Puerto Rico needs a financial control board

Investors have become pessimistic even though the Commonwealth has recently managed to borrow $900 million from a group of banks led by JP Morgan, Morgan Stanley and Bank of America. The island’s government was actually hoping to raise $1.2 billion, and it was granted at a punishing interest rate of 7.75 percent. In years past, the Commonwealth had always been able to obtain short-term credit for its seasonal needs at rates below two percent. According to Bloomberg News, the hedge funds which bought Puerto Rico’s last bond issue in March – it was priced to yield an eye-popping 8.75 percent – have been losing confidence and have pared back their holdings.

The market action suggests that sophisticated investors are beginning to realize that Puerto Rico’s economic and fiscal situation is unlikely to turn around anytime soon. The economy has been shriveling for eight years, such that a measure of the island’s GDP as of August was off by one-fifth from August 2006 – and down all the way to a level not seen since 1994. The first data points for September are the unemployment rate, which rose to 14.1 percent from 13.1 percent in July, and auto sales, which were down 17 percent for the third quarter versus the prior year. The underlying reason is a steady exodus of population and jobs: total employment in 2014 through September stood 21.5 percent below the 2006 average. The exodus has led to an erosion of the tax base and to political pressure to salvage government jobs and help vulnerable populations.

Indeed, the fundamentals of Puerto Rico resemble those of New York City in the mid-1970s and of other municipalities on which a Financial Control Board has been imposed. NYC lost a chunk of its middle class and 16 percent of its jobs between 1969 and 1977. It was also saddled with too much debt – Puerto Rico’s tax-supported debt amounts to nearly $12,000 per inhabitant, twelve times the median of state debt per capita in the continental United States – and NYC’s access to financing came to an end when the leading banks resisted underwriting any more bonds.

Behind every fiscal crisis there is a shortfall of political skill and forceful leadership, and Governor Alejandro García Padilla is looking increasingly inept. His plan to balance the budget by tinkering with revenue measures and curbing employee compensation, while avoiding layoffs and the restructuring with intent to privatize inefficient state-owned companies, is insufficiently aggressive. Three months into the new fiscal year, the plan is already falling short. On the funding side, meantime, the strategy is to pledge ever-greater portions of earmarked taxes to back new indebtedness, despite undermining the obligations that are not similarly supported.

And then there is García Padilla’s economic team, recently reshuffled but not improved. Treasury Secretary Melba Acosta has displayed poor judgment, most notoriously by disavowing a tax refund that was to be paid to Doral Financial, one of the island’s largest lenders. Recently, the matter went to court and the ruling was in favor of Doral. Acosta’s reaction? “We have no budgetary allocation to pay for that gift.”

Governor García Padilla has since nominated her to become head of the Government Development Bank. Her successor at the Treasury’s helm is Juan Zaragoza, who has been serving as a top, paid advisor to Ms. Acosta. Apparently, he has remained all along the managing partner of a prominent accounting firm that has represented many clients in tax matters. Now he must defend himself against a formal complaint filed by opposition senators, who accuse him of having failed to avoid conflicts of interest.

Given the current morass, it is hard to recall the happy decades during which Puerto Rico was the belle of the municipal bond market. As a territory, it was able to run deficits and fund them by selling almost as many bonds as New York and California did – because its debt pays tax-exempt interest in all 50 states, a favorable trait that was used and abused. The time is rapidly approaching when the US Congress may well have to take matters in its own hands and, empowered by Clause 2 of the Constitution, establish a financial control board to take the unpopular austerity and reform measures that circumstances warrant.

Porzecanski is the director of the International Economic Relations Program at American University’s School of International Service.

Don’t Bother Appealing a Financial Aid Award if…

So what is it about these families that has me refusing to take their business and their money?

Its their unrealistic hopes. These families want a strategy. Theyve read that if you show a college a competing award, the college will match it. Or theyve heard that you can negotiate a better award by telling the college how much the student wants to attend the school.

If these are the only reasons they want more money, I tell them they can appeal themselves. These parents will probably be unsuccessful if the award they want a college to match is in a different category of selectivity. A highly competitive college that does not give merit awards will not match a school that has awarded a student an academic scholarship. That selective college will award only need-based aid, based on the familys income and assets; the other college uses merit awards to entice students to attend, regardless of their financial situation.

