Thursday, July 26, 2012

3 Ways to Save Money on Utilities

Your water and electricity bills are usually the biggest bills in your house after you pay your rent. How can you lower them? Do you always have to pay so much? Well, here are three tips for cutting down on your utility bills and making the most of your paycheck.

Unplug it 

 A huge waster of electricity is called phantom usage. This happens when you are not even using your appliances but they are still plugged in. Did you know that leaving your cell phone’s charger plugged into the power outlet, even when your phone is not charging, can be using electricity? This electricity usage is commonplace with all the things you leave plugged in. Unplug your appliances instead of just turning them off. You will lower your electricity bill and not ever miss anything!

Less is more

 Conserving water and electricity is not had. All you have to do is keep it on your mind. Turn off the water when you brush your teeth or do the dishes. Take shorter showers: that saves on both water and electricity by heating less water in the water heater. Turn off the television and lights when you leave the room. Do not leave the porch light on all day. These little things can add up to big savings.

Save Money on Utilities

Laundry habits

Another big expense is doing laundry. If you wash a lot of little loads then you need to stop. Wash only when you have a full load and try to use cold water as often as you can. Almost everything can be washed cold except very dirty things. Additionally, you can use the dryer less or not at all by taking your clothes out to hang dry. If you do not have room for a clothes line, you can buy a wooden clothes rack for not much money at the super store. If you are worried about stiff and uncomfortable or wrinkled clothes then you can dry them almost all the way and throw then in the dryer for ten minutes. Voila! Clean, soft and wrinkle-free clothes for much cheaper.

No matter what kind of home you have or where you live, you can use these three tips to lower your utility bills and make your paycheck go further. Try them out today and see how much you can save off your next bill.

Monta the mother of three children serves as an Expert Advisor on multiple household help issues to many Organizations and groups, and is a mentor for other “Mom-preneurs” seeking guidance.  She is a regular contributor of “find nannies”.  You can get in touch with her at montafleming6Atgmail dotcom.

Commercial Policy for Your Work Vehicle



Whether you're delivering pizzas, hauling materials or chauffeuring clients, you may need to use your vehicle daily as part of your job. What you may not realize is that this use of your car has an effect on your auto insurance policy. Your risk category is higher when you use a car for business purposes, meaning that your rates will be higher than if you drove for pleasure alone. Moreover, insurance companies may deny claims for accidents that happen when the car is used for business purposes.

How Risk Categories Affect Insurance Prices

Insurers determine how much to charge for a policy by assessing a driver's risk. As a rule, people who spend more time behind the wheel will pay more for insurance because they're exposed to the most possible crashes. This means that drivers who commute to work pay more for insurance than those who work from home, and people who use their cars for business pay more than those who don't. 

For many business uses, a personal insurance policy will be insufficient. For example, if you're a delivery driver, your insurance company may deny an accident that occurs while making a delivery. This can put you and your employer at risk of costly lawsuits. Many employers do not provide ample insurance to cover your vehicle, so it's important to do your own research and purchase a policy that will handle your car's business usage. 

Even more importantly, your insurance company may cancel your policy entirely if they realize that you're using the car for business purposes. This may occur between policy terms or after a claim has been filed. Once the policy has been cancelled, it will be harder to find an affordable carrier. It's much better to be up-front with your insurer and see what options are available for commercial coverage rather than taking the risk of losing insurance due to business use.  

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Buying Commercial Car Insurance

Many private insurers provide commercial auto policies for business vehicles. Your current carrier may even be able to convert your existing policy to a commercial account with minimal cost difference. Though you may be a high risk as a private driver, you'll be very low risk compared to other commercial customers, so you might qualify for fresh discounts. Be sure to review the coverages carefully and only get the protection that you need since not all coverages will apply to small-scale business usage. 

Before buying a commercial policy, be sure to discuss your options with your current insurer. Your agent will be able to review your specific situation and decide whether you really need a business policy or not. If so, he or she can write a new policy or refer you to a company that can provide coverage. You can also comparison shop online for commercial auto insurance rates to find a new provider. 

Mandi Mangleson lives and writes in London. She writes for www.carinsurance.org.uk where you can find more information on car insurance, trips, and tips for saving money when you drive.

