If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

There was a time when it was common for corporations to create long lived assets with borrowing. It may take several years to build a steel mill or a power plant before there is something to sell, but loan or bond payments will come from revenues and the economy will have more steel, more electricity and more assets.

Banks, or financial intermediaries as they are called now, are still happy to make loans for plant and equipment. Trouble is there are more loanable funds to loan than borrowers willing and able to borrow for long lived assets.

As a result, banks make more consumer loans that support consumption spending like credit card debt. Loans that support consumption helps support jobs and the economy and provide an outlet for savers looking to earn interest income. However, credit card purchases like vacations, housewares and clothing have little value as security for credit card balances.

The home mortgage should be a secure loan because a home is a long lived asset. It used to be that Savings and Loans would make mortgage loans at 6 or 7 or 8 percent interest and the home would be the asset in case of default.

Lenders with home mortgages on their books could sell their mortgages if they needed to raise cash but they would tend to hold them to maturity, earning a steady income. In case of selling a mortgage it would usually be sold to another financial institution such as the Federal National Mortgage Association.

That changed when adventurous money managers started to buy thousands of mortgages and bundle them for resale into something like to a bond that pays interest on invested principal. They call them collateralized mortgage obligations (CMO) or collateralized debt obligations (CDO). In that way, mortgages could be resold to smaller investors who would not normally be willing or able to buy individual mortgages.

What is important to notice though is that repackaging and reselling mortgages does not create new assets. Reselling mortgage credit means more transactions that allow money managers to charge management fees and potentially make money with price fluctuations in CDO prices.

Bear Stearns held collateralized debt obligations in their hedge fund, but apparently so many of the underlying mortgages were to people who were sub prime borrowers that defaults set off a chain reaction. Since Bear Stearns borrowed money to buy collateralized debt obligations for their investors, they defaulted on their loans and threatened the solvency of major banks.

With so many new ways for money managers to attract savers, it is more important than ever to notice the underlying assets and ability to pay.

Did Bear Stearns investors know so many of the underlying assets were sub prime loans? Savers beware!

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

This week's Carnival of Personal Finance was hosted by Prime Time Money, and it included Savings Onion: Where Our Money Goes.

Here are a few of the highlights from the carnival:

Is your savings account costing you? - OneChanceToLive

It is not only possible that your savings account is costing you money, but it is highly likely!

How to Stop Living Paycheck to Paycheck: 7 Steps - Discover Debt Freedom

If you're tired of living paycheck to paycheck and never having any extra money around to save or take a holiday, there are a few things you may be overlooking that could help you stretch the money you make while reducing the amount you have to pay each month.

Reminders from Omaha - Goal of Financial Freedom

Everyone wants to invest like Warren Buffett and Charlie Munger. I was able to find this article talking about the 6 timeless advice offered by Warren Buffett that we should all think about.

I just heard a story on the TV about a guy who wants to sell his gas guzzler and get a high mileage car to cut his gas bill. Trouble is he owes $8,500 on his car loan and all he can get for his guzzler is $3,000.

He loses $5,500.

As all good savers know, he should only sell if he can save a minimum of $5,500 plus interest. According to the United States Department of Transportation, the average passenger car travels 12,400 miles a year and gets 22.4 miles per gallon for gas. That works out to 46 gallons of gas a month with a monthly fuel bill of $184 if we use $4.00 a gallon for the gas.

I regret to say that is probably low, but we will go with it.

Double his gas mileage and he saves $92 a month. Figure a savings of $92 a month for 5 years at 4 percent interest, and the savings is $6,119.84. Sad to say, but the $5,500 he loses would also accumulate interest. If we use the same 4 percent interest over the same 5 years, the total he loses is $6,715.48.

He loses $6,715.48 to save $6,119.84; a net loss.

This particular comparison does not account for the price of the new car, only the loss on the trade. If we assume he is going to own a car, either an old one or a new one, the premature trade represents the loss from not using the remaining life of the old car, which I hypothetically set at 5 years.

Different interest rates or time remaining for the life of the car will affect the result.

However, the most important comparison is the price of gas. Using $5.00 a gallon with the same mileage and interest rate, savings will hit $115 a month with a total of $7,649.80. At $5 a gallon, he can save doubling his mileage.  He should trade the car. For those with mileage over the average of 12,400, saving gas money also will be more likely to pay.

I did the calculations on MS Excel using the FV, future value, function. It has a help file. Try it yourself for your exact situation.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

ING Direct is rolling out a new advertising campaign and Web site focused on determining how much money you need to retire.

ING Your Number (http://www.ingyournumber.com) is a financial calculator for figuring out "your number" — meaning, the amount of money you need to live at a level you'd like in retirement.

On the Web site, you're given a Flash presentation where you insert six fundamentals for determining your number:

- Current Age
- Marriage Status
- Household Income
- Expected Retirement Age
- Desired Income at Retirement
- Age until you'll need the income

After your number is determined, ING points you to financial professionals whether you have one or you don't.

At first use, it seems helpful — you've got to know where you're going before you can get there. But at the same time, how are you supposed to know how much you'll need to live on in retirement? (It may not be the 80% often quoted.)

And, more importantly, how can I figure out when I'm going to die? (Death clocks not withstanding)

Now that ING owns ShareBuilder, it makes sense for them to be making a bigger deal out of investing for the future. We'll see how long the "your number" campaign plays out.

