(You wouldn't want anybody nosing around your personal information but you would like to know if other people think your credit score stinks, and why! Photo courtesy of Aladdin Cordero.)
If you are worried about the smokes and mirrors surrounding your official credit score, or believe that after a bad credit spell banks should give you a chance, here’s something that might cheer you up.
President Gloria Macapagal-Arroyo will sign today Republic Act 9510 or the Credit Information Act, which will create a credit bureau called Central Credit Information Corp.
The CCIC will pool data from banks, quasi-banks and their subsidiaries and affiliates, life insurance companies, credit card firms, government lending institutions and other credit facilities.
The idea is that this database should allow financial institutions to assess credit worthiness more accurately and speedily, lend more at lower interest rates. Why is this important? The US might be shivering from a credit freeze right now, but the Philippines has been in a perennial credit freeze precisely because banks are guarding their secret list of prime borrowers too closely.
It all sounds great from a macro perspective—more small businesses and individuals who need cash to create more cash get loans at lower interest.
From a personal finance point of view, what interests me is transparency in credit scores. This should allow you, me and aunty to check our credit standing, find out if there are items there that are not accurate, and allow us to correct the score if there is an error.
This means, though, that security of that database should be guarded like Joc-Joc Bolante. Nobody wants such sensitive information to be available to any scam artist.
When I get the signed copy of the bill, I will let you guys know and we can dissect it together.
By the way, thanks to the Bangko Sentral ng Pilipinas’ Financial Consumer Affairs Group under managing director Johnny Noe Ravalo who responded to a MoneySmart reader’s request for assistance regarding his credit score.
October 2008 Archives
(You wouldn't want anybody nosing around your personal information but you would like to know if other people think your credit score stinks, and why! Photo courtesy of Aladdin Cordero.)
If you are worried about the smokes and mirrors surrounding your official credit score, or believe that after a bad credit spell banks should give you a chance, here’s something that might cheer you up.
President Gloria Macapagal-Arroyo will sign today Republic Act 9510 or the Credit Information Act, which will create a credit bureau called Central Credit Information Corp.
The CCIC will pool data from banks, quasi-banks and their subsidiaries and affiliates, life insurance companies, credit card firms, government lending institutions and other credit facilities.
The idea is that this database should allow financial institutions to assess credit worthiness more accurately and speedily, lend more at lower interest rates. Why is this important? The US might be shivering from a credit freeze right now, but the Philippines has been in a perennial credit freeze precisely because banks are guarding their secret list of prime borrowers too closely.
It all sounds great from a macro perspective—more small businesses and individuals who need cash to create more cash get loans at lower interest.
From a personal finance point of view, what interests me is transparency in credit scores. This should allow you, me and aunty to check our credit standing, find out if there are items there that are not accurate, and allow us to correct the score if there is an error.
This means, though, that security of that database should be guarded like Joc-Joc Bolante. Nobody wants such sensitive information to be available to any scam artist.
When I get the signed copy of the bill, I will let you guys know and we can dissect it together.
By the way, thanks to the Bangko Sentral ng Pilipinas’ Financial Consumer Affairs Group under managing director Johnny Noe Ravalo who responded to a MoneySmart reader’s request for assistance regarding his credit score.
Yesterday’s “Pesos and Sense” seminar at the Makati Sports Club was, in my opinion, very successful and extremely interesting. Speakers Chinkee Tan, Randell Tiongson and Francis Kong drew up a crowd and not only talked about dealing with debt, investing and saving, but also kept money issues in perspective. One of the seminar participants even flew in from Cebu, fly-in-fly-out style.
Randell Tiongson, president and chief operating officer of Personal Finance Advisers Phils. Corp., made a very interesting comparison between two giants in the world of finance: Jesse Livermore and Warren Buffett.
Jesse Livermore was a master in the art of speculation. He was first and foremost a trader and a technician who preached never to “fight the tape.” One of his rules was to cut your losses when your losses reach 10%.
He was famous for shorting the market during two crises and earning tons of money. First during 1907 when he bagged $3 million (guess how much that’s worth today!), and the second time in the 1929 crash when he made $100 million. He lost both fortunes after the market crashes.
Livermore lived in luxury—houses around the world, yachts, limousines and he could also be called “Lovermore” with five marriages. He died at 62 when he walked into a New York hotel room and shot himself.
Warren Buffett can be described as an investor, and not a trader. He doesn’t like Wall Street and says that openly. He doesn’t buy stocks; he buys businesses and holds on to them for the long-term. He doesn’t care about the economy. He likes businesses that survive despite economic downturns. Now at 72, he is the world’s richest man and gave away bulk of his money to charity a few years ago.
Buffett has a grandfatherly air, drives his own car and picks up his own guests at the airport. He owns five houses but still lives in his first home in Omaha and his car tag says “Thrifty.” I am currently reading the only book about him that he authorized: The Snowball: Warren Buffett and The Business Of Life and so far, it has been an intensely interesting read.
