State of the Union: the President should be unemployed

Jobs were the top issue in President Obama's State of the Union speech, and they should have been. But does anyone in Washington actually understand how unemployment affects a real person's life?

Congressional Democrats and Republicans have used unemployment as a political football for two years, even allowing unemployment benefits to expire for those who needed them while they argued over the terms of an extension. In the meantime people who receive unemployment were dealing with the reality that they weren't getting out of the system nearly what they put in, and very likely weren't getting enough to keep themselves afloat. I'll use myself as an example to explain:

The first thing you need to know about unemployment benefits is they aren't guaranteed to everyone. You only collect unemployment if you were previously employed full time; part-timers and those who were self-employed or had contract work usually don't qualify. Unemployment benefits are funded by money your former employer pays into a kind of insurance fund which pays off if you lose your gig. But that's the problem. Most people buy enough insurance to cover all their losses from an accident, flood or whatever else you're insuring against.  You wouldn't insure a $45,000 car with a policy that'd only give you $20,000 in coverage.

With unemployment, typically the best you'll do is about a third of what had been your weekly pay. Raise your hand if you could pay all your bills with that.

This is how that worked out in my case: Until Dec. 31, my gross income was about $2700 each pay period. Here's what that state of Ohio approved under unemployment claims:

The top number, $470, represents what I'm eligible to receive each week (provided every week I go online and fill out a form that certifies I could work, I looked for work and didn't turn down any work that was offered to me). Do the math and you'll see that the weekly amount is about 14.7 percent of my previous salary. And I've got children. Luckily, I also have savings.

The bottom two numbers are the total unemployment benefit I'm eligible for and how much of that is remaining. That's right: the state is granting me a whopping 12 grand and change in unemployment benefits, of which I've got just about $11,000 left.

Oh, and one last thing: there's a "waiting week", akin to the NFL's bye weeks, where you're approved for benefits but don't get a payment at all. I found that out after calling the state unemployment office and holding for more than a half-hour to ask why I got money for the past two weeks but not the first week of the year.

(Notice the $470 becomes $423 after taxes. Yes, they take taxes out of unemployment payments.)

The woman on the phone explained to me that everyone has a 'waiting week' under Ohio law; I explained that someone should tell our legislators that people's bills don't take a week off.

Which brings me back to the State of the Union speech. I don't believe President Obama has done a bad job on the economy and I'm not cynical enough to blame him for all the country's job losses or the fact those jobs haven't returned yet. The Reagan, Bush 41, Clinton and Bush 43 presidencies passed while the economy was being wrecked; it won't be fixed in two years.

Still, I think we need a New Rule here: No politician can give a speech about jobs until they've experienced the unemployment bureaucracy for at least one month.

Obama lays more stimulus plans

Is the economy moving in the right direction, and if so, does it need more government help to keep it going that way?

President Obama said this morning that the economy swung further from recession toward growth than at any time in the past three decades, but that a recovery is still so feeble that more stimulus help was needed. His plan includes:

• eliminating the capital gains tax on and giving other tax breaks to small businesses;
• more spending to upgrade transportation and communication infrastructure;
• incentives for individuals to upgrade their homes to make them more energy efficient.
  

In this or any other recession, I've long said that there can be no recovery without jobs, so I'm a fan of the small business tax breaks and the infrastructure plans if they boost hiring. It'd be a failure if businesses take the tax breaks and run without hiring anyone, so hopefully there will be some safeguards in place.

I also like the infrastructure spending, but I desperately hope that includes significant funding for high-speed rail and other projects that move our transportation grid into the 21st century and away from fossil fuel dependence.

Your thoughts on the plan?

Obama's 100 Days, my 100th post

I discovered something interesting a second ago: this is my 100th post on this blog. Wow. I guess it's appropriate that this post is about President Obama's first 100 days. Let's get right to it:

Yesterday I asked readers to grade the president's performance on three economic areas: his handling of the housing crisis, the Wall Street bailouts and the economic stimulus package. Now, here's my grade:

Overall, I give President Obama an "I" for incomplete on his performance on the economy. That's not a bad thing but it's not great, which is the point. Despite his high approval rating and Democrat-controlled Congress, the idea that the economy would improve this soon because of anything the president has done is unrealistic. It's easy to blame Bush's eight years for the problems but our economy had fundamental problems -- most notably all of us living off credit -- long before that.

