BE OUR GUEST!

As GIC Welcomes

Brian Sack, Executive Vice President, Markets Group

Federal Reserve Bank of New York

Implementing the Federal Reserve’s Asset Purchase Program

Join GIC and the Federal Reserve Bank of Philadelphia for this free program as we welcome Brian Sack for remarks followed by a cocktail reception. Mr. Sack is the executive vice president of the Markets Group at the Federal Reserve Bank of New York as well as the Manager of the System Open Market Account for the Federal Open Market Committee (FOMC). The Markets Group oversees domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks.

Wednesday, February 9, 2011

5:15pm · Registration

5:45pm · Remarks

Implementing the Federal Reserve’s Asset Purchase Program

6:30pm-7:30pm · Reception

This event is generously hosted by the Federal Reserve Bank of Philadelphia.

Please visit their website to register, free of charge.

Registration closes February 4th.

Register on FRB Website today!

By STEPHEN OHLEMACHER/ Associated Press Writer

      WASHINGTON (AP) – The House has passed a bill authorizing a $30

billion fund for community banks to increase lending to small

businesses.

      Banks that tap the fund must issue preferred stock to the

Treasury Department, paying dividends based on how much they

increase lending to small businesses. The more they lend, the lower

the divided payments.

      House Democrats projected that community banks would use the

fund to leverage up to $300 billion in loans to small businesses.

Republicans argued the bill would do little to increase lending

with no guarantee the money would go to small businesses.

      The bill is being merged with a package of tax breaks to

encourage investment in small businesses that passed the House

Tuesday. The package now goes to the Senate. 

What age should children start having their own savings and checking accounts? -Mia

I think children can start having their own savings account as early as 4 years old.  It is a great way to teach kids about money.  But don’t make it a one time event. Regular deposits and watching the balance grow is an important part of the learning process.

As for checking –  you may not want to be in such a hurry.  If your child has a job and has a lot of their own bills to pay- then it could make sense to create one.

Before that time- you can start introducing your child to the idea of checking– by letting them watch you fill out a check and the ledger.

When they are ready- you can let them fill out the checks while you watch.

Once your child has the math skills then-  show them how to balance a checkbook.

That is the real money lesson- when you learn to manage how much goes out versus what you bring in. Good Luck! – Mary Caraccioli

For more money tips watch Mary Talks Money daily on LiveWellHD TV network. To find it on the dial in your area visit

