S&P's Enron moment

IM conversation between two Standard & Poore's employees, April 2007, as revealed in testimony before Congress today:

Shannon Mooney: i didn't really notice...but now that i think about it i kindof tune her out when she talks

Rahul Dilip Shah: well she just is too political...and she doesn't have anything of substance to say...but keeps thinking that she does.

Rahul Dilip Shah: (I'm done venting now) :)

Shannon Mooney: k go take a nap

Shannon Mooney: see you later

Rahul Dilip Shah: ok

Rahul Dilip Shah: btw - that deal is ridiculous

Shannon Mooney: i know right...model def does not capture half of the rish

Shannon Mooney: risk

Rahul Dilip Shah: we should not be rating it

Shannon Mooney: we rate every deal

Shannon Mooney: it could be structured by cows and we would rate it

Rahul Dilip Shah: but there's a lot of risk associated with it - I don't personally feel comfy signing off as a committee member.

(Via the Big Picture blog and The Epicurean Dealmaker. The latter has a pictorial illustration that I like, Mark Tansey's "The Innocent Eye Test"; the former has links to the transcript.)

Prosperity theology created foreclosure victims?

An article at Time magazine suggests that those following the "prosperity theology" of some Pentecostal ministers are more likely than average to have obtained mortgages they cannot afford, leading to foreclosure:

Has the so-called Prosperity gospel turned its followers into some of the most willing participants -- and hence, victims -- of the current financial crisis? That's what a scholar of the fast-growing brand of Pentecostal Christianity believes. While researching a book on black televangelism, says Jonathan Walton, a religion professor at the University of California at Riverside, he realized that Prosperity's central promise -- that God will "make a way" for poor people to enjoy the better things in life -- had developed an additional, dangerous expression during the subprime-lending boom. Walton says that this encouraged congregants who got dicey mortgages to believe "God caused the bank to ignore my credit score and blessed me with my first house." The results, he says, "were disastrous, because they pretty much turned parishioners into prey for greedy brokers."

Yet another case of religious trust being exploited to victimize those who have it.

(Via Dispatches from the Culture Wars.)

Largest corporate bankruptcies in U.S. history

At Trading Markets is a story about the largest corporate bankruptcies in U.S. history, with the recent Chapter 11 filing of Lehman Brothers Holdings Inc. at the top of the list.

At #9 on the list is my employer, Global Crossing Ltd., about which the article says:

Hurt by a sluggish demand and declining prices for bandwidth capacity, and burdened by a heavy debt load, telecom company Global Crossing Ltd. filed for Chapter 11 bankruptcy on January 28, 2002. At the time of filing, Global Crossing had $30 billion in assets and $12 billion in debts.

In December 2003, Singapore Technologies Telemedia acquired a 61.5% equity share in Global Crossing for $250 million, paving way for the troubled telecom company to exit Chapter 11. In addition, Singapore Technologies Telemedia agreed to purchase $200 million in senior secured notes that were meant to be distributed to former creditors. Global Crossing used the $200 million cash to pay off its creditors.

The company emerged from bankruptcy on December 9, 2003. By the time, Global Crossing exited bankruptcy, its debt was reduced to a mere $200 million from $11 billion at the end of 2001, including $1 billion of Asia Global Crossing debt. As of the most-recent quarter ended June 30, 2008, Global Crossing's total debt was $1.45 billion and for the past 52-weeks, the shares have been trading in the range of $14.54 - $24.75.

There's much more that could be said about that. For some of the other companies, the article reports on employee layoffs. Global Crossing went from a peak of nearly 15,000 employees down to just above 3,000, a process that was painful for both those who were laid off and those who remained and had to pick up the slack. The process was much-needed, however, and forced consolidation of acquired assets that had been operating in separate silos with separate management structures, eliminated many middle management positions, saw the departures of almost all senior management, and resulted in improved network performance and customer satisfaction ratings and subsequent growth in number of customers and customer traffic on the network. Global Crossing remained a tier 1 network provider through the bankruptcy, and is now #3 on Renesys' list of the top 25 Internet service providers by customer base.

