The Journal on page one looks at how strapped consumers are still finding unconventional ways to dig up money to make ends meet. Credit cards are still popular, of course, with borrowing near a record and up 8 percent from a year ago, but even the big home-as-ATM movement of this decade hasn’t been totally upended by the housing bust.
But businesses are reporting greater demand for newer cash-raising techniques. Reverse mortgages are gaining new favor. Secured by a home’s equity, this vehicle can provide consumers with a lump-sum payout, a line of credit, periodic payments or a combination thereof.
Also flourishing: niche products that quickly unlock the value of a particular asset. Life settlements, once marketed mainly to the wealthy, have grown in popularity as companies target smaller policies, like Ms. Brunner’s. A number of companies cater to people who’ve won personal-injury settlements—which are often paid over a period of years—by buying them out up front, typically for a sum much lower than the amount of the payments sold. Reserve Solutions Inc. of New York offers debit cards to help workers access funds from preapproved 401(k) loans.
Americans have so much debt that the only way to handle it is to go into more debt and pray for the best, or make bad financial decisions because they have to.
The so-called life-settlement industry ends up on average giving sellers about 20 percent of the face value of their life-insurance policy and people who’ve won lawsuits lose much of the money they would have gotten by getting paid upfront. Not only that but a financial regulator has warned that people who cash out assets may make themselves ineligible for some benefits like Medicaid.
Here’s today’s Dude, You Live in a $1.8 Million House And You’re Griping About the Price of Eggs Quote of the Day, a sign of our screwed-up economy:
Daniel Petelin, 62, lives in a roughly $1.8 million house in Redwood City, Calif. His mortgage debt on the place, about $16,000, is minimal. But the freelance public-relations and event manager, who has an income of about $47,000, is still feeling pinched. “Eggs a few months ago were 79 cents a dozen. Now they’re $1.79.”
FT leaves us hanging on warehousing news
The FT reports on page one that international regulators are planning to make it more expensive for investment banks to “warehouse” bundled assets, like the mortgage-backed securities that have them in so much trouble.
In particular, supervisors believe that the rules will reduce incentives for banks to engage in so-called “warehousing” activities—the practice of keeping repackaged assets inside a bank for an indefinite period, before selling them to outside investors.
One senior western policymaker said: “These changes are significant. They are definitely going to make some warehousing activities more expensive.”
But the paper leaves out some pretty basic information—how exactly the regulators plan to make it more costly. We guess from reading between the lines that new rules would do so by increasing the capital required to back “low-risk” assets that they’ve held on their books, but we could be totally wrong.
Maybe they want to slap a tax on them for all we know. Help us out, FT.
Bad year for trial lawyers
Milberg (formerly known as Milberg Weiss) is close to settling with federal prosecutors over its alleged $11 million kickbacks to people who became lead plaintiffs in its class-action lawsuits against companies, the WSJ reports on page one.
The Journal notes its been a disgraceful year for trial lawyers, with Dickie Scruggs of Mississippi pleading guilty to criminal conspiracy for bribing a judge in a Katrina-related insurance lawsuit. He faces five years in prison.
Milberg’s fall has been a blow to the U.S. plaintiff’s bar. It is rare for any law firm to face criminal charges, especially one as powerful as Milberg. Led at one time by Melvyn Weiss and William Lerach, the firm pioneered the lucrative business of securities class-action lawsuits. After a dramatic drop in a company’s share price, the law firm typically would file suit on behalf of shareholders claiming the company misled investors about its financial health. The firm has helped win huge settlements against accounting firms, tech companies and many high-profile corporations embroiled in scandal, including Enron Corp. and Tyco International Ltd.
Corporate executives long have complained that the suits were designed primarily to enrich lawyers. The Milberg case has given a boost to that view, prompting some in Congress to call for tighter regulation of securities class-action suits.
No guaranteed income for these folks
USA Today takes a look on its Money front at what it says are the increasing number of workers who make “variable pay”—basically those based on commissions.