Sunday, January 31, 2016

Should You Open a PayDay Loan Store?

Is running a payday loan store a lucrative business or a marginal one?

A reader writes (perhaps sarcastically) that after reading my blog, he has decided to open a payday loan store or other business that exploits the poor.   After all, he reasons, these places do make a lot of money, and the poor seems to have an insatiable appetite for shitty deals.

I told him to go for it.   While I would have moral issues running such a place (I am too much of a softy to screw people that badly) others clearly do not.   But on the whole, the poor are not these sainted people that the folks at NPR like to make them out to be.  And no, they don't have mystical powers like Hollywood makes them out to be (e.g., The Green Mile et al, where poor folks are naturally thought to be more in touch with their spiritual side than money-grubbing rich folks.  Such is not the truth).

The real truth about the poor - or at least as much of the poor as of the rich - is that given the opportunity, they will steal from you as much as you'd like to steal from them - often literally.   The poor are more likely to break into your house, not to steal a loaf of bread to feed their starving children, but as happened on our island, to steal your television to pawn for drug money.   These are not nice folks.

And the poor are far more likely than the rich to assault you or even kill you, either in an attempt to rob you, or because they don't like your race, you politics, or your sexual orientation.   These are often belligerent and violent people.

And while we like to posit that the poor are "dumb" they are often very astute when it comes to working the system for free things (disability, welfare, food stamps, whatever) and also working the law.   It is surprising how much "jailhouse law" the poor learn, knowing exactly what their rights are, and working them to their advantage.

For example, a landlord relates to me how he rented to a family who seemed very nice when they were looking at the property, but had some excuse why they could not pay a deposit and first month's rent.  He foolishly rented to them.  They never paid rent and instead of evicting right away, he listened to one sob story after another and let it drag on for nearly a year.  At one point he actually offered them money to leave as they claimed they could not move out without money for a deposit on a new place.  They took the money, of course, and didn't move.   He finally evicted them, and hours before the Sheriff arrived, they had moved out, taking all the appliances, hot water heater, and furnace with them.   They were shrewd people and knew the law down to the letter.

Thankfully, I never fell for such a scam, but I have seen many do.   The poor aren't dumb, and they aren't all saints and wonderful people, although as I have noted, some are genuinely decent people who work hard, but are just not very bright.  

But the guy with the cardboard sign at the street corner?  He is not a nice person, and you will realize this the first time you offer him food instead of money in response to his "Hungry, please help!" sign.  He will curse you out and threaten you.   He is a drug addict, not one of the noble poor.

I have no problem with the reader wanting to open up a shop that exploits the poor.   If he doesn't, someone else will.  And in fact, someone else likely has already done so.  And that, in a nutshell, is the problem.

When you are last into the marketplace, you may be the first to fail when conditions change.  And conditions for payday loan shops may change in the near future.  Our new consumer protection agency is going after a lot of shady operators, and we can expect to see a lot more legislation and regulation on both a national and local level to rein in such businesses.

Even Republicans are getting a little tired of payday loan operators.   Many are pushing for limiting these places and also placing them out of bounds of military bases, as many young men in the military are ending up in financial trouble due to payday loans and other raw deals.  When the GOP thinks you've taken caveat emptor too far, you might be in trouble.

So, the glory days of running a payday loan shop may be coming to a close.   Those already in business, who are well-financed, might be able to weather the storm by offering more creative deals or by cutting their margins to comply with new regulations

The new guy who is leveraged to the hilt starting his business, however, may find himself over-leveraged.

And many of these shops won't like competition.   And I suspect more than a few are affiliated with organized (or disorganized) crime.  So if you open up a payday loan shop across the street from an existing payday loan shop, and offer lower interest rates, you may find a horse head in your bed.  Just saying.  You lie down with the dogs, you get up with fleas.

There is one other problem.   People are starting to wise up about a lot of these raw deals.  Two "for profit" colleges (or universities) have already declared bankruptcy in recent months, and a couple more look to be headed for trouble.   The problem they are having is that word is getting around that these are raw deals as folks figure out that no big-paying jobs are forthcoming after graduation.   Of course, increased regulation and litigation isn't helping either.  But a lot of the poor, as I noted, are pretty astute folks when it comes to "working the system" and eventually word-of-mouth gets around, and people may stop patronizing these shady businesses.

Maybe.  On the other hand, historically, such businesses have flourished for over 100 years.  In Thomas Wolfe's Look Homeward Angel, he describes loan businesses in Asheville, NC, back in the 1920's that exploited the poor in the same way as payday loans do today.  Not much has changed over time.

But even assuming all of this can be worked out, you have to find a market that is not already saturated.  In our depressed little "city" of Brunswick, the payday loan places and title pawn shops are chock-a-block next to the buy-here-pay-here used car dealers and rent-to-own rim shops at the corner of "Community" boulevard and MLK drive.  Whether there is room for one more is anyone's guess.  And some have gone out of business in the past.    Just like storage lockers, they can be a license to print money, yet some have gone belly-up when they locate in the wrong place.  Like any business, there is still risk involved.

So, dear reader, go for the gusto.   Just remember that any business requires a lot of capital to start, a lot of money to run, and a lot of hard work to make successful - even a shady business with high margins (ask you local drug dealer, if you doubt this).   And even if you do all that, you can still fail miserably at it.   One reason these payday loan places do charge so much interest is that about half of all their customers either default on the loans and/or declare bankruptcy, and you might find it hard to collect on a lot of bad debt.

Frankly, I think there are easier ways to make money, that are less exploitative of the poor.

And it goes without saying that if you fail at such a business - or even succeed - you are not going to get much sympathy from folks!

Theory of the Mine

From an economic standpoint, mining presents some special challenges.

In economics class, we learn about the theory of the mine.  Mining, it turns out, is somewhat different from other economic activities, such as manufacturing or retailing, in that there is a finite amount of product to be sold, and thus whether or not to sell product becomes an interesting economic proposition.

And today, we are seeing this happen as metals prices drop and mining stocks drop.   And among the "minerals" dropping rapidly in price is oil.   Yes, oil is a mineral, in a manner of speaking, and the theory of the mine applied to oil wells, too.

If you own an oil well, or a gold mine, or a bauxite mine, or - as one friend of mine has - a helium farm (no really, they exist), you have to make a decision on a daily basis whether you keep the stuff in the ground and wait for better prices in the future, or dig or pump the stuff out and sell it.   This is a complex decision based on what you perceive future prices to be, versus current prices, as well as the current cost of extraction versus market price.   If it costs you $50 a barrel to extract low-grade oil, then it is best to leave it in the ground.    And we are seeing this right now in North Dakota, where certain low grades of oil have negative prices - they are basically waste products that you have to pay someone to take away.

But of course, the equation is far more complicated than that.   In these kinds of businesses, the owner may have incurred a lot of debt - for leases or mineral rights, equipment to extract the minerals, as well as overhead, salaries, and the like.   And this debt has to be serviced, regardless of the market price of the mineral.

So, the last person to get into the business (who is often drawn in after hearing tales of wild profits to be made) is often the most highly leveraged, in terms of debt and overhead.  And when mineral prices fall, this is the first guy to go under.

But it gets worse.   Since minerals follow a supply/demand curve (yes, even oil, even gold) it is possible to manipulate prices in the market if you are a larger producer, by flooding the market with product, much as Saudi Arabia is doing now, or as John D. Rockefeller did in the past.   If you can flood the market and drive down prices, and at the same time drive up your competitor's costs (for example, by working a deal for shipping rebates with the railroads) then you can drive the smaller producer bankrupt - or nearly so - and then offer to buy him out.   And that is how Rockefeller assembled Standard Oil.

