Money

As you may or may not know, Microsoft has been trying to buyout Yahoo. The plot has thickened immensely in the last week. A disclaimer before we start, the opinions expressed in this article do not reflect the opinions of Yahoo; these are my opinions and mine alone.

Lets start by introducing the actors of this plot.

• Jerry Yang, CEO of Yahoo
• Google, needs no introduction
• Steve Ballmer, CEO of Microsoft (featured in the video below)
• Rudolph Murdoch, Evil Emporer and CEO of News Corp. Owner of the Fox Network and MySpace
• Time Warner, who owns AOL (I'm surprised that they're still around too.)

So a few months back, Yahoo had already rejected Microsoft's bid of $31/share for Yahoo. On the weekend, Microsoft sent a letter to Yahoo telling us to stop dragging our feets and accept the offer. The letter says that Yahoo has no other viable alternative. The offer would expire in three weeks. This threat was supposed to scare us into submission because many believe that Yahoo's stock will plunge from $28/share now to $19/share if Microsoft pulled the plug on the deal.

At this point, things were looking kind of dark since it looked like Yahoo was out for the count, and resistance against Microsoft was futile. It was inevitable that they would take us.

That's when Jerry Yang of Yahoo launched the counter attack.

So in my last blog article, I was talking about this blog article from the Royal Bank (RBC) blog entitled, "Just Give Me Four Walls" where they're talking about how students can get a mortgage. The discussion was about what a great investment housing currently is, and how we can take out mortgages with no down payments. One of the RBC bloggers responded by saying how great real estate was because in the last 10 years, housing value has increased by 65% (or 5.3% per year). I responded that it wasn't that great considering the Canadian stock market in the same amount of time had increased by 296% (or 11.1% per year).

A new guy named Scott decided to counter my arguments:


There were several points that are completely untrue:

• The housing market is no where near as volatile as the stock market.
• Home ownership is the best investment you can make.
• The average home price has not dropped in the last 10 years.

I keep hearing similar arguments over and over, and they're just plain wrong. I decided it was time to bring in the big guns. Please help me welcome our guest blogger, Myron, who's my senior housing bear correspondent. (Housing Bear denotes someone who's negative on housing).

It was brought to my attention that Royal Bank has recently started a number of blogs which feature a bunch of hip young adults trying to juggle life and money. There was a blog post entitled "Just Give Me Four Walls", which talks about how students can get a mortgage to own a place to live.


This article really rubbed me the wrong way because getting a mortgage with no money down is exactly the reason that fueled the Subprime Crisis in America, and pushed them to the brink of recession. Basically you're lending money to people who you really can't afford to buy a place! They obviously can't afford it because they can't even pay the downpayment on a house.

The last few days have been quite remarkable in the stock market. One of the top American investment banks, Bear Stearns (BSC) had almost collapsed. The stock chart says it all:


That's right, the stock went from $60/share all the way down to $4/share in mere days. What spawned such chaos? Bear Stearns had a lot of bad loans from the subprime mortgage mess, and people were worried that they wouldn't be able to withdraw their money from the investment bank. This is a liquidity problem which is quite scary.

Basically this is how it works, say you put $100 in the bank. The bank will then loan that money out, charge interest, and make money. They might loan out $90 of your dollars, and keep $10 back just in case you needed to withdraw some money. Usually holding back a little money is okay because not everyone's going to withdraw their cash at the same time. However, if everyone at the same time wanted to pull their money out, we have a problem, because a lot of that money is tied up in loans.

Now, say that loan goes bad, and the bank loses that $90. You hear about this, and you want to pull your cash out, but they don't have the money on hand to give you back the cash. So, what good is a bank if you can't get at your money? This situation basically undermines the trust in the financial system. This is what is happening right now, and that's why Bear Stearns is on the verge of bankruptcy.

What's absolutely remarkable is the Federal Reserve's stunning move to save Bear Stearns. They guaranteed a loan of $30 billion to JP Morgan Chase to buy Bear Stearns for $2/share. This is what I call bailing out a corporation, and it's insanity. Shouldn't a company that takes on way too much risk their money (ie loaning to subprime) be punished for it's actions? On top of that, the Federal Reserve has cut interest rates again to try to prevent another massive drop in the stock market. The interest rate cut will only devalue the American dollar more so, and everything's going to go up in price.

AP News is carrying an article entitled, "Fed Set For Big Rate Cut Amid Market Turmoil." This is quite the mess.

The only safe places to invest in stocks right now seems to be oil, gold, agriculture, and the classic defensive stocks (Johnson & Johnson, Coke, Proctor & Gamble, etc). Any financial stock currently is absolutely poisoness and can't be touched at all.

Cash is king right now.

Yahoo News has a story about how you can lower your credit card interest rate by simply calling your credit card company, and asking nicely. The article is entitled, "Skeptics Surprised After Negotiating Lower Credit Card Rate."


This financial gem could save you hundreds of dollars! Act now if you have credit card debt!

Last week, the Conservative Party of Canada introduced the Tax-Free Savings Account (TFSA) in their latest budget. I think this is an awesome concept because it provides an incentive for Canadians to save more money.


I think this is a huge win for Canadians, as we don't save nearly enough money. This is especially true about my age bracket. I would say that the majority of my friends in my age bracket definitely don't save enough money. It's downright scary.

Lately I've been getting requests to write more about money since I've been fairly light on this subject for a while. This is probably partially due to the fact that I had been unemployed for a good part of the year, so I really didn't have a lot to talk about in the subject other than wishing for more of it . However, my cash flow is positive again, so back to our regularly scheduled program.

I am again in the market for credit cards since my Canadian ones won't work in many cases. As Chad discovered while he was in California, he couldn't pay with his credit card at the pump because the machine asks for your zip code. Being a Canadian, we don't have zip codes, so the transaction couldn't go through. I've run into similar situations, and it has been a pain in the butt. Therefore, it's time to get an American card.

So, it's timely for me to blog about credit cards. It's definitely an important topic as many people, both young and old, run into problems with credit cards. It can be a great financial tool or a great financial burden.

PBS ran a great documentary entitled, "The Secret History Of The Credit Card." It goes over everything you should know about credit cards, and how to take advantage of them. In addition, it goes over some of the really nasty things that credit cards can do to you like raising your interest rates if you miss even one payment.


I strive to be like Ben Stein, who milks the credit card companies for all they're worth. He doesn't pay a cent in interest to them because he always pays off his balances, and he milks the company by getting all these rewards and points. It's an awesome system. Spend your own money, and some company gives you free stuff. That's why I use my credit card for everything.

Fight the system, fight the man. Pay off your credit card balances.