On specifics, I give Obama a B on housing, mostly for signing a package that gives an $8,000 tax credit to new homebuyers. On the stimulus package, he gets a C. I'm optimistic that much of what's in it will help, but it's taking a while for federal and state bureaucracies to start spending the money, and I'm no fan of bureaucracy anyway. There's always waste and corruption involved. That grade could easily go to a B or an A, especially if any of this funding for improving passenger rail service actually happens.

Last, on the Wall Street bailouts, another C. Something had to be done to prop up the financial system. Obama stepped up to the plate depsite how unpopular investment bankers are and so far none of the remaining big banks has failed. But that doesn't mean they won't, and most people still can't get over the AIG bonuses.

What's your take? Do you think the economy is getting any better under Obama?

Michael Eric Dyson & President Obama

I'm back on the Michael Eric Dyson Show this afternoon, discussing the economy this afternoon at 1:45. We'll be talking about the Obama administration's work on a "Cardholders' Bill of Rights" for credit card consumers, the fact that men are suffering more from job losses in the current recession than women and the troubles in the auto industry. Check the Dyson web site to see where the show airs in your city.

In the meantime, tomorrow marks 100 days in office for President Obama, so tomorrow's post will be about how he's done on the economy so far. How would you grade the president on his efforts on housing, the Wall Street bailouts, the economic stimulus package and other initiatives to turn the economy back around? Leave your grade in the comments section.

How creative are you at getting rid of credit card debt?

Forget subprime mortgages. Credit card debt remains the most onerous kind of debt most people have. Think about it: most of us are paying off things that we can't even remember buying, plus interest and fees. Now, the Obama administration is finally trying to do something about those fees

Hopefully, they'll get some action but the credit card industry will likely fight anything that would decrease their revenues, especially with so many people are defaulting on debt. In the end, the best thing you can do is manage your credit card debt well.

So, what's the most wacky or creative way you've found to get out of credit card debt? Post your answers in the comments section, and if you're willing to be interviewed for a piece National Public Radio is doing, email their producer.
and interest charges.

Talking economy with Dr. Dyson today

Yours truly will be interviewed on the Michael Eric Dyson show today at 1 p.m. Eastern about why President Obama is trying to bring his message of hope to recent speeches on the economy, how the financial services industry has largely ignored (or been left out of) the $116 billion market for affluent African-Americans, and just what you should do if you're lucky enough to hit the lottery one day. To see what time the show airs in your city or listen online, hit http://www.power88lv.com/nprprogramming.html.

Also, if you're in the DC area, I'll be talking the economy from 2 pm until 2:25 pm on Wealth of the Nation with DaRayl Davis, 1580 AM. Check me out, and as always, if you have a money question or issue, post in the comments section

If the auto industry fails, would it kill the black middle class?

I'm supposed to be on vacation, but I had to make one post.

The Obama administration has told the auto industry that it doesn't think their plans to stay afloat will work. They have a few weeks to get their act together if they want more help from the government.

I used to be against giving any tax dollars to the automakers, until I was on a radio show where the point was brought up that the auto industry, more than any other single business, was responsible for moving blue-collar African-Americans into the middle class. Of course, a lot of those manufacturing jobs are now gone, but many people, especially in the Midwest and some southern states, still depend on those jobs.

So what's your take? Should the government make sure GM and Chrysler stay afloat like they've done for banks? Should people who still depend on the car industry for jobs hang on or start looking for modern opportunities?

Did Obama answer all your questions?

In case you missed it, above is the video from yesterday's Q&A session with President Obama on the economy. Did he answer the questions you have about how to fix the problem? If not, what would you have asked him and what answers would you have liked to hear?