What the Saudis are trying to gain is anyone's guess, other than they have a mountain of debt to service, and keeping the lid on the simmering pot of Wahhabi Islam in their country requires a lot of expensive social services.

Of course, over time, these low mineral prices (oil, metals) will go back up.  That is a given.   Demand will keep going up as the population increases.  The temporary lull in prices won't last forever.   But in the meantime, the more solvent producers can either decide to keep product in the ground, or sell at market prices and live with lower profits.   The more marginal producers will go out of business and their assets will be acquired by the more solvent ones - if their assets are worth anything at all.

There is a lot of pain going on right now, up in the Bakken formation, as folks who thought they'd get in on the rush are finding themselves squeezed out.  And folks who re-opened old gold mines in the Carolina's are probably thinking about closing them again.

The only people who are making out, of course, are the folks who supply tools and materials to the miners.  Whether it is Levi Strauss and his blue jeans, or Howard Hughes, Sr. and his drill bits, it seems the real money is in the support businesses, not in actual mining itself.

Saturday, January 30, 2016

All I Know is What the Media Tells Me

Donald Trump has DSL*

In an embassy Suites in Orlando (don't ask) they have free cocktails from 5:30 to 7:30.    Free, except that you are forced to watch television.   They had on MSNBC.

On the telly was "Hardball" starring "Pasty White Guy" who told us that Donald Trump was taking a "victory lap" after winning the candidate debate by not showing up.  The sound was off, of course, but the legend at the bottom of the image was "Trump takes victory lap."

The media loves Trump, and gives him a lot of free publicity.   So everyone talks about him, which leads to more publicity, including pieces on the news where they agonize over whether they are giving Trump too much free publicity.

It feeds on itself.  We believe Trump to be a front-runner because the media tells us so.

Right after that segment was one on Bernie Sanders.  They did a brief piece on Clinton's e-mails, but then fell in love with Sanders for about a half-hour.  Why not?  Love him or hate him, he gets eyeballs glued to the screen.

And that is the name of the game in "news" is selling eyeballs.   So instead of analyzing Rubio's tax policies or Cruz's immigration stand, we get tons of Trump and Sanders - two clowns who should not be running for President outside of an insane asylum.

And yet, most people get their "news" from the television.   Go figure.

* DSL = urban slang for "Dick Sucking Lips"

Friday, January 29, 2016

Are Evil People Evil?

Most criminals don't see themselves as evildoers.

In response to my Inheritance posting, I got some interesting responses.    One was from a Law Student who said I was "giving bad legal advice."   I am not sure how relating stories about things that happened to friends of mine constituted legal advice.   The only advice I gave was "call a lawyer if this happens to you!"

He also said that none of the scenarios I listed could have happened because they were "against the law" and "unfair".

Oh, boy, what do they teach in law school these days?   Yea, injustice occurs a lot in the world - act shocked.   And oftentimes, the person who can pay more for a lawyer wins, even though they are not in the "right" - at least according to the other side.

Injustice happens.   Rather than act shocked, expect it as part of life, realistically assess what you can do to remedy it - if at all - and them move on.   Sort of sad a Law Student can't figure that out.

And of course, the point of the posting was you should never structure your life so you are relying on an inheritance to survive as it isn't your money until you receive it, and things can change along the way such that you don't inherit.   And if that happens, you are screwed royally.

But it got me to thinking about justice and how different parties to the same dispute may view facts differently.   Stated simply, the guy on the other side of your "injustice" deal doesn't think he is doing anything wrong, but rather, from their point of view, they are the one in the right, and you are wrong.

Very few wrongdoers are like the folks in the movies or on teevee, who sit there, like the Joker or the Riddler on Batman, and rub their hands together in glee as they plot yet another "evil caper."   The world just isn't like that.

Understanding this reality is important, if you are to have realistic expectations of dispute resolution.

For example, taking some of the scenarios in my Inheritance posting, my friend Joe, who was an alcoholic, complained bitterly to everyone how his brother Sam was "stealing" from the estate.   And of course, we all said the same thing to Joe - hire a lawyer.   But Joe didn't have the money, so he just complained all the time.

From Sam's perspective, he was doing nothing wrong and in fact, protecting his brother from his own alcoholism.   If Sam just gave Joe a check for half the estate, he reasoned, Joe would blow it all in short order and be broke within a year.   From Sam's perspective, he is not doing evil, but doing good.

Now, maybe you and I don't see it that way, but Sam does - and most people do convince themselves that whatever it is they are doing is right.   And in fact, we all do this, to some extent.

Similarly, the scenario with Fred and Ethyl (who are both now deceased) is the same way.   Fred thought the was doing Ethyl a "favor" by putting her share of the inheritance in trust, with himself as the trust administrator.   After all, Ethyl had a history of alcohol abuse, mental illness, and the like.   And yea, she was a spendthrift.  Ethyl - and more importantly her husband - didn't see it that way.  And fortunately for them, they got the will revised again, to eliminate Fred's scheme.

And so on down the line.  Susan's husband broke the trust she left to him and stole his children's inheritance.   From his perspective, he "needed" the money more than them, and after all, as Susan's husband, the money was rightfully his - right?

Even the case with Linda and Tiffany has two sides to the story.   Tiffany married Linda's Dad, and as his wife, under the law, she gets just about all of his Estate.   The "blood relatives" show up at the house after the funeral and make noises about Tiffany and her trashy friends.    Well, rightfully, the house is Tiffany's, as are all of her late husband's assets.   So she gets pissed-off and tosses the relatives out - throwing their precious photo albums after them.   From Tiffany's perspective, the "blood relatives" are a bunch of meddlers and snobs who rarely visited her late husband before he died anyway!

Now, of course, this is not to say there is no such thing as right or wrong, or that morality is like quicksand.   And it is not to say that reality is "relative" and depends on the perspective of the viewer.   Rather it is only to point out that perception of reality depends on the viewer - actual reality exists, but it is hard to discern.  And generally, the party that better perceives reality is the one who wins in the end, whether it is court, or just in the general Karma of life.

One problem we see, as lawyers, is that clients come to us and present a biased fact statement, with every argument favoring their side.   However, we know from experience that no case is so one-sided.   There is always a weakness in your case, or "another side to the story" that paints both parties in a bad light - but maybe one moreso than the other.

And I have written about this before.   Whenever I get a client who recites a litany of injustices, but fails to own up to their own malfeasance or to the weaknesses in their own case, I know that the client is trouble.   When I ask pointed questions and they say, "That isn't important! The key thing is...." then I decline representation.  Because there really is no such thing as an "open and shut case" because those cases usually are never brought.

But this goes beyond civil matters and even into criminal ones.   Even hardened criminals rationalize their actions as "right."  After all, when everyone else has money, why shouldn't they have some as well?   And of course, they've nurtured a grudge against society for every perceived and real injustice done to them, so whatever they do in return is rationalized as being what society owes to them.

Even in politics - particularly in politics - we see this as true.   Both sides of any political debate believe themselves to be right.  Neither party really believes they are evildoers who are out to pull the wool over the eyes of America.   Bernie Sanders supporters think that it's OK to take other people's money and then give it to themselves, because well, the system is unfair and income inequality and I have student loans to pay and my iPhone is two generations old, already!

And the same could be said of Republicans, who propose what are often preposterous ideas in the name of "protecting the peepul."