Financial-aid appeal letters are difficult for colleges to respond positively to, since a decision to change an award is limited by a colleges policies and requires consensus of the financial aid committee. There are no cut-and-dry rules of what will be accepted and what wont. The committee can use what they term professional judgment and override entries on financial aid forms.

OneMain Financial moving headquarters to Legg Mason Tower in Harbor East

OneMain Financial will move its longtime downtown headquarters to the Legg Mason Tower this spring, becoming the latest in a string of companies that have shifted from the central business district to Harbor East.

The consumer lending arm of CitiGroup Inc., OneMain has signed a 110,000-square-foot lease at the building. More than 640 employees will occupy five floors of the 24-story waterfront tower at 100 International Drive. The 11-year lease will bring the glass tower, which offers some of the highest-priced office space in the city, to near occupancy. The 650,000-square-foot building was completed in 2009.

OneMain currently leases more than 300,000 square feet at 300 St. Paul St. Its unclear whether the company, with Baltimore roots dating back to 1912, plans to reduce the size of its operations in the shift.

OneMain officials declined to comment beyond a prepared statement.

We researched many options, including our current building and other buildings both in Baltimore and outside the city, OneMain Financial CEO Mary McDowell said in the statement. We wanted a site that offered the square footage we need and a convenient, central location for our employees. The Legg Mason Tower will be a great home for OneMain Financial and we are delighted to join our new neighbors in Harbor East.

Citi has said it will spinoff OneMain, disclosing earlier this month a planned $50 million initial public offering for the subprime lending unit.

Meanwhile, Downtown Partnership of Baltimore Inc. spokesman Michael Evitts said the organization was aware of the move, adding that it is unclear whats next for 300 St. Paul St. after OneMain vacates. According to CoStar Group Inc., the 22-story building was listed for sale about six weeks ago and has had $18 million in renovations over the last decade. Cushman Wakefield of Maryland Inc.s capital markets director, Cris Abramson, has the building listing but could not be reached for comment late last week.

Teaching money management skills to youth does not have to be overwhelming

Discussing finances with youth can seem daunting and overwhelming. Even if you do not feel particularly knowledgeable in the topic of money management, having a discussion with young people can make a significant difference in their future.

Being an expert in finances is not required to help youth with this topic. However, helping them know the importance of learning more and where they can go to get personal finance information should be the goal.

Michigan State University Exension 4-H Youth Development has many resources to help you infuse financial education into your time spent with young people. The easiest way to start the conversation is to simply have youth start talking about money. They know, have an interest in and likely have opinions on a great deal of money-related topics already.

Open the door to discussions with some general money comments or questions that are open-ended. Have it start as a casual conversation. Invite the young people to share what they have experienced related to money, what they choose to do with the money they have and what influences their decisions around money.

Be creative; ask questions that draw out the youths values when it comes to money.

For example MSU Extension suggests asking:

  • Where is favorite place to eat out? Do you consider what items cost when deciding what to order?
  • How much do you spend on snacks in a given week? Have you ever kept track and added it all up?
  • Do you prefer going out to the movies or renting a movie? What influences your decision?
  • What do you spend the most on: food, entertainment or sports? If money was not an issue, would you choose differently?
  • If you were given $10, what would you do with it?
  • Who do you go to for advice on money related topics?
  • Do your friends make similar choicse when it comes to spending money? How do you feel about that?

A unique way to encourage a group of youth to discuss money is by having open conversation boards using flip chart paper on the wall, a bulletin board or even a social media site. These free spaces allow thought, reflection and a pressure-free environement to participate. Ask youth to share ways that they can save money, one tip they have learned from a family member, teacher or friend about money management, or strategies they use to make wise financial choices. Most high school youth have experienced or seen enough money related situations to have ideas to share with each other. The topics generated could lead to an interest to learn more. At that point, bring in an experienced presenter from MSU Extension, a local credit union or bank, or from another financial institution to offer financial education.