Government restriction on short sales may have unintended consequences

A lot of my investments are in S&P 500 index funds, which, until the recent dive by financial institutions, included financial stocks as its largest sector of investment (finance is now third after energy and IT). Over the past couple years, I've held shares in the Prudent Bear Fund (BEARX), a mutual fund that uses a strategy of shorting various stocks, purchasing put options, and investing in gold, as well as making some short-term trades of the exchange-traded funds ProShares UltraShort S&P 500 (SDS), which goes up when the S&P 500 goes down, and ProShares UltraShort Financial (SKF), which goes up when the Dow Jones U.S. Financials Index (DJUSFI) goes down.

I had been holding some shares of SKF for a couple weeks with a 30-day limit order to sell at $142, which would give me a nice profit. When it shot up Thursday, I upped my limit, and ended up selling some of my shares at over $150, and closing out my position. The market then reversed, and SKF dropped as low as $110, so I picked up a few more shares at around $117. Friday morning, SKF dropped to $87 and started to climb back up, when all of a sudden it stuck at $93 and no more trades went through. Trading was halted.

The SEC announced a "temporary emergency action" to ban short selling in 799 stocks of financial companies for the next ten business days (until the end of the day on October 2), which may be extended for up to another twenty business days (until the end of the day on October 31, bringing us right up to the election). The UK instituted a similar ban. Because of this ban, trading in SKF was temporarily halted. The SEC seems to be under the illusion that short sellers are responsible for the stocks of financial companies falling, rather than the fact that these companies have been engaging in risky behavior and are now loaded down with bad debt.

But a short time later today, trading in SKF resumed, after ProShares announced that they cannot accept orders to create new shares in the fund, since that would require taking new short positions in financial stocks, but those who hold existing positions are still permitted to trade them.

This effectively turns SKF into a closed-end fund, making SKF shares more scarce than they otherwise would be. When I saw that SKF was again trading, I bought more shares at $90, reasoning that the financial problems are far from fixed, the proposed government action is likely to be full of holes, and with normal routes to short selling closed, more of those who wish to hedge their bets against further drops in the financial sector will turn to other alternatives such as put options (though options markets are likely to be hurt by this ban as well, since the U.S., unlike the UK, didn't make an exception for options market makers) or shares in funds like SKF, the latter of which they will only be able to purchase from existing holders of the fund.

It's a serious mistake to think that short selling is something solely done by vultures trying to destroy companies at risk--it's a defensive measure against catastrophe for those who are mostly holding long-term investment positions.

An Associated Press story on the ban shows that the SEC is starting to recognize that it may cause some unintended problems:

But on Wall Street, professional short-sellers said they were being unfairly targeted by the SEC's prohibition. And some analysts warned of possible negative consequences, maintaining that banning short-selling could actually distort -- not stabilize -- edgy markets.

Indeed, hours after the new ban was announced, some of its details appeared to be a work in progress. The SEC said its staff was recommending exemptions from the ban for trades market professionals make to hedge their investments in stock options or futures.

"I don't think it's going to accomplish what they're after," said Jeff Tjornehoj, senior analyst at fund research firm Lipper Inc. Without short sellers, he said, investors will have a harder time gauging the true value of a stock.

"Most people want to be in a stock for the long run and want to see prices go up. Short sellers are useful for throwing water in their face and saying, `Oh yeah? Think about this,'" Tjornehoj said. As a result, restricting the practice could inflate the value of some stocks, opening the door for a big downward correction later.

"Without offering a flip-side to the price-discovery mechanism, I think there's a pressure built up in stock prices that only gets relieved in a great cataclysm," he said.

Disclosure: I presently hold no shares of BEARX or SDS, but do have a position in SKF. This post does not constitute investment advice.

UPDATE (September 20, 2008): Paul Krugman critiques leaked details of the bailout deal. If accurate, I agree with him that it's a bad deal and I expect to see SKF climb on Monday.

Sarah Palin, promoter of pork barrel spending

Before Sarah Palin was mayor of Wasilla, Alaska, the town received no federal funds. As mayor, she hired the Anchorage law firm of Robertson, Monagle & Eastaugh, to help the town obtain federal funds. The Wasilla account was handled by Steven W. Silver, a partner in the firm and former chief of staff to indicted-for-corruption Sen. Ted Stevens, who helped secure $67 million in federal earmarks for the town of 6,700 residents--$4,000 per person.

