A few weeks ago, I asked you Who is MOST Responsible for the Housing Bubble and the Financial Crisis? I can’t say that I was, at all, surprised by the responses. They actually came in exactly as I expected.

In case you’re incapable of clicking a hyperlink, the choices were as follows:

A. Banks

B. Complex Derivatives

C. Greed

D. Government

E. Wall Street

F. Deregulation

Although most readers and friends of this blog wanted to select “All of the Above,” because a case could be made for each, this easy-way-out was disallowed. After all, the original question was who is MOST responsible.

Understanding Capitalism

Before I get into the details as to why neither greed nor deregulation caused the financial crisis, I think it’s important to, first, explain Capitalism. I will explain Capitalism because this economic system is generally associated with terms such as deregulation and greed.

If you listen to political activists such as Michael Moore, you will hear endless criticism of Capitalism. There seems to be a serious distaste for the current structure we have in place, which is completely understandable.

But, it’s important to understand that the current structure is NOT Capitalism.

A system which allows one troubled financial institution to be “bailed out,” while another is left to fail is NOT Capitalism. A system which allows for ANY business to be rescued via tax dollars is a far cry from Capitalism. We live in a hybrid form of Capitalism, known as a Mixed Economy.

In a free market (pure Capitalism), businesses are constantly being created and constantly going out of business. Every transaction has to be beneficial for the buyer and the seller. If any exchange is not mutually-beneficial, then the exchange will not continue for long. In other words, companies must always create value for their customers or else their customers will go elsewhere. This allows some companies to grow bigger, while others go out of business. Markets are constantly correcting themselves so that resources are allocated appropriately.

In a free market, the housing bubble NEVER would have grown to what it did.

I must digress as I don’t want to get into the CAUSE of the financial crisis just yet.

Did Deregulation Cause the Financial Crisis?

The financial industry is BY FAR the most regulated industry that exists (Airlines would be a distant second). During the years leading up to the financial crisis, regulatory costs were at an all-time high. On the opposite end of the spectrum, the technology industry is the least regulated industry. Is it any coincidence that the technology sector is experiencing growth, innovation, and competition while the financial industry remains stale?

It’s not a coincidence.

It’s because the technology sector is mostly unregulated, while the financial sector is highly regulated. 10 out of 10 economists agree that regulation STIFLES growth and competition.

“But, technology companies are totally different than banks.”

Guess what? Technology companies want to make money just as badly as the “big, bad banks.” The only difference is that technology companies enjoy the benefits of Capitalism, while banks struggle (or thrive) because of government intervention. New technology companies are constantly being created, while old ones slowly die out. The companies releasing products that please customers grow bigger and companies that “screw” their customers disappear. Some people get hurt, but the overall result is positive.

On the other hand, thanks to government involvement, banks that SHOULD be going out of business are being saved. It really doesn’t matter if they have taken excessive risk or have a business that is completely flawed, they will still be saved. To make matters worse, healthy banks are ultimately penalized because of the unhealthy banks as they are paying increased premiums to the FDIC.

Imagine if Google had to set money aside to reimburse the investors of tech start-ups that go bust.

Then also imagine the government limiting the various ways Google makes money. Imagine if the government reduced the amount of money that Google could earn through advertisements. Would they lay off a chunk of their workforce or would they find new ways to make money? I would assume the latter…

…Because greed drives us all.

Greed, by definition, is “the inordinate desire to possess wealth.” Don’t we all share this desire to some extent?

If you have ever wanted to travel to Greece, I would highly recommend it. It is a beautiful country full of history, extremely nice people, and the best food I have ever eaten.

We spent a total of 10 days in Greece, but we would have loved to stay much longer. We started our trip in Athens, then moved to Santorini, and finished in Crete (before heading to Turkey). I hope that this blog post will allow me to relive my unbelievable honeymoon and give you an idea of what to expect if you choose to visit Greece.

- Athens is gigantic. According to our tour guide, approximately half of the entire county’s population lives in Athens (Wikipedia says it’s a little less). In total, there are around 4 million people residing in or around Athens.