Or take religions.   Is the new Pope good or evil?   He certainly thinks he is helping the world, but while he has made a lot of liberal-sounding noises, when push comes to shove, well, it turns out he goes back to the conservative ways of all the prior Pontiffs.   He doesn't see himself as evil, but if you support birth control or gay rights, you may think of him as thus.

Some of the most evil people in the world today don't see themselves as evildoers, but rather as honoring their religious beliefs, defending their country, their culture, and whatnot - while we are the "Great Satan" (as if there is more than one, I guess).

Maturity is being able to see the other fellow's side to the story, even if you think it is wrong.   And in lawyering, as in any battle, you have to be able to see the other fellow's side if you expect to anticipate his every move.    The worst mistake you can make is to assume the other side knows they are wrong, and will capitulate readily once you point out the error of their ways.

Yes, there is evil in the world.   Sadly, the people practicing it don't see themselves as evil.

Thursday, January 28, 2016

Combating YOUR Hoarding Disorder

Hoarding disorder is a tragedy.   You can't fix it in other people.   But you should take precautions it doesn't happen to you!

A reader writes that they enjoyed my posting about combating hoarding disorder.  After trying to deal with a hoarding relative for years, they were ready to give up, but all the articles online told them they should spend their energies trying to "fix" their hoarding relative by staging an intervention or cleaning out their house or whatever - which I think is horrific advice from a number of angles.

First of all, it makes you feel guilty for not being able to "fix" your relative or friend, and puts the onus on YOU to fix other people's problems - problems that other people can fix themselves, if they chose to (but they do not, because they are happy with things the way they are).

Second, it is suggesting that amateurs get into the business of intervening in the affairs of mentally ill people, which is doubly cruel for both parties, and will leave the intervenor feeling even worse, when their efforts inevitably fail - which they will, like clockwork.

As I noted in another posting, there is not much you can do to "fix" people with hoarding disorder.  They will fight you all the way, and it will get ugly and you will get frustrated.

This is one situation where you need to think about cleaning your own house, quite literally, rather than worrying about other people.

You can't fix your neighbor, or Grandma, or Mom.  You can, however, take care of yourself and make sure it doesn't happen to you.   Because hoarding is inherited, I believe.   I have seen two examples of hoarders leaving hoarding houses to family members who carry on the tradition rather than clean them out.  It is sad.

As I noted in another posting, Mental Hygiene is like Physical Hygiene - you have to work at it.   And hoarding doesn't just happen overnight - it creeps up on you, over the years, as you accumulate more stuff in life.

Thus, it behooves all of us to make sure we, too, are not succumbing to the hoarding instinct.

How can you do this?   Other than just "throwing everything out", there are some steps you can take and warning signs to watch out for.

1.  Pick a small project that you can finish in an hour.   One mistake that can actually lead to hoarding to to make grandiose plans than are impossible to follow through with.  "I'm going to clean and reorganize this house from top to bottom!" you say, and then about two hours into it, you get overwhelmed and give up.   Not only that, you've taken a lot of crap in your house and moved it around into piles for sorting or whatnot, and then simply given up.   You've made matters worse.

Instead, pick one desk drawer.  Something small.   Open it up and throw out most of it.  Stuff you haven't used in years - toss it.  Even if it is "worth something".   I found a wallet I had from the 1990's - along with three of its successors.   They were old and worn but "still good" and I threw them in a drawer.   Now they are in the trash.   It only took me 20 years to throw that away - and it survived three moves!  Freaking sad.

2.  Don't try to sort or organize - just do.   One problem hoarders have that makes things a lot worse is that they decide to clean things up and instead just start sorting things into piles.   One hoarder saved all the Styrofoam trays that meat comes in and used these as sorting trays.  On one, she was sorting buttons by size and color.  On another paperclips or thumbtacks.   She became paralyzed by these activities, and then left them sitting on a windowsill - for a decade or more.

Use it or lose it.   For example, I was horrified to find, in a drawer, glasses that I had, going back to the 1990's.   Again, they were "too good to throw away" even though the prescriptions were far out of date and the frames were scratched and corroded.

Now, one thing that is a good idea is to put an old pair of glasses in the glove box of your car (particularly sun glasses).  If you are traveling and lose a pair or they break, you have a backup pair (preferably your previous pair) to fall back on.

But..... don't put the glasses aside so you can "later put these in the car".   Either do it now, or throw them away.   Making piles of things to put elsewhere, is just creating more clutter and is, of course, hoarding.

3.  If you are going to save something, put it all in one place.   There are some things you want to save, of course that are useful.  The hallmark of the hoarder is that they scatter everything to the four winds, usually disassembling things first and then scattering all the tiny hard-to-find parts.

For example, I have a box of computer and electrical cables.  USB cables, network cables, audio cables, coax cables, RCA cables, and the like.  Some of these I will end up using to connect a peripheral or a stereo speaker or whatever.  I wound them up, put them in ziplock bags, labeled each bag by cable type, and put them in a box.  This makes it easy to find one, when I need it.

But beware - don't end up hoarding old obsolete things this way.   Old RS-232 serial cables are pretty useless these days, as are Centrex parallel printer cables (although I still have one laserjet plugged into a Centrex port!).   When stuff becomes obsolete, just toss it.   And saving things that you can buy cheaply at the store, later on, if you need them, is kind of dumb.

I used to save wall-pack transformers.   You know, you toss out a piece of electronics, and it has a nice wall-pack transformer.   "Gee, I may need a 4.5 volt, negative ground 500mA transformer down the road," you say, and this is how hoarding starts.   Pretty soon you have dozens of them, and for what purpose?  Whatever new piece of equipment you buy will come with its own power supply, right?

4.  Look at things in a new light.   As I noted in another posting, you set down a cardboard box in the front hall when a package arrives, and you say, "I'll get to that later".   Six months later, you are horrified that the box has been sitting there all this time, with your friends and neighbors now even used to its presence.

It is hard, but sometimes you have to be self-critical and look around your environs and ask yourself why you have certain things, or how they ended up in certain places.   Do you really need all that clutter in your life?  And was it by design or just by accident?

Things accumulate, and it can be very embarrassing.   I bought several sets of nylon weed trimmer cartridges for my weed trimmer.   When they arrived by mail, I opened the box, put them on my desk, and promised myself to put them in the shed with the weed trimmer soon.   That was a year ago.  Today, I got off my ass and did it.  That was embarrassing!

Putting things aside to deal with "later" takes as much energy as it does to just deal with it.

5.  Beware the Junk Accumulator:   Desks, shelves, storage areas, and areas near the front door, where you park your car in the garage, inside the garage door, and the like, end up as junk accumulators.

For example, we have a small bench in the garage as a place to take off your boots and shoes (with a shoe rack nearby).   A great idea, except that "things" end up being placed on this bench until it is overflowing and can't be used to sit on.   So a chair ends up being pulled up nearby.

While it is nice to have desks and tables and shelving and storage units and whatnot, beware they don't just become junk accumulators - acquiring a load of stuff that just gets "set there" and then forgotten for months or years at a time.

A friend of ours gave us several sets of wire shelving - the kind used on closet makeovers.   It was enough to do one wall of the garage.   And in a way, this was a bad move, as these shelves then accumulated boxes, which had unknown "stuff" in them.

Speaking of closet makeovers - when you expand your closet by adding more shelves and closet bars and whatnot, what do you think happens?   Yea, you end up with even more clothes.

As storage space expands - like with Boyle's law - the amount of junk you own expands accordingly.  Why throw things out, when you can keep it?  After all, "it isn't costing me anything" - right?

Or, if you've gone the storage locker route, you're already paying for the space, you might as well put junk in there, right?  Wrong.