(Via Dispatches from the Culture Wars.)

Palin has stood up to corruption, blowing the whistle on unethical behavior by the chairman of the Alaska Republican Party despite taking a lot of heat for it. But she's also gotten into some trouble of her own, and it almost seems that she fell into her anti-corruption role by accident.

A description of Palin from her fellow Wasilla, Alaska resident Anne Kilkenny is well worth reading. (Kilkenny is also quoted regarding Palin in this New York Times story.) For further perspective, here's another close-up view of Palin as she's seen in Alaska.

UPDATE (September 4, 2008): As governor of Alaska, Palin asked for $550 million in earmarks in her first year in office, and for 31 federal earmarks totaling $198 million so far this year. Oink!

John McCain has long been a critic of earmarks. Turns out he has specifically been critical of earmarks requested by Sarah Palin.

Palin lies about the bridge to nowhere

Ed Brayton at Dispatches from the Culture Wars shows that McCain's VP nominee, Sarah Palin, didn't take long to utter her first falsehood as candidate. Near the beginning of her acceptance speech, she said:

And I championed reform to end the abuses of earmark spending by Congress. In fact, I told Congress -- I told Congress, "Thanks, but no thanks," on that bridge to nowhere.

(APPLAUSE)

If our state wanted a bridge, I said we'd build it ourselves.

But in fact, she actually did the opposite. During her 2006 gubernatorial campaign, here's how she answered a question about the bridge when addressing an audience of Alaskans:

5. Would you continue state funding for the proposed Knik Arm and Gravina Island bridges?

Yes. I would like to see Alaska's infrastructure projects built sooner rather than later. The window is now--while our congressional delegation is in a strong position to assist.

She went on to seek other projects not out of a desire for self-reliance and avoiding wasteful federal spending, but because she couldn't get enough federal funding:

"Despite the work of our congressional delegation, we are about $329 million short of full funding for the bridge project, and it's clear that Congress has little interest in spending any more money on a bridge between Ketchikan and Gravina Island," Governor Palin added. "Much of the public's attitude toward Alaska bridges is based on inaccurate portrayals of the projects here. But we need to focus on what we can do, rather than fight over what has happened."

See the full story and references at Dispatches from the Culture Wars.

UPDATE: Andrew Sullivan's blog reposts this photo that shows Palin's support for the "bridge to nowhere."

UPDATE (September 14, 2008): Some Alaskans are not happy with Palin's claiming that she doesn't support what she told them she supported.

Bank set up on Christian principles fails

Integrity Bank of Georgia, set up to run on Christian principles, has failed.

Integrity's employees regularly prayed before meetings or in branch lobbies with customers, while the bank gave 10 percent of its net income to charities.

"We felt if we prayed and obeyed God's word and did what He asked, that He would help us be successful," the bank's founder, Steve Skow, told the Journal-Constitution in 2005.

The executives seem to have done OK, though:

CEO Steve Skow earned $1.8 million that year, while senior lender and executive vice president Doug Ballard earned $847,222. A typical community bank CEO, banking consultants said, earn roughly $300,000 per year.

(Via Pharyngula.)

A deceptive mortgage refinance offer

I received a letter in the mail from Chase Bank offering me a fee waiver on a mortgage refinance to "lower [my] monthly payments," "to save interest," and to "Save up to $1,000 in waived fees."

The letter gives me two options for "a fixed-rate first mortgage tailored to fit [my] needs - and with a new low rate." Option one is a 20-year fixed-rate mortgage at 6.13% (6.26% APR) with a payment of principal and interest that is described as giving me "monthly payment savings" of $178 and "total annual savings" of $2,132. Option two is a 10-year fixed-rate mortgage at 5.63% (5.80% APR) that is described as giving me "total interest savings" of $12,817.

There's just one problem with this. My current mortgage is a 30-year fixed-rate mortgage at 5.25%. I currently make extra principal payments every month so I am paying more than what my new monthly payment would be for option two of their refinance offer, the 10-year fixed-rate mortgage.