Thursday, July 19, 2012

MBA Diversity: A Constant Effort to Catch Up

For the past three decades, top business schools have hustled every way they can to improve levels of diversity on their campuses. They have aggressively recruited under-represented minorities (URM) and women. They have participated in pipeline programs like the Consortium. They have sponsored scholarships and funded fellowships.

But two weeks ago, a Wall Street Journal article suggested that for many schools it's a one-step-forward, two-steps-back effort. Graduate business schools from Harvard and Stanford to the Consortium 17 have made praiseworthy progress among some segments (Asians, internationals), but insubstantial progress in others.

"While many top programs boast that ethnic or racial minorities comprise a quarter or more of their student bodies," the Journal's Melissa Korn wrote, "most of that population is Asian-American, a group that is statistically overrepresented at business schools when compared with their proportion of the U.S. population at large." Among blacks, Hispanics and Native Americans, the numbers are still low, she reported, "a sign, some say, that b-schools have much more work to do to attract students."

So what's the trend? In what statistical rut are business schools mired? At some schools, why have there been disappointing trends in URM applications?

The Journal reports that many of the top schools promote proudly the fact that in recent years in any given class, minorities make up over 25 percent (over 30 percent at many schools). Yet for under-represented minorities (excluding Asian-Americans), the percentages hover near 10 percent and below with little discernible improvement over the past several years.

The Journal and others, therefore, refer to "degrees of diversity."  Certain ethnic groups, nationalities, and geographies are well-represented. Other groups are not.

Take a peek at recent numbers.  Almost all top-tier business schools provide updates and class profiles and report the information in a similar manner, which makes for fair comparisons. Some schools, such as Yale and NYU, report the percentages of both minorities and under-represented minorities.  Minorities (U.S. residents only) comprise 25% of last year's first-year class at Yale (SOM). Under-represented minorities (blacks, Hispanics and Native Americans), however, consisted of only 7% of the class.  At NYU, the percentages were 34% and 16%, respectively. 

Consortium CEO Peter Aranda was interviewed in an accompanying Journal article about the same topic and challenge.  "(Business schools) have a role in preparing future business leaders to succeed in the environment we live in, where someday soon everyone will be a minority," he told the Journal's Korn. "One of the things that troubles me about the MBA curriculum is that it pays attention to diversity from an employment perspective only. We need to look at diversity as a strategic initiative. How do we develop goods and services for niche markets? How do we communicate through marketing vehicles that resonate with those communities?"


The original article touched nerves and attracted a flood of comments, many from anonymous readers making careless, insensitive statements regarding the value of diversity. Some readers harshly criticized business schools for bothering to make it priority.  Some respondents swore off diversity and wished people would stop the discussion or apparent obsession. Aranda explained why businesses must care.

The deans of the same prominent business schools might admit among themselves that a whining chorus of anti-diversity makes it harder to improve statistics. Many in this chorus prefer business schools to admit solely on the basis of GMAT and GPA scores and let the numbers and percentages fall where they may. To their credit, the schools' admissions offices remain steadfast in their effort to "compose" a class of excellence, competence, diversity and variety.

The diversity challenge also incorporates business schools' ongoing struggle to ensure women are sufficiently represented on campus. Whether it is women or URM, some schools see progress in some years only to see a sudden, inexplicable downturn in other years. Many schools are not quite sure whether success is a 50-50 male-female ratio or success is ensuring the percentage of women never falls below 30%.  At UCLA, NYU, Dartmouth and Yale (all Consortium schools), women comprised at least 33% of recent classes. At Harvard, 40%; at Columbia, 35%.

What are the ongoing problems and challenges for business schools? Why has there been this statistical rut among URM? What can business schools do to encourage more applications?


1.  Convincing URM of the value of an MBA. MBA candidates must address a list of introspective questions before they launch the long process to apply and get admitted to a top school: Do I need an MBA? How I can use it to reach certain professional goals or achieve success in business? Can I pursue the same goals without it or with other degrees or certifications (JD, CPA, MS, or CFA)?  Can I gain similar knowledge in other ways (other graduate courses, part-time programs, online programs, in-house corporate training)?