Obama's economic town hall

The voting's done and President Obama is set to answer economic questions online at about 11:30 AM. So far, here are the top economic questions that were asked:

"For students graduating from college and graduate school, many of us have obscene amounts of debt. Do you have any plans to help alleviate some of that debt, given the current state of the job market?" -- 4,719 votes

"As a college student, I am very concerned about the cost of tuition and the interest of student loans. What is going to be done to make getting a higher education easier for those of us who have to pay our own way through college?" - 3,196 votes

"What will you and your administration do to help make college more affordable for every American?"

We have been focusing a lot on relief for homeowners, many of whom knowingly overextended themselves. But, what about relief for students who are having trouble paying back tuition loans?"

I'm not sure if there were so many cost-of-college related questions because mostly younger people responded on the Internet or what. Here are some of the top questions from other categories:

"President Obama: What benefits from the stimulus plan are there to those of us who are paying our mortgages, but living paycheck to paycheck?" - 3,661 votes

Do you have a strategy for assisting the small business, to help those struggling against the huge conglomerates to receive government help as the big corporations have received?" 1, 134 votes

What would you ask Barack Obama about the economy?

The White House is Open for Questions from White House on Vimeo.

Here's your chance to actually get your questions about bailouts, unemployment, President Obama's $3.55 trillion budget or anything else you want to know about how the administration is handling the economic crisis.

The administration is using its web site (www.whitehouse.gov) to take questions from ordinary citizens about the economy. You can post your own question and/or vote up or down on questions that others have answered. Tomorrow morning in an "online town hall" meeting about the economy, the president will answer some of those questions.

So what do you want to know from the president?

"We will rebuild, we will recover, and the United States of America will emerge stronger than before."

Those were the words of our president in his firs address to Congress, no doubt spoken to challenge the country to have confidence at a time of crisis. But the question remains: did President Obama's first address to Congress make you feel more confident about the economy?

If a $700 billion banking rescue plan and another $700 billion economic stimulus have yet to jolt the confidence of entrepreneurs, lenders, workers and consumers, will his speech?

After watching or reading about Obama's speech, do you feel any better about your financial prospects this year? Do you feel challenged to do something, and if so, what?

The Sad Story of a New Jersey Short Sale

In the week I've been writing about the economic stimulus, I haven't told a real-life story of who's being helped -- or hurt.

But yesterday I heard a story of joy and pain from a friend of mine in New York. For the past few years, she's been living and renting in Brooklyn, but with an eye toward buying a place of her own. When the housing market was bloated, she was priced out of the city, and the burbs in Jersey, so she sat tight.

But things are different now: after a few years' saving, she's got a decent downpayment and good credit. Interest rates are low, and as a bonus the just-passed stimulus bill would give her an $8,000 tax credit this year if she buys.

All that's left is to find a decent place, and now she has: a three-bedroom, one-bath in New Jersey about 15 minutes from the Holland Tunnel. The price: $190 grand, way below what you would have bought anything decent for in the New York area two years ago.

But that's where the pain comes in: the house is so cheap because she's buying it in a short-sale, meaning the person who owned it couldn't afford to keep up with the payments. Rather than going through the hassle of a foreclosure, the bank approved the sale of the property for less than they're owed on the mortgage.

In this particular case, the house was owned by a woman who paid $295,000 for it no more than five years ago. After an accident, she could no longer afford to keep up with the mortgage (although given she bought at the height of the housing boom, it's unlikely the house would be worth what she paid for it today anyway; even without the accident she may well have been one of those "underwater" homeowners that Obama's housing plan is supposed to help).

This is recovery at it's finest and worst: there's no avoiding the ugly necessity that many people will be hurt in order for the overall economy to rebound. Without this sad story of a short-sale and many others like it, many houses would simply go into foreclosure or continue to be owned by people who have no chance of selling them for more than they borrowed.

Will the housing plan help you?

When I posted about passage of Obama's stimulus plan, I got a few comments from readers who were pretty much indifferent. A lot of government spending, a $400 tax break: the tone was that while it might help the broader economy, there's nothing in it for me personally.

So I'm wondering if your attitudes are the same after hearing about the $75 billion housing rescue plan that Obama announced yesterday. If you haven't heard the details by now (and if you haven't you died yesterday and woke back up this morning), Obama wants to help as many as 9 million homeowners by allowing those struggling with houses that are underwater refinance their loans. In English, that means if your house is worth less than you owe because of the drop in the housing market, you be able to get a new, lower-interest loan that reflects the actual value of the property.

