Articles by Frugaling

What If Hollywood’s Portrayal Of Wall Street Were Real? Bankers Would Be Jailed

Bubbles burst: The rising action

On October 19, 1987, Wall Street crashed in one of the worst days ever. The financial world called this horrific day, “Black Monday.” The market was up 44% in the seven months prior to the implosion, and a solid bubble had formed. Various events simultaneously led up to that date, and the market crashed. We were supposed to learn from our mistakes, but we never do.

Just two months after the crash, the film Wall Street debuted. The fanfare was incredible. Here was a market that was reeling from excess, greed, and smarmy bankers. Now, a movie capitalized on America’s dislike for financiers. The tragic irony is that instead of crushing and discouraging careers on Wall Street, it has only seemed to encourage what it vilified.

Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A. —Gordon Gekko

Banks hardly struggled hiring scientists, engineers, and other people that make millions to trade in derivatives, bundle credit default swaps, and apply their mathematical talent to make even more money. Instead of manufacturing and creating, they’re pushing money.

In the above clip from Boiler Room, a young Vin Diesel can be seen reciting an essential part of the movie Wall Street. The fellow traders look on; all knowing the lines, as well. While Boiler Room may simply be a fictionalized tale of pump-and-dump schemes, it appears to highlight a truth: when traders heard Gordon Gekko say “greed is good,” they believed it.

See, in our current paradigm, it doesn’t matter what you say. As an analyst, banker, trader, etc., you can spout off what you want and never suffer retribution or consequences. In fact, you’ll usually be given a bonus, more time on tv, and an opportunity to be touted as a Wall Street success story.

Needing, wanting, desperate for money: The conflict

I’ve talked to a few friends that entered banking and financial positions. The heart of Oliver Stone’s Wall Street is missed by many of them. What’s comprehended is a surface level understanding of the antagonist — pre-jail sentence. It all adds up to a simple conclusion: Make your money, stay out of jail, and the hell with consequences.

Today’s movies are an extension of the same horrific story. Usually, some sort of humble but nascently narcissistic young man gets exposed to the world of money. They want a better life — sometimes for their families and sometimes solely for themselves. By becoming a trader, pumper-and-dumper, or insider, the riches seem easy.

Warning shots are fired. Loved ones beg Jordan Belfort and Seth Davis — repeatedly — to stop engaging in questionable practices. They urge them to change their ways before it’s too late and the FBI comes knocking. Even after that, some of them can’t stop their errant ways. The money is too great to stop.

Get your bonuses, cars, and women: The climax

In the Wolf of Wall Street, Jordan Belfort cheats on one woman after another, lies to each, and gets away with everything. Nearly every movie about Wall Street portrays bankers in this way. They seem to be saying, “The hell with authority. I don’t need to worry.”

This is the good life. They are fighting for it, with every last breath. In the movies, you know that the authorities are on their tail. You can see that all is not well. You’re omniscient to the steep, precipitous decline that’s in order. In real life, the good life will likely be maintained.

Everything is collapsing: The (false) falling action

Here’s where I wish that these fictionalized accounts were based on real life. It doesn’t take long to realize that bankers and traders are regularly engaging in questionable business practices. Their monies are too great — even for the authorities (i.e., too big to fail). By standing behind corporations, it’s rare if anyone takes the downfall. The corporation bears the responsibility. Just look at the recent HSBC money laundering for drug cartels and terrorist groups.

At least in the movies someone gets put in jail nearly every time. Nowadays, that’s a rarity. In fact, most bankers don’t even need to admit wrongdoing through a “guilty” verdict. No, all they need to do is pay a government agency a paltry sum that barely equates to a couple week’s revenue. The punishment is a slap on the wrist and the individual profits are retained — the bonuses and salaries are kept.

FBI and governmental hearings are a joke in many instances. Senators take bankers “to task” and “grill” executives with “tough” questions, which are then placed on YouTube with those key phrases. Usually, the words are used by a Congressperson’s own staffers. They become packaged up junk that can be brought back to angry constituents. They seem to be saying, “Don’t worry, your Congressperson is doing something, look at this video!”