Business schools seek to convince women and those from URM that the MBA has long-term (or life-time) value and is worth every bit of pain it takes to apply, get in and get out. Sometimes schools stumble and fail to get candidates to apply. The numbers show it, as applications from URM groups haven't increased significantly over the years. Moreover, all candidates (especially those from URM) wrestle with other troubling factors (salary loss, opportunity costs, relocation, getting reacquainted to rigorous academic study), factors that undermine any value they determine the MBA has.


2.  Convincing URM there will be opportunities after graduation and a fair chance to pursue them. Most candidates who apply to top schools understand the difficulties of getting admitted, the chores in preparing and submitting applications, and the tough course load.  Applying to Dartmouth, Chicago, Northwestern, Stanford or Virginia business schools is an exhaustive process, although programs such as the Consortium and MLT make the process easier. Applicants study for the GMATs, arrange for recommendations from reluctant bosses, write a batch of essays about their career visions, and arrange for interviews, knowing the chances for admission at top schools is slim.

They know, too, business school at Michigan, Virginia, Dartmouth or Yale will be hard. The hours are long. Students have little down time. They don't know, however, if the hard work, time, strain and perseverance will pay off.

Those in URM groups don't want guarantees that an MBA from Cornell will win them six-figure entry-level spots at Merrill Lynch or McKinsey; they usually just want assurance there is a fair chance and reasonable opportunity that two solid years immersed in school will lead to something promising.  Pursuing an MBA involves taking a risk. Candidates assess that risk in the same way they might assess an investment opportunity. If they perceive (as some minorities do in some industries, such as private equity, venture capital or hedge funds) they won't have a fair chance or they won't be able to establish contacts within those networks to earn a spot, then they will be less likely to apply.

This phenomenon is especially important when current economic times induce doubt in the minds of many who consider an MBA at top school:  Why pursue the degree, when the chances of getting a job at Merrill Lynch, McKinsey, BlackRock or Blackstone are remote? Why pursue the MBA if I'm told it takes special ties and connections to get on board at Kleiner Perkins or Booz Allen? Or if I get the job, will a topsy-turvy economy force me out a year later?

3.  Convincing URM that the sacrifices and costs are indeed worth it (or can be offset by fellowships or long-term rewards). The costs to attend a top school are exorbitant. Add to that the two years of salary, bonus and possible advancement the student won't accrue, while she is away from current employment. There, too, will likely be relocation, time away from family, and a lingering anxiety that they might have made a wrong decision. 

For some, especially among URM groups, the costs (tuition, living expenses, and travel) are too much. They can't make the numbers make sense. Why, they may ask, should I pursue an MBA at Harvard, if I must move a thousand miles to Boston, find a place to live, and spend over $70,000 and then be engulfed in scrambling to pay back student loans for decades to come? Many outstanding URM candidates curtail all efforts to apply right at the moment they assess costs. The sacrifices and costs can't be rationalized.

Business schools and pipeline programs such as the Consortium, Toigo, and MLT have done an outstanding job over the past three decades helping candidates overcome financial hurdles--especially by providing fellowships, scholarships or other forms of financial aid.  Often, believe it or not, many in URM groups are not even aware of this assistance and candidate support.  Business schools perhaps can do a better job explaining to candidates how going to Emory, Carnegie Mellon or Chicago is affordable.

4.  Convincing URM there will be realistic chances to advance far in business.  Some justify the time in school and appreciate the contacts, knowledge, networks, and experiences during those two years. Some are confident they will do well and find lucrative entry-level opportunities once they get to where they want to go.

But many may have doubts about their chances to get far beyond entry levels, get promoted, be fairly recognized and advance to high rungs in an organization.  If I get into Virginia or Michigan, they perhaps ask, and if I am fortunate to gain an offer in private equity, corporate finance, venture capital, or real-estate development, will I have fair chance to advance to the top--become a principal, partner, senior vice president, chief financial officer, or part owner? Should I bother, if I know the chances for advancement to the top are remote?

5.  Convincing URM there are others like them who have succeeded.  Often blacks, Hispanics, women and Native Americans gain confidence in their ability to advance when they see others like them achieve. If Hispanics and women are scattered at the highest levels at the most reputable consulting firms and banks, then Hispanic and women applicants would be encouraged to pursue graduate school--if they know others with similar backgrounds are there.