You won't have to already be late on your mortgage to qualify, but your payment does need to be more than 31 percent of your income. (That's important because under old, sensible lending rules, banks never would have let you take a mortgage where the payment was more than a third of your income anyway.) One big question I have is whether that 31 percent limit will apply to your gross income or your take-home pay? That could make a big difference for many.

In any event, this seems like a stimulus plan that will help a lot more people directly, though it's unclear whether $75 billion is enough to help 9 million homeowners.

If we keep bailing everyone out, will our kids learn from our mistakes?

The automakers want another $22 billion in taxpayer money to stay afloat, even as they get ready to lay off 50,000 more people and close plants (which will lead to layoffs at other companies). Investment bankers took $700 billion in taxpayer money, yet even Donald Trump says the government needs to force them to lend it out. And they're still giving themselves billions in bonuses. And today, President Obama will unveil his plan for using $50 billion of taxpayer money to help fix the housing crisis. That plan will include helping people who's homes are worth less than they owe on them and those who have subprime and other bad loans refinance.

Is it me, or does it seem like the only people not getting economic help from Washington are people who are doing all the right things?

I know what some of you are thinking so let me give the requisite disclosures: a) I'm not equating the behavior of car executives or Masters of the Universe Wall Streeters with people who need help staying in their homes. Nor am I oblivious to the fact that with the economy in as bad shape as it is that the government pretty much has no choice but to do something -- and that always means spending a lot of taxpayer money.

But none of that allays my central fear, which is that instead of making my generation take a tougher look at our finances and, for those of us with kids, teaching them that managing your money smartly and having ethics when you run a business are important, what we may be doing the opposite by doling out so much cash to people who ostensibly made the biggest mistakes.

Think of it this way: when my 12-year-old watches the news with me, he hears the stories of executives getting fat bonuses and planning opulent retreats. He's not old enough to understand what a credit default swap was and how that guy in the suit contributed to all the "for sale" signs in the neighborhood. Over the summer, my nine-year-old told me "Daddy, I want you to buy a house." I don't know where he got that from, but apparently, the kid understands that Dad's a renter and that there's something he'd like better about me owning.

Is it too great a leap to think he might see some guy on TV who paid $300,000 for a house that's now worth one-third of that, that he could never have afforded anyway, getting the chance to refinance the loan that he never should have gotten? The thought confounds me, so I can't imagine what a kid might make of it.

In any event, we all hope all the money we're spending on 'fixing' the economy is well-spent. But it occurs to me that what really needs to be fixed is our national and personal financial priorities so that next time around, the good guys win.

Real economic changs is up to you, not this guy

While Barack Obama was being sworn in, the stock market was tumbling. The Dow had its biggest Inauguration Day loss ever, of more than 300 points.

When the stock market takes dips like it did yesterday it's a buying opportunity because shares are cheap. It's like shopping at the mall during a sale: you can buy twice as many pairs of shoes at half off as you could when they were full price. The difference with stocks is that when prices come back up, you can't resell the shoes and make money; with stocks you can.

But the big questions are why did the market fall so much and is that a bad sign for the economy under Obama? Reality check: no one has the answer to either question. I've heard commentators speculate everything from another round of bad news for banks to wealthy investors being worried that Obama will repeal the cozy tax cuts they got from Bush (another reality check: Obama's already said he won't immediately raise anyone's taxes and a tax cut could well be part of his stimulus package).

Either way, here's a few words from Obama's speech that everyone should take to heart if they're really interested in seeing the economy and their own finances improve:

Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age.

"Our collective failure to make hard choices". Collective, y'all. Sure there were a great many greedy folks on Wall Street and elsewhere who made bad loans and absconded with shareholders' money. But they're not the only reason the economy is where it is: If you're like me and still paying off purchases made months ago, plus interest; or if you're still spending way more than you save or invest; part of the problem rests with you, too.