This means that both option one and option two are losers--neither will save me a cent. If I keep doing what I'm doing now, I'll have my mortgage paid off in nine years, paying less in interest and in total than in either option one or option two. By choosing option one I could choose to pay less per month without being penalized (except due to the higher interest rate), but I'd pay significantly more over the term of the loan--more than $50,000 more. By choosing option two, the "total interest savings" would only occur by comparison to my current loan if I were not making extra principal payments. But compared to what I'm actually doing, it again would cost a bit more (by a few thousand dollars), and I wouldn't have the flexibility of paying less in a given month if necessary that I have now with my current loan.

In short, Chase Bank has knowingly sent me an offer with two options that will cost me more money than my current loan, given how I am currently paying it off (and have been for as long as I've had the loan). But they've tried to describe them to me as though they will save me money, when they won't.

Don't accept one of these offers unless you either need to (e.g., it will give you lower monthly payments and you're struggling to make your current payments) or it will genuinely save you money in the long term (e.g., it has a lower interest rate that saves you more than any fees that may be rolled into the new loan).

Bowl-a-Rama success

Yesterday we participated in the 6th Annual PACC911 Bowl-a-Rama on Arizona RESCUE's dog team. I bowled in the cat team's lane and brought down their average score, helping the dog team to another win--apparently Nintendo Wii bowling doesn't help train for the real thing. The event had a morning and afternoon session; RESCUE was in the morning session from 10-12:30. RESCUE came in second place for "loudest cheer," which added another $50 There were about 60 groups participating in the morning session which raised a total of about $122,000--of which RESCUE alone raised $42,000! Thanks to everyone who supported our efforts and to Lisa and Einzige for coming out to the event to cheer us on!

Rock, Brock, and the Savings Shock

Via Long or Short Capital comes a children's story authored by FDIC Chairman Sheila Bair. The blog gives two versions of the story, first from the Amazon description of the book:

Rock and Brock may be twins, but they are as different as two twins can be. One day, their grandpa offers them a plan-for ten straight weeks on Saturday he will give them each one dollar for doing their chores. But there is a catch! Each dollar they save, he will match.

Rock is excited-there are all sorts of things he can buy for one dollar. So each week he spends his money on something different-a toy moose head, green hair goo, white peppermint wax fangs. But while Rock is spending his money, Brock is saving his. And each week when Rock gets just one dollar, Brock’s savings get matched. By summer’s end, Brock has five hundred and twelve dollars, while Rock has none. When Rock sees what his brother has saved, he realizes he has made a mistake. But Brock shows him that it is never too late to start saving.

And a second version based on Sheila Bair's recent urging that lenders freeze mortgage teaser rates and the government create a $50 billion loan program for mortgage holders in trouble to pay down their mortgages:

I think it is time to tell the real story of Rock and Brock. The one, where Brock puts his money into an FDIC insured savings account, while Rock asks his friend Kerimov to hook him up with some later-untraceable source of leverage, investing the proceeds in Russian oil assets. At the end of 10 weeks, Brock’s savings bank is kaput, wiping out most of his savings. Over the same period, Rock’s oil assets have doubled, which leaves him with enough cash to purchase the operating assets of Rock’s S&L, after negotiating a free put from the Fed. And a Ferrari Enzo.

Long or Short Capital is excellent for cynical and hilarious commentary on current financial events.

Analysts say 150 U.S. banks will fail in next 18 months

The New York Times says that some banking analysts (two of which are mentioned by name) predict that "as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months." If that were to happen, that would likely exhaust the Deposit Insurance Fund of the FDIC, which will be spending $4 to $8 billion to cover the insured deposits of failed IndyMac bank. The Deposit Insurance Fund had about $52.4 billion at the end of 2007.

The worst case scenarios I've seen frequently discussed are hyperinflation and a Greater Depression. The way to survive the former would be to keep funds in more-stable foreign currencies and gold; for the latter it would be better to stay in cash and bonds (so long as none of the bonds default). A diversified set of investments is still your best bet, in my opinion.