There is no question which one most people would like to be. And yet, why do most people who love Warren sometimes end up doing a Livermore? ☺
I have heard so much about the Bank of the Philippine Island’s web facilities. Wearing the hat of a consumer, I have been impressed by their technological innovations ever since I can remember (ATM, phone banking) so I wasn’t surprised when I heard from many of my interviewees that they find its online service very helpful especially when they are abroad.
I finally got around to registering for an online account last week and sat in front of my laptop, pregnant with anticipation.
First try: site undergoing maintenance. Please call 89-100.
I tried again the next day, and the next day, and the next. It has been one week. Nada. Zip. Site still undergoing maintenance!? How does a bank operate in the age of technology without a functioning web presence?
If the bank tells me it’s my browser, I will scream :-(
So how important are banks' websites to you? I have a feeling that despite the growth of technological services, most banks pay lip service to the functionality of their websites. That's a disservice to clients and not a very bright business decision. After all, when you're banking online, you're in fact doing much of the work of punching in the numbers that the teller normally does.
Michael Manuel and J. Edmond Garcia of Sunlife
With Banco de Oro posting a P1.3-billion loss in the third quarter due to its exposure to bankrupt Lehman Brothers there’s bound to be questions on how the banking industry will fare as a whole, considering that this crisis has its roots in the financial sector.
Here is the transcript of portions of a recent interview I had with J. Edmond Garcia, director for investments of Sun Life Financial Philippines, and Michael G. Manuel, chief investment officer of the same company. These guys have been watching different sectors of the Philippine economy closely since they were stock analysts more than 10 years ago.
MoneySmarts: What are your thoughts about how this crisis will affect the Philippines and the financial sector here?
Michael Manuel: Obviously people are concerned about how we are tied up to the US with regard to export and OFW remittances. Obviously there will be a slowdown on both fronts. But it seems that OFW remittances are very resilient.
The obvious tie is really the export side. But the US is not our major trading partner anymore. Even with the possibility of recession in the US, the economic forecast is still a 4.6% growth in the Philippines. While that may pale in comparison to 7.3% (in 2007), 5% is still respectable growth.
There might be some concerns, but from a fundamental macroeconomic perspective, I wouldn’t be too worried about that because we are still plodding along with a 5% growth.
MoneySmarts: What is your forecast for 2009?
Manuel: Around 5% to 5.5%.
MoneySmarts: Do you really think remittances will not be affected?
Manuel: Filipinos employed in the US may be suffering, but Filipinos in the Middle East are taking up the slack. That’s why you see OFW remittances going up.
MoneySmarts: How about interest rates? What’s the trend now?
Manuel: There is room for BSP policy rates to move up. Why? Your real interest rate remains negative. Inflation is at 9.2%, 3-month T-bill is at 5.7%. There is a little bit of catching up to do.
Now, whether your market interest rates will follow the trend in BSP policy rates, my sense is that it won’t. Why? One, inflation is trending downwards. Second, banks remain very liquid.
If you look at your banking sector, the loan to deposit ratio is at 55% to 60%, there is P3.3 trillion in deposit, P1.5 trillion in cash. Even if policy rates move up, there is no reason to believe that market interest rates will move in the same magnitude because there is so much cash in the system.
MoneySmarts: That’s assuming that banks are not greedy enough to take advantage of the situation and raise rates.
Manuel: Look at how the government and the banks interplay with each other. Some banks try to put up the rates during auctions, but the government doesn’t bite knowing they have so much cash. When banks keep on pushing, what does the government do? Punish the banks by increasing reserves. They have always set that signal that’s why I see no real danger for market interest rates to move up significantly.
MoneySmarts: Come to think of it, home lending rates have gone up but only a couple of basis points.
Garcia: You will also notice that corporates aren’t borrowing. If you look at their balance sheets, they all have cash. Their problem is they don’t know what to do with that cash.
Manuel: The years 2003 to 2007 were really very profitable years for corporates. Debt to equity ratios went down. They have so much internally generated cash that is why we don’t expect them to be borrowing.
MoneySmarts: Any points of concern?
Garcia: There may be some tapering off in the property sector but far from a collapse. More of a flattening or a slowdown.
Manuel: The scenario is not necessarily like 1997, which was based on speculation. During those years, people were buying to flip. Condos were being built left and right because of speculative demand. Obviously after market prices peaked, there was nothing to support that demand. This time, property companies have learned from experience. There may be a slight dip to 10% but not more than that.
Garcia: There might be some reallocation within the sector. For example, in this building (The Enterprise), we have call centers. Some property companies are building especially for call centers in other places, and these are offered at a lower price. There may be a reallocation with that sector. You will see a lot of call centers moving out to cheaper buildings that are more suitable for their type of business.
This means if I were building grade A buildings, I’ll be a little worried. But if I were the other guy, there’s an opportunity for me. Call centers will yield a little less, but in general the sector will stay healthy, but it will flatten somewhat.
MoneySmarts: What about banks?