Ultimately we can all wait for an Obama stimulus or the stock or housing or job markets to turn around, but if we all don't make the decision now to save more of our incomes when we get our jobs back, to only buy houses we can afford with down payments and under terms we can understand, and start saving for the retirement we know we'll have to foot (because with deficit spending, social security just won't be around), any recovery will only be shallow and temporary.

So, are you really ready for change?

Why Barack Obama needs to build trains

Yesterday we got introduced to Barack Obama's economic team during a noon press conference. An hour later, I was on National Public Radio talking with a woman who exemplifies why some kind of economic rescue is necessary. Julia Cox lost her job in the mortgage industry almost a year ago and can't find new work. With a daughter in college, she's losing her home and contemplating filing bankruptcy.

Obama's got another press conference today in which he's expected to discuss potential budget cuts for next year, so maybe we'll finally get a look at how we're really paying for all these bailouts. Meanwhile, here's an expensive idea that would be worth the cost in helping boost the economy: trains.

I've been wanting to write about this for a while but Stanley Crouch of the New York Daily News beat me to it. He wrote a column explaining how building a national high-speed rail system is exactly the kind of project that could have a real, decades-long, transformative impact on the American economy.

"Rebuilding and expanding our train system would bring about extremely fruitful construction projects. The new routes would add various levels of service to meet what could become a revolutionary number of customers who could not only count on speed, but also rely on the scenic experience that is much more likely when one is not driving. It would also get us away from the gasoline pump that has upended the American economy for the worst."

I couldn't agree more, but of course a new railroad system would take years to build. People like Julia Cox need help now. If you were on Obama's economic team, what ideas would you bring to the table to jump-start the economy immediately, what long-term projects would you push for and where, oh where, would you find the money?

Can Obama save the economy on a shoestring?

This man is working on a plan to create 2.5 million jobs over the next two years. I can't wait to hear the devil in the details.

Don't get me wrong: Obama shouldn't have a ton of difficulty passing whatever employment stimulus plan he sends to Congress. The legislature is controlled by Democrats, incoming presidents usually get at least one of their first initiatives passed by Congress and not even the most partisan Republican will want to be painted as being "against jobs" come January.

That said, Obama still has a problem that Cuba Gooding Jr. might characterize by saying "show me the money." There are many ways a government can stimulate job growth, from tax credits to employers for hiring, to lowering interest rates, to funding road and rail and school projects to lending money directly to companies, which seems to have become a favorite in Washington.

The problem is the Treasury is already tapped (can anyone tell me where the first half of that $700 billion went?), and will likely be more so by the time Obama takes office. Citigroup is about to get a $20 billion "rescue", and an Obama adviser said Sunday morning that the new president might let Bush's tax cuts for wealthy people run out on their own, instead of repealing them. That means more tax money being doled out while fewer is coming in.

Economic stimulus is going to be the first, most important thing that the Obama administration does, but no one has yet answered the first, most important question about it: How are we gonna pay for all this?

Must be nice to be president

Barack Obama's tax plan calls for higher levies on people who make more than $250,000 a year.

If he does, he's either brave or stupid because according to this Chicago Tribune story, his income eclipsed that before the campaign and will be significantly more so when he leaves office in four or eight years. The story tracks how modern ex-presidents have gone on to make post-office fortunes as celebrity authors and public speakers.

That got me to thinking: has the promise of big money after leaving office made it more likely for people to get into politics for financial motivations as opposed to public service? It used to be that going into politics was far less lucrative than the private sector. But if you can get elected to a high office, like senator, vice president of commander-in-chief, the money's sure to flow afterward. Just ask Al Gore.

A solid definition of investing

There were some good answers to yesterday's question about investing that showed at least people reading the blog have given the subject some thought. Too bad more people either weren't reading or commenting!

Either way, here's my definition: I think investing is any activity that involves the carefully considered allocation of your resources with the goal of appreciation over the long-term.

A few important points: Note I said "carefully considered". This is one of the biggest ways that investing differs from say, casino gambling or its close cousin, day-trading. Investing is strategic and is not done without planning for your goals and how much money or time you have to devote to them. If you're just pouring money into the market with the ONLY goal to have more money tomorrow, you're leaning more toward gambling than investing.

