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Economy

Battening down in the hurricane

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It’s probably a bit late to batten down the hatches, since the perfect storm has already made landfall. On the other hand, I wasn’t really expecting to get laid off, and now that looks like a strong possibility. So, today I’m taking a series of steps to help weather bad times. Some of these, I think, apply to just about anyone in most situations. Here’s some plywood to nail over the windows:

1. Pay off or be in a position to pay off debt

My strategy: Prepare to pay off $21,000 Renovation Loan

This is a second mortgage, not an equity loan, but because it is a loan against my house it does put me at risk of foreclosure if I can’t make the payments, which I will not be able to do if and when I lose my job. I already have $11,000 in cash savings snowflaked for this purpose. Along these lines, I moved $5,500 out of short-term corporate bonds and $5,000 out of Vanguard’s Wellington fund, the two non-retirement funds that are losing the least.

2. Identify all potential cuts in budget and prepare to implement them.

My strategies:

• Pay off the Renovation Loan, to save $374/month (the regular payment plus payments toward principal made to eliminate the loan by the time I intended to retire).
• Cancel the newspaper, cell phone, DSL (good-bye Funny about Money!), long distance service, and monthly yard clean-up. Savings: $139/month.
• Cash out the whole life policy. Savings: $30/month. This also yields $23,000 less 28% tax = $16,560 in cash, about six months’ worth of living expenses.
• Quit putting $200/month into a savings account for casual expenditures. Cut all indulgences to zero.
• Cut back budget for all other living expenses that are not regularly recurring bills.

These maneuvers will cut my monthly recurring bills from $821 to $482 a month:
1010DepressionStrategy1
As a practical matter, I probably will not cancel the DSL, since I need it for my freelance editorial business. Also, Funny is now getting about 6,000 hits a month. It may be worth monetizing it. If I did that, I would have a good argument for deducting the cost of DSL from my income taxes. It’s not much, but every little bit helps.

I could, in theory, cancel my homeowner’s insurance, saving about $65 a month. However, that’s a risky move. We’ve already seen that the minute I jacked up the deductible I darned near set fire to the kitchen. Murphy’s Law suggests that if I cancel the $780/year hit for homeowner’s insurance, a gigantic storm will come through, blow off the roof and, in a single lightning strike, burn down whatever remains.

With the monthly self-escrowing for principal payments and the monthly $200 general savings gone, monthly savings set-asides drop from $704 to $300.
I budget $1,500 a month for nonrecurring living expenses. If I’m very careful, do not indulge myself in anything, have no vet bills, and have no repair bills for the house or car, this amount can be as much as $300 more than needed. So, I’m figuring about $1,200 is what I will need each month to live on, above and beyond the costs of running the house.

3. Figure how much will be needed to live in reduced circumstances.

My strategy: Add up projected reduced savings, monthly bills, and budgeted “other” living expenses.

1010DepressionStrategy3Okay. That’s better than the $3,000 a month I’m spending now. Over a thousand bucks a month better.

4. Try to figure out where the money will come from.
At the rate the market is going, I’m assuming there will be nothing left in my retirement savings. If I use the $23,000 that will come from cashing out my whole life insurance policy as an emergency fund to cover such things as veterinary, car, and house repair bills and to cover the $5,050 a year cost of COBRA, then I’m left with this:

My strategy: add up the next year’s sources of spendable income.
1010DepressionStrategy4

This assumes the tax on Social Security will only be around 20%, but it may be significantly higher, since I will have earned my regular salary for ten months of the 2008.

The RASL (amount GDU has to pay me for accrued sick leave) and vacation pay figures are net.

As you can see, even with the RASL pay and the one-time vacation time payment, I’ll come up short at least $6,600 in my first year of enforced retirement. It’s possible that I might be able to net that much with freelance income—a typical freelancer earns about $10,000 a year, working full-time.