The oversized house is the ultimate junk accumulator.  If you have rooms you are not using, then tend to accumulate junk.  We have a guest room that is rarely used.   When company does come, we have to clean it out, as there are usually a dozen items placed on the bed and dresser to be "dealt with later".   And our guests can forget about using the closet - it is jam-packed with clothes we never or rarely wear.

Ditto for the formal dining room and living room.   Stuff gets set down there "temporarily" and ends up moving in full-time.

6.  Mementos:  I talked about this before - saving sentimental things for some unseen later date where you can paw through them and weep silently about your past.   While it is nice to keep a few things, keeping every damn thing can end up being stifling.

Digital pictures help somewhat, in that they don't take up any physical space (but boy, they can eat up a hard drive in no time!).   The desire to save the past is, I think, symptomatic of hoarding.   One way to avoid the hoarding problem is to let go of the past and move on, and realize you will leave this world with nothing, so you might as well start now getting rid of things.

7.  A Place for Everything and Everything In Its Place:  This was my Dad's favorite expressions, and to some extent, it is true.   Find a specific spot for certain things, and then you always know where to put those things.   For example, I have an old liquor box my Grandfather gave me, which is in the living room.  I put anything camera-related into it.   So whenever I need to find something related to a camera, well, I know where to look.   And when I see a camera part laying around, I know where to put it.

The hoarder puts things all over the place, and has no assigned space for certain things (or doesn't have the ability to properly classify objects, perhaps).   So the camera cord is in one place, the battery in another, the tripod in a yet another, and God only knows where the camera itself might be.

Find one place for things of a certain type.  Dividing things up can cause problems, as you can never find things, and things tend to migrate over time.   For example, if you have three drawers in three separate rooms for your table cloths, how easy is it to find a table cloth?   Damned near impossible.    Ditto for when you have multiple closets, dressers, tool boxes, etc.

8.  Tidying Up: Quentin Crisp once opined that after a few years, the dirt in your  house doesn't get any worse.   After living in his own filth for a few years, he finally admitted he was wrong.

And running the vacuum around and dusting is probably the least favorite of activities for me - although I have an affinity for paste wax and old wood, which I find oddly relaxing (probably chemicals in the wax).

Nevertheless, periodic cleaning of this kind is not only essential, it forces you to address clutter at the same time, as the vacuum cleaner inevitably bangs up against that cardboard box you've been forgetting about for six months, now.

* * *

Of course, it is all too easy to get overworked about clutter.   The irony of hoarding disorder is that it is related to Obsessive Compulsive Disorder, which in effect, is the opposite end of the spectrum from hoarding.

And like hoarders, I've known a few OCD people and they are just as crazy - and can't be "fixed" either.   For example, one friend had an immaculate house with everything super-organized and super-clean.   He spent every hour of every day organizing and polishing his show-place house, combing the fringes on the oriental rugs and arranging and re-arranging things over and over again.   And while he liked to entertain, having people over actually touching and using his things caused him a lot of anxiety.  Like with the hoarder, he just couldn't let go of "things."

Another friend had an immaculate apartment with an impressive collection of science fiction paperbacks - all in original condition.   An entire wall was covered with colorful paperbacks, all in custom-built walnut bookcases.  Asimov, Heinlein, Clark, Farmer, Simak - you name it, it was all there.  I pulled one volume from the shelf, "Wow, H. Beam Piper!" I said.

He got nervous.  "Please put that back.  I don't like it when people touch my books" he said, nearly ready to faint.   It turns out, he collected the books but had not read any of them nor was he particularly interested in science fiction.  He never even looked at the books.  He just had this weird obsession with collecting them and putting them on a shelf and just having them.   It was a form of mental illness.  And again, like my other OCD friend, his apartment was meticulously clean, but having guests made him very, very anxious.

There is a happy medium, of course, and I think both forms of behavior are outliers of what is otherwise normal behavior.  It is a normal behavior that gets bent and amplified for some reason, and makes the person ultimately unhappy.

On a scale of 1 to 10, where 1 is dead cats in the freezer (total hoarder) and 10 is combing the fringes on your rugs with a toothbrush (total OCD) I think we are a good solid 5 - which is where you want to be.   Not living in squalor, but not building a museum to ourselves, either.

Most of the things I have described here apply to nearly everyone.   Everyone has a closet, and attic, a "junk drawer" or a work room full of crap or overflowing with "stuff" that needs to go away.  This is a normal condition of life, so don't panic or run yourself down.   But don't ignore it, either.

The key is, to not let it get out of hand.  Because in the long run, that's all hoarding really is, letting junk accumulate and letting it get out of hand.   (Of course, there are other indicia - when you find yourself cruising the block on trash day looking for broken bicycles and old lawnmowers, you really have a problem!).

And it goes without saying that as you get older, you tend to like having "stuff" less and less.  It costs you money to buy, and it just clutters up your life (and can be stifling, to some extent).

I think this is why a lot of older folks like to go "full time RVing" or downsize to an apartment.   It just gives them a chance to unload a lot of junk and make their lives seem less overwhelming.

I am looking forward to having one car, one bedroom, and one closet.   A few things, but a few well-cared for things, and more time on my hand to do things rather than own things.

Because whether you are a hoarder or have OCD, the net result is the same:  you end up a slave to possessions.   And if you think about that, it is backward.   Possessions should exist to serve you and not vice-versa.   Sadly, today, most people work, live and breathe to have "things" and don't understand that the things in their lives are ruling them.

Tuesday, January 26, 2016

Physical Media Comeback?

People have argued that the DVD, the CD, and the paper book are dead.   But are they?

We recently signed back up for Netflix's DVD service, for two DVDs a month.  It doesn't cost much, and it allows us to view more recent movies that what is on Netflix's streaming service.  Funny thing, too, was that Netflix wanted to spin-off the DVD rental service and everyone thought it was dead.  But I think it may have new life, as there are just some things you can't get through streaming these days.

While Netflix streaming is still kind of cool, over the years, their catalog of movies and television shows has changed.   More and more content is second or third run movies, old television shows, oddball videos you've never heard of, and increasingly, content made expressly for Netflix.  Online competitors have started up - competitors who were once the content providers for Netflix.

And what is on Netflix one day, is missing the next - with little or no explanation.  Netflix is less and less a library of movies to watch and more and more of a quasi-pay-per-view channel with a flat pricing.   You can watch all you want - of whatever it is they have this month.  And whatever it is they have this month is often crap.

And of course, Netflix is now the World War II channel.   It seems that half the content is Nazi-related.   If you scroll through what's popular or what's trending, Hitler's smiling face looks back at you, over and over again.

What's up with that?  But I digress.

We were told by the powers-that-be that streaming was the next big thing and that Cable and physical media were dead.   Cable is down for the count, as they really don't seem to understand why no one wants their product anymore.   Like GM executives in the 1970's asking California dealers "when are people in California going to wise up and stop buying those stupid little Japanese cars?" the Cable business seems to believe their product is the greatest thing since sliced bread, and that the customers are wrong for disconnecting.

"They'll come crawling back, any day now!   You'll see!"  I am sure they say this to one another.

But the problem with cable is the staggering amount of advertising - about 50% of program time on many channels (and indeed many channels are just ads all the time).  Plus the ads are so loud - louder than the programming.   Plus, they bundle so much crap into the "basic" tier, that the prices are edging up into the three-figures every month (and four-figures annually) even if you don't want MTV and ESPN.   Some cable companies are starting to offer "a la carte" pricing, but the trend has yet to catch on.