http://www.livewellhd.com/feature?id=6775183

Mary Caraccioli: The last decade has been this period of bubbles and busts. Have these cycles changed your investment philosophy at all?
Steve Forbes: I think it underscores that you cannot do, what they call, rearview mirror investing. And that is assume that was is in the present is going to be in the future, or what is past is going to be in the future. I remember in the 1990’s the average return on a stock was 11.x% but between the mid-1960s and the early-1980s stocks actually in the real term went down 60 or 70%. Then you have this enormous surge upwards. Where in a period of 20 year, something like the Dow went up almost 15 fold.
So a lot of volatility. And in terms of investment strategy, you have to learn to be disciplined. Everyone says they are a disciplined investor until the market goes down. Then it’s “It’s too late to get out” or the market surges and it’s “oh is it too late to get in.” You see that attitude this year. “oh I’ll wait for the next turn then I’ll be sure to get in.” You get whipsawed. For younger people, the key thing is Mary, they put in a certain amount each month into several low expense mutual funds and keep doing it and don’t get caught up on the day-today.
And in terms of strategy…yes you have to be diversified around the world with companies that have a good overseas presence. The dollar is in one of these weak periods. So you have to be diversified, but don’t over manage it. But if you don’t have time to do it, go with the mutual fund…let others babysit your money for you.
MC: How do you structure your own personal investing? Are you more aggressive than the average person or are you more conservative?
Forbes: It’s probably aggressive in the sense that most of my assets are in company. So if that does well, I’ll do well. If not, what I do on the side isn’t going to much help me. So yes. But I do also have life insurance which is probably the most conservative investment you can have. But with a good company, it doesn’t look so bad in the last two or three years. So there’s balance, but I do like mutual funds again because if you are going to do individual securities you have to have time to really examine the thing. And if you don’t, don’t do yourself a disservice. Get someone with brains to do it for you
MC: Makes sense. So you like managed mutual funds as opposed to index funds, that are not actively managed.
Forbes: Yes and sometimes if you think there is a certain sector, you can try to get and exchange traded fund or an index fund to cover it. That’s fine. But in terms of the market as a whole, realize that you are not going to beat it. And also have a realistic expectation of what it is you want. Everyone wants capital gains, but what is your time horizon. What is your true tolerance? And then you can go beyond equities and take bonds.
Who ever would have thought two years ago that treasuries would be given at fantastic returns. That you could buy a thirty year treasury at a time when the dollar is going be weakened and you get a positive return. That’s the kind of crazy environment we’re in. But you’ve got to be ready for it.
MC: Being ready for it means that you don’t have the knee jerk reaction. It’s about essentially getting a plan and sticking to it. When do you get off of that plan and say, I’m going to divert from this. It’s obviously not to the news of the day, right?
Forbes: Right and it depends on where the money is. If it’s a 401k or an IRA and you’ve followed the rules of fiduciary responsibility to yourself, that is you’ve diversified, and not put too many eggs in one basket as they say, then you can ride a storm through. If you’re not going to need the money for a few years, ride the storm through.
And you saw that very graphically after the huge hit from late 2007 to early 2009, where a typical stock went down 60%. A lot of people got out. They said I can’t afford this. I can’t stomach this. I gotta put some stock on the side. Then March comes around and you have a huge snap back on the market. Now the same thing happened in the 30’s. Even though it was a dreadful decade, a horrible decade economically, you saw these real whipsaws. Same thing in the 70’s. 75, 76 fantastic for the market, even though it was a dreadful decade.
So yeah, especially for retirement, don’t try to hit homeruns. There was a money manager in Connecticut years ago that said “For certain kinds of money play it like you should tennis.” You like to play tennis Mary. And he advised, “realize you are not going to be playing Wimbledon. ” And a sensible tennis player focuses on just get the ball over the net. Leave the fancy stuff to others. Just get the ball over the net. Same thing with investing…just get the ball over the net and you will do just fine.
MC: So when the market goes down a lot of people get in that mode that they want to play catch up. But that’s where you can get yourself into a trap, because that’s taking you off your plan for the wrong reason.
Forbes: Yes and simple things. The miracle of compound interest does work if you let it. Dollar cost averaging, and that is so simple. That is, especially if you are a little younger. When a market goes down, that is your opportunity, because if you are putting in a certain amount of money, a hundred or two-hundred a month you’re in effect buying more shares. So when the thing comes back you will get a much bigger hit.
Reinvesting dividends and basic things like that. Again…stay away from the cocktail chatter. Don’t think of yourself as a Goldman-Sachs executive, you’re going to make $100 million. No, if you get that mentality, you are just going to frustrate yourself, and hurt yourself.
MC: That’s right, because it really is about your personal situation in the long run. And it’s hard sometimes to tune everybody else out and to tune out all of the noise. There is a ton of noise out there. But it really is an understanding of what your needs are.
Forbes: And if you at parties, and if we get in an environment again, which we might someday if you live long enough, where people start to boast about what investment genius’s they are. You are going to participate by citing the example of some others. “Oh yeah. Ed at the office, what a jerk, but he really hit a homerun on that.” Fine so you can participate in the conversation. You have to try to go out there and it the homerun. Let others try to swing. Most of the time they’ll strike out. They won’t tell you.
MC: And you know we have seen this cycle over and over again, where it’s the paper boy, the dentist and everyone giving you stock tips. That’s pretty much the call to get out right? When everybody else is telling you to buy. That’s when you bolt or at least have some sort of conservative position.
Forbes: Or the recent housing bubble when everyone becomes a real estate tycoon. You know something is probably wrong. And of you have that urge to be mad, to do crazy things, have a certain portfolio and money where you can play with it. But don’t do it in your IRA. Don’t do it in your 401k. those are things that you just want to be able to sleep on. If you lose your mad money fine, but your not jeopardizing something fundamental in the future. And as you get older, again, be disciplined on your retirement. Jack Bogle, created Vanguard, his rule of thumb is your age. If you’re 50, half of your investment, 50% of your investments should be in bonds, short term instruments. 60, 60%. So if something goes wrong with equity markets or the bond markets you have cover.
MC: And that I think is the best rule of thumb is to know that you have the conservative investment for a reason. If you have to take distribution on it, cash it in…you cash in the conservative investment. You don’t worry about if the stocks are up or down. If you they are down you can hopefully hold until they come back up again. You’re not forced to sell in a time you don’t want to. And I think that’s where people think well it’s just because bonds have a certain return. It’s gives you an out if you need money.
Forbes: And as you get older you have to look at things like annuities. Again, you don’t put everything in an annuity. You have to look at expenses. And a lot of them hit you pretty hard on expenses, so you have to do some basic homework. But having an annuity is not sexy, but it does give you some balance and a bit of an anchor if the storms rise up. And so be true to yourself and be realistic about what are you cash needs? The worst thing that can happen, and people went through it, and they are going to go through it again is…the market goes down and you need to raise cash.
It is a hideous feeling and you feel bad doing it. Then when the market comes back you say “oh my God I missed it” and you’re tempted to do something you shouldn’t do.