- It felt like everyone spoke English very well. I was impressed. We were told that students begin learning English in the 3rd grade. I would actually argue that the Greeks are better at speaking English than many Americans.

- If you are considering a trip to Athens, I would recommend staying a maximum of 2 days. Once you visit the Parthenon on the Acropolis, there isn’t much else to write home about. We had a tour guide who was very helpful and was able to tell us where everything was, where we should go, and gave us just enough history to keep us interested.

- We stayed beside the Parliament building and witnessed Greek farmers protesting (fun to watch from a balcony).

- WHAT WAS MOST AMAZING WAS…the unemployment rate. You know that I don’t fully trust “official” numbers provided by the government, so I asked our tour guide what the unemployment rate was. She said it’s around 30%. More astonishing, she said, “for people your age (young adults) it’s closer to 60%.” These young adults aren’t deadbeats either. Both of her sons are unemployed. And they each have a Master’s degree from the London School of Economics.

- After drinking the orange juice, I began to question how our (American) orange juice is made. It was so delicious.

- It is common for Greek people to take a siesta (nap), or a break from work between 2pm-5pm. I don’t remember stores being closed during these hours, but I remember EVERYONE enjoying a Frappe around this time.

Speaking of naps, I’m tired. So I’ll have to fill you in on Santorini, Crete and Istanbul in posts to come.

“Allow myself to introduce…myself” – Austin Powers

I will be shifting my focus (not that I’ve been focusing on Funancials recently) to my other blog: Fat Free Personal Finance. In case you forgot about it (like I did), I created Fat Free Personal Finance last August, but I have only written 3 articles since. I did this and I’m doing this for a few of reasons.

1. URL and Domain

Although Funancials is a clever name, there aren’t many people Googling “Funancials.” Perhaps I get a few visitors because of a typo while trying to write “financials,” but I am not receiving a steady stream of visitors.

At the same time, “.com” is more widely accepted than “.biz.” I have had several friends tell me that they were initially scared to click on my link “funancials.biz” because they thought it was spam. It’s funny, because it’s meaningless, but “.com” creates more trust and credibility. “.Org” and “.net” are also widely accepted, but nothing can compete with “.com.” I have looked into purchasing “Funancials.com,” but it was listed for thousands of dollars. Although I could use Funancial’s earnings to pay for it, it didn’t seem worth it. I’m a (relatively) frugal guy.

On the contrary, I think A LOT of people search for some combination of Fat Free Personal Finance. I’m not an SEO expert, but I believe keywords in your URL are given much more weight than, say, a headline. Also, I think Fat Free Personal Finance is catchy. People LOVE things that are fat free. While I won’t be giving out nutritional tips, I will be giving you just the meat of personal finance – only what you need to know.

Overall, I think Fat Free Personal Finance has much more potential than Funancials.

2. Motivation

Starting a blog is one of the best things I’ve ever done. It’s fun. It’s a great way to learn more about a topic you’re interested in. It holds you accountable. It allows you to meet people (you never would’ve connected with before). And it’s a great way to earn extra money.

If you follow Fat Free Personal Finance from the beginning (today I’ve had NO visitors), you will see how EASY it is to start your own blog.

What are you waiting for?

I just wrote an article listing 10 Ways to Save Money Without Changing your Habits and Behavior. Do me a favor and check it out! While you’re over there, be sure to “Like” the page (even if you don’t!) and sign up for email updates.

Do you remember the first time you saw a Russian Doll?

You probably picked it up, slightly confused, before realizing you could open it. This surely brought a smile to your face as you had never seen anything like it. As you continue to twist-off one layer after another, you’re internally screaming “THIS IS THE COOLEST THING EVER!!!!”

After dismantling 6 little women (wait…that came out wrong), you arrive at the last one and reassemble the group.

Now that your emotional high is wearing off, you find yourself lost. “Was that fun?” “I’m not sure I even understand what happened.” “Should I do it again?”

The answer is no.

The Russian Doll just sits there.

It’s absolutely adorable, yet absolutely pointless.

(You’re welcome for the incredible [-ly bad] analogy)

Bank On Students Loan Fairness Act

A few days ago, Senator Elizabeth Warren proposed her VERY FIRST piece of legislation and IT IS THE COOLEST THING EVER!!!! If you haven’t read about her ideas, CLICK HERE (not-spam) to read about her proposal OR CLICK HERE (recommended) to watch it on YouTube.