In some industries or segments of finance, women and minorities have advanced to the highest levels of management, but often at a slow, sluggish pace. Still, some women and URM have quietly ascended to less-visible, yet important roles as sector heads, corporate-function heads, subsidiary heads, or substantial contributors to business goals, deals, transactions, acquisitions, and new products.  Potential candidates are aware of these achievements, but not as much as they should, at least sufficiently enough to be confident they can follow right behind.

6.  Most of all, convincing URM they have the ability and aptitude.  They hear and read about the suffocating workloads of students in top schools (the courses, the problem sets, the cases, the group discussions, the projects, and the exams). Sometimes they fear they lack ability and time-management skills to thrive in school. Often they have the academic breadth, experiences and backgrounds to do well, but aren't confident enough they can handle the work and time pressures. Hence, they shy away from applying.

Other factors may also have an effect on the number of candidates from URM groups and women.

1.  International students.  While business schools eagerly pursue diversity, they also pursue international students. They are devoting time and resources to both efforts. Notice the numbers in recent years of students from India, Europe and China. Schools sell themselves to prospects, recruiters and other professors and deans on the basis of diversity, geography and foreign flavor.  In a recent year, at UCLA, NYU, Dartmouth, Yale, Wharton, Columbia, and Harvard business schools, foreigners comprised at least 32% at each school. While schools are pounding the pavement to increase the numbers of women and URM, they are also criss-crossing the globe to admit international candidates.

2. The lure of other professions.  There remains the possibility that lagging growth in applications among women and URM is due to the attractiveness of other professions. Business, finance, marketing and the uncertainties or whims of corporate life may be less attractive to some than, say, positions in government, education, non-profit activity, medicine, or law. A financial crisis in recent years certainly has discouraged some candidates from pursuing careers in banking, finance, and capital markets.

The admissions offices at business schools at times feel they are panting while climbing a steep uphill path. They continue their efforts, nonetheless. They are rewarded when they observe the thrilling success stories of the women, blacks, and Hispanics who do find their ways into the corridors of Cornell, Carnegie Mellon, Wisconsin, Indiana, Michigan or USC.

They applaud themselves (and the pipeline programs that climb side by side with them) when they learn their URM applicants-turned-students go on to become campus leaders and eventually outstanding deal-doers at Morgan Stanley, investment researchers at BlackRock, financial managers at American Express, business managers at John Deere, managing directors at Goldman Sachs, CFO at Eli Lily, or president of a blazing new start-up.

Tracy Williams

See also:
1.  CFN:  Diversity and Venture Capital, 2011
2.  CFN:  Diversity, Top 50, 2012

Friday, July 13, 2012

How to Pay Bills while Broke

Knowing how to pay bills when there is no money left can be unpleasant and stressful, if no plan is made.  As late fees appear, you could face legal action against you and loss of assets. In dire financial situations, it is imperative to prioritize payments and check options.

You should think carefully about paying bills while broke and talk directly to your creditors. Learn how to pay bills when little or no money is available after expenses.

Make Paying Bills a Top Priority

Prioritizing bill payments should be your first step. Decide which is the most important bill that you must pay like utilities. Consider which services, if unpaid, would have the biggest impact on your lifestyle. For example, unpaid bills for credit cards can amount to late fees and bad credit records, but usually will not make you lose any assets like defaulting on mortgage payments.

Paying the bills


Consider goods or services that you can live without like Cable TV, gym memberships, magazine subscriptions, and expensive roaming plans. Check all service contracts and payment plans to know if any could be cut or dropped. Lowering or dropping some services may assist you in finding the necessary money to cover bills.

Make a budget with only needed goods and services. Ask friends or family for feedback on your budget to get a second perspective on where else money can be saved.

Negotiate with Your Creditors

It is imperative to communicate with your lenders if payments cannot be made. For example, if you lose your employment or suffer a financial hardship, contact lenders for possible payment arrangements or extensions. Lenders might be willing to assist you if contacted before multiple missed payments accumulate. For example, credit card companies might negotiate a new payment rate based on your current finances. Utility providers could provide advice about programs and agencies that help people pay their bills when financial trouble arises. Certain service providers may even waive early penalty charges.