Basic basic cable, with no frills, is basically useless.   You can get the same dreck off-the-air with a inexpensive digital antenna, if you are in a major market.  And that's free.

And digital streaming has taken away a lot of cable's thunder.   We watch television differently now, selecting what to watch, mostly commercial-free, rather than just "seeing what's on" and then being blasted with over an hour of commercials in the process.

Cable, on the other hand, made their product more and more toxic and just assumed that people would keep watching as they had no other alternative.    But eventually, people reach a tipping point, where they get sick of all the ads and just shut it off.  I know I did, well over a decade ago.   No TV was better than TV.   Still is.

As for Netflix, well, there are some issues with the streaming service.

Don't get me wrong - streaming is here to stay.   But as more and more studios start to pull content from Netflix and try to start their own competing services, the glory days of streaming are behind us.  The early days, when you could get the entire STARZ catalog on Netflix (oh those were the days!) are gone, when the STARZ contract expired.   And now Hulu wants a slice of the action, and some studios, such as Universal, have a channel on YouTube (with a lot of the back catalog for free, but the new stuff on pay-per-view).  Others, such as Comedy Central and Fox, have their own online streaming services (Fox requires that you be a paid cable subscriber in order to watch - irony).

Some wags have pointed out that if you sign up for all these digital streaming services, you might have a combined bill that rivals your old cable bill.   But of course, you'll have far fewer ads, and still you can select what to watch rather than seeing what is on (without having to dick around with some DVR).

But it got me to thinking, is physical media dead?   I think not, and for a number of reasons.   In fact, physical media can be a real bargin for the cheapskate in all of us.

First, if you want a new release, you have to either go see it in a theater, or pay for it on pay-per-view via cable.  But you aren't going to find it online, particularly not on Netflix.   You can buy the DVD or Blu-Ray when it comes out shortly after it hits Pay-per-view, or rent it from RedBox or get it on Netflix DVD service.   In terms of new releases of major motion pictures, physical media is the way to go.  In many cases, you can buy the DVD for less than the cost of one pay-per-view viewing.

Second, you can recycle it.   If you buy a DVD of a movie for a few bucks, you can then sell it at a garage sale, or even online on Amazon or eBay.   You can give them to friends, or swap or loan them out or whatever.   You own the media and you can do what you want with it, other than put on a public performance.  A streamed video, you watch once, period.

With CD's this effect is even more pronounced, as once you own a CD of music, you can rip it to your hard drive, put it on a memory stick or your cell phone or whatever device you want.  You can play it in your car via memory stick (or even upload it to the hard drive in the car stereo) and again, you can then sell the CD to someone else, or loan it to a friend, or whatever.   Of course, here it gets a little trickier from a Copyright law standpoint.   Technically, you can copy a CD to your iPod or other device or whatever to play it for your own amusement.   Re-selling the CD and keeping a copy is arguably piracy, however getting caught is not very likely.

Which brings up an interesting point.   Streaming music online is much easier to detect from a piracy standpoint - and many a teen has been busted for uploading music to file-sharing sites.   I doubt anyone has been busted for giving their copy of a CD to a friend (or indeed, selling it) after ripping it to their hard drive or iPod or iPhone or whatever.   Both are acts of piracy, one is easily detectable and easily prosecuted, the other is nearly impossible to detect.

Third, physical media is often cheaper.   You can buy used CDs and DVDs at a garage sale or thrift store for a buck or two.   The local library lends them out - which is free, a price we can all live with.   I was chagrined to see on Amazon the other day that a book I was looking at was $12.99 as an instant download to my Kindle, but that the actual physical copy of the book was only 99 cents plus a couple bucks shipping.   Why pay more for digital content, particularly when digital books are often poorly formatted and whatnot?

And while it lasts, our local library still has books they lend out for free to anyone.

Again, you buy a book, you own it.  When you are done reading it, you can give it to someone, sell it, donate it to the library, or whatnot.   A lot of used booksellers are not going broke just yet, but in fact doing more business than before by selling through Amazon, which gives them a worldwide audience for their product.

In terms of resolution and performance, physical media often has online streaming or digital downloads beat.  Like I noted above, a physical book is easier to read than a Kindle, although bulkier to carry around.   Online books are often badly formatted, and I notice often have typing errors, probably due to some character recognition software bugs.

Note also that when it comes to books, the selection of physical books is far greater than those offered for download.  Rare and out-of-print books, limited editions and small runs, as well as vanity press, are not represented online, and likely never will be.  They can be found on Amazon in physical form, often for only a dollar or two.   The "latest best seller" on the other hand, often goes for $10-20 or more.

DVDs and in particular Blu-Ray discs are going to provide better picture and sound and sync than online streaming.   Unless you pay a lot of money for top tier internet service, chances are, you can't stream in HD and sometimes (particularly with Netflix, which uses Silverlight) you end up with sync problems in the first few minutes of a show.   Physical media doesn't have this problem, provided it is handled properly and not scratched or damaged.

There is, also, I guess, the tangibility issue.   No, I am not one of those people who wants paper bills every month, so I can write checks and put stamps on envelopes.   And I am an early adapter of streaming (I guess more than 10 years now, at least).   I was a little slow to get into the Kindle, but my 1st generation model is still going strong.

But when I see some local band or group, and they are selling their CD during the intermission, it is much more fun (to me, anyway) to get a copy of the CD, autographed by the performer, and put $20 in their tip jar.   Downloading their music to a pod device just isn't as interesting, although I guess these days, fewer and fewer performers are burning CDs anymore

Will physical media go away?   Not for a while, I think.   You still see "new releases" being sold in Wal-Mart for $10 to $20, and of course all those bins of $1 to $5 discs, some of which are diamonds in the rough, and others of which are just dreck.  Music CDs, on the other hand, have largely vanished.

Apple has made a big deal about taking the DVD-ROM drives out of their laptops, forcing people to either rely on memory sticks or the cloud to offload data.   Of course, you can plug an external hard drive or DVD drive into your MacBook, if you want to watch a DVD on it.   And they are pretty cheap, too.

And maybe that is why physical media will stick around for a while.   I think a lot of people resent being forced into a new mode of operation.   Windows 10, for example, doesn't want you to run Microsoft Word, but instead subscribe to it as an online cloud service.   This sounds like a great deal for Microsoft, less so for the individual.   (Of course, Open Office from Apache is still available online as a free download.)

But physical media will act as a check and balance to these new modes of operation.   The streamers and digital data purveyors cannot arbitrarily raise prices, if the physical media versions are still available, and available in many cases, for a lot less money.

And hey, the kids at Urban Outfitters are making a big deal about playing old vinyl records.   Who knows?  Maybe in 10 years, the kids will play CDs just to be retro and ironic.

Save your CD collection!   Let's face it, you blew it last time around when you tossed out your old record collection.   Maybe this time......

(Just kidding, I sold all my vinyl and CDs at garage sales ages ago).

Resourcefulness is Spurred by Adversity

Leisure, wealth, and luxury are the enemies of innovation, hard work, and resourcefulness.

One reason inherited wealth is dissipated so quickly in this country is not because of inheritance taxes, the "death tax" or some such nonsense, but because of basic mathematics, as I explained in an earlier post.  If Geoffry B. GottRocks leaves 100 million dollars to his five children, they each get $20 million.  If they have five children each, they get $4 million.  And within three generations, the inheritance goes from fantastic to barely enough to live on.