A key message that is important to share with youth is that money decisions are based around values. How we each decide to spend, save or invest money is based on what is important in our life. Help young people understand the importance of making wise decisions that align with their goals, values and plans for life.

MSU Extension has many articles to help adults learn more about money management as well as ways to teach the topic to youth. Helping make the topic less overwhelming is beneficial to both youth and to the adults who work with them.

This article was published by Michigan State University Extension. For more information, visit http://www.msue.msu.edu. To have a digest of information delivered straight to your email inbox, visit http://bit.ly/MSUENews. To contact an expert in your area, visit http://expert.msue.msu.edu, or call 888-MSUE4MI (888-678-3464).

The One Argument In Favor Of Student Loans

College is worth it. Thats the straightforward conclusion of a recent study from the Brookings Institutions Hamilton Project. A college degree — in any major — is important for advancing ones earnings potential, the studys authors write. Median earnings are higher no matter what you study, and the advantage you have over high school graduates lasts throughout your career. The difference isnt minor, either: Over a lifetime, the Hamilton study notes, the typical bachelors degree graduate worker earns $1.19 million, which is twice what the typical high school graduate earns.

College, as The Washington Posts Dylan Matthews detailed in 2012, is a great investment. And despite growing anxiety about Americans rising student-loan bill, using debt to partially finance ones education makes it an even better investment.

Heres a chart clearly showing the boost you get from a college degree:

The message is stark: Go to college, major in something you like so that youll graduate (yes, art history is worth it), and you will typically make more money. Hamilton even has a fantastic interactive graph that lets you see how much more money you can expect to earn based on your major:

Granted, gaining that advantage in lifetime earnings does cost something, and the cost of college is rising — a trend that no student is happy about. Those rising costs are at least partially a result of the abundance of loan options available to students. Those same loans, however, let Americans borrow their way toward a higher lifetime income.

College debt, which is increasingly synonymous with a college education, has many potential downsides: It depresses the housing market, crowds out other spending, and leaves graduates vulnerable to default, marred credit ratings and all kinds of nasty practices.

There are real reasons to worry that student debt is too easy to acquire right now. There are other ways of financing college that would make it an even better deal for Americans, like the government using its excellent credit to borrow more money to fund more federally backed loans — or, even better, grants. Increased funding for state schools also wouldnt hurt. Student-loan burdens from for-profit colleges tend to be very high, and come with shady collection methods and a degree of dubious long-term value.

Still, education is a fantastic way to invest in your own earning potential, and debt is a great way to invest in things that yield predictable returns. Investors famously love leverage. It boosts returns, because borrowing money from someone else is a cheaper way to buy something than putting up cash yourself, and because the tax code loves leverage too: The interest companies pay on debt is tax-deductible.

In a limited way, student loans give Americans access to the magic of leverage, with the bonus of tax deductions. Ordinary Americans can get access to loans to buy all sorts of things that fall in value and usefulness shortly after theyre bought: cars, clothes, electronics, furniture, appliances. Even homes, which you can take out a mortgage to buy, can rise in value, but their price is volatile, and the thing itself is immobile and requires money to maintain.

A college degree has none of these drawbacks. Its the only type of loan Americans can use to directly invest in their long-term personal economic well-being.

There are lots of bad reasons to go into debt. A college degree is a good reason to borrow money.

Millennials Shouldn’t Feel Guilty About This Financial Decision

Millennials are pretty stressed out about their long-term finances, according to Bank of Americas latest Merrill Edge Report. Some 80% of millennials say they think about their future whenever they pay bills. Almost two-thirds contemplate their financial security while making daily purchases. And almost a third report that they often ponder their long-term finances even while showering.

5 Signs You Have No Money Management Skills

Good money management is about more than just being able to
afford the essentials. Its about being able to cope with the
unexpected and grow your wealth,
saving

#160;a little more each day.

Here are the US colleges whose students have the toughest time paying back …

University students who take out loans are essentially bettingthat the education theyre financing with debt will help them get a decent joband that the job, in turn, will help them repay the loan.

Defaulting on student loans, then, means something went terribly wrong.

Alas, such a turn of events is far from uncommon.Last month, the US Department of Education released its latest batch of data on student loan defaults. Broadly, the news was good. Overall default rates fell to 13.7% from 14.7% the prior year.