If I don’t get a job, I am going to be in deep trouble. But I probably can get something working at a WalMart or even cleaning house. The rich will always be with us, and they’re always in the market for servants to do their menial work.

5. Consider whether there are any other options

My strategy: Figure what happens if I try to live on cash savings for the next couple of years.

If I don’t pay off the Renovation Loan but instead use the $21,000 cash savings and the $23,000 that will come from cashing out my whole life insurance policy, then we come up with a survival fund of $44,000. We have to add $170 a month back into the monthly cost of living. RASL is good for three years. The vacation pay is a one-time thing, affecting income in only one year. Without vacation pay, my shortfall will be around $10,000; without RASL and vacation pay, it will come to around $14,000.

1010DepressionStrategy5
As strategies go, living on principal is less than ideal. I suppose I could do it if I were pushed to the wall. But selling the house and living out of the back of the van would keep me going longer.

6. Count blessings.

My strategy: Quit focusing on the tsunami’s roar and pick flowers by the roadside.

• At least I have a roof over my head and the resources to pay it off
• No mortgager will be able to evict me from my home.
• It will take the county tax assessor two or three years to put me out after I begin to default on taxes.
• M’jihito has a job and is young enough to recover from whatever happens to this country, assuming anyone in the sub-Richistan classes can recover.
• I have a nice paid-off van with plenty of room to sleep in.
• I know how to cook from scratch.
• Beans are delicious and I know lots of ways to cook them.
• The veggies I planted have started to sprout.
• My health is good and so I at least can work, if I manage to overcome the prevailing cultural bias against older people.
• The Copyeditor’s Desk is getting steady work and could (maybe) crank $10,000 or $12,000 a year for each of its principals.
• They haven’t canned me yet.
• It’s fall and so I won’t have to run the HVAC system for another six or seven months.
• The weather is drop-down dead gorgeous.
• The dog is unfailingly cute.

P1010572

Update, December 2013: As it developed, my estimates of the taxes were overblown. My job lasted until December 31, 2009, and so salary from GDU did not trigger a tax on Social Security, which I started drawing in 2010. Only a portion of one’s Social Security is taxed, and that’s only if you earn more than a certain minimal figure. As it developed, forming an S-corporation ensured that would not happen and sheltered most of my freelance income and all Social Security income from taxes.

After the layoff finally came, more than a year after this post appeared, it proved impossible to find another job. Even had the job market not dried up in the Great Recession, my age worked against me — employers wouldn’t give an old lady a second look for positions that read like they were written with my skills and experience in mind. By that time, though, I had already paid off the loan, cut my living expenses significantly, and made arrangements with a community college to teach the maximum allowable number of courses on an adjunct basis. Although adjunct pay works out to something less than minimum wage, between that and Social Security I managed to stretch a $14,000 emergency fund to cover five years, and then some.

By staying put in the market, I eventually managed to recover most of the losses in retirement funds. Five years later, total savings (including the whole life policy, which I never did cash out) are about where they were before the crash of the Bush economy. My son and I spent several years underwater on the house he and I copurchased, while he worked a miserable job at a company that overtly abused and grossly underpaid its workers. Today his house is worth what we owe on it and mine is worth what I paid for it. He has a better job and hopes for a promotion. I will never work for The Man again, and am glad of it.

1010Obamanos

Dumb tax

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F’cryin’ out loud. In the “I can’t believe it’s possible to be that stupid” department, here’s a memo: when the binger goes off to tell you the bread dough has finished rising, get up and attend to it!

Yesterday afternoon I was dorking around on the Internet, my favorite time-waster, when I heard the breadmaker hollering “beeeep beeeeep beeeeeeeep,” signifying the dough was kneaded and risen, so I should retrieve the stuff, put it in a pan, and preheat the oven while the bread made its second rise. Did I get off my duff? Ohhh noooo. As I recall, what I did was mutter “please. shut. up.” Then forgot all about it.