Yelling, calling, and shouting at bankers isn’t what this market needs. We deserve better than that. The market needs better than that.

Nothing is worse than watching the scenes after each other. For example, check out the following scene from the Wolf of Wall Street. Here, you’ll see Jordan Belfort and his cronies deny all wrongdoing and recollection of maleficence. Compare that to the previous, real life instance with Goldman Sachs.

Nothing gets done, learned: The (false) resolution

It gets old, but every time a bubble bursts, bankers commit a crime, and/or the average American suffers, the White House and Congress get vocal and appear furious. The previous section shows their powerful vitriol.

After the verbal aggression ends, and the stories calm down, everyone stops talking about issues in the financial markets. Instead, we’re back to exclaiming how wonderful it is that the market is at all-time highs — doomed to repeat our mistakes. Will we ever learn?

While Obama and Congress will speak up immediately following every criminal activity or crash, by not receiving harsher punishments, bankers can gamble on. American may not condone the action of HSBC executives for laundering money for cartels, and slap them with $800 million in fines, but the executives walk free. We’ve created a unpunishable playground for adult children — only seeking their own selfish desires for more and more wealth.

We move on from bank to bank, bubble to bubble, and history just seems to repeat itself. We don’t seem to learn from our financial mistakes. We don’t truly censure, reprimand, and jail those who commit financial atrocities (on television or in boardroom meetings), either. We’ve created a perfect poison for market movers to manipulate our wallets in the grandest stadiums of all time.

How many times will the average American suffer from this repeated bubble and burst cycle, market manipulation, and financial greed? When will we act to prevent these actions from ever happening again?

Account For Depreciation, Save Your Budget

By Frugaling 7 Comments

Broken Computer Flickr Creative Commons Tech Devices — *Photo: flickr/youngthousands*

The 21st century doesn’t seem to prevent technology from aging rapidly and becoming obsolete after a couple years. A couple of my devices recently died, and I’m on the cusp of another big tech failure. I just don’t have the money to replace anything. This could spell trouble for my precariously balanced budget.

My devices are failing me

Three months ago, my Amazon Kindle broke. I traveled the globe with that device and read hundreds of books over its lifespan. After four years of heavy use, the screen died and the internal motherboard stopped working properly. It probably didn’t help that I spilled a glass of orange juice in the keyboard of this device (watch out for this theme). Rather than simply throw it away, I auctioned it off on eBay and recouped about $25. Not bad considering it was broken and about four years old.

Amazon’s Kindle costs about $120.

I just chucked my Apple headphones in the trash. After nearly two years of intense use and travel, they’re broken. I don’t go a day without listening to music on my iPhone, and most of the time I used those headphones. I had tried extending the life by using electrical tape and trying to reseal certain areas on the headphones. For a while, that worked. Unfortunately, they worsened. They’ve been answering/ending phone calls automatically and starting/stopping music at random. Not a pleasant surprise when you begin answering phone calls to telemarketers.

Apple’s in-ear “earpods” cost about $30.

What if my computer breaks?

I bought my 13″ Macbook Air in mid 2011. It’s my favorite computer I’ve ever owned, and I’ve avoided an upgrade. While I still yearn for a newer model, I can’t afford to buy one right now.

Like my other devices, it gets exposed to some serious travel and abuse. After about a year of owning the laptop, I spilled a full glass of chocolate silk in the keyboard (notice the theme?). It fried the top assembly. I brought it to a repair store to try and save it — the cost was about $400 to fix. I remember looking at that price and thinking, “I could buy a brand new Windows laptop at that cost.” I decided to go ahead with the repair, as the system could be saved.

Now, about three years old, my trusty laptop is starting to slow down. I can tell that the cooling fans aren’t working properly. This is likely damaging important processor components and could threaten my data. It’s a recipe for disaster. At some point, my laptop will likely overheat and fry itself. Until then, I work on nearly everything in the cloud and save frequently.