And in those interim generations, there is a decision matrix with only three possible choices, and two outcomes (poverty or riches).   Again, as I noted in an earlier post, the heir can either (a) spend it all like a wild playboy, (b) carefully manage the money so as to live comfortably for the rest of their life, or (c) double-down their bet by investing the money in new ventures to possibly become even wealthier.

Option (a) is obviously stupid and has only one outcome - poverty.  Option (c) could work out spectacularly well, or end up just as bad as option (a).   Option (b) thus is the safe bet for heirs, and most of them take it.  Within a few generations, the money is spent, and the succeeding heirs rarely innovate or take risks with their money.

That's why I noted, in another post, why the Koch brothers are so unusual - they took option (c) and took a small fortune and parlayed it into an enormous one.  You don't see such risk-taking by second generation heirs very often.  And in fact, there are two other Koch brothers you never hear about, who took option (b) and live comfortably and in relative obscurity.

Rarely - rarely - does a life of wealth, luxury, and ease lead to aggressive risk-taking and innovation.   Adversity is our friend, not our enemy, as the "wolves at the door" are what motivates us to innovate, to become resourceful, to work hard, and to try new things.   We should not fear it.

What got me started on this was a discussion I had with a friend, who felt that every new college student deserved a brand-new car.   I felt this was kind of wrong, particularly if Grandma is having to co-sign on the loan.   Cars, houses, and other trapping of wealth are the rewards for obtaining wealth, and not something that should be handed out while one is still searching for it.

Another friend of mine gave their kid a new car in High School.  Well, divorced wealthy Dad gave the car (no doubt to assuage some sort of guilt feelings - and children of divorce, if they are smart, know how to play that card).   To me, this seems kind of obscene.  When I was in my 30's and a middle-class government employee schmuck, I had to hump to make payments on a used Camry.   And here's some 17-year-old kid getting the same deal, free and clear.

I used to wax and wash that Camry and take care of it.  It was special to me - my first car with power windows and air conditioning!   My young friend has already put two dents in his gift car, and doesn't seem to care much.  His Dad, alarmed at this, is punishing him by - get his - "forcing him to take it to a body shop to get it fixed"    Wow, punish me any day, Dad!  Particularly when  you are paying for the body work.

Divorced Dad is alarmed, no doubt, as he is my age, and remembers the clunkers he had to patch together when he was in college.   And as an equipment dealer, he is alarmed that his kid is so blase about denting up a brand-new car.  Why doesn't his son appreciate how difficult and expensive it is to buy a new car?

Well, duh, Dad - because you gave him one.  No one appreciates things that are free or below cost.   You give someone a Section-8 house and they will trash it.   Public housing projects get run down because the people living in them don't own them and didn't have to work for them.  It is the same-old, same-old, only this time applied at a family level.

I had to patch together a succession of $50 to $200 junkers for years while I was in high school.   I learned a lot about fixing up cars, and learned to appreciate how difficult it is to buy and own a car.  If I had simply been given a brand-new car, well my life would have turned out differently - and for the worse.

It is one of those "character building" exercises that parents used to talk about (but talk about no more).    Today, we are an incredibly wealthy nation - far wealthier than in the recent past.   A child today, in the middle class, expects to receive a computer, a smart phone, and a new car (or at worst, a late model used one).  They also expect to have their own television in their room, and the latest designer togs to wear to school.   If they are not provided with these things, they are bullied and mocked, of course, in the suburban hells that they live in.

Sadly, it seems that today, on the political landscape of the Left that this lesson has yet to be learned.   Young people - growing up no doubt with free cars from weekend Dad - are expecting the government to be the ultimate weekend Dad, and provide everything in life for free.   And of course, they will appreciate these gifts and not just shit all over them, because, well, because they will, is all.

Adversity is not the enemy - luxury is.   One reason the "kids of today" are struggling right now is that they grew up in an economy that was constantly expanding.   If you were a mall rat in 2005 and wanted a job, well, they were there for the asking.   Everyone was making bucks in the 1990's and early 2000's and life seemed pretty simple.   Then things changed and what they perceived as "normal" is no longer the case.   But of course, their normal was never normal in the first place.

Maybe the next generation - who have yet to be tagged with some moniker that we can use to pigeonhole them into oblivion - will see things differently.  Coming of age in 2008 and seeing their parents and grandparents "lose everything" including houses, cars, and jobs, they will appreciate little things a lot more, and not expect everything to automatically go their way.

One reason the "Greatest Generation Ever" was so great was that they had to deal with the Great Depression and World War II.   To them, early life was nothing but hardship and hard times.   You can only imagine how orgasmic the 1950's seemed to them, with prosperity on every street corner, and no Nazis to deal with.   And you could understand their frustration with the next generation, raised in luxury and rejecting it all as "not good enough".

Perhaps these things go in cycles.  As I noted before, when I graduated from high school, there were "no jobs" (unemployment topped 10%) and inflation was running 10% or more.   Gas was available on even and odd days only - if you could afford it.   And if you had a job and wanted to buy a house, interest rates were 12-14%, sometimes more.   But we succeeded and thrived, even then.   And when the economy improved, it was like an acid trip.

And funny thing, though, I always was nervous not when things were bad but when the economy was going like gangbusters.   Because rapid growth just didn't seem sustainable to me (and of course, it wasn't).

Adversity is a better teacher than luxury.   And in that regard, I am glad I had as much of it as I did.

Monday, January 25, 2016

The Renewal Gambit

Many organizations are resorting to "renewal notices" to get you to subscribe to their services or magazines, which often results in you having multiple memberships or subscriptions.

The Automobile Association of America (AAA) often called the "Auto Club" can be a good deal, for some folks, as for about $40 a year, you get free towing, which can come in handy, if you get into an accident.   When we were sitting by the side of the NYS Thruway with a wrecked car, the only question the Police and Towtruck driver had was, "do you have AAA?"

Of course, you can get "towing insurance" from your insurance carrier.  The last time I priced this out, however, it was more than the cost of AAA and there was a deductible.   Plus, AAA provides maps and other ancillary services, which to me, made the service worthwhile.

Other folks are not as impressed, and they raise some good reasons why maybe you don't need AAA.  But that is not the point of this posting.

What I find annoying about AAA is their billing practices.  Not a month goes by we don't get a "AAA MEMBERSHIP RENEWAL ENCLOSED!" mailing that is not a renewal of our existing membership, but a pitch for a new membership and if you are not astute, and you pay the "renewal" fee, you now have TWO memberships in AAA, one of which, of course, is useless.

And of course, when you do join AAA, be sure to join the right one.  There are a number of regional AAA's across the country, and if you join one outside of your region, it may be of limited use to us.  When we moved to Georgia, we renewed our "mid-atlantic" AAA membership, only to realize that it was no good in Georgia, at least for trip planning and other services.

Magazines like to do the same thing - which is probably an indicator of a dying industry.   Just as AOL used "negative option" marketing to sell its services when it was hitting the skids, many dying businesses today are using this "renewal" strategy to sell magazines or memberships.

A relative used to send us Smithsonian magazine - home of "gov't gold" and other crappy deals.   We kept getting "renewal" notices from them as well.

Mark used to get a food magazine, which I got him as a birthday present.  They kept sending us these same "renewal" notices, and we started getting multiple copies of the magazine.  I called the subscription department and they agreed to combine them.  I ended up with a five-year subscription as a result.

Another gambit the magazines like to use is the "Your subscription is about to expire!" gambit, where they offer to "renew" for low, low prices.   However, often these are sent out to all subscribers even though you have years left on your subscription.

It gets confusing and eventually I just stopped responding to all of them and let most of our subscriptions expire.   And we wonder why print journalism is dead.   Maybe toxic marketing is to blame.