Forgot it, that is, until I walked into the kitchen and found the stuff had continued to bubble up, overflowed the container, run down into the breadmaker’s innards, and then, its yeasties exhausted, collapsed back on itself.

That was a fine mess to clean up.

Determined not to lose five cups of flour plus the ancillary ingredients, I had the bright idea of adding a little more yeast, turning the stuff back into the freshly cleaned breadmaker, and letting it knead and rise again.

Sounds good, doesn’t it?

Lemme tellya: it doesn’t taste good! The result was a large blob of bread dough with a strangely rancid, bitter flavor.

At first I thought I could pass it off as sourdough. On second taste…well, no.

Into the garbage with it.

So, I had to mix and bake a whole new batch of bread dough. This occupied my attention until about 9:00 p.m., annoyingly enough. Dumb tax!

Isn’t it interesting how many of the stupid things that happen TO us are actually stupid things that happen BECAUSE of us? Consider how much of the present financial chaos falls into that category.

Now, I will say: I didn’t vote for our present national leadership and thought anyone who did was nuts; I did not get myself into debt over my head; I do not even run a balance on a credit card.BUT…yes, but: stupidly I left the bulk of my retirement money in the stock market, even as I could see the out-of-control train racing up the tracks. If I was smart enough to think of investing monthly savings (meant to pay off a small loan) in the money market, howcum I wasn’t smart enough to think of transferring at least some of my stock holdings out of Vanguard’s Wellington and Windsor II funds into the same Vanguard Premier Money Market fund?

Right now that moron Bush is on the air saying sure, he knows people are losing their retirement savings, “but I think in the long run they’re gunna be fine.” Long run? That illiterate, bird-brained idiot. When you’re 65, 75, 85 and retired or (as I’m about to be) laid off, there IS NO LONG RUN!

We appear to be a nation of morons who have followed a moron into predictable disaster. I will not disown my personal contribution to the national dumb tax fund, nor, I suppose, can any of us. Our dough has bubbled up, spilled over the bowl’s edge, collapsed back onto itself. The breadmaker alarm has been binging for a long time, while we have muttered “please. shut. up.”

FDIC Runs Low: Credit unions unaffected

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The other day Finance Junkie picked up on an AP article to the effect that the FDIC is running low on funds. This creepy little gem of news is not as drastic as it sounds at first blush: the agency still has $45.2 billion dollars on hand, plus it has a $30 billion line of credit with the Treasury. But the fact that 117 banks with assets of $78 billion were struggling in the second quarter isn’t reassuring.

One of my RAs heard this news, too, and wondered if she should take her savings out of the bank. I advised her not to do so, but suggested if she was really worried, she could move her money to the credit union, which has a branch on the campus and which accepts students in the state university system. Credit unions are federally insured, too, but by a different entity, the National Credit Union Share Insurance Fund (NCUSIF). Like the FDIC, the NCUSIF insures your deposits in a single institution up to a maximum of $100,000, andit also covers an IRA held at a credit union up to $250,000.

A friend who works as a loan officer at the Arizona State Credit Union had this to say:

I know there is a lot of uncertainty regarding banks right now. However, I have not heard of any concerns regarding the FDIC and their ability to insure funds. The credit union has been fortunate that we are not dealing with the issues and concerns that the banks are having right now. We are solid. As you may remember, we just started really bringing on mortgage products about 3 years ago and we never did any loans that were interest only ARMS, stated income or any of the other “high risk” exotic mortgages that have caused this meltdown.

Unless things get a lot worse, your money’s safe in the bank. And if it’s not…well, then we’ve got bigger things to worry about.

Scary times

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Well, we all had quite the adventure yesterday. I woke up an hour ago—12:30 in the morning local time—wondering if I should move all my investments into the money market. Nothing like the dead of night to ramp up the panic factor.

In fact, though, I see that Vanguard lost all of $738.13 against many tens of thousands of dollars, and so I’m feeling a little saner.