Manuel: Our banks are great. We are not worried about exposure. I think the banks here over the past two years have beefed up significant capital to act as buffer for losses. Banks here are very profitable. Look at interest margins here compared with Asian banks. Interest spreads are near 4% when everyone else is at 1% to 2%. That will give you an idea of banks' profitability.
The central bank recently said there has been 19% loan growth. Last time we saw that figure was in 1996. That’s a very good sign. Banks have cash and they are lending it out. That’s very good.
Garcia: it is also important to look at how local banks are capitalized. Banks’ last buffer is capital. A lot of banks here have capital adequacy ratio of more than the 10% mandated by BSP. Some even have 35% CAR. For me, that’s too high. A lot of banks now are overprovided with regard to possible losses. You will see them with 100% to 150% provision against loan losses.
Why are provisions for loan losses significant? In 1997, when banks suffered a lot of losses, NPLs went up when provisions were at 40%. Some banks even had only 10% in provisions. So what happened? The NPLs were declared as a loss, and when you only have a 10% buffer, obviously the 90% will come from capital.
However, these days, banks are much better prepared to take on possible losses—this time around.
Manuel: Assuming there are some banks that have exposures. But then you have very strong banks just waiting for opportunities. What will probably happen is that you’ll always have stronger banks buying the weaker ones. What you don’t want to have is a systemic problem where everybody has exposure to the same thing. That’s not happening. There are banks in the system big enough and just looking for a good buy.
Banks’ net worth are also stronger. Philippine banks have very good risk management and they are very conservative. At the end of the day, we are left with cleaner, better banks because of the 1997 crisis.
MoneySmarts: Talk to me about timeframe. Do we just follow the US or will there be a lag time?
Manuel: We are in different parts of the cycle. Theirs was the classic—nice boom from 2001-2007, and now the inevitable bust. Where are we in the cycle? We never had a boom. We are somewhere in the middle and we are in some sort of a pause. What does that mean? We think maybe it will be a slower trajectory but still obviously a lot of room to grow.
We are not over leveraged; we haven’t done these complex deals. Our companies are very healthy balance-sheet wise. From our economy’s perspective, it will be ok. We are not going to have stratospheric growth, but we are not going to have a bust like in the US.
Our companies are not over-invested, not like in 1997 when there were huge expectations of expansion during the Ramos years. What they used for the expansion was a lot of loans; the loan to deposit ratio was 110. Loans were more than the deposit base, which meant the banking sector was overextended in loans.
So the corporate sector was over-expanded, the expansion finished in 1998 and was not serving any market. Your banking sector was overlent and when companies who were over-expanded and couldn’t pay anymore, it affected the banking sector.
This time, companies have not expanded or are expanding in a very rational way through internally generated funds.
~~~~~
The figures tell the story—Philippine banks are healthy. The million-dollar question is, why are financial markets—and sometimes consumers--scared?
You guessed right. It’s a confidence game rightly or wrongly. All's fair in love and financial crises?
"Money, you should pardon the expression, is a little bit like manure. It doesn't do any good unless it's spread around, encouraging young things to grow."
--Hello Dolly, Barbara Streisand
BY Chiu-ying Wong, CFA
Chartered Financial Analysts Society of the Philippines
A proposal is pending in the Senate to set up Real Estate Investment Trusts (REITS) in the Philippines. The proposed legislative framework was submitted by Senator Edgardo J. Angara to the Philippine Senate in July 2007, and the bill as submitted can be downloaded from this website : http://www.senate.gov.ph/lis/bill_res.aspx?congress=14&q=SBN-63. Since then, it has gone through many revisions. This article provides a basic introduction to this new type of financial product, and explores its policy implications.
How does a REIT work?
In general, a REIT is a legal entity that owns income-generating properties directly or through a subsidiary, and passes on the rental income to its shareholders on a regular basis. It is usually set up by the owners of an existing income-generating property, who will initially transfer the title of the property to a separate legal entity, either a corporation or a trust (referred to as a REIT), and then list the REIT on the stock exchange by offering part of the ownership of the REIT to the public in exchange for equity infusion. The animated graphics at this website provides a simplified example of the process of setting up a REIT.
Alternative forms of REITs have developed in other countries. A REIT that holds ownership of properties is often called an equity REIT. There are now mortgage REITs and hybrid REITs, the former of which holds mortgages of properties instead of ownership of properties, and the latter a mix of equity and mortgage REITs. Different countries have their own special types of REITs, mostly designed to minimize the tax burden of sponsors and investors.
For example, the US has developed the UPREIT and the DownREIT. The former uses a partnership legal structure for the real estate owner and investors so that the property ownership is not transferred until a less tax-burdensome time occurs for the real estate owner. In the US, profit tax on property sale is not exempted even for REIT formation.
What’s in it for REIT sponsors?
The owners of the initial properties of a REIT are called its sponsors. Why do property owners want to set up a REIT, instead of, say, directly selling the property to a third party?