UPDATE (September 12, 2008): The Economist (August 30, 2008) reports that the FDIC has 117 banks on its watch list, compared to 90 at the end of March, and reports that the drawdown on the Deposit Insurance Fund for IndyMac is sufficient to trigger a required funds "restoration" plan within the next 90 days.

Worthless stock market advice

On May 8, 2008, "An end to the economy's nose dive?", MSN MoneyCentral, Jon Markman suggests that the recession may be over or not a big deal for major company stocks:

"If Hyman is right, and StockScouter continues to highlight the right sectors and stocks to play, there is no reason for investors to fear the pressures facing big companies right now. It really may be time to go off high alert."

But just two months ago, Markman was saying that you should sell every stock you own and get out of the market, on March 13, 2008, in "Sell stocks while the selling's good":

"Yet veteran observers are swiftly coming to the conclusion that attempts to regain world financial stability could be doomed due to a stunning crash of commercial-debt financing and lack of trusted leadership, and they now believe private investors should take advantage of any rallies to purge their portfolios of most stocks and nongovernment bonds."

My advice: Don't take stock market advice from Jon Markman. The fact that he's a "technical analyst"--making predictions based on short-term patterns of stock movement using methodology that has no better support than astrology, tea-leaf reading, or palmistry--is further reason to avoid reading him for any reason other than humor value.

Kiyosaki team splits up

The Arizona Republic reports that Sharon Lechter, co-author of Rich Dad, Poor Dad, and participant in the Rich Dad Co. joint venture with Robert Kiyosaki, is calling it quits and has filed a lawsuit in which she alleges "that her ex-business partner and his wife are enriching themselves, diverting assets and wasting money in a business that she claims to have helped build from scratch."

Lechter, a CPA in Paradise Valley, claims that she "refined and created" the original book, while Kiyosaki is merely the public face of the book. If so, that makes the book even more bogus than it already appears to be--it's already apparent that the "rich dad" of the title is a fictional character and that the book is filled with bad advice. Lechter needs to be careful how much credit she claims if she wants to have any credibility for financial acumen--but I suspect she will care more about the cash.

The Kiyosakis respond that Lechter was the editor rather than the author of the book and that she is exaggerating her contributions.

The Republic article includes some of the allegations from the Lechter suit, as well as some quotes from Kiyosaki critic John T. Reed. The most interesting point I saw was that the Kiyosakis have earned about $9 million from their Rich Dad entities, which is a lot less than I would have expected, at least if seminar income is included in that amount.

Phony financial planner defrauds churchgoers

James J. Buchanan of the Christ Life Church in Tempe, Arizona, is accused of defrauding 30-40 people out of over $5 million over the last ten years. He claimed to be a financial planner, and took many people's life's savings, as well as money from the church. The Maricopa County Sheriff's Office says it's hard to tell where the money went, but it appears that he used some of it to pay off early investors in classic Ponzi scheme style, and spent the rest on himself. His scheme collapsed this March, after he refused to provide documentation to show where one investor's money was, and that investor refused a payoff to stay quiet and went to the police.

(A previous discussion of religious affinity fraud on the increase, at the Secular Outpost.)

UPDATE (11 February 2012): Also see "Affinity fraud: Fleecing the flock" from The Economist, January 28, 2012.

GAO study: nearly half of government credit card expenses improper

From CNN:

Federal employees charged millions of dollars to government credit or debit cards, according to a Government Accountability Office study released Wednesday.

Those charges include Internet dating services, iPods, expensive clothing, a $13,500 dinner and lingerie to be worn during jungle training in Ecuador, the study said.

The audit also found that government agencies could not account for nearly $2 million worth of items, which included computer servers, laptop computers, iPods and digital cameras.

Nearly half of transactions made in the 2006 fiscal year with government credit or debit cards -- referred to as "purchase cards" -- were improper, the study found, and the audit condemned the government-wide "rate of failure" as "unacceptably high."

The improper purchases were either not authorized or did not meet the government's requirements for using purchase cards, the study [(PDF)] said.

What kind of lingerie is worn during jungle training in Ecuador? Was the jungle training itself an improper expenditure, or was that OK?