College debt study: Student loans cross socio-economic lines

More students from wealthier families are borrowing more money to finish college.

A just-released Pew Research Center study of 2012 data shows a record 69 percent of graduates took out loans to finance their educations and that theyre borrowing about twice as much as 20 years ago.

The median debt for 2011-12 grads who borrowed was $26,885, up from $12,434 in 1992-93. (Those sums are in 2013 dollars.)

Perhaps more surprising is who these student-borrowers are: Increasingly, they come from high- and upper-middle income families.

Fully half of the 2012 graduates from high-income families borrowed money for college, double the share that borrowed in 1992-93. The percentage was even higher 62 percent for upper-middle-income families.

The full report is available here.

The study defines high-income as students from household incomes in excess of $125,700 and low-income as those from household incomes below $44,000.

The increase in borrowing by students from wealthier families can be attributed in part to the broadened eligibility standards for student loans implemented in the 1990s by the Education Department.

But the report also points out the Great Recession struck across the economic spectrum. Americans rich and poor alike lost 39 percent of their net worth in the wake of the financial crisis of 2008, making college bills tougher to afford.

The Pew report chronicles the alarming growth of student debt nationally over the last two-and-a-half decades. Students borrowed $24 billion in 1990-91. In 2012-13, they borrowed $110 billion, a 352 percent jump.

The big increase is in part due to a 62 percent increase in enrollment. But relentless increases in the cost of college are also to blame, which with public colleges is a function of lower taxpayer support.

One of the reasons students are borrowing more is, state legislatures have cut back on their commitments to public higher ed, said Richard Fry, a Pew senior research and author of the report. Given all the competing priorities they have, legislators have decided higher education is not as important. Instead, students and their families are paying more of the cost.

The same dynamic has played out in Oregon. The Oregonian has done a similaranalysis for this state as part of a series of stories on student debt. The paper determined students at Oregon schools and their parents have taken out more than $12.2 billion in student loans in the last decade. Annual borrowing has gone from $655 million in 2003-04 to $1.34 billion in 2013-14.

Thats actually just direct student loans from the US Education Department. The total is higher if you include student loans from private sources.

–Jeff Manning

Disabled, elderly targeted in ID theft at nursing home

Police are investigating a string of identity theft cases at a Stockbridge nursing home.
 
Police say someone working at Laurel Park Rehabilitation Center was targeting patients, many of them elderly and disabled, to get as much as $35,000 in credit in all their names.
 
Nancy Rowell-Crane says her mother, Grace Rowell, is totally dependent on her care. The 84-year-old suffers from memory loss and recently fractured a hip. She went to Laurel Park for treatment. That’s where she likely came into contact with Tawaii Collins, the woman accused of the thefts.
 
“Detectives advised about eight victims they believe they were all at that location in Stockbridge receiving some kind of rehabilitation or treatment at some point,” said Henry County Police Lt. Joey Smith.
 
Rowell-Crane says someone at the facility asked for her mothers insurance information a second time because it was missing from her file. A short time later letters from credit card companies started showing up at her mothers home referring to suspicious applications or notices of suspensions on accounts, including one from the Home Shopping Network which she says her mother never opened.
 
“It scares me for all the patients because this isa vulnerable population anyway,” Rowell-Crane.
 
A 69-year-old patient at the facility told police someone claiming to be with the insurance company called asking for personal information.
 
After getting fraud alerts on her cellphone, she called her bank which told her a woman named Tawaii Collins was claiming to have access to the patients account.
 
Rowell-Crane got her moms credit report and noticed a strange McDonough address. Police got a search warrant and arrested Collins there. They found financial documents and merchandise bought with credit in victims names. Rowell-Crane wants to know why her mothers information wasnt better protected at the facility.
 
“They have yet to reach out to me to even tell me this has occurred, so I know theres probably other patients there who have no clue this is a possibility,” Rowell-Crane said.
 
Laurel Park told Channel 2 Action News they couldn’t comment on the case. Police are trying to find out if anyone was working with Collins and urges anyone who has been treating at the facility since June to check their credit records and call police if they notice anything suspicious.