Avoid ignoring bills, which can lead to bigger problems. If you communicate with your creditors, there is a chance you can have your payments temporarily reduced or deferred for later dates.

Income vs. Savings

Increase money available to pay bills by earning more money or reducing expenses. You should decide which expenses to reduce or remove. The remainder of your regular spending should be determined. After the least necessary expenses have been removed from your budget, use the available money to pay necessary bills. Search for extra ways to become more efficient like reducing power bills by using energy saving devices only. Any money that is saved should be used to pay bills.

If you find that you do not have enough money to pay your bills, there are many resources and options for you. Make a budget to manage bills based on your income and communicate with lenders to know your options. Improve your financial situation by reducing expenses and deciding which bills to pay first while broke. Once you have managed to pay your bills, create an emergency fund to avoid falling into the same financial situation.

This article is provided courtesy of Credit Season UK, a consumer finance website providing information and tools on payday loans and other personal credit services.

Thursday, July 12, 2012

Forced-Ranking: Does It Hurt the Company?


It doesn't matter the level of experience--analyst, associate, vice president or managing director.  Finance professionals everywhere are haunted when they must schedule performance reviews. They endure them twice a year.  First, a mid-year review takes place in mid-July. It sets the stage for the rest of the year, since year-end reviews flow from the tone set at the July session. In late December and early January, everybody--unless time mismanagement permits some employees to be overlooked or unless the employee has just joined the company--goes through the end-of-year review. The second-year associate has an appraisal session, as well as the experienced sector head. The frenetic, marathon efforts of an entire calendar year are capsulized in one rambling meeting that often peters out after about 45 minutes.

In financial services (at banks, boutiques, insurance companies, asset managers, trading firms, hedge funds and small broker/dealers), it's a way of life.

CFN last year addressed the flaws of performance reviews, the way they are conventionally conducted today. See CFN: The Dreaded Peformance Review, March, 2011. The posting highlighted one expert who called for the end of reviews that rely on rankings and ratings and recommends  different, more meaningful, more frequent evaluations. He criticized harshly the prevalence of the current ranking process--something finance professionals everywhere know well, where senior managers in evaluation committees sit cloistered for a day or two to rank employees (at the same level) from no. 1 to perhaps no. 100. A laborious, exhausting exercise, sometimes marked by bickering, emotions and fatigue. Often a political exercise, but essential, say senior managers, if bonuses will be disbursed on time and promotions granted.

Cut to summer, 2012.  Kurt Eichenwald, a business journalist formerly of The New York Times and now a contributor at Vanity Fair, proposes that it has been the "stack ranking" performance-appraisal system that is one factor that has tarnished the glow at Microsoft.  In the latest issue of Vanity Fair, Eichenwald analyzes why Microsoft, untouchable and revered in the 1990s and 2000s, might have lost its luster in the 2010s.  Its system of evaluating managers is one reason, he writes after a series of interviews with former senior managers.

Just as financial institutions and hedge funds rank bankers and traders from top to bottom twice a year and pay and promote people accordingly, Microsoft insisted employee-managers be rated and ranked annually.  Eichenwald describes excruciating sessions at Microsoft where managers shut doors and battle over who will reside in the top rungs and who will be shoved down to the bottom. Long, heated discussions occur, where managers sometimes make deals with each other about how to shuffle and re-shuffle the rankings. The scenes he describes are replicated all over Wall Street.

That system rewards outstanding performance at elite levels. But what is the lingering, lasting impact of such system on a business' culture? Eichenwald draws a few conclusions:

1.  The process "cripples innovation."  Employees, including senior business managers responsible for large business groups, suffer from having short-term views, a six-months approach to business, since every six months, they worry they will slide up or down the ranking ladder and, in an even shorter term, must do something about it. They manage their rankings ardently, and that effort takes precedent over managing the business through an economic cycle or in the face of tough competition.

2.  The process encourages a culture of "schmoozing and brown-nosing," he is told. Employee-managers are advised to "increase their visibility" among other senior managers (managers who rank) in order to become better known during ranking sessions. Employee-managers spend more time shaping the "buzz" about themselves.