John Hancock 401Ks suck

Last December, when Kat got her last paycheck of the year, I noticed that her employer's payroll department had allowed a deferral $100 in excess of the IRS limits to her 401K. I've previously run into a similar problem when my employer's 401K plan failed nondiscrimination tests, and I was given a refund of part of my deferrals for a prior year. Kat immediately contacted her employer and 401K plan advisor, and we were told that the excess deferral would be paid out before April 15. In the meantime, I couldn't complete our tax return because we needed to know how much would be paid out (the amount would be different from $100, based on how much the funds it was invested in had lost or gained) and some other information in order to complete the appropriate additional paperwork.

In January, Kat invited me to attend a presentation at her company about their new 401K plan that they would be switching to in late February, through John Hancock. The investment options looked reasonable--a wide variety of funds, including international and emerging market funds, and some index funds, mostly from third parties including Dimensional Fund Advisors. Her employer still wasn't offering any matching funds, but was supposedly covering all plan expenses. A big plus was the availability of a Roth 401K option, which we selected to put all new contributions into. I was still expecting that the excess deferral would be paid out before or at the transition, but of course it didn't happen. The old plan advisor said the new one would now have to deal with it, but that the old plan would issue the 1099-R form. But not until 2009, so I'd need to collect information myself to fill out a substitute Form 4852, because this would still count as 2007 income.

In early March, we got online access to the new 401K, and we were in for a surprise. I'm used to accounting for all of our investments using Quicken, which allows downloading of stock quotes via the Internet. But strangely, none of the prices reported online via John Hancock bore anything but a slight resemblance to the stock prices of the underlying funds we had selected to invest in. Rather, John Hancock's website reported all of the funds as "subaccounts" with "units" instead of shares, and "unit values" instead of share prices. There seems to be no way to get the unit values on a daily basis, only when a transaction occurs, and then I get to enter them manually. It may be possible to import into Quicken by downloading the transaction history as a CSV document and writing a script to change its format, which I'm sure I'll pursue in due time.

If units were equal to shares, we were paying $2-$5 a share more than the market share price for every purchase. Fortunately, that doesn't appear to be quite how it works, though I'm still unsure of the details since the plan advisor had made no mention of this. The John Hancock materials and plan administrators do not seem willing to explain in any detail, beyond noting that there are additional fees hidden in these costs, and that there is a benefit in getting access to A-shares of these funds at a discount. So much for the employer covering all of the plan costs.

But we still needed to get the incorrect excess deferral refunded so that we could file our tax return. Finally, the John Hancock site showed that a check for $97.39 had been issued on March 20--but with no accounting for any subtractions of units from any of the subaccounts. The check arrived in our hands only yesterday--April 5--apparently delivered by pony express. The documentation with the check showed that there had been a further $30 transaction fee deducted from the account, eating away another third of that incorrect deferral "investment." It also, helpfully, reported a number of units for both the check and the fee, something the online transaction history left unstated. It didn't, however, show how many units were taken from each subaccount. I compared the number of units that we had purchased through all the transactions in the history, compared the difference to what John Hancock is currently reporting, and found that the difference was close to, but not identical to the sum of the units that had supposedly been taken out. This was made slightly more difficult by the fact that while the site reports on the dollar total of the Roth 401K, it only reports the units per subaccount as a combined total of the Roth and traditional 401Ks.

In attempting to check again in more detail today, I found that John Hancock's site doesn't permit users to look at transaction histories on Sundays (or before 9 a.m. ET or after 9 p.m. ET on Saturday, or between 3 a.m. and 7 a.m. ET on weekdays). I could still look at total holdings, however--I'm not sure what kind of rule is being followed here with this restriction, religious or otherwise.