Apple’s Macbook Air costs about $1000.

Account for losses, use depreciation schedules

When you purchase a computer, like a new car, it immediately loses a bit of value. Over time, the depreciation continues. The Internal Revenue Service (IRS) has specific tax depreciation rules that can be used for the following:

Most types of tangible property (except, land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible property, such as patents, copyrights, and computer software is depreciable.

These properties can be deducted from income schedules, but are only to be used by businesses. You cannot deduct for physical product depreciation as an individual. Luckily for me, my computer is primarily a business tool — seeing as I use it to write.

Modified Accelerated Cost Recovery System MACRS — Screenshot of a Modified Accelerated Cost Recovery System calculator

Irrespective of whether you can claim a tax deduction, it’s important to learn to account for depreciation in vehicles, electronics, and intangibles (i.e., software). But this is where calculations get sort of complicated. Essentially, depreciation is a governmental science that averages your losses on a product, which is based on your cost basis (the original price paid). If I bought my computer in 2011 for $1000, then the depreciation expense that can be deducted from my taxes is $58. That’s a loose estimate from this calculator.

Even if you don’t claim business tax deductions, calculating depreciation through this method and then including the $58 loss in your budget for 2014 is very important. If I had properly accounted for the further losses of my headphones, the Kindle, and my Macbook Air, I would be in a better financial situation.

Eventually, things fall apart. It’s a known truth. After losing my Kindle and headphones to failure, I looked at about $125 in losses. If my computer goes, too, I’m in trouble. In the future, I’ll be looking to account for depreciation to avoid budgetary surprises that could leave me reeling.

Also, I’ve learned that I need to keep liquids away from keyboards.

Relationships And My Leaky Budget: Learning To Fix Myself And Save Money

By Frugaling 5 Comments

Single, lonely, and spending money

When I was younger, I felt lonely. We’re talking a crushing, oh-shit-the-world-is-empty type. I wouldn’t say I was a deep thinker, but my questions seemed more macro — larger than the everyday.

I use to draw a lot. My art was dark and moody. Often, I seemed to be expressing my disdain for life, and the sadness I felt inside.

I spent money like it was going out of style. I couldn’t resist buying a $1,000+ dollar road bike on a whim, even though I had barely showed any interest in cycling. Oh, and there was that gambling problem, too.

The cash in my wallet was merely an intermediary between work and stores — singlehandedly feeding the consumption our economy supposedly needed. I didn’t save money. It was meant to be spent. I was definitely dissatisfied with life. Another part was fearful of dying too soon. I spent so much money trying to avoid those feelings.

Looking back, I know I made huge spending mistakes. Only now can see how that affected me.

Coupled, insecure, and still spending money

Unfortunately, my spending didn’t resolve itself because I was suddenly in relationships. I thought that would fix everything. When partnered, I felt compelled to impress, treat, give, and spend. I wanted to be easygoing — I tried so hard to be — and spent like it was the end of days.

I couldn’t save money. I was spending whatever I had to make someone else happy. In the process, I only grew more unhappy and indebted to a bank; that affected my girlfriends, too.

Deeply insecure and and spending without pause, my budgets always crumbled. My desire for frugality was bashed in by insecurities and inner loneliness. I cannot tell you how many times I thought, “Am I worth it?” That question always hurt.

Put the oxygen on mask on yourself before helping others — Maybe it’s a trite cliché, but sometimes you have to put the mask on yourself before helping others.

Single and saving money

Back then, I was withering under the pressure. Something shifted in me. Nowadays, things are slightly different; not perfect, but better. I’m able to evaluate situations in fairness and calmly make the next steps for a longer-term future.

I’m single again. Rather than feel lonely, I notice a new security and happiness. I’m surrounded by friends and people I care deeply about, while working tirelessly to help others through my work (counseling).

