the marketplace was becoming increasingly competitive, I called my Internet provider and informed them that I was planning on canceling my service. Their first question to me was obviously "Why?". I told them that it was far more expensive than I was willing to pay, whereupon the Customer Service Representative (with seemingly no need for any additional authorization) offered me a 40% reduction in my monthly rate if I could commit to staying with them for a year. No big deal, as I was quite happy with everything except their price. So that was another $300 in my pocket.

I know that in these busy times we live in, that it's often easier just to do nothing, but we should all take a bit of time once a year to review whether we are getting the best possible deal from our service providers as possible. Given the tough global economic times we currently face, the profileration of technology allowing for easy price comparions and the increasingly competitive nature in virtually all industries, the odds are with us that we can exert our individual economic muscle. Or to simply put it another way, if I offered you $500 to make two phone calls, would you do it? Thought so.

Big City or Small Town - What's Cheaper?

Last autumn, I spent a week in beautiful Nova Scotia, a maritime province in eastern Canada. As with anywhere I travel in the world, I always read the local newspapers, look at real estate prices, frequent local eateries and shop at the local supermarkets. Why? Well, living in a very large city, I have always wondered whether I could live in as smaller community, either within Canada, or overseas. Would the cost of living be lower? Would the air be fresher? Will there be less stress? Can I escape the frigid Canadian winters? Could I retire earlier if I moved to a smaller community?

What I've discovered in my travels, sometimes surprises me. In Halifax, Nova Scotia, a city of roughly 400,000 residents (and about one-eighth the size of my hometown of Toronto), the price of real estate is much cheaper on average (although there are pricier homes, usually on the waterfront). While commuting distances are shorter, some Halifax residents have as long a commute as those in Toronto, primarily due to the absence of multi-lane highways into the city (and gasoline prices are higher, due to government price setting). But, public transit is slightly cheaper, as is downtown parking. Buying bottles of liquor from a beer or wine store is also pricier than I am used to, as is casual dining in restaurants and fast food outlets. But drinking in a bar tends to be cheaper (as the city has 4 universities within the city limits). I even noticed that the price of a Starbucks coffee in downtown Halifax was slightly more expensive than in both Toronto and Vancouver. More importantly, groceries tend to be more expensive, even staples such as milk, eggs and bread. The main reason for price differentials on everyday items seems to be competition (or the lack thereof). There are only two large supermarket chains in Nova Scotia, whereas in Toronto, you can probably count 10 large chains (some of them chains catering specifically to large ethnic communities, but drawing mainstream customers too). However, salaries are markedly lower in the Atlantic provinces. So what's the verdict?

Real estate is the big factor. In large cities where the good jobs are and people flock to, land becomes scarce. When living closer to the city means less commuting time, prices rise to levels where compromises are then made, i.e. more space versus convenience of not having to spend an hour commuting to work.

So should one sell their place in a big, crowded city and move to a smaller city or to the country and enjoy a less stressful life? Sounds idyllic, but my friends in Halifax do not believe that I could live in their city - they think I will get bored too easily. Plus I would be far away from my friends and family which are important to me. Less, but still important is the availability of activities that only a large city can bring, i.e. museums, theatres, major-league sports, art galleries, opera and symphonies, lots of festivals, and many amenities that while you may not frequent as much as you would like, but that you are comfortable in the knowledge that they are there is you feel the urge to partake in such activities whenever you feel like it.

So far, I can handle the congestion and have no mortgage, so it may be better for me to remain in a larger city. Nevertheless, selling my home and buying a much cheaper place of comparable size in a smaller community, thereby accelerating my retirement plans, is very, very tempting too.

This Month's Quote

"What's money? A man is a success if he gets up in the morning and goes to bed at night, and in between does what he wants to do" - Bob Dylan

Hallelujah - North Americans Start Saving Again!

In previous posts, I have written about the non-existent savings rates of Americans in almost two decades. How Americans have spent more than they have earned, often at the urging of their leaders, most famously after 9/11 where George W. Bush said the patriotic thing to do was go out and shop. Recent economic turmoil has resulted in a seismic shift in the mindset of the average American to the point where November statistics show that the savings rate has gone from zero to 2.8%.

My hope is that this is a watershed turning point in the American psyche and that they don't go back to their reckless spending patterns. Diminished asset values, rampant layoffs and a realization that there is no umbrella for the rainy days will do that. My hope is also that we do not see unbridled materialism return and hopefully a return to a simpler lifestyle with greater emphasis on how we can help our fellow human beings in our own communities and all over the world, and that people start giving a damn about the environment and the legacy that we are leaving to future generations.