Also note that I said "resources" and not just money. On this blog, of course, the resource I talk about is money but there are many other resources with which to invest. Time is probably the most important one. If you're taking time out of your day to read this blog, you're making an investment in gleaning what you can about personal finance from my observations. You can invest in your education, your home, your children. The point is you're devoting a resource that's limited (time or money), which makes it valuable, and in exchange you expect an output worth more than what you put in.

My final point is that in most cases, investing is done over the long term. There's a commercial for one of the big brokerages that shows two runners: one is slow and steady, while another guy speeds past him. By the end of the commercial they've gone a few miles and you see the fast guy bent over, tired as hell, unable to make it over a big hill. Slow guy passes him.

Get the point? For most investors the point isn't getting rich fast. It's watching your capital appreciate over the long-term through steady, consistent practices. Too often those who are in a rush to make a bunch of money end up losing, like the runner who can't make it over the hill or the day-trader who's kicking himself right now for going long in mortgage-backed securities. Those who win are the ones who keep making the same contributions to their 401(k) plans for decades, making only the necessary adjustments and not worrying about temporary fluctuations in the market.

So now that you've read my definition of investing, has your opinion changed? is there anything you'd add or that you disagree with?

Coming later: Two pledges you should take and why Barack Obama should build trains.

My three economic challenges to President Elect Barack Obama

The election is over. Obama won by a landslide, no doubt with the help of many readers of this blog.

But even having won a majority of the popular vote and with his party in control of both houses of Congress, making the kinds of changes that Barack Obama promises won't be easy and will require more than political maneuvering. Especially on the economy, much work and sacrifice will have to be made by the same electorate the ushered Obama to power. Here's my top three things that I think Obama will focus on to right the economy, what it will take to get them done, and a few suggestions for all of us to take heed of.

To ensure our economic future, Obama MUST:

1. Push through Congress meaningful healthcare reform that can actually be implemented. His campaign platform called for an aggressive plan to cover all Americans that is sure to be costly, but the challenges are many. A Democrat-controlled Congress will likely support his plan, but the healthcare lobby still looms large. Obama will have to be careful -- and rightfully so -- to make meaningful reform that is affordable to taxpayers and consumers but doesn't deter investment in the medical sciences or cause a catastrophic loss of jobs in the medical care industry.

Our responsibility -- Get healthier. Obesity, high blood pressure, heart disease, diabetes, cancers, HIV infection: For its wealth and relative prevalence of available medical facilities, America is one of the sickest nations of earth. Many of those ailments are not just extremely costly, but preventable. We'd all do ourselves and the new president a favor by eating better and taking a damn walk every day.

2. Re-regulate the financial markets -- but not too much. Wall Street's become too much like a casino, less a place where people take calculated risks that pay off when sound management or daring innovations are successful and more like a gambling parlor where bettors wager (and often lose) money only to sell their bad debts to the next sucker who comes along. Those suckers ultimately ended up being the American taxpayer and that can't continue. Obama's choice for Treasury secretary will be his most important cabinet pick besides outside Secretary of State.

Our responsibility: Continue investing, but do so responsibly. Panicking, abandoning banks that are still solvent and pulling out of 401(k)s is not the way to go. Neither, however, are irrationally bidding up the prices of IPO shares like during the tech boom, or homes like what happened in the earlier part of this decade. Weaning ourselves off credit won't hurt, either, but I'll come back to that later this week.

3. Mandate a financial literacy curriculum in elementary and high schools. Yes, this is a wild-card that wasn't part of Obama's election platform. But it stands, in my opinion, as the number-one challenge to our economic future. The housing bust and credit crisis both have roots in the fact that American schools continue to churn out workers educated enough to earn decent salaries but woefully equipped to know how to handle the money. Obama fails to make this a national priority at the peril of us all.

Our responsibility: First, make sure you understand the basics of personal finance. Pick up 401(k)s for Dummies or Investing for Dummies. Bookmark this blog. Watch CNBC or read the Wall Street Journal then look up terms you don't understand. Then teach your kids what you're learning. By the time they get out of elementary school, your child should have a savings account, a college fund and understanding that using a credit card doesn't mean the money won't have to be paid back.