Doing a little searching online, I see multiple complaints about extortionately high expense ratios on John Hancock 401Ks. Apparently John Hancock is the choice of plan provider for small employers who want to minimize their costs and shift them to their employees in a relatively untransparent manner. For comparison, most index funds have relatively low expense ratios. I have some money invested in USAA's S&P 500 Members Shares Index Fund, which has an expense ratio of 0.19%. (Once I reach $100,000 in that fund, I can move it to USAA's S&P 500 Member Rewards Index Fund, which has an even lower expense ratio of 0.09%.) My 401K, through Fidelity, is mostly in Fidelity's Spartan U.S. Equities Index, another S&P 500 index, with an expense ratio of 0.09%. John Hancock's 500 Index Fund, by contrast, has an expense ratio of 0.54%, plus an apparently undisclosed "sales and service fee," which apparently goes to third party plan advisors and managers. That is ridiculously high for an index fund. John Hancock's other funds are worse. (We at least intentionally selected funds that had the lowest available expense ratios of the types we wanted, which included DFA's international, emerging markets, and small cap funds.)

I advise that you check out the 401K plan offerings of a prospective employer and weigh them as part of your decision in taking a job there. If they use John Hancock, that should be a mark against them. And once you leave a company that has a 401K through John Hancock, I recommend immediately rolling it over into an IRA with better investment options.

If any readers can shed additional light on how John Hancock's "subaccounts" and "units" work, along with any advice on how to get more transparency and accountability out of them, I'd appreciate it. Other reports of experiences with John Hancock are also welcome.

UPDATE (April 10, 2008): I can get per-day unit values from the John Hancock site, but only for the previous day's price, and there's no way to download them in an importable format except with the quarterly statements, so if I want them in Quicken I need to look them up and input them manually, or just do it once per quarter.

UPDATE (June 2, 2008): As moneyman2424's comment below indicates, John Hancock, an insurance company, sells 401K investment options that are actually annuities, which have their own expenses on top of the underlying equities. There's a good discussion of this subject at the FundAlarm discussion board.

UPDATE (July 19, 2008): The John Hancock 401K suckage continues. Their website is down all weekend for maintenance, and the second quarter of 2008 is the second quarter in a row in which there have been extortionate unexplained fees, this time wiping out all gains and then some for the quarter. There are two line items for fees, one simply labeled "fees," and the other labeled "RIA investment advisory fee." An RIA is a "registered investment advisor," but we've received no investment advice from anyone in the second quarter, or at all, for that matter. There was a presentation from someone explaining the 401K when we signed up, but he offered no investment advice worth paying for, simply explaining the funds and offering some suggested allocations which we didn't follow. He also failed to mention any fees (rather, he said that the employer would be covering all of the fees, which was obviously not true), failed to point out expense ratios, and failed to mention that we're investing in "units" in annuity "subaccounts" rather than actual shares in actual mutual funds. In short, if anything he should be paying out compensation for his omissions rather than receiving a cut.

UPDATE (July 26, 2008): Another complaint--John Hancock reports unit prices to three decimal points. With every reported purchase, there are several funds where the purchase price per unit is a tenth of a cent above the reported unit price for the day. It's just another way for them to collect a little bit more money in a non-transparent manner.

UPDATE (July 28, 2008): CNN/Money ran a story on July 23 about living with bad 401Ks.

Phoenix Flippers in Trouble

I'd seen similar blogs for California cities, now I'm glad to see there's one for Phoenix. The site lists homes currently for sale at a loss, ordered from greatest total loss to least. Most of these homes have been flipped multiple times before the current flipper got stuck with it.

Despite what a realtor might tell you, when you see homeowners repeatedly reducing prices like this, it is not a good time to buy. It's a good time to wait and watch prices continue to drop. When you start seeing prices go back up for a while, then it might be a good time to buy--it's much better to buy after things have bottomed out and started to increase again than it is to buy on the way down. That's sometimes referred to as "catching a falling knife."

I wouldn't consider buying anything until 2010 at the earliest. We haven't yet even seen the peak of subprime ARM resets, which should hit in the next few months. Then we still have Alt-A ARM resets to peak after that.

Mikey Weinstein vs. Chuck Norris

Mikey Weinstein of the Military Religious Freedom Foundation responds to criticisms from Chuck Norris.

Scary number quoted: Campus Crusade for Christ's 2006 annual revenue, $497,516,000.

(Via Dispatches from the Culture Wars.)

Altria's departure from NYC means loss of arts funding

Altria Group's moving its headquarters from New York City means that it will cease supporting the arts in New York, to the tune of $7 million a year. Altria funded over 200 groups in the city and was "the most reliable source of corporate funds for the city's dance companies, art museums, and theaters for over 40 years, consistently ranking as the top giver each year," according to Trent Stamp of Charity Navigator, in a blog post titled "Arts Groups Addicted to Smoking."