3.  The process encourages employees to avoid working closely with talented people, where their weaknesses are easily exposed.  Often people who work with experts or experienced colleagues learn new skills and material and understand better a process, product, client or marketplace. With mentors working beside them, they have a chance to polish lagging skills and make progress. The system, Eichenwald was told, discourages working with experts, as weaknesses flare and can be readily identified.  Glaring, noticeable weaknesses, in this process, send employees down a shute toward the bottom of rankings.

4.  The process undermines efforts by all to meet corporate, group and personal objectives. Most professionals and employee-managers are asked to perform (or manage) to meet specific objectives. Those who meet objectives--even after encountering obstacles, unforeseen economic events, or other challenges--must still undergo forced rankings. An employee can meet all objectives, but still be ranked in the bottom tier and be subject to, possibly, to no bonus, no raise or even no job. Meeting objectives, Eisenwald says, then becomes "nonsense."

5.  Employees are sometimes not good-faith contributors to teamwork. They are "courteous," he reports what one manager tells him, "while withholding just enough information from colleagues to ensure they didn't get ahead of me in rankings."

He provides a startling example for how a ranking system can be flawed.  Suppose there exists a business-unit team including the following:  Steve Jobs (Apple), Mark Zuckerberg (Facebook), Larry Page (Google), Larry Ellison (Oracle), and Jeff Bezos (Amazon).

In July, each will be reviewed for mid-year appraisals. In December, they will be reviewed and rated for the entire year. But they must be ranked into three categories, regardless of performance, accomplishments, potential, vision, or innovation: one at the top rank, two in the middle, and one at the bottom. The one at the bottom receives no bonus and will be encouraged to leave the company within the next year. Into these buckets, from the list above, who goes where?

How then can the company endorse the process, if ranking forces the company to ask, say, Jeff Bezos to leave--regardless of his accomplishments or the revolutionary visions he may have in product innovation?  Does the company enforce the ranking policy? Or does it revise the system to permit five experts, visionaries, or potent performers to be rated on personal objectives and rewarded appropriately?

Eisenwald concludes from interviews that employees and managers worry less about the next generation of products; they take fewer risks with creative ideas, as they worry more about whether appraisal-committee managers will know them well enough to give them a boost up the ranks.

Microsoft, in the article, acknowledged it is finding ways to revise the flaws in the system.  In financial services, the system is still widespread.

Ideally, the mid-year or year-end review should be about recognizing achievement, highlighting development and articulating clear next steps. And it should be a futuristic discussion about the directions of both the employee and the firm and about what the employee can do to maximize performance, exploit his or her talents and contribute to the firm's long-term strategy.

Some companies and financial institutions argue the current system works, if it permits them to retain top talent.  Some argue they haven't found a better, more efficient way. The system is an easy way to appraise hundreds (or thousands?) of employees. Yet others will say it's plain inertia. Until companies find a better way, employees will often ponder obsessively what they can do in the last quarter of the year to out-shine others who they fear will climb above them in rankings.

And for some, these aren't idle thoughts.


Tracy Williams

See also:
CFN:  What Have You Done For Me Lately? Sept-2011

Thursday, July 5, 2012

LIBOR in crisis

Right on the margins of media coverage of business you'll see frequent analysis of an esoteric corner of finance:  the Libor crisis. Or Libor scandal? Are we ready to term what has happened and what has surfaced an outright scandal?

As much as ethics are studied in courses in business school and debated in op-ed columns and books, we turn the page and find yet another scandal, accusation of fraud, or sleight of hand by bankers or traders to manipulate markets.  Libor, this month. In previous months, we watched the insider-trading convictions involving hedge-fund manager Raj Rajaratnam and former Goldman Sachs board member Rajat Gupta. Years after the scandals of Enron and Worldcom (and decades after Drexel Burnham and Ivan Boesky), there continues to be the periodic crisis of ethics in finance.

For those not familiar with the nuances and mechanics of debt finance and interest-rate swaps, "Libor" refers to the London Interbank Offering Rate, a base cost of funding among top financial institutions, calculated in part based on the margin cost of funding at major global banks. Banks that are members of what is called the BBA (British Bankers' Association), including Citi, Barclays, JPMorgan Chase and others, calculate internally their respective marginal interest-rate costs of funding banking transactions and report those figures to the BBA.

