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March 2008

The Federal Reserve may soon become much more powerful if Treasury Secretary Henry Paulson has his way. Earlier today, he released the “Blueprint for a Modernized Financial Regulatory Structure,” which includes a number of recommendations designed to take power away from the U.S. Securities and Exchange Commission.

Paulson’s recommendations

The Federal Reserve should be able to increase liquidity by lending directly to “non-depository institutions” (such as investment banks), and to facilitate this, the Fed will have access to information at the investment banks. The government would have the power to perform on-site inspections if they so desire in an effort to quickly lend to the businesses if necessary.

The Eccles Building, situated on Constitution Avenue in Washington, DC.Paulson wants the Federal Reserve to create a Mortgage Origination Commission to oversee and rate how states license and regulate lenders and create minimum qualification standards for licensing.

The Treasury Secretary believes the Federal Reserve should regulate state-chartered banks, payment systems, and insurance companies. The SEC would merge with the U.S. Commodities Futures Trading Commission to oversee traditional investments as well as some of the more complicated structures.

With these suggestions implemented, the government will regulate “business conduct” ensuring consumer protection, including rules for writing term disclosures across the board of financial products.

Reactions

Nomi Prins points out that the Federal Reserve has spectacularly failed recently with its attempts to stimulate and regulate, so providing more power to the agency is a step in the wrong direction.

All of the plan’s suggestions are cosmetic. Instead, let’s please have a serious discussion about the nature of the banking system structure itself: its complexity, its responsibility, and the proper role of the federal government in regulating it. The United States has had such a debate before, leading up to the landmark 1933 Glass Steagall Act. We can and should have such a sweeping debate again.

Traditional small-government Republicans would most likely agree with Nomi. The Democrats are critical of the plan as well, saying the proposal doesn’t go far enough to provide direct help to consumers and to hold investment banks as accountable as depository banks.

I agree that regulation should be consolidated for all financial firms and the same standards for reserve holdings should apply to any institution that has access to direct lending from the Federal Reserve. What do you think?

Image from Wikipedia
Treasury Releases Blueprint for Stronger Regulatory Structure [U.S. Department of the Treasury]

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The latest edition of the Carnival of Personal Finance, a weekly round-up of some of the best articles on the web about personal finance, has been published at Stock Trading to Go. In addition to the host’s Editor’s Picks, be sure to read How to Manage Your Asset Allocation With Multiple Accounts, Grow Your Investments One Snowflake at a Time, and Finding Time for Cost-Cutting Measures.

Also, you may be pleased to know that the schedule for the Carnival of Personal Finance through June 2008 has been finalized. Hosting the Carnival is often a monumental task, and I appreciate all the volunteers willing to assemble an interesting and informative Carnival of Personal Finance each week since June 2005.

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As I mentioned briefly, I was in San Francisco for a few days to meet with software developers and strategists from NetworthIQ, ExpensR, and MyStrands. The companies are working together to develop web-based personal finance management software, with the intention of meeting customers’ needs that are not met by Mint, Geezeo, Quicken Online, and others. The companies invited a number of bloggers who write about personal finance to share their experiences and needs with each other.

This workshop gave me the perfect opportunity to meet many of the writers I’ve been working with for several years. Not only did we discuss financial software, but we also got to know each other quite a bit and share blogging tips and tricks. However, the main questions of the day pertained more to financial management software.

I would have to say that personal finance bloggers are not the typical consumers. For example, I track my finances in great detail — though less detail than I did six years ago — using Quicken’s desktop software. Several times a week, I update my transactions and reconcile my accounts against information downloaded from my banks, and once a month, I review my reports to get a good handle on the bigger picture. I do not want to spend any more time than I do now, especially if it involves categorizing my expenses. Software like Mint (reviewed here by Sasha) and Quicken Online (previewed by me) will connect directly to your bank for downloading your transactions and attempt to categorize your spending based on patterns, but this system is not perfect and requires significant manual correction.

Additionally, for most people, the information downloaded from banks does not create a full picture of spending. Although more spending takes place through electronic transactions, cash still plays a large role. Software must include a way to enter cash transactions, not downloadable from any bank. In order to save current Quicken users from expending more effort, I suggested allowing the new web software to “plug in” to existing desktop software. This would allow users like me to take advantage of some of the planned “Web 2.0” features, like “social networking” and cross-segment comparisons.

All the bloggers had great suggestions for what we’d like to see, but the big questions are how to make personal finance mainstream and what would the most people want to see as the 21st century brings technological advances. So this leads to one question for readers, particularly those of you who think outside the box: What do you want your personal finance software to do and how does that differ from your existing solution?