Don’t have up-to-the-minute data on how the big IRA (a different fund) that Stern and Reimer manage is doing, but in past slumps Stern has worked the occasional small miracle. Checking the current holdings, I see he dumped Morgan Stanley and AIG a while back…and interestingly, we own Bank of America. How does that man know? He’s bought my son’s employer, so I guess he doesn’t expect that outfit to crash in flames soon. A fair amount of oil: Occidental, Exxon, and Conoco Phillips. And…hmmm…he’s moved a ton of money into cash reserves. Yipe!

At any rate, I guess I won’t be going broke soon. Later, maybe, but not today.

Another bullet dodged

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So, once again I’ve escaped the attention of upper management. In the current “reorganization,” eighteen chairs and two deans were demoted, twenty-eight administrative and support staff were laid off; and an unknown number of unannounced layoffs continue to lay waste to the custodial crew.

My dean, thank all the gods on Olympus, remains in place, and so do I.No hiring freeze was announced, so the search for the replacement for the director of the program whose graduate students staff my office continues apace.This means I have a job (probably) at least until the end of my current contract, next June. By then I can retire with no serious harm, although, like Bartleby the Scrivener, I would prefer not.

Whew! I could practically hear that slug whistling through the air past my noggin.

Times are getting bad, possibly worse than most of us realize. La Maya reports that in California her niece, who has been working for the booming prison industry at a very nice salary, just learned her pay would be cut to a little over $6 an hour — minimum wage! Picture trying to live in California, anywhere in California, on that!

If you’ve got a job and you can hang onto it, cling for all you’re worth. This is not a time to make reckless moves.

Be afraid. Be very afraid.

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Great galloping ZOT! Did you read Stephen Mihm’s article in last Sunday’s New York Times Magazine about Nouriel Roubini, the guy who predicted the housing meltdown, the fuel price shock, the decline of consumer confidence, and a recession? They laughed when he sat down at the piano…but few are scoffing now.

Roubini, who is pictured looking very worried, glancing skyward as though he were expecting an asteroid at any moment, has more to say about the future of the US and world economies. A “permabear” who considers himself a realist, he has been predicting for months that the current recession will be the worst since the Great Depression. And speaking of the national debt, as we were quite recently, Roubini has said that foreign investors will stop financing the U.S. national deficit and abandon the dollar, quite possibly leading to the demise of the American empire. As Mihm explains:

For months Roubini has been arguing that the true cost of the housing crisis will not be a mere $300 billion — the amount allowed for by the housing legislation spons0red by RepresentativeBarney Frankand SenatorChristopher Dodd— but something between a trillion and a trillion and a half dollars. But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

Roubini argues that most of the losses from this bad debt have yet to be written off, and the toll from bad commercial real estate loans alone may help send hundreds of local banks into the arms of theFederal Deposit Insurance Corporation. “A good third of the regional banks won’t make it,” he predicted. In turn, these bailouts will add hundreds of billions of dollars to an already gargantuan federal debt, and someone, somewhere, is going to have to finance that debt, along with all the other debt accumulated by consumers and corporations. “Our biggest financiers are China, Russia and the gulf states,” Roubini noted. “These are rivals, not allies.”

Some argue that this view is unduly negative, and that Roubini’s apparent prescience about the present turn of events is coincidence: “Even a stopped clock is right twice a day,” says economist Anirvan Banerji in a stunningly unoriginal turn of phrase that inspires little confidence in the thinking behind it. And Roubini himself does not diet exclusively on gloom and doom: he’s been predicting, with the rest, that oil will drop below $100 a barrel and supports the government’s strategy to bail out overextended lenders. He believes that whenever the current mess is cleaned up, the economic outlook will improve.

Nevertheless, when you consider that we have made our country dependent on sovereignties that are not our friends, you have to allow: the guy has got something there.

Check out Roubini’s blog, where the man speaks eloquently for himself.