MC: The biggest knock to Wall Street…and as you know when everybody is getting rich no one is complaining about Wall Street, but when everybody is loosing money that is when they are complaining. The concern that I hear so often is that it is not just that they are doing something and are getting paid handsomely for it…it’s they are inventing the rules as they go and they have that unfair advantage. And therefore, when they fail, they should have been allowed to fail. Then there is this bailout where the small business man can’t be bailed out. And while the government did what it had to do in a tough situation, we didn’t want a global meltdown, there seems to be a lack of fairness in how the big banks are treated that they have unfair advantage. When the times are good, they make lots of money, but when times are bad — they don’t fail, they get bailed out.
Forbes: Well, they could not have done what they did, if the government hadn’t done what it did in printing the money or guaranteed the kind of paper that no banker would tolerate. And normally with a mortgage, you put 20% down. The government said 0% down. Well, don’t be surprised you are going to get some problems. Ignore somebody’s income, well that is something that you wouldn’t normally do. So…
MC: But where is the accountability?
Forbes: Well the accountability is…one, the government’s got to do its part. But having created the problem, then don’t compound it. Yes, we had to take emergency measures last fall, but that did not mean that the government had to come up with this too big to fail doctrine, which takes a handful of banks and makes them bigger…guarantees their paper in the marketplace to the disadvantage of somebody else. That’s profoundly wrong.
And there are some who see it. Paul Volker, former head of the Federal Reserve, now in his 80’s said this is ridiculous. This is distorting the system. So no…no too big to fail doctrine. And if that means you are not going to be able to make an acquisition because the government is not going to back stop you then so be it. So yes, the government has made it worse guaranteeing a lot of paper it shouldn’t have guaranteed and continuing to do so. Too big to fail…so if you are a certain size, government’s going to always be there to make sure you are alive. Whereas somebody else who is smaller…well sorry. No, stop it.
It’s like a natural disaster. A hurricane comes along, so you throw in the food, throw in the water, throw in the medicine, throw in the temporary shelter. Then you pull back as people start to get back on they feet. You don’t do it permanently. Well government’s got to pull back on that and too big to fail…is one of the biggest mistakes of this administration is going along with the too big to fail doctrine. No. You’ve got to know if something goes wrong, if the government won’t let the system collapse, but you as an entity will face the music broken up. And if that means creating a special bankruptcy law for financial institutions…You create it. But you don’t say…you’re too big to fail. No way.
MC: Any predictions for 2010?
Forbes: I think we’ll have some growth in 2010, but it is going to be a turbulent year. The dollar I think will be strengthened. Not because Washington suddenly sees the light, but the markets are going to force it. And so it is going to be a better year than 2009. But it should have been a much better year. So if the government immediately stabilized the dollar…oh that would go a long ways. Realizing healthcare with these 2000 page long bills…start over. Try to get some true entrepreneurship where people can create more healthcare.
You know in any other market…if there is a demand. If people want more software, Silicone Valley will turn out more software. Software writers will turn it out. Why can’t you have an environment where you do the same thing in healthcare and make it more affordable? As you did with cell phones. 20 years ago, these things were as big as shoe boxes, clunky. Hard to work. Today they are sleek, small, and everyone has them, even in the furthest reaches of Congo and Haiti…India. People do have their cell phones. So that’s the kind of environment we should encourage.
So 2010, better than 2009, or better than the fall of 2008, but it could be better. Like in sports…it’s like a ball player. Instead of hitting .150 he gets it up to .225. Better, but hey how about .300, .350.

http://business.theatlantic.com/mt-42/mt-tb.cgi/11862

The entire episode is worth watching. The economic crisis gets reduced to a giant frozen drink blender. This is one short clip. Enjoy.

Rules get a bad rap. Too many of us think they are the handiwork of fascists who want to take away all of our fun. When I look at the catastrophe that has been created by the financial crisis, or hear the black box recording of a plane crash that didn’t have to happen, or even when I see a less devastating, but still unnecessary five bike pile up on my recreation trail, I start to sing the praises of rules. Not just any rules, but the rules of the road. When you follow the rules of the road you don’t need scores of new regulation, or super-duper grand pooh-bah chief regulators created to watch over us all. When you don’t follow them– that is what you end up with.
The rules of the road are the tried and true shortcuts that our forefathers and foremothers wrote for us, hoping we wouldn’t make the same mistakes they made. When I learned to sail, the first thing the instructor gave me was a handout with the rules of the road. You learn that motorboats yield to boats under sail. To avoid collision, you don’t try to out run another boat; you aim for their stern (back of the boat). I found this trick works beautifully for running or cycling too.
One of my favorite rules of the road was written in 1776  by  Thomas Paine in his book, The American Crisis Vol. 1.  ”Lead, follow or get out of the way.”  He may not have realized he was creating a bumper sticker, but it is great advice for for 18-wheelers and maserati-wannabees flying on I-95. Following Paine’s advice can make for a much more pleasant commute if you follow it. BTW, there is no shame in “getting out of the way.” It doesn’t make you a pansy; it just puts you in the right flow for that particular day on the road.

President Reagan said trust but verify. That is a great rule of the road for foreign policy but it should have been the mantra in financial services. A system of no checks and no balances evolved earlier this decade because no one wanted to lose a commission because of verification. Mortgages got approved; toxic derivative products got stamped with ‘Triple A’ ratings, all to get the commission or the fee. If my company doesn’t do it another will, was the justification. That is a weak argument and we have had hell to pay and will continue to have hell to pay because of it.
Rules may seem old fashioned or preachy. I argue that rules of the road are less about restricting behavior, than limiting collateral damage. The rules of the road are empowering if we collectively demand they be followed. When walkers stay to the right of joggers and joggers stay to the right of cyclists, and cyclists stay right of cars, we can all share the road together. It can work. The key is when there is a renegade, and there will be, to show the maturity and the patience to know you don’t have to break the rules, just because they did. That maturity was missing in the c-suites on Wall Street. I will leave you with one more quote from Paine. “Moderation in temper is always a virtue; but moderation in principle is always a vice.” -Mary Caraccioli

The Society of American Business Editors and Writers held their convention in Denver recently. They pulled together a panel of five business journalists and an academic to answer a central question: When it comes to coverage of the meltdown: Did 9,000 journalists blow it? Here is what they had to say on April 26, 2009.
After watching this video produced by the NewsHour, let me know what you think.

Barry Ritholtz is the CEO of Fusion IQ and prolific writer and blogger (The Big Picture Blog). Barry was one of the few pundits who didn’t buy into the “Golidlocks scenario” (the economy is just right) in 2007 and 2008. At the time that was the mantra on the street. He believes the current strategy of bailing out the banks is wrong. He believes the policies in play now demonstrate a division in the Obama administration. In part-one of my interview he tells me more about that and about what the Fed will have to do concerning interest rates in the months ahead.
Take a look and feel free to comment. Thanks. – Mary Caraccioli

Dr. William Poole, former President of the St. Louis Federal Reserve Bank and target of the famous Jim Cramer diatribe, told me he and others at the Fed absolutely didn’t see the banking crisis coming. He said, “I missed it.” In an unemotional and straightforward discussion he also didn’t rule out the Fed losing its regulatory responsibility for the banking industry. While he stopped short of actually calling for that, he did call for visibility from all regulators. In this interview he offered me his plan for fixing the banking crisis and it is not a call for sweeping regulation. Take a look. Do you agree with the plan? Feel free to comment. Thanks -Mary