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The people behind NetworthIQ and Expensr invited me and a few other bloggers to San Francisco for a workshop to discuss online financial management tools. At this invitation-only event, six bloggers have been asked to present their history and talk about blogging in general. The blogs to be showcased include Consumerism Commentary, Get Rich Slowly, Personal Finance Advice, Blueprint for Financial Prosperity, Stop Buying Crap, and Dual Income No Kids. The round table discussions will include even more bloggers as well as representatives from the companies.

The event will begin in a few hours. In the mean time, here are some recent articles from the participants. I’ll be on my way back to the east coast tomorrow.

When the Going Gets Tough, Get Back to the Basics. Different rules apply depending on your goals, as long as your goals are set properly. People struggling to get out of debt have to look at the basics of money management to move ahead, and that has to happen before loftier goals, like investing for the future. Yes, while retirement should always be a focus, if you’re falling deeper into debt every month and not making ends meet, then the basics must be attended to before worrying about the future.

When Does Married-Filing-Jointly Make Sense? Jim runs some numbers and discovers some interesting facts. It rarely makes financial sense, but there are a few occasions in which you could pay less tax (or avoid more penalties) by filing separately.

Crap or Not: Nintendo Wii. In his series evaluating products for potential crapitude, Cap takes a look at the Nintendo Wii. I bought one for my girlfriend, and we both enjoy playing it. Her family enjoys it as well. In fact I have not met one person who, after playing the Wii, did not think it was a fun way to waste some time. It was definitely a worthwhile entertainment expense.

Dual Income No Kids looks at the financial disparity between the average wealth of racial groups.

44 Ways to Improve Your Productivity. Jeffrey Strain provides examples of a variety of aspects of his life that makes him more productive. For example, he doesn’t watch television, he writes lists, and he doesn’t take breaks from working at the computer. I hate to say it, but in some ways, the “productivity” movement has to be one of the most disappointing aspects of American culture.

Feeling Poor: Here are the Two Largest Reasons Why. Lazy Man believes people trying to improve their finances should bother searching for which tool for managing their money (such as Quicken or Mint) is best; any tool is better than tool. Rather, they should worry about education and the desire to improve.

Survive a Recession, Think Long Term. While market sentiment is down, those who are investing for the long term shouldn’t be concerned. The problems we are facing are mainly short-term problems and over the next few decades the outlook is good. Is it?

21 Days to a Negative Money Habit. Here’s a list of 21 different bad financial choices. Don’t fall into these traps.

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Where Did You Come From, Where Did You Go (March 2008)

by Luke Landes

At the end of every month, I take a look at the source of visitors to Consumerism Commentary, and in March, there were a lot of readers. Don’t forget to stay up-to-date by subscribing to the RSS feed, which will inform everyone of new articles here. Consider, for example, adding Consumerism Commentary to My Yahoo. […]

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Thrasher Funds’ GendeX Mutual Fund: You Know, For Kids

by Luke Landes

Do investment companies need to market to “Generation X” and “Generation Y” differently than the general investing public? Would new, “hip” investment products encourage individuals falling within these particular demographics to care about their financial future? Thrasher Capital Management was founded on the principle that these markets, as well as minorities, are currently under served […]

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Good News if You’re in the Market for Buying a House

by Luke Landes

Earlier this week, a few real estate market survey results were announced in the media. This could be good news for house shoppers. In January, prices of homes on average were 11 percent lower than prices of homes at the same time last year. These results are based on the S&P Case/Shiller index, which collects actual […]

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Balance Transfer Fees on Chase Credit Cards

by Luke Landes

Credit cards simply are no longer offering the enticing deals in order to lure customers. Even though credit card companies have been willing to offer strong cash back rebates and introductory 0 percent APR deals, they’ve done so knowing that they can make up the loss through interest rates from defaulted customers and interchange fees. It […]

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Giveaway: $100 Gift Card for SmartyPig, a Unique Savings Account

by Luke Landes

The people at SmartyPig contacted me recently to offer a $100 gift card for use on their site to a Consumerism Commentary reader. SmartyPig has been mentioned on a few personal finance blogs recently, and here’s the deal. SmartyPig is a savings account, FDIC insured, currently earning 1.75 percent APY. Depositors’ funds are held by West […]

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My First Economic Stimulus Payment Notice Has Arrived

by Luke Landes

Over the weekend, I received a notification from the IRS about the economic stimulus. The notice isn’t personalized; it contains only general information about the new law. The text of the letter is straightforward. Rather than get into the details, particularly the facts that the law authorizes a new credit to 2008 income taxes and […]

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