Summary of Elizabeth Warren’s Bank On Students Loan Fairness Act

Senator Warren recognizes that there is a GROWING student debt crisis. She cites that outstanding student debt totals $1 Trillion which has surpassed credit card debt in America. She also states that banks can borrow from the Federal Reserve at a rate of 0.75%. Thus, why should our students pay 6.8% on their student loan interest while banks can borrow at essentially no cost? That doesn’t seem fair!

In order to combat this economic inequality, Senator Warren is proposing that all newly originated Federally Subsidized Stafford Loans, for the next year, would qualify at a rate of 0.75% – equivalent to the current Federal Discount Rate.

My Reaction to Senator Elizabeth Warren’s Bank On Students Loan Fairness Act

So most people hear this  - rekindle their hatred for the big, bad banks – and think “THAT IS FLIPPING AWESOME!!!!”

And then (much like the Russian Doll) you begin to dismantle what’s in front of you.

And then you try to put it all together.

And now I’m confused.

There is a growing student loan debt crisis in America which totals $1 Trillion. On July 1, the interest rate on a portion of this outstanding balance will double from 3.4% to 6.8%. In order to “fix this,” we’re going to offer NEW students that apply for Subsidized Stafford Loans an interest rate of 0.75%?

I’m having difficulty seeing what this solves?

Next year, there will be an estimated $34 Billion Subsidized Stafford Loans originated. So how is this helping the current $1 Trillion outstanding?

The only thing that will happen – IF this legislation is passed – is that the PROBLEM WILL GET WORSE. As if we haven’t learned anything from the sub-prime mortgage mess?

When you reduce interest rates and make new loans more attractive – DEMAND WILL INCREASE. As DEMAND INCREASES, the PRICE OF TUITION WILL RISE. This means that more students will take out loans in order to get degrees that do not justify the investment. They will graduate with loads of debt AND will likely get a job that doesn’t require a college degree. As these students have difficulty repaying the loans, they will default. Since the funding is backed by the Federal Government, the ultimate cost will fall on the American taxpayers. This will reduce everyone’s standard of living.

In Conclusion

I think that Senator Elizabeth Warren’s new proposal is cute, at best, and highly destructive, at worst. If taking out a new student loan becomes more attractive, demand for higher education will increase, and the cost of tuition will rise. At the same time, it does nothing regarding the existing $1 Trillion in outstanding student loans. The burden of student loans will look eerily similar to what we have witnessed in sub-prime lending in residential real estate.

As I’ve told you before, I’ve been diligently studying the past few years (and well beyond) so that I can determine who is most responsible for the Housing Bubble and the Financial Crisis. I realize that placing blame and “finger-pointing” rarely resolves anything, however, I think something can be learned in this case. I also realize that the past is the past and there is no way to profit from what has occurred. But, if we can accurately detect what may have caused the financial crisis, we may be able to prevent future crises. As the saying goes, “history often repeats itself.”

Before I share a slice of knowledge, I want to see what you all think…

Who is MOST Responsible for the Housing Bubble and the Financial Crisis?

A. Banks

B. Complex Derivatives

C. Greed

D. Government

E. Wall Street

F. Deregulation

Most exams would have a slot for “all of the above,” but I’m not letting you off that easy. Just leave a message below with what you think…

Also, here’s an easier question to answer…

Do you want to win a Samsung 50 Inch 1080p LED HDTV?

Of course you do.

And guess what, it’s free. You won’t have to cash out of your investments or sell your settlement to get it. All you have to do is enter the contest below…

a Rafflecopter giveaway

You may have noticed that I haven’t written a blog post recently. That’s primarily because…

I’M MARRIED

…like…to my wife.

I have a wife, now.

The Honeymoon is Over

We returned home from our 2-week honeymoon which included a nice combination of tourism and relaxation. We visited Greece (Athens, Santorini, Crete) and Turkey (Istanbul). I’ll dive deeper into the dream I’ve been living; but first, I wanted to use the trip as an educational opportunity.