First, the legal framework of REITs usually provides some tax benefits to the sponsors in exchange for meeting certain conditions in the types of properties held and how income is distributed.
Second, instead of an outright sale, sponsors can maintain partial ownership of the income-generating property, which is often not possible in the case of a property sale.
Third, a REIT set up allows the sponsor the flexibility of selling additional ownership of the REIT if the market condition is favorable, or buying back some or all of the ownership of the REIT at a lower price if the market condition is temporarily unfavorable.
Fourth, REITs can help sponsors develop a new business, namely, that of asset management, where income comes from managing assets for all the shareholders of a REIT, instead of just the sponsors.
What’s in it for investors?
Why would investors buy a publicly listed REIT instead of a publicly listed real estate holding company? A REIT is usually mandated to own mostly properties that are already income generating, whereas a real estate holding company’s properties may still be under development and have yet to prove their income generating capability. Or these properties may be developed to be sold rather than for income. This means that the a real estate holding company’s income is less predictable than a REIT.
The real estate holding company can also own other assets, without any restriction on the proportion of the other types of assets that the company holds, which, again, makes the company’s income less certain.
Second, a REIT is required to distribute most of its income to shareholders while a real estate holding company is not under any obligation to distribute dividends to shareholders, even when it is making a lot of profits. These differences mean that a REIT has a more definite risk/return profile than a generic real estate holding company.
Third, a REIT is usually taxed less. The REIT’s profit is not subject to corporate tax, but most of its profit has to be distributed to shareholders, who then have to pay tax on the distribution received.
Why would governments want to promote REITs?
Why would any government support REITs and lose revenues?
First, the lower cost of financing and liquidity provided by REIT investors (as against financing through bank lending or bond issuance, which is particularly high in the Philippines) will promote investment in the commercial, industrial and residential sectors. Such investments will create jobs in construction, real estate management, and finance. Hopefully, the jobs created will feed back into the demand for real estate development, and thus sustain a virtuous circle. Without the incentives given in a REIT set-up, potential investors may simply keep their savings in deposits, or worse, use them up. Hence, REITs can be seen as means to stimulate economic growth by encouraging real estate investment, using savings from individuals, instead of say, government financial resources.
Second, REITs can deepen the local capital market especially when they are listed on an exchange. Listing and trading of REIT shares, as well as the management of assets in a REIT, will generate demand for financial professionals and create high-income jobs, increase liquidity in equities markets and heighten interest in stocks. Stock transactions will generate income for the government in the form of stamp duties. In fact, in financial centers such as Hong Kong and Singapore, levies from stock transactions make up a sizable portion of governments’ total revenue.
Third, REITs can be used to promote home ownership. If directed at residential housing development, REITs can provide liquidity for developers. It can improve the Philippines’ poor savings culture. Savings in the form of equity in housing will provide a cushion when the residents retire.
Governments may benefit in the long-term from REITs because they can spark activity in the real estate sector. However, it is by no means a certainty that the overall benefits to the government can offset the immediate tax revenue loss arising from the tax concessions to REIT. In addition, while many tax concessions available to REITs are applicable to existing real estates, the long term benefits of REITs, such as the promotion of real estate development and capital market growth can only be estimated.
Several of the tax concessions contained in the current proposal to the Senate are particularly contentious. These are :
• Exemption from capital gains tax. Normally, when a corporation sells a property, it will have to pay 6.0 percent of the selling price or fair market value of the property, whichever is higher. It is not clear whether such transfer of property, and then later the sale of shares, would incur capital gains tax, VAT, or the transfer tax levied by local government units. An exemption will have a significant potential revenue loss to the government. If the property has a fair market value of P1 billion, for example, the capital gains tax alone would be P60 million.
• Exemption from corporate income tax if 90% of rental income is distributed to shareholders. An ordinary corporation, whether listed in the stock exchange or not, is required to pay corporate income tax (currently at 35.0 percent) before considering any distribution of dividends to shareholders. Then, if and when the shareholder receives a dividend, the dividend may be subject to a dividend income tax.
In the current REIT proposal, REITs will be exempted from paying corporate income tax, provided that 90% of rental income (net income before depreciation and amortization) is distributed to shareholders, and shareholders will also be exempted from dividend income tax.
Suppose a real estate property generates P100 million in rental income after deducting operating expenses. For a non-REIT corporation, it will have to pay P35 million in corporate income tax to the government. If the remaining income is distributed to shareholders, and the shareholder’s dividend income tax rate is 10.9 percent, then another P6.5 million will go to tax revenue, giving the government a total tax receipt of P41.5 million. In the proposed REIT framework, if the REIT distributes 90.0 percent of its rental income to shareholders, then the REIT would be exempted from corporate income tax. Under the proposal, REIT shareholders would be exempted from dividend income tax, resulting in a total revenue loss of P41.5 million.