The figures from each bank ultimately contribute to the calculation of one Libor rate. A bank's marginal cost is based, in part, on its access to funding (deposits, borrowing from other banks, long-term borrowings, commercial-paper investors, capital, etc.) and the weighted-average costs of its borrowing structure. The reported Libor base rate is a calculation based on the submitted rates of each bank.

Libor, through the years, has become a standard rate used as a basis to set the interest rates on billions of dollars in loans and bonds and, reportedly, trillions in interest-rate-related derivatives. A standard base rate makes it easier for banks, traders, lenders, underwriters and trading-counter-parties to negotiate and agree on interest rates in finance transactions. The BBA  supervised the regular, routine calculating and reporting of Libor, and the rate was used as a standard in transactions all around the world.

When a group of banks (in syndication) and a large corporate borrower negotiate a large floating-rate loan, for example, they don't need to squabble over what floating rate. Libor is a convenient, fair, realistic base rate.  (The banks, of course, will add an appropriate "spread" above the three-month Libor base rate.)

Some, especially those who know U.S. commercial banking, are familiar with a bank's "prime rate," which for many years was a bank's base rate offering for commercial and consumer loans.  It, too, was calculated based on a bank's marginal cost of funding.  Libor is more expansive, more global, and tended to be assigned to the largest of bank transactions (the billion-dollar syndicated loan to IBM or the billion-dollar floating-rate bond issue from Pepsico).

If you glanced at the headlines, you would have seen recent announcements of Barclays admitting to manipulating the calculation it does when it reports to the BBA. And you would have seen the settlement it agreed to pay regulators and the subsequent resignation of its chairman and CEO Robert Diamond. Regulators in the U.S. and in the U.K. concluded Barclays submitted lower rates than it should have to give the impression its funding costs are low because of its strong financial health. Barclays, they claimed, didn't want to alert investors or trading counter-parties that it might have had to pay more to fund its balance sheet because of apparent financial difficulty.

As anyone who followed the collapse of both Lehman Brothers and Bear Stearns knows, financial institutions, even those capitalized in the tens of billions, cannot hint to markets they have difficulty funding the balance sheet. The mere suggestion of trouble can spawn a "run on the bank" (short-term investors demand payment immediately) or a demand by investors, depositors, or lenders to pay higher, onerous funding rates.

Barclays is cooperating, and regulators and others have moved on to investigate whether other banks did the same.

The calculation and pegging of Libor is, by no means, an idle, unimportant exercise. Libor is used as the base rate in just about every significant syndicated-finance loan, just about all corporate bonds of substantial size to major corporations, and just about all interest-rate and currency swaps traded in the derivatives sphere.  It's also the base rate for just about all structured-finance activities, from mortgage-backed securities to the securitization of car loans and credit cars.  To those deeply immersed in finance, funding, and trading, you don't escape Libor.

The calculation, updating and reporting of Libor had been so routine that many may have perceived it as a dull, perfunctory task, repeated day to day, a process managed by systems and computer algorithms until a senior bank official routinely blessed what that bank reported to the BBA. Few, if anybody, across the world thought about the process of updating and reporting Libor.

In fact, the process had likely become so routine and so taken for granted that someone somewhere might have thought little of fudging the updates by tinkering with a few basis points in the report to the BBA or thought that a smidgen of fudging by one bank would have insignificant impact on the final, reported Libor figure.

So while regulators explore whether the apparent scandal is more widespread than we thought, what happens next?

As one research analyst reported this week, Barclays settled, and if other banks are involved, they may elect to settle relative to the nominal Barclays total ($450 million).  But as with any crisis, after regulators are done, civil lawsuits ensue.  Because Libor determines the value (and, therefore, profits and losses) in interest-rate swaps transactions, some traders will argue that they should be compensated for certain losses or lower-than-expected profits.

Barclays admits it under-stated its reported Libor contribution. That implies borrowers paid a few basis points less in interest than they should have on some deals.  But that means investors will argue they should have been entitled to more interest earned. Interest-rate swap traders will argue that certain derivatives should have been valued more before they off-load them.

And, yes, regulators, after investigations and settlements, will step back to decide how governments can ensure such manipulations and deceit will never occur again. They may recommend government-supervised Libor committees oversee the determinations of collective base rates or merely do the calculations. It's too early to perceive where lawmakers will go from here.