The Dollar is Weak

As you’re scrolling through different news articles, you have probably noticed headlines that say the “dollar is weak” or the “dollar is strong.” Unless you are familiar with Global Forex Trading, you probably don’t pay much attention. But, you should.

The value of our currency affects everything, but the value is meaningless by itself. It must be expressed relative to something else – most often, another currency. Miss Blinkin and I got to witness this relation (exchange rate) while we were traveling abroad. As the dollar weakens against the Euro, our money doesn’t go as far while we travel around Europe.

Something else I have to add…

A lot of people don’t fully understand Gold. They think that the precious metal is something to invest in when all the alternatives look scary. But, Gold is also a hedge against inflation. Think of it as a currency and compare it to US dollars. Over the last 40 years, Gold has gone from $40/ounce to $1500/ounce. Is that because the demand for gold has increased dramatically? No. It’s because the Federal Reserve has decided to print money like it’s going out of style. Because of this fact, I think Gold is a must-have for every long-term investor.

Why am I telling you this?

As a way to profit, duh.

Global Foreign Exchange Trading

Trading currency can be a great way to make money. The Foreign Exchange is a market that never sleeps. Due to different time zones in different countries, you can theoretically trade any hour of the day.

Another advantage is that there is no such thing as a “bear market.” You know those times when people are scared of stocks and nothing seems to be moving? Currency values are always changing. If you think a currency will appreciate, buy it. If you think a central bank (Federal Reserve, Bank of Japan) will endlessly print money, sell it.

Have you ever thought about trading Forex?

The trends in credit card use are completely changing the way that consumers access their funds and purchase goods. These trends make it more convenient for customers to access their funds and make it easier for merchants to receive their payments. When consumers find that it is easier to access funds, they are more likely to spend more money on goods and services. This activity spurs the economy and helps businesses of all sizes to grow.

Multi-Function Cards

Multi-functional cards allow cardholders to have only one card for multiple accounts. From this type of card, consumers can access their line of credit, funds in their bank account, and funds in their saving cards. This new type of card gives consumers a number of ways to purchase goods and services without having to carry cash. This is a particularly good thing if the consumer should find himself in an emergency situation. Multi-functional cards also eliminate the confusion of having to carry multiple cards by the same bank.

Fraud Protection

Because merchants now accept credit cards Online and in store, there is a higher risk of fraud for many cardholders. Some cardholders who have never shopped online have been victims of fraud. It is therefore, essential that credit card companies continue to implement practices and policies that prevent fraud. One of the main issues that card companies face is that their customers are not following safety practices. These safety practices include only using a safe network, not providing anyone with card information, and being careful of unknown merchants. As the credit card companies continue to develop better protection against fraud activity, it is important that you research and follow safe credit card practices.

Mobile Payments

One of the biggest trends in credit card use comes in the form of mobile payments. Mobile payments are done through a customer’s handheld device that can access wireless networks. These devices are equipped to support retailer applications or websites while they are on the go. Once these applications or websites are accessed, they allow customers to search through inventory and make payments through the device. When the customer first begins to use the mobile application, he or she sets up an account that stores their credit card information. When a customer reaches the check out screen on their hand held device, they do not have to even look at their credit card to make a payment. The simply press “submit”, and off it goes. This makes shopping easier for the customer and allows merchants to receive their payment almost immediately.

The trends that credit cards are experiencing today prove that the current generation has a need for speed and convenience. Consumers want to be able to make purchases any time, at any place. This demand has encouraged merchants and card companies to develop easier forms of payment. With the easier forms of payment, however, comes the need for increased protection against fraud. This factor has many different card companies scrambling to develop new methods of protection without restricting the cardholders purchasing abilities.

Is the housing bubble behind us?

Yea, probably.

Is the housing bubble ahead of us?

Yea, probably. 

Are you having Déjà vu?

Yea, me too…

Re-inflating The Housing Bubble

I have read several books concerning the causes of the Financial Crisis and The Great Recession, but I’m not going to get into the nitty, gritty details right now. It’s almost the weekend and your attention span is waning.

There were several factors that played a role in creating the crisis, but I will only touch on the high points.