Recently, we went through the same thing with the National Trust for Historic Preservation, which sells memberships which are partially tax-deductible and give you discounts at some historic sites.  They also send you Preservation magazine which doesn't have ads for "gov't gold" or Staur watches - just yet.

I joined up after visiting a local plantation, and since we are members of the Frank Lloyd Wright Foundation, it seemed like a good fit.   But like clockwork, we got one of those "Membership Renewal" mailers, and I sent off a check with it (they can't do this online?) to "renew" my membership, which of course, was not expiring.

And of course, this week, I get new membership cards in the mail, with a new membership number, and now two copies of Preservation magazine.   You guessed it.  They didn't "renew" my membership, but rather sold me a second one.

Why does this happen?   Well, the membership or subscription departments are often separate from the rest of the organization or in fact, they hire a marking firm to get new members and new subscribers.   And the marketing people realize that these "Membership Renewal" mailings work from two levels.

First, they get existing members paranoid that their membership is about to expire, and they sell a second membership.  Most people are too busy to care and just accept getting two copies of the magazine and two copies of the membership materials.

Second, people who are not members will open the mailing materials because they think to themselves, "Renewal?  I never joined this organization/subscribed to this magazine!  Why are they saying it is up for renewal?" and out of fear or curiosity, they open the mailer which is the whole idea in this era of direct mail marketing, when most people throw away mail. 

"Important Documents Inside!" is another one that pisses me off.   No, the documents are not important and your organization or magazine or newspaper - or whatever it is you are trying to sell me - just went down ten notches in my esteem book, because you have exposed your organization to be a bunch of lying bastards.

It is so true, too.   If someone deceives you to get your business, they have telegraphed that they are deceitful liars and will steal from you in the future.   If you do business with such people - as opposed to honest people - then you will end up helping the dishonest businessman succeed.   The honest businessman will go broke, or have to resort to deception as well.   By doing business with crooked people, you create more crooked people.

So, how do you avoid this problem?  It ain't easy, as the "renewal" notices sent to you often have your name on them and appear to be legitimate renewal notices.

One way is to use the organization's online "membership" site, to renew or check the status of your membership.   Mark on your calendar (electronic) when the membership expires and then go online and renew.   I do this with State bar memberships, for example, which are kind of important.   Once you do this, you can confidently throw all renewal notices in the trash.

Another way, of course, is to just not join or subscribe and this appears to be gaining ground in this day and age.   Subscription services and memberships, when added up over time, can cost a lot of money.   And younger people no longer read print magazines and the like.

And maybe that is why they use this "renewal" gambit.  It is designed to snag confused oldsters, who are the core of their membership.

Very sad!

UPDATE:   In this morning's mail - you guessed it - an "RENEWAL NOTICE" from the National Trust for Historic Preservation.   I am going to let my membership expire.   These kinds of marketing techniques are deceptive.  I hope they fucking bulldoze their historic offices and put up a Wal-Mart.

Sunday, January 24, 2016

Take a loss on an inheritance? Not likely.

If you inherit a house, do you owe taxes on it?  If you sell it for a loss, do you get to deduct that from your taxes?

I can see on Blogger what inquiries find this blog.  Some are rather fascinating, such as this one that came across the transom today:
"I inherited house worth $400,000 but can only sell it for 250,000"
Answer:  The house is only worth $250,000.   You may think it is worth $400,000, but the market is saying otherwise, by the fact you sold it for less.

We went though this recently selling a house belonging to a parent, that we thought was worth well over $600,000 but fetched only $450,000 on the open market.   Families tend to do this a lot - thinking that Mom and Dad's house is worth a fortune.  It is part of a natural tendency to over-value things we own, and under-valuing other people's things.

The fair market value is what you get for it when you sell it, not what you think it is worth.

Now in our case, divided by three, this was a nice windfall, but hardly a game-changer in our lives.   And if you think $150,000 is a lot of money, well, it ain't.   It is barely enough to live on for three years, for the average family.

Again, calculating capital gains isn't hard.   You take your sales price (Amount Realized, or AR) subtract your "basis" (Adjusted Basis, or AB, which is generally, what you paid for it) and the difference is your gain G, or profit, which you pay tax on. 

G = AR - AB

For an inheritance, AB is the "fair market value" at the time of death, so in most cases, G=0 as what you sell the house for, shortly after you inherit, is in fact the fair market value of the home.  You pay no taxes on the inheritance, which is the biggest tax "loophole" there is.   Note that the dead guy you inherited from may have to pay taxes (the gift and estate tax) but that doesn't kick in, until his estate is worth millions.   So folks like us have nothing to worry about, when it comes to a "death tax".

Now, if you kept the house, and rented it out (hopefully at a monthly profit) for ten years, and then sold it, you might have a real gain.   For example, at the time of death, suppose you have the house appraised for $250,000.   You rent it for ten years, and sell it for $600,000.   You now have a gain of $350,000, the Amount Realized minus your "stepped-up basis" at the time of death.

And yea, the IRS has ways of calculating your basis, and you can calculate it by having an appraisal done at the time you inherit, or even an "historical appraisal" done years later, of what it would have been worth at the time of death.   Be prepared to document this, though, for Uncle Sam.

But if you rented the house out, you may have chosen to depreciate the property on your taxes, which only means that you took a standard portion of the Basis off your income each year, which in turn lowered your income tax burden.   Say you depreciated over 10 years (consult a tax adviser for details) and thus deducted $25,000 (10%) from your income each year (sweet!).  Your basis is now ZERO, as this depreciation is deducted from your basis ($25,000 x 10 years = $250,000).   We call this "Adjusted Basis" or AB.  And this house would be "fully depreciated" at this point.

So now, you sell for $600,000 years later, you owe capital gains tax on the whole $600,000.   Ouch.

And yea, I've "been there, done that" when I sold my office building for $680,000 after renting it out for a decade.   A nice profit, but the taxes due were on the entire sale price not just the difference between the sale price and what I paid for it.

It sounds bad, until you realize that 15% capital gains tax beats the snot out of 38% ordinary income tax - plus you delayed paying the tax by a decade!  You've converted ordinary income into capital gains, reducing your tax burden and delaying it.  Now you understand why so many people bought Real Estate like mad in the 2000's.  It was a tax shelter.

But getting back to our reader, I think his real question is, "Can I take a loss on the sale of the house?" and that gets very tricky.   If you sold the house right after you inherited it, or shortly thereafter, odds are, the answer is NO, you can't.  Just because you think it is worth $400,000 doesn't make it worth $400,000.   And the actual sale at $250,000 sort of trumps your wishful thinking.  Again, living in reality, here.

For a long-term loss, this may be easier to show, again, with proper documentation such as a historical appraisal.  For short-term sales, this is almost impossible.   Yes, technically, you can show a "loss" on an inherited property.   Doing so realistically is kind of hard.  Think about this for a minute.  You have inherited a quarter-million dollars tax-free.  But that ain't enough for you.  You want to claim this represents a loss to you.   Like my old tax professor used to say, "Pigs get fat, hogs get slaughtered" when it comes to the IRS.

Showing a "loss" in a manner which satisfies the IRS is tricky.   For example, with our situation, we inherited (along with two siblings) a house that "everyone in the family" said was worth $680,000 if not a million dollars.   We cleaned it out, had some work done to fix some broken things and then put it on the market at that price.

