It deals with the nightmare that has become student loans. Default rates on student loans are worse than sub-prime mortgages, and the total debt is bigger than all our credit card debts combined. It’s a huge issue than many people are keeping quiet about. College students are a hugely under-represented and unadvocated group in Washington, and what we and the government are doing to them is just wrong.
But if you’d like some other kind of wisdom from Buffett, here’s a scenario that he often describes in speeches and interviews. (We’ve now moved into the “life lesson” part of this show.)
It’s 24 hours before your birth, and a genie appears to you. He tells you that you can set the rules for the world you’re about to enter — economic, social, political — the whole enchilada. Sounds great, right? What’s the catch?
Before you enter the world, you will pick one ball from a barrel of 6.8 billion (the number of people on the planet). That ball will determine your gender, race, nationality, natural abilities, and health — whether you are born rich or poor, sick or able-bodied, brilliant or below average, American or Zimbabwean.
This is what Buffett calls the ovarian lottery. As he explained to a group of University of Florida students, “You’re going to get one ball out of there, and that is the most important thing that’s ever going to happen to you in your life.”
Cybercriminals have had great success over the past year hitting banks where their security is the weakest–on their customers’ PCs. In 2009, online fraud losses doubled, according to FBI data.
Now banks are starting to hit back, focusing not only on the security of their own systems, but of their customers’ systems. Last week, security firm Trusteer announced it would provide a service to banks that lets them remotely analyze computers belonging to customers who have been hacked. Using the service, called Flashlight, banking customers that believe they have been targeted could download a program to their PC that would quickly search the system for digital tracks left by online thieves and their malicious software.
“By analyzing the malware, the banks can find out how the groups are getting by their security measures,” says Mickey Boodaei, CEO of Trusteer. “We noticed that most banks have no real understanding of their fraud losses. They have no idea where they are originating from, whether it was Zeus [a common Trojan horse program] or some other malicious software, and what criminal groups are attacking them.”
Now that you are frightened enough, here’s the good news about online payments: There is little to worry about using credit cards online, because the risk of loss from unauthorized charges, by law, is almost nil.
“The strongest protections are when you pay by credit card,” says Carole Reynolds, a senior lawyer at the Federal Trade Commission. Under the Truth in Lending Act, consumers’ maximum liability for unauthorized use of their credit card is only $50, and when a card is used online, it’s zero.
Ramit Sethi questions the long-standing notions regarding housing prices and what it means for America’s citizens.
You never know how American your assumptions are until you go to another country. That’s because in the United States, we have been systematically taught that housing is a good investment and that prices must go up. Ask your parents why they bought their house. One of the top 3 reasons will almost certainly be, “It was a good investment.” Yet I’ve shown very clearly that for many people in many situations, it is not. In fact, housing is often a terrible investment.
Yet the illusion persists, whether it’s my friend wanting to buy a million-dollar house with no research, or people saying things like, “I wish I’d bought more real estate” after incurring a paltry 1.2% return rate over several decades.
As a result, you get media reports that implicitly echo the cultural assumption that housing is a good investment. The way they describe the housing market — oops, “housing recovery” — influences and reflects our cultural assumption.
When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.
It is the result of her deferring loan payments while she completed her residency, default charges and relentlessly compounding interest rates. Among the charges: a single $53,870 fee for when her loan was turned over to a collection agency.
But as tuitions rise, many people are borrowing heavily to pay their bills. Some no doubt view it as “good debt,” because an education can lead to a higher salary. But in practice, student loans are one of the most toxic debts, requiring extreme consumer caution and, as Dr. Bisutti learned, responsibility.
Dr. Bisutti told her 17-year-old niece the story of her debt as a cautionary tale “so the next generation of kids who want to get a higher education knows what they’re getting into,” she says. “I will likely have to deal with this debt for the rest of my life.”
It’s that time of the year again. I’m a big fan of TurboTax, but this could be a viable option.
The Free File program provides free federal income tax preparation and electronic filing for eligible taxpayers through a partnership between the Internal Revenue Service and the Free File Alliance LLC, a group of private sector tax software companies. Many companies offer free or paid state tax preparation and efiling services. Some companies may not offer state tax preparation and e-file services for all states.
In his new book, “The Quants,” Wall Street Journal reporter Scott Patterson suggests how this new breed of mathematicians and computer scientists took over much of the financial system—and the damage they inflicted in the 2007 meltdown.
On Wall Street, they were all known as “quants,” traders and financial engineers who used brain-twisting math and superpowered computers to pluck billions in fleeting dollars out of the market. Instead of looking at individual companies and their performance, management and competitors, they use math formulas to make bets on which stocks were going up or down. By the early 2000s, such tech-savvy investors had come to dominate Wall Street, helped by theoretical breakthroughs in the application of mathematics to financial markets, advances that had earned their discoverers several shelves of Nobel Prizes.
Nothing learned, and everything forgotten…
In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.’s and credit-default swaps, not so much.
What we don’t know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.
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