Here’s a timeline:

1. Through several Presidencies, the government pushes the importance of homeownership.

2. Administrators push banks to lend to low-income consumers with weaker credit.

3. Banks refuse.

4. Agencies insure the mortgages shifting liability from the bank to tax-payers.

5. Banks comply.

6. The risky borrowers default.

7. The government sues the banks for originating risky mortgages.

8. Banks tighten credit.

And NOW…

Obama Administration Pushes Banks To Make Home Loans to People With Weaker Credit

We’ve come full circle! I can’t wait to do it all over again.

I can’t make this stuff up…

Most people know that I majored in Economics. What most people don’t know is that I also picked up a Masters in Procrastination. If something was fun, I would do it immediately. If something required work, effort, or attention – I would put it off until later.

I became so good at procrastinating that I could knock out a 20 page paper in a day. I was so confident in my later self.

I’ve noticed that this is a trait that everyone shares. We’re all confident in what we’ll be able to accomplish…later.

Don’t Overestimate Your Future Self

If you’re doing something now, you’ll probably be doing it later. If you’re not doing something now, you probably won’t do it later.

• If you’re a recent college graduation, you think you’ll save more later – just as soon as you get married.
• If you’re recently married, you think you’ll save more later – after you travel the country.
• If you have children, you think you’ll save more later – as soon as they get older.

Yep, just wait until later. There’s no better time to save for retirement than when you’re retired…

There always seems to be something that keeps you from doing what you know is best. I understand that “life happens,” but life is always happening. If you aren’t saving now, you’re not going to save later. If you’re not able to make tough decisions now, you never will. It’s not going to get any easier.

Rest assured, though…you’re not alone. Everyone is guilty of this.

Think about our government!

In 2011, our congressmen didn’t want to come up with a permanent solution to our fiscal imbalances because they knew it would require some tough decisions. They decided to set up some automatic spending cuts, thinking that their future selves SHOULD be able to reach some agreement.

As you have seen, nothing has changed.

And nothing will change for you, unless you do.

Like every other question in personal finance, it depends.

There are a lot of credit cards with dismal rewards that do not warrant paying an annual fee. At the same time, I have seen numerous credit cards with rewards that more-than justify the annual fee. I’ll actually give you an example of one below.

Thanks to Grayson, who blogs at Debt Roundup, for presenting us with the Blue Cash Preferred Card from American Express. This is the ‘roided out version of the Blue Cash Everyday Card from American Express that I mentioned in What’s the Best Cash Rewards Credit Card Right Now?

The two cards are very similar, but one has good rewards with no annual fee while the other has great rewards with an annual fee. So, how do the two cards compare? Is paying an annual fee on a credit card worth it?

First, let’s compare the two credit cards side-by-side:

Blue Cash Everyday (w/o annual fee)

• $100 cash bonus after spending $1000 in first 3 months
• 3% on groceries (on $6000 annually)
• 2% on gas and at department stores
• 1% on everything else

Blue Cash Preferred (w/ annual fee of $75)

• $150 cash bonus after spending $1000 in first 3 months
• 6% on groceries (on $6000 annually)
• 3% on gas and at department stores
• 1% on everything else

Obviously, the (almost) doubled rewards points are enticing, but is it enough to justify the $75 annual fee?

Again, it depends on how much you spend.

Here’s a quick analysis:

Let’s say a couple spends $500/month on groceries and $350/month on gas. This equates to $6000/year on groceries and $4200/year on gas.

$6000 on groceries, $4200 on gas

3% groceries = $180

2% gas = $84

Total cash back =$264

$6000 on groceries, $4200 on gas

6% groceries =$360

3% gas = $126

Total cash back =$486

This scenario illustrates two things:

1. Paying an annual fee CAN be worth it
2. Using a credit card for purchases can be rewarding

Keep in mind that $486 would be underestimating the amount of cash back you could receive. You’re also receiving 2% on whatever department store purchases you make and 1% on everything else. More importantly, keep in mind that the purchases at the department stores are not necessary. Don’t buy things you don’t need in order to receive more rewards. That’s counterproductive.

As always, spend wisely.