The Enron whistleblower who wasn't

Lynn Brewer is a former Enron employee who claims she was an executive whistleblower, and has turned that into a career as a highly paid motivational speaker and founder of the Integrity Institute. But it turns out that she was never an executive, she worked in a clerical position writing summaries of gas and energy contracts. The document she claims was a memo in which she blew the whistle is a document her boss says she never saw and described an alleged financial transaction which she never would have done any work on. Her former VP, Tony Mends, says that Brewer was sent to the UK to train Enron employees on the use of Factiva, but she never showed up to conduct the training, instead traveling the UK with her fiance. She claims she had to stay outside of London because of a terrorist threat, but nobody else in the Enron office in London was kept from going to work.

Greg Farrell at USA Today has done a great job of exposing Brewer's claims and how she has capitalized on being confused for Sherron Watkins, who really was an Enron executive whistleblower.

Brewer's web page at "Speaker's Spotlight" shows that she bills herself as "the" Enron whistleblower and is filled with misrepresentations:

Lynn Brewer's notoriety stems from her actions that have dubbed her "the Enron Whistleblower". Her accomplishments include: Author of Confessions of an Enron Executive: A Whistleblowers Story; Earning a Certification in Business Ethics from Colorado State University; Founder and President of The Integrity Institute, Inc., which assesses and certifies corporate integrity at the request of organizations for the benefit of their stakeholders.

Prior to joining Enron, Brewer worked in forensic accounting and spent 18 years as a legal professional in private practice, until she joined Ralston Purina, where she worked in Corporate Development for the General Counsel and Chief Financial Officer.

As an executive at Enron, Ms. Brewer was responsible for Risk Management in Energy Operations, the e-Commerce initiatives for Enron's water subsidiary, and Competitive Intelligence for Enron Broadband Services. Her responsibilities included financial derivatives and the now infamous "off-the-balance sheet" partnerships.

During her nearly three-year tenure, she witnessed numerous instances of illegal and corrupt dealings, including bank fraud, espionage, power price manipulation and the gross overstatements to the press, public and financial world. When her attempts to notify those inside Enron of her knowledge failed, she notified the United States government, who refused to return her e-mails and telephone calls.

Since leaving Enron, Lynn Brewer has become an internationally recognized speaker providing compelling details into Enron's rise and fall, leaving audiences shocked when they realize how vulnerable they are to becoming the next Enron. A past nominee for the “Women of Influence” Award, Brewer was selected in 2006 for inclusion in the 25th Silver Anniversary Edition of Who’s Who of American Women for her contributions to society.

Notice that she doesn't give her actual title; her claim of being responsible for risk management as though she headed a risk management group is untrue. Her boss, Mary Solmonson, was a director, not an executive. Another boss, David Gossett, who reported to VP Mends, was also a director, not an executive.

I suspect we'll see more allegations and stories of deception by Brewer coming to light. I'd like to know if there's any substance to her claim to have experience in the field of forensic accounting prior to working at Enron. Her 18 years experience "as a legal professional in private practice" really means she worked as a paralegal (which was apparently her role at Enron).

Here's an interview transcript where she misrepresents herself from the get-go, answering the question "what was your role at Enron" with:

I was recruited about three years before the implosion of Enron, to head up a risk management group inside the legal department, that would brief, for senior management and the board of directors, these off the balance sheet partnerships at the centre of the scandal.

She didn't head up a risk management group. She didn't brief senior management and the board of directors. She didn't report on the off balance sheet partnerships at the center of the scandal, she wrote summaries of gas and energy contracts for managers.

UPDATE (October 15, 2007): Lynn Brewer was known as EddieLynn Morgan (her maiden name) while she was at Enron, and her name appears in the "Enron corpus" of emails that were made public after the scandal. Studies of the Enron emails have been done to look at the web of interconnections between recipients, which show that EddieLynn Morgan was a very bit player--she is the recipient of a total of four emails in the corpus, and the author of none.