Americans $1.7 trillion poorer — CNNMoney.com

Americans saw their net worth decline by $1.7 trillion in the first quarter - the biggest drop since 2002 - as declines in home values and the stock market ravaged their holdings.

Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level ever.

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.

Wowzas, right?

Some of this is obviously inflated, since falling housing prices (which were off the scale during the bubble) made up $305 billion of the decline. But the news isn't that encouraging.

At the same time, there are now more than 1 million homes in foreclosure.

Are you a part of the net worth decline? Even if your home value has dropped, is your net worth (outside of real estate) doing the same?

Leave a comment and tell us.

Saving is easy, especially when you pay yourself first. With automatic transfers and recurring investments, you barely have to think about pocketing money for the future.

But where should your money go? Should it be for the short term or saved for retirement?

This is the question you need to answer.

Like Dave Ramsey's debt snowball, there are some layers to your savings; hence, the savings onion.

Our savings onion started with an emergency fund. It's the place to fund first since you never know when you will need it. We live with 3 months of expenses in our emergency fund, since we are also saving for a house in a liquid savings account.

If you're getting started, reach for a goal of $1,000 in your emergency fund. It won't help you for too long if you lose your job, but will cover any emergencies that pop up (and they do).

After we got 3 months of expenses in our emergency fund, we stopped contributing money. We've used it when our windshield cracked thanks to a rock in the road, but thankfully, that's it.

The next step of our savings onion is retirement accounts. At work, I began contributing 6% of my salary to a 401(k) — enough to get my employer match. When I got a raise, I automatically bumped it up to 10%. If I never see the money, I can't spend it!

To increase our retirement savings, we each opened up Roth IRAs. We started out only contributing $100 per month each, but have been able to increase our monthly savings and were able to fill up the accounts.

The Roth IRA contributions were automatic — no need to manually make the transfer. With that layer of savings going, we moved on to the next step: saving for a specific goal.

In our case, we're saving for a house. Since we wanted to be aggressive hitting this goal, we set up automatic transfers from our checking account to a new online savings account — for a year. Our first year of autopilot savings was a huge success — in addition to the money being put away automatically, we transferred every extra penny at the end of the month into the account.

Thanks to the "extra" savings at the end of each month, we were able to triple what our automatic deposits would have contributed during the normal year.

Our Savings Onion

Starting with the outside, here's what our saving onion looks like:

Specific Goal (a House)
Roth IRAs
401(k)
Emergency Fund

What does your saving onion look like?

Savers usually think saving means saving and investing money. Some people save all sorts of things, which is why I happen to have the complete federal income tax forms and tax schedule for 1975, even though I am not the one who saved it.

I think 1975 taxes have relevance today because I saw an article in The Washington Post on May 15th entitled "Democrats War-Funding Bill Adds Surtax on Wealthy." Someone in Congress called it the "Patriots Premium."

The Patriots Premium would tax couples earning $1 million dollars or more at a new tax rate which is one half percent higher than the current rate. For single people, the half percent applied to income over $500,000.

Current tax rates call for couples earning over $349,000 to pay a top tax rate of 35 percent so the new tax rate must be 35.5 percent on wage and salary income. If we take a couple earning $1 million and we apply a new 35.5 percent rate to gross income of $1 million, they will pay $31,980 dollars more than they are liable for now.

The calculation uses two exemptions, the standard deduction and also assumes the couple earns all their income as wages and salaries and therefore without dividends taxed at lower rates.

In 1975, couples paid a 70 percent tax rate on every dollar of taxable earnings over $200,000. Today's top tax rate is just half of what it was in 1975.

Now we all know there has been lots of inflation since 1975 so that $1 million today is not the same as $1 million in 1975. Actually, the Bureau of Labor Statistics consumer price index (CPI-U_RS) shows a 342 percent increase since 1975.

If we adjust the $1 million today to compare with 1975, the result is $292,397.66. We could also say $292,397.66 of income in 1975 is the equivalent to $1 million of income in 2007.

Compare the 2007 income tax for a couple who earns $1 million with the income tax for a couple earning $292,397.66 in 1975. Today's couple above would pay $318,461.00 of taxes. That is 31.85 percent of $1 million gross income.

Apply the 1975 taxes to the 1975 equivalent of $292,397.66. The 1975 tax comes to $173,838.36. The amount is 59.3 percent of gross income. Apparently Congress and the country had much different ideas about the duties and tax responsibilities of the well-to-do in 1975.

The proposal to raise the rate from 35 to 35.5 percent is to fund educational benefits for returning Iraq veterans, but it has outspoken opposition and it is not expected to pass. The times they are a changing.

What about that, savers?

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

HSBC Direct has increased the APY of its online savings account to 3.50%, up from 3.05% (press release).

But here's the catch: it's only until August 15, 2008.

“We are committed to helping our customers get the most from their money, and we constantly look for ways we can reward them,” said Kevin Martin, executive vice president and head of HSBC Direct U.S. “Increasing our HSBC Direct Online Savings Account to 3.50% — when other savings rates have been falling — gives new and existing customers an even better reason to start saving more.”

Why HSBC would choose to make the rate change a temporary one (or announce it as a pre-planned temporary adjustment) I'm not quite sure. My best guess is that they are trying to get to the top of the APY lists for people looking to save their economic stimulus checks.

We currently use HSBC to hold our housing fund, and while the online interface can sometimes be a bit klunky and they take their time moving money around, their rates have always been competitive.

HSBC follows E-Trade as one of the only banks to increase the rates of their online savings accounts in the recent past.