Every now and then, hunger pains for spending stir in me. I sit before my laptop — a four-year-old Macbook Air — as it whirs away inefficiently and slower than it used to operate. I feel a pull to spend more than I currently have to buy a new laptop. I’ll wait.

I see a wonderful Patagonia shirt, which is accidentally being advertised to me through a YouTube personality. It makes my mind cue up a desire for one of my own. Before I buy that $70+ shirt, I remember what I’m trying to do, and resist the purchase. I’ll wait.

Staying present, focused on my goals

Unlike past years, when I felt isolated and alone, I’m (mostly) secure and hopeful. I’m excited with my days — blown away by the meaning I derive from both my play and work. Somehow the spending is more on my terms.

When I pull out my cash or cards, I know why I’m doing it. I’m not paying off demons inside my head or distracting myself through conspicuous consumption. No, I’m interested in being intentional, thoughtful, accountable to myself and others. When I have a healthy, balanced budget a remarkably simple consequence occurs: I feel positive, too.

That’s what I’m working on.

Starbucks Reserve Coffee: A Symptom Of Income Inequality

By Frugaling 13 Comments

Starbucks Reserve Coffee Expensive Income Inequality — *Just got a fresh cup of Starbucks Reserve coffee. It only costs $4 per cup!*

More companies are moving to two-class business models — catering to a growing divide in income brackets. Essentially, it’s the difference between the dollar-menu and the deluxe package. Look no further than your local Starbucks, where they created an elite status for coffee drinkers. It’s called, “Starbucks Reserve.” Like our broader economy, it’s not made for everyone — intentionally.

Reserve drinks come in a black Starbucks drink sleeves which say, “Exotic, rare and exquisite coffee.” Today, I got to order one because I’m using a free drink reward from a 12oz bag of coffee. In a way, I’m circumventing the traditional class system of drinks.

Before choosing a Reserve coffee, the employee tells me she recommends the fancy-something-sundried-special-faraway-coffee. I’m out of my element, and gladly accept the suggestion. All I know is that I’m drinking something from Hawaii and it’ll be brewed on an $11,000 machine. It’s supposed to be good.

When I look up at the menu board above the employee, I gasp at the price: $3.95 for a tall (12oz) cup. At more than $4 per cup after taxes, the Kona Perry coffee is the most expensive coffee choice by far. A normal cup of coffee at Starbucks is half the price — about $2.

I’m was reeling at the exorbitant price. I thought, “How can someone spend $4 for a cup of coffee?” It’s then that I realize something stupidly simple. The economy is more divided than ever. Perhaps this an oversimplification, but the middle class is quickly disappearing. The popular buzzword is income inequality. Starbucks’s response is a new, atmospheric price structure that caters to the wealthy.

After a couple minutes, the barista says, “Sam, your tall Kona Perry coffee, brewed on the Clover machine, is ready.” I gingerly pick up the coffee and realize they’ve purposely advertised my status/drink to everyone in the building. While smart marketing, I’m frankly embarrassed by the complexity of my order. I feel like apologizing to those around me. “Sorry, it was free, I assure you I didn’t just pay more than $4 for black coffee!”

I take my first sip, and immediately notice how smooth it is. It tastes wonderful. For a moment, I imagine $4 being totally worth the expense (despite being more than my lunch on most days). I take another sip, and smile. I take another sip and realize how nice it is to pretend I’m wealthy for a day. This is the good life — for a moment.

As the drink disappears, it occurs to me that I don’t know how this compares to the lower priced Starbucks coffee. I’m not sure if I’m tasting class or actual quality. Is my mind playing a trick on me? Is the quality all psychological? Whatever the reality, I can’t afford this regularly. It’s a nice treat/aside from the everyday option. I see this as a growing business model for most industries (from airlines to restaurants to hotels). Unfortunately, as the economy becomes more polar and divided, so do consumables. Starbucks Reserve coffees are just a consequence of this income inequality.

Account For Depreciation, Save Your Budget