Stamp duties to be collected from the trading of listed stocks of the REIT will mitigate these revenue losses directly. The more frequently the shares are traded, the more the stamp duties that would be collected. Income tax may also be collected from the original owner when the REIT delivers proceeds from the sale of some of the original owners’ shares. Further down the road, the economy will benefit from faster and cheaper property development, as well as jobs created in the construction industry.
The direct beneficiaries of the tax concessions to REIT would initially appear to be the REIT investors. However, the original property owner also stands to gain substantially, since he will continue to own a portion of the property in the form of REIT shares, which are exempt from many taxes. The portion of ownership that he will sell to the public will include a liquidity premium, since REIT owners can sell shares much more easily than ordinary real estate owners. Hence, the direct tax concession benefits would most likely be received jointly by the investors and the original owner, while the indirect benefits would be spread to the whole community over time, initially as fees from stock market transactions, and eventually on larger investment in real estate sector.
Will REITs attract investor interest? That depends on existing investment opportunities and investors’ perception of real estate investments. Foreign investors will be comparing the Philippine real estate with Southeast Asian countries and look at the strength of the peso. The higher the level of attractiveness, the less concession will be needed, and vice versa.
It was reported in May this year that the Department of Finance has given support to the REIT bill, subject to some amendments to the tax concession proposals. Since then, no news has been heard on the bill.
About Chartered Financial Analyst Society of the Philippines (CFAP)
The Chartered Financial Analyst Society of the Philippines (CFAP) is a member society of CFA Institute, the global membership association that administers the Chartered Financial Analyst (CFA) curriculum and exam programs worldwide; publishes research; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 96,000 members, who include the world’s 83,000 CFA charterholders, in 133 countries and territories, as well as 135 affiliated professional societies in 56 countries and territories. CFAP was founded in the Philippines in 1997 with the support of the Capital Markets Development Council, Inc. (CMDCI). CFAP's mission is to be the thought leader in the Philippines’ investment and finance industry. For more information, please visit www.cfaphilippines.org.
*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.
Where does the line between a business’ responsibilities end and a consumer’s rights begin?
Take the case of faulty packaging. Last Monday, I bought a blouse in Powerplant Mall in Rockwell, along with other stuff. (No, it wasn’t a shopping binge. It was a carefully planned purchase as we are all in crisis mode. Honest!)
Then my daughter and I walked around that delightful little mall and eventually reached the top floor to buy popcorn before we head home to Quezon City. To our surprise, we discovered that the paper bag’s bottom was half-open and the blouse was nowhere to be found. What started as a relaxing evening began to be extremely vexing.
I knew asking at the Lost and Found office and retracing our steps would end in disappointment but we did it anyway. I toyed with the idea of shrugging it off, but I knew a consumer should not pay for the shop’s mistakes. You see, the paper bag was poorly made; apparently glue inflation has reached terrible levels.
So I went back to the shop, and as expected, the staff was sorry but had no plans to replace the item or reimburse me for the loss. I understood her situation; she was not the decision maker.
“Would it be possible to talk to the owner of the store?” I asked the girl at the cashier with a calm voice.
“I will try the manager, ma’am,” she said.
“Well, can you please call her now?” I said.
She then explains the issue to the manager over the phone and then hangs up. She proceeds to explain to me that they are sorry, but they cannot reimburse or replace the item because the loss happened outside store premises, it is not their fault, and there had been no previous incidents regarding that particular supply of paper bags.
“But why did your manager hang up? The least she could have done was talk to me,” I said.
She dials her manager’s number again and passed the phone to me. Del Cortez was courteous, calm, apologetic, and her tone was very professional. Even in my irritation, I appreciated that. But her lines were all wrong.
“Look Del, I know you can’t make a decision right now. What you need to do is to tell me that you will talk this over with the owner of the store and you will come back to me as soon as you can. Will you sacrifice the good name of your business for one blouse? Your company made a mistake in using bad packaging. You didn’t test it. Your supply came only yesterday. Your consumers shouldn’t have to pay for your company’s mistakes,” I told her.
“I understand ma’am. I will talk to the owner and call you immediately,” Del promised.
She took my name and telephone number; I wrote down hers, the owner’s and the owner's telephone number. She asked me if it’s alright that I leave the matter to her; I said yes, that’s fair, but that if she doesn’t call me by her promised deadline the day after, I will call the owner. No, I did not say I was business editor of INQUIRER.net. Not a word.
The next day, I got a call to claim the replacement blouse and an apology for the inconvenience. The owner, Lily Navarro, made the right decision, not because I was the one who benefited from it, but because if she were the one shopping, she would have insisted on the same thing. That's very good business sense and corporate responsibility.
It was inconvenient, but it was also a lesson. Shoppers do have consumer rights, and they include paying for what’s on the price tag, security while in store premises, security while in paid parking lots, delivery of goods for payment given, and packaging that works, among others.
Yes, the law says the paid parking lot operators are liable for carnapping, vandalism or theft that happen inside their parking lots, despite those big-lettered signs that say you can’t blame them for these even if you pay their outrageous parking fees.