The issue occupies a corner of the business press; it will certainly remain in headlines for the rest of the year.

Tracy Williams

The Top Benefits of Having a Good Credit Score

Good credit scores are helpful for a financial well being and should be checked at least once per year. There are many benefits from having good credit scores like lower interest rates, higher chances of loan approvals, and affordable insurance premiums. Keep a clean credit history, which determines credit scores, to take advantage of these benefits. Good credit reports can show financial institutions that a person is able to manage debt when requesting loans as an example.

Interest Rates

Consumers with good credit history can obtain low interest rates on credit cards, mortgages, and other types of loans. Most lending institutions check for credit reports to determine a person’s interest rates, if approved for a loan. Consumers with clean credit histories can get lower rates by showing lenders their ability to manage debt properly. Lower interest rates provide many savings on credit card purchases and payments for consumers with good credit scores.

Financial Options

Most financial institutions check the credit history for checking account or loan approvals. Consumers with good credit records are more likely to get bank accounts with minimal or no management fees. Credit records with negative issues can show an individual’s higher economic risk to banks. Check financial institutions’ standards to know if your credit score and history can affect account or loan decisions. Good credit scores can provide customers with greater chances of getting a desired bank account or loans at affordable rates and payments.

Good Credit Score

Insurance Premiums

Insurance providers may check credit scores to determine individual risks and payment terms. For example, insurance companies can check personal credit history in order to approve car, home, and life insurance policies.  People with good credit scores can get these insurance policies faster and more frequently over low score ones.

Employment

Most potential employers check credit records when someone applies for employment at their company.
Employers check on credit reports to determine if someone is a reliable person. In addition, money-handling jobs have higher risks of employee theft. These types of jobs have more strict credit history reviews for job applicants. A clean credit history can help you get a wanted job by showing responsible and reliable qualities.

Home Rentals

People with good credit records benefit from higher rental approval rates. Landlords may check credit records to determine if a person will be able to pay rent. People with low credit scores can be turned down from rental properties based on a higher risk estimate.

Good credit scores provide many advantages to consumers looking to get loans, and insurance policies at affordable rates. People with low credit scores should improve their ratings by paying off debt balances, maintaining positive long records, and by making payments on time. Consumers can save a lot of money from the lower interest rates and higher loan options provided by a good credit history. Attempt to create a budget to improve your credit record to build up savings and retirement plans based on personal finances.

This article is provided courtesy of Bad Credit Loans Direct, a consumer finance website providing information and tools on small loans with bad credit and other personal credit services.

Wednesday, July 4, 2012

KLCI At Historical High


KLCI recorded another record high of 1629! As we can see from the chart above, there was a reverse head and shoulder formed during the period of April to mid June 2012. On June 19th, there was a breakout from this bullish chart pattern and now heading towards the price target of 1646.

While technical analysis tells you the possibility of near term price action, in a larger picture, we still rely on the fundamentals to give us a glimpse into the future.

The Euro debt crisis is still on, the politicians have not come up with the best solution yet. The concern is the bond yield (or the cost of borrowing) for Greece, Span and other debt ridden countries are much higher than their counterparts like Germany, Sweden and Denmark. For example, the 10 yr bond yield for Germany is below 3% while Spain is closed to 7%. It is believed that those debt ridden countries cannot survive with such high cost of borrowing and that they are suggesting the richer EU countries like Germany and Denmark to share the weaker countries debt burden by jointly issuing government bonds. By doing so, the borrowing cost of Spain and Greece is lowered while that of the Germany is raised.

During the recent Brussel Summit in June the above proposal did not materialized but instead a temporary measure is agreed upon. That is the 120 billion euros growth package was agreed upon during the 2 day summit with funding from the ECB to help solve the problem temporary.

In the US, concern is with the unemployment data that remain stubbornly high at above 8% but it is declining which is a good news for the US. In addition, the corporate sector is generating huge profits as products such as Microsoft, Apple, Johnson & Johnson etc are selling all over the world!

On a contrary, things are not looking good in China. Recently the Chinese data shows that the economy is contracting with weaker PMI and GDP data.

Hence we shall expect the markets to remain choppy until the situations get better in the EU and China.

Happy investing,
Pauline Yong