Image via Wikipedia

I came across a great “Derivatives Primer” today. I hope you enjoy it as much as I did:

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans). Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities then are bundled and traded on international securities markets.
Naive investors don’t really understand that the securities being sold to them as AAA secured bonds really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi’s 11 employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS prices drop by 90%. The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from their cronies in government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar.

Now do you understand?

And interesting post on Techmeme started my day this morning called Time To Hang Up the Pyjamas. It was an article by Daniel Lyons who had set up a highly-trafficed blog called The Secret Diary of Steve Jobs a couple of years ago. The gist of the article is that he put loads of effort into monitising the blog, but failed to generate anything that would surpass what he could earn holding down a normal job. Here’s a poignant part of his article:

My first epiphany occurred in August 2007, when The New York Times ran a story revealing my identity, which until then I’d kept secret. On that day more than 500,000 people hit my site—by far the biggest day I’d ever had—and through Google’s AdSense program I earned about a hundred bucks. Over the course of that entire month, in which my site was visited by 1.5 million people, I earned a whopping total of $1,039.81

A number of other blogs were quite quick to point out that the blog resulted in his rise to relative fame, a book deal and his new job at NewsWeek, but millions of bloggers around the world will never earn as much from AdSense as he did. What he DID DO, however, was raise his profile so that his net worth was much higher than it would have been otherwise.

Articles like this always help put blogging in perspective and help people focus on the why they blog. Using a blog to earn money isn’t impossible, there are a number of companies out there who will pay a blogger for their efforts, but it’s no different to being paid for dropping leaflets in someone’s mailbox. The amount you can earn is constrained by the time you have available and the moment you pull back you’ll see your earnings dry up. Selling advertising space on blogs is another money-earner, but without fresh, compelling content and the traffic it brings, well, that’s another non-starter. In my humble opinion, the worst reason to start a blog is to generate enough income to quit your day job.

On the other hand, a blog can do wonders for your profile, image and self-esteem. It can serve as an outlet for you to talk about your passion, to meet like-minded individuals, to show off your strengths and seek opportunities. A blog can help you build online relationships which will benefit you in the long term in many diverse ways. Monetary benefits are a possibility, but they’re always much harder work than you originally imagined when you decided to set down the blogging path.

photo credit: Dan4th

Looks like too many people have stopped playing with online trading and started playing with image manipulation instead

I just came across some links that are all about making money online.

• How to make money on the Internet – Blogging
• Why Most People Fail Online
• How to Make Money Online Without Spending a Cent
• Why The Job-ification of Your Passion Can be the Ticket to Hating Your Life
• Top 50 Update: Make Money Online Blogs – New is Hot

Source: WorkConnexions

Do YOU have any other links you’d like to recommend for the list?

One thing I learnt today is that there are instruments called 125% Mortgages. These are usually made up of a 95% mortgage on property together with a 30% unsecured loan. This is particularly useful for people who have trouble getting a deposit together, or if you’re planning to do some work on the property after you buy it. Must keep that in mind next time we’re looking at property!

That reminds me. I need to get in touch with my mortgage company. They offered me a better rate a few months ago, but it doesn’t seem to have kicked in!

So, how does this work. Well, people unfortunate enough to be involved in an accident often end up being the recipients of an insurance payout that pays a sum on a monthly basis. This is what is called a structured settlement. Now, sometimes these people may need a lump sum for a particular reason. Finance companies like J.G. Wentworth can take the future payments and turn them in a present day cash lump sum. Interesting idea really.

This is where a website like Credit Card Express comes in really useful. It has a comparison chart of some major card and how they compare against each other. It also has a review of each of the cards where it outlines all the relevant information you need to know about each card, including Yearly APR, the rate for cash advances, and what rate they charge for foreign transactions. There’s also information about whether there’s a loyalty scheme attached to the card and if there’s any special attributes it has. For example, the Virgin credit card gives you a 10% discount on any media purchases from Virgin Megastore.

So, if you’re looking for a new card, it’s worth checking what’s out there. As a consumer, it’s great having so many options!

The links above come from a website called Debt Help which has a staggering array of articles on all thing related to finance, loans and other financial matters. I got to the website by accident and ending up reading all about bankruptcy and the different ways a company can be closed in the United States. The one thing that is clear is that the whole subject is a minefield and it’s worth getting help if you ever end up in that situation. Or, here’s some free advice. Don’t go bankrupt

On a serious note, sometimes borrowing money cannot be avoided and it’s always best to be prepared for this sort of eventuality. It is therefore pretty important to make sure that you have the right information at your fingertips and that you have access to the resources you need to deal with the problem. This is why my recommended is to always seek out an expert in the field, preferably someone with years of experience and the ability to give you a hand getting out of your difficulties.

There are a number of things you can do make the end of the month easier of everyone. One thing you can do is budget better, Plan out your expenses and give youself a weekly budget. Don’t eat into the follow week’s money but learn to spread out your money instead. You can also put away any extra you don’t spend and go for an extra-special treat at the end of the month.

If budgeting isn’t for you there are other options. One option is to get a loan to tide you over and you can get these just for the last few days of the month. It’s really easy to get a cash advance that you can pay back in a few days, and most will let you do this quite cheaply. One company like this is National Pay Day which let you take out a small loan for a few days and will lend you up to $600. There is a charge of course, but if it’s matter of defaulting on a payment and getting bad credit, it’s good to know there’s an option if you need one.