So consumers and shoppers, know your rights and fight for them.
Markets are back on their feet and talks of Armageddon and the end of the world are replaced by hope--albeit tentative—that the financial storm has passed. CNN earlier today reported that Americans are feeling a wee bit better about the meltdown and there were little green arrows all over equity electronic boards this morning.
Can we dare hope that the worst is now over?
It feels good to see markets recovering. Even Nouriel Roubini, professor of economics at NYU who as early as 2006 has been beating heavily on the doors of government to take action, looked slightly relieved in his interview with Bloomberg television last week. He said finally the US government has done the right thing in recapitalizing US banks and not just buying toxic assets.
Michael G. Manuel, chief investment officer of Sun Life Financial, and J. Edmond Garcia, director for investments, said in a recent interview that in terms of size of collapse, AIG seemed to be it, so while there may be several more failures in the coming months, these are likely not to be as earthshaking as the insurance giant. (Read a recent article I wrote on "Should I just keep cash under my pillow?" with Manuel and Garcia as resource persons here.)
“We are kinda there at the bottom, with AIG the turning point already. You may have a couple of Wachovias and Washington Mutuals, but nothing the size of AIG,” says J. Edmond Garcia in that interview.
Apart from that, if economists are to be believed, the recent rally is not based on false highs but on analysis that the US government is moving on the right direction with regard to how it is going to strengthen Wall Street. Critics of the bailout worry about how it is going to affect US taxpayers, but Manuel explained that the injection of funds would do much to unfreeze credit by bringing back confidence in the banking system.
But much as it feels good to take a breather, the work is not done. Manuel says cleaning up the banking industry will take around two years, and he said that way before these big guys in the US predicted a two-year turnaround in the US financial markets. The sooner the cleanup is done, the better for everyone, he says.
“The faster you address the problem, the faster the recovery will be, and that will be reflected in stock prices,” Manuel says.
If banks are not aggressively cleaning up balance sheets and letting bad assets sit on balance sheets, throughout the time they sit there, banks will be preoccupied with how to unload these instead of going gung-ho on lending, which is its main business, he adds.
As the recession in the US and the global economy unfolds, other less obvious impact will also show up. The International Labor Organization was on Bloomberg and BBC this morning predicting that countries like the Philippines and other Asian economies with high levels of migrant workers may be affected by the slowdown in destination countries.
That’s certainly a sobering thought, and hopefully you guys out there who are working in other countries will be spared.
In the meantime, keep things in perspective and tune out the shrill voices that sow fear instead of calm. This is not the first time the world saw equities markets going out of whack, and certainly the next few months or years is not the world's first time to recover from a crisis.
Our reporter in Malacanang, Joel Guinto, reported just now that President Gloria Macapagal-Arroyo has approved a move to raise deposit insurance coverage to P1 million from the current P250,000.
This would still require new legislation. If approved by both houses, this move will increase confidence in the banking system by time deposit-loving Filipinos.
Deposit insurance simply means if a bank goes pfft, you can still get your deposit up to P1 million from the Philippine Deposit Insurance Corp. There are, however, several common misconceptions about deposit insurance.
First, the guarantee works per bank, not per branch. I could hardly believe my ears when I found that some wealthy guys put P250,000 in one branch, then another P250,000 in another branch and so on, “to maximize the PDIC coverage.”
Splitting deposits that way will NOT protect you. If all deposits in the different branches are under one name, the insured amount is only up to P1 million (if the law gets approved). Right now, it’s still P250,000.
Second, deposit insurance should be a last resort for safety. Some depositors chasing after returns put their money in banks offering extremely high interest even if that’s often a sign that the bank is having cash problems. Their reasons? Deposits are covered by PDIC guarantee after all. Oh if they only saw the agony victims of bank closures go through, despite the assurance of a guarantee by the PDIC. Claiming the funds is not exactly a walk in the park.
Deposit insurance is not to be used as a guarantee for foolish behavior. When choosing banks, stability, capitalization and management values should be the paramount criteria and not just interest rates on deposits.
Photo courtesy of Aladdin Cordero
The art of becoming rich is simply to live richly in body, mind, heart and spirit.
You become physically rich when you have rich sensations: When your senses are alert and attuned to life so that the very fact of being alive takes on new dimensions and simple experiences have new meaning…The smell of a rose, the stretch of a muscle, the sight of a mountain, the sound of the surf, the taste of strawberries, the touch of clean white sheets…
You become mentally rich when you think rich thoughts: When you immerse your mind in the noble thoughts of [others], preserved through the ages in books; when you are curious to learn all you can about the world and its people, the earth beneath your feet and the farthest star in infinite space; when you develop an appreciation of beauty in painting and sculpture, poetry and music; when you expand your mind to encompass great ideas; when you use the magic of your mind to create and to serve…
You become emotionally rich when you have rich feelings: When you know the radiant glow of obeying noble impulses to give and help and inspire; when you experience the bond of warm friendship and deep affection; when you know the joy of hearing a baby laugh; when you are aware of giving and receiving love…
You become spiritually rich when you discover the riches of the kingdom within: When you have a consciousness of the oneness of all life; when you experience kinship with nature; when you are open to the buoyant spiritual life of being in tune with the Infinite; when you know the power of meditation and prayer.