Well, six months later, not even one showing.  We lowered the price again and again, until we got an offer at $480,000.   So we took that.  That pretty much was the fair market value of the home.  Fair market value isn't what you think it is worth or what some paid appraiser said it was worth.  It is what a real buyer, "willing and able" will pay for the property.   Reality trumps fantasy, every time.  An actual sale beats wishful thinking, every time.

Why was the home worth less than we thought?  Well, with Florida's crazy "homestead" tax rules, the new owner is looking at a $10,000 property tax bill, if not more.   Our late relative was paying $2500 a year.   Throw in about $5000 in fire, flood, and hurricane insurance, and you are paying $1200 a month on top of whatever mortgage payment you have.

And since the zoning people clamped down on doing a "blowout" to make it into a three-story mini-mansion, the value of the property to a developer is far less.   We were sure a developer would knock it down and start over.  There were no takers.  Instead, a retired couple bought it to live in, doing minor remodeling projects to update the house.

Could we have taken a "loss" on the property?  No, likely not.   You see, a sale within a year or so of the inheritance pretty much sums up what the market value is of the property.   The IRS will tell you this, no matter how many paid appraisals you get (and we paid for one, believe me!).   And if you try to claim this loss on your tax return, without some serious documentation, you will likely get audited and nailed with back taxes owed, interest, and maybe even a fine.  Bear in mind the actual sales price will trump whatever appraisal you got on the place.

But this reader question illustrates how weak thinking works in the world.   People want to believe that things they own are worth more than they are because that works in their favor.   And when they can't get the sale price ("my price") for what they think is a rare heirloom, they throw a hissy fit.

To my prospective reader, I would offer this basic advice:  Be happy you inherited $250,000 tax-free.  The represents a quarter-million dollars more than I will inherit from my parents.  Whining that you deserved more is just making you look ugly.   Trying to claim a loss on your taxes?  Well, you deserve, wholeheartedly, the audit you will receive and the back taxes, penalties, and interest you owe.

More American crybabies.

UPDATE:  There are some odd situations where you may be able to declare a loss on an inherited property, but don't get too excited - it amounts to $3000 a year for a few years.

The house we inherited was part of a Trust, and it was inherited back in 2005 when the market was hot.   Since the Mother-in-Law had a life estate, the Trust could not sell the house until she died in 2014.   At that point the house was worth less than in 2005.

However, the difference, divided by three, was only $44,700.   Of this, only about $30,000 is counted by the IRS (as it is a "passive loss") and we can deduct only $3000 a year from our taxes (which at the 15% marginal rate is about $450.  A nice deduction, but not a money-maker.

The losses can be carried forward to the next taxable year where you will get another whopping $3000 deduction.

So, this is not a huge deal, after all.   Consult an accountant for more details and before filing your return!

Saturday, January 23, 2016

Toxic Degrees

Graduating from University was once the key to success in the workplace.  But today, certain degrees from certain universities are not only worthless, they likely will insure you don't get a job.

We've talked about college degrees here before.  And I opined that some colleges and universities may go bankrupt in the next few years, as they struggle to attract more students - with a shrinking enrollment base, sky-high costs, and an increasingly worsening value-proposition.

And this has happened, to smaller liberal arts colleges, such as Sweetbriar and the like - and it will continue to rise.  Religious schools, single-gender schools, traditional black colleges - all are first to feel the pinch.

An unexpected side-effect of this trend is playing out on college campuses across the country.  Colleges and universities are so stressed financially and struggling to attract students, that not only are they building rock climbing walls in the student center and dumbing down the curricula, they are caving in to the most idiotic of student demands.

Kids today want "safe spaces" and tenured professors fired the moment they express any non-PC opinion.  Meanwhile a professor can deny the holocaust, call the victims of 9/11 "little Eichmanns" or deny the shootings in Connecticut took place (and harass the parents of the dead children) and the students rush to defend their "right to free speech" and decry the university's efforts in firing them.  (Fortunately, the universities were successful nevertheless).

A college degree, in the wrong subject from the wrong university, could not only be useless, it could be worse than useless, as employers would look at your college experience and shy away from hiring you.   Many employers are already deciding that a college degree isn't necessary for many jobs, and may in fact be a hindrance:
"The move comes as smaller employers are shifting away from hiring graduates or university students, believing kids are coming out of university with “no real skills” or simply being taught the wrong things."
Think of it this way:  If you are an employer, do you want to hire someone who spent their college career protesting for "safe spaces" or "Black Lives Matter" or "occupying Wall Street"?    Would you hire someone who took over the Dean's office or made a list of "demands"?  Are these people who are likely to be productive employees, or troublemakers in the workplace?

Would you hire them?   Because if they went after their own professors, who's to say they won't come after you next?

And by hiring such folks, are you really gaining insightful experience from a college graduate, or a guaranteed lawsuit with regard to race, sex, or gender discrimination?   Or unionization activities?  Or at best, someone who has no idea what hard work really means?

I suspect in coming years, degrees from certain notorious universities which seem to be concentrating more on protesting than education, will be not only worthless, but less than worthless.   In short, you would be better off leaving such degrees off your resume when applying for a job.  Such degrees would be toxic to your future.

And to think, you spend $100,000 to get one.

And this is not a new trend.   Back in the 1970's and 1980's, young graduates complained that they could not get a job as they had no "experience" for many high-paying jobs, but were "overqualified" for low-paying jobs.   They were mystified as to how they ended up in this conundrum.  Of course, if they had any smarts - or empathy for a prospective employer - they would see right away what the problem was.

The reality is, a graduate in "communications" from Bong-Hit University with a C average is not really sought out by anyone.   The degree doesn't by itself qualify the candidate for any kind of employment, as bereft of real-world experience, they would be a burden to an employer, not an asset.

And such a degree, far from being an indication that the applicant is a go-getter, intelligent, and and asset to the organization, is just an indicator that the person applying is lazy, unmotivated, likely on drugs, and bound to be a troublemaker.

So back then, we had the same situation.   People went to college and graduated with what were, in effect, toxic degrees.   And even back then, some reported finding work only after leaving their degree off their resume as low-wage employers didn't want some liberal-arts college pot-smoking troublemaker explaining to the employees exactly how they were being exploited.

This is not to say all degrees from such institutions are worthless or toxic.   If you graduate at the top of your class or move on to graduate work elsewhere, you may be sought out as a worthwhile candidate.   But such folks are in the minority in any graduating class.

And today, if I was an HR director for a large company,  I would start to assemble a "black list" of colleges not to hire from.   And it would not be hard to do - just read the newspapers and write down the names you read in the articles; Brown, Columbia, Smith, and so on.   Actually, such lists have already been compiled for you.

Of course, a lot of the grads from such schools aren't interested in jobs.  Either they come from wealthy families, and after playing at being a protester, they will settle down and work at inheriting money.  Or, like Cornell students, they end up working at the coffee shop they patronized for four years as a student, and not much changes in their lives.   And of course, a third group never leaves college - going on to one graduate degree after another, and finally landing a position as professor, so that they can share their "real world" experiences with a new generation of young people.

It never ceases to amaze me that kids can be smart enough to go to college and not figure all this out.   I guess in the 1960's and 1970's college was cheap enough that it didn't matter too much - you just wasted four years of your life.  Today, though, with a "mortgage on your life" at stake, it seems kind of obscene that colleges are letting kids graduate with these horrendous debts and degrees that are not only worthless, but toxic.

But then again, it seems they let anyone in college today.   It is the new high school.   And these graduates, not being very bright, count on electing Bernie Sanders for President, as he promised them free college, student loan debt forgiveness, and a guaranteed job.   And they think this is a plausible solution to their problems.

You can see, right away, why they aren't finding jobs.