The aftermath of the recent Santa Rosa fire is, needless to say, devastating. Roughly 3,000 homes were lost, causing $1.2 billion dollars in damage. Homes and money can be replaced, but the pain and suffering of the 43 families who lost their loved ones to the fires is priceless. On October 9th, the Red Cross put out an online volunteer form and they reached their immediate need of volunteers within hours of posting it. Lost and missing pets were sent to different shelters and foster homes across the Bay Area where they were cared for until their families were ready to take them home. Neighbors supplied each other with air masks once the hardware stores ran out. Despite the negative tone that seems to plague the downfall of society, genuine kindness and desire to help really shined through a difficult week.
Every year at this time, the Nobel Prize winners are announced. These prestigious honors, which are worth about $1 million to the winners, are awarded in Physics, Chemistry, Medicine, Literature, Economic Sciences, and Peace. Alfred Nobel established a foundation upon his death to recognize outstanding achievements in these disciplines, sort of an Oscar for brainiacs.
Dr. Richard Thaler of the University of Chicago is this year’s recipient of the Nobel Prize in Economics. Usually, this particular Nobel Prize goes to someone who developed a complex economic theory. Recent winners tackled the rarefied subjects of contract theory, empirical analysis of asset prices, cause and effect in the macro economy, and markets with search friction. Dr. Thaler’s subject earned his Nobel Prize for his contributions to behavioral economics. His body of work is a little less Econ 101 and a little more Psych 10, which was the basic survey course at my alma mater. This is not to denigrate Dr. Thaler’s research, but rather distinguish it from past honorees.
While I personally don’t watch Game of Thrones, I completely understand and sympathize with everyone who does that have to wait for two years for the next season. Some of my friends are starting to show signs of what I would call “binge-watching crash syndrome”, a seriously benign condition in which the viewer slips into a minor state of grief. Stage one and two, denial and anger respectively, usually manifest themselves by researching the history of the show, and in extreme cases, looking up the bonus features and cast commentary. You know the viewer has reached bargaining when they start looking up possible theories and/or reading the source material. Depression hits with a loss of viewing appetite followed by thoughts of canceling a video streaming subscription. Finally, the viewer reaches acceptance when someone recommends another show or a show they were previously watching uploads their next season.
I jumped on Jamie Dimon pretty aggressively earlier this year when he proclaimed in JPMorgan Chase’s recent annual report that a failure of any of the “too big to fail” banks would not harm the U.S. economy. The top ten U.S. banks hold almost $12 trillion in assets. The top five banks (Chase, Bank of America, Wells Fargo, Citibank, and U.S. Bank) make up nearly half of the total assets in all financial institutions. Credit unions, by the way, represent 7% of all financial assets. His argument is tenuous at best.
Last semester in my Economics class, we talked about a fairly simple, yet fundamental concept: Opportunity Costs.
It goes something like this:
The more a nation or industry invests in a product, such as guns, the more of that product will be produced, at the cost of the opportunity of producing another good, say butter, as we see in point A. The idea is that there needs to be equilibrium to maximize efficiency, close to or on point B. This ensures that you’ll have an equal amount of defense and goods. While this may be an economic concept, it can easily be applied to just about anything in life.
Married members came into our office recently to consolidate their debts into a second mortgage loan. They wanted to amortize the loan over fifteen years, but we felt a second mortgage loan based on old debts should not have a term more than five years. We explained to the couple that in order to get rid of their debt as soon as possible at the smallest possible cost to them, they would have to accept the lower term. We showed them how much less interest they would pay with a five-year term versus a fifteen-year term, and they could afford the monthly payment on a five-year loan.
In the old days of the mid to late 20th century, financial institutions would take up to a week to evaluate a loan application. Today’s technology with online applications and smartphones has shortened the wait time to mere seconds. Rocket Mortgage promotes, “Goodbye, Paperwork” and “Get Approved Fast.” Tap n Loan brags, “A Better Day is a Tap Away.” Speedy Cash says it all in their name.
But is faster always better? While it’s much more convenient to complete the loan application online, there are shortcomings in dealing with online-only institutions. First of all, there’s no place to go if the borrower has questions. There are no “brick and mortar” branches, and phone support is spotty at best. Secondly, these sites claim to do a comparison of other large banks’ and credit unions’ rates but routinely omit smaller local institutions. The net effect is the borrower not necessarily receiving the best possible interest rate on the loan. Thirdly, the online-only outfits do not typically offer a full array of products. Finally, according to NerdWallet, a personal finance website, notes that Quicken Loans, the parent company of Rocket Mortgage, only looks at credit scores and debt-to-income ratios instead of alternative credit data such as employment history, payment track record, and monthly cash flow.
It’s no secret that I’ve been against investing in streaming services for a while (like Spotify or Netflix) since they add up to be more expensive than buying the media that you stream from these services. Not to mention that once you cancel your subscription, you lose access to all the media you streamed, making your investment worthless. I was pretty strong on my position, that is, before I finally caved into my phone’s persistent plea to sign up for a trial of one of these streaming services, which I will refer to as Orange. It was without a doubt an addicting and joyful experience. But like all great things, it had to come to an end. The Orange trial ended exactly three months later, as did all my access to the songs I streamed.
“You have to spend money to make money.” We’ve all heard that well-worn phrase. To a business owner, that means investing funds for supplies, product, advertising, staff salaries, and other operating expenses. For entrepreneurs trying to get a business idea off the ground, spending money with no revenue is difficult without borrowing from friends, family, their financial institution, or if really lucky, a venture capitalist willing to take a risk.
Imagine the difficulty Elon Musk has trying to create an automobile company with new technology. Mr. Musk started off slowly by building a few cars at a time and selling them at a very high price which built up some cash reserves. Later on, the company went public, and more cash from stock issuances came in.
During the months of May and June, we hosted a drive in our lobbies to collect donations for the Contra Costa County Animal Shelter. We collected blankets, beds, towels, food and much more, and ended up being able to do two drop-offs to the shelter!
On behalf of all the doggies and kitties currently in the shelter, we thank you for your support!