The best definition of a rich man [or woman] is a [person] with a rich self. What a [person] is, not what he [or she] has, is the measure of real wealth.
--Wilfred A. Peterson, as quoted in "Being Enough" by Chieko Okazaki
Illustration courtesy of Y-not
This email is supposedly from a financial consultant in Dubai. It has been making the rounds:
Recession is coming. Make your own judgment. Don't panic! Do what is wise. The recession looks very eminent [sic]. It is really time to take proactive steps to avoid a painful time in the next two years, which is how long the recession is expected to last. Suggestions: 1. Don't take any loans; don’t buy homes, properties with loans, or even cash. Keep as much cash as possible. 2. Pay off as much of personal loans, private loans, as debt collection will be hastened. 3. Sell any stocks you can even at lower prices. 4. Take money off from Trust Funds. 5. Don't believe in huge sales forecast from customers, be extremely prudent, lowest inventories, reduce liabilities. 6. Don't invest in new capital. 7. If you are selling homes/ properties/ cars, do it now, when you can get good prices, they are going to fall. 8. Don't invest in new business proposals. 9. Cancel holiday plans using credit cards. 10. Don't change jobs, as companies will retrench based on 'last in first out'. Stay cool, wait, and if you took all of the above actions and more, you probably will be better off then many. This is not a rumor. Bear Stearns is the first of many banking and financial institutions that will start falling in the not too [sic] future. If Bear Stearns can fall, so can JP Morgan, Citibank, HSBC, and the whole world. US economy falls, the rest will crumble. India and all those self economies [sic] will be the most protected, but not gullible. Europe may be a little stronger, but not China, another giant place! Malaysia will see significant impact. Be alert and pass this to your friends!!!Notice how cleverly misinformation has been woven with good ol’ natured advice like “pay off as much debt,” and “be extremely prudent.” After I read the email, I sat back in amazement at how it initially seemed to be merely warning readers to get ready for tough times, but in the end the tone turned turbid by implying that the fall of Wall Street will result to the end of the world and Armageddon. Fact is, Bear Sterns HAS fallen, but JP Morgan, Citibank, HSBC and the whole world is still standing. Yes, the US is already teetering in a recession—and that means at least two quarters of negative growth. Let me explain that a little bit. Economists are very economical when it comes to words. When they say the economy grew 1%, the figure seems downright depressing. But that still means the economy grew. Products and services churned out are larger in number compared with previous periods. A negative growth on the other hand means the economy has shrunk, and therein lies the problem of a recession. The common forecast right now among analysts is that it will probably take the US at least two years to start crawling back up, but whether or not Asia will get dragged in the mud all the way is, amazingly enough, still an open discussion. Five years ago, the word “decoupling” from the US has not been invented, and now, there’s a hint of color that says Asia will get hurt, but not as bad as if this crisis happened 10 years ago. There’s another interesting aspect to this crisis, as pointed out to me by new Chartered Financial Analyst of the Philippines president Vandermir Say. It appears that the more wealth you have, the more pain resulting from the crisis. The more exposure you have to exotic derivatives, investment banks, stock and bond investments, the more pain you will be suffering—at least in the short-term. Perhaps ye gods are leveling the playing field a little bit between the haves and the have nots. Whatever is happening, my good friend and artist friend from high school said it best: We don’t have these things in the hinterlands where we live. I don’t own stocks; I don’t have big money in the bank. What recess I know means snacks! That’s the spirit! Prepare for the worst but hope for the best. Letting the dirty R word result in fear brings recession even closer. Meanwhile, the INQUIRER.net has created a special site on the current global financial crisis for readers who want to read everything related to it. There’s a timeline to help you put everything in perspective. Click here for THE FINANCIAL CRUNCH.
Photo courtesy of Viewmaker.
(This is a guest post from Cat, another blogger who is based in the US.)
We have to categorize the Filipinos in the United States to better understand the effects of the financial crisis on their lives.
The Overseas Foreign Workers are better known as working visa holders with work authorizations that expire in three years; renewable for another three years. The corporations that hire them can sponsor their green cards within the period of the validity of their working visas. From OFWs, they become permanent legal residents.
With the financial crisis, the dreams of getting employment-based green card sponsorships may not materialize especially if the sponsoring corporations are affected by the financial meltdown. If they cannot get the green cards within the maximum six years of allowable legal stay, the working visa holders are expected to go back to the Philippines or look for other means to become legal residents.
The other category is that of permanent legal residents. Their immigrant visas expire every ten years. The only things that they can not do compared to the US citizens are:
1. To get employment in federal governments. During times of economic crisis, the government provides a stable employment.
2. They cannot stay in the Philippines for more than the allowed number of months.
Basically, they are still Filipino citizens. With the financial crisis, even those who have already retired and are receiving Social Security pensions cannot go home. They can’t bring home pensions and their Medicare coverage.
Why don’t they apply for citizenship to enjoy the privilege of staying in the Philippines to enjoy the retirement in dollars? Many of these old Filipinos have pending petitions for their dependents and a change in their immigration status will adversely affect these petitions.
Like US citizens, they live on plastic (read: credit cards). Their savings are not in the form of cash. They are in investments they don’t control. They contribute a percentage of their gross pre-taxed income to a retirement account popularly known as 401 K. Their employers match the employees’ contributions.
The retirement fund is managed by appointed trustees/investment managers which put the money in different investment instruments such as stocks, mutual funds, cds and money market.
Filams do not realize the heavy losses from their retirement funds since they think that they can still recover in due time. The statements they receive from the investment managers/trustees are too complicated to understand by laypersons who cannot distinguish what is a stock and how it differs from bonds or mutual funds. Those whose retirement kitties were put in stocks lost as much as 50 percent. The conservative investors lost about 20 percent. All in all according to the news some $2 trillion were lost in the retirement accounts of US employees.
Some Filipino old timers and those who dreamed big put up small businesses in the US thru the assistance of the Small Business Administration. The capital mostly comes from credit provided by the banks or their personal credit cards.
While publicly traded corporations source their additional capitalization through the sale of their stocks in Wall Street or capital infusion of their existing stockholders, small businesses rely on banks.
The financial crisis had affected the liquidity of most banks. Even if these banks did not engage in sub prime mortgage lending, their bigger sister corporations may have taken the risk. Once in crisis, the conglomerates rally for their white elephant-corporations by moving cash from one corporation to another until both or all them sink together.
My friend who was in the care home business can not meet the cash flow requirements of the day-to-day activities. Most of care home businesses rely on reimbursements from government agencies which payments take a long time due to strict auditing procedures of the documentations.
Some clients pay from out of their private funds which may have been managed by their investment counselors/executors. These funds may have dried up during the recent Wall Street fiasco. The relatives of the patients may transfer them to government-run convalescent facilities. Loss of patients means loss of income.
Another friend who is into online marketing is suffering from zero sales. The customers have cut down on non-essentials. His product lines are electronic and electrical products.
You may ask how about the illegal tago ng tago.
They are invisible…they have no bank accounts…they have no credit cards and they work under the table in jobs which are recession proof…caregiving. Free housing, free food and no transportation expenses. This is the decade when baby boomers are retiring. Financial crisis or not, someone has to take care of them in their homes.
Photo courtesy of Endless Studio
This is a guest post from Karen Galarpe, who also writes for our entrepreneurship blog Open for Business:
I went out one morning to pay my Social Security System contribution. Since I am self-employed, I pay my contributions myself to the banks. BDO, the bank I have an account with, does not accept SSS and Philhealth payments, so I have to go to other banks.
I usually go to RCBC Savings Bank on Visayas Ave. (near front of Montessori) because there's hardly any line there. I think the last time I paid there was July. As of then, it was still free to pay your SSS contributions over the counter. For the next months, I went to East West Bank and UCPB (depends on where I am that day). On this particular day, I went again to that RCBC Savings branch. And the male teller said they're now charging P10 just so I can pay my SSS contribution over the counter!
Ten pesos is cheap, true, but I don't like paying for something I can get for free somewhere else. So I made a U-turn to UCPB at the corner of Visayas Ave. and Congressional, and I didn't have to pay a single centavo.
Why should a bank charge for a service that's offered free elsewhere? Why should we pay for something we can get for free elsewhere with the same, if not better, quality of customer service?
This is the same reason why I only withdraw from my bank's ATMs.
From MoneySmarts: the thing with bank fees is that unlike Karen, most of us would rather just pay and swallow the fees hook, link and sinker. It pays to keep an eye open on the fees that you are asked to pay and compare these with other banks.
I know comparing is not a walk in the park, either, because not a lot of banks disclose fees on their websites and the only way to know that someone is offering a service for free is to physically ask at the counter. And that takes a lot of time. But time is money and money is time. Convenience has always been expensive.
(The other week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were very kind and replied and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope the series will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
By Froilan Bulaong
I’m 33, working in the field of IT here in Singapore. I have two kids, been working abroad for almost a year and my decision to work in Singapore is due to the fact that I believe I can afford to give better things in life to my family since I'm earning 10 times what I was earning in the Philippines. Some say that OFWs are not patriotic, but in my case, I have so many attempts to have a career in my motherland but sad to say, it never happened.
Emerging economies like China, India, Vietnam, Korea and others in Latin America, are doing well. Things like these happen. In the past, we already had worse problems. It's just a matter of being prepared and learning new ways and techniques in investments.
Right now, I only have the option to work in an 8-5 job, but I'm doing my homework to do some research and always being updated with the current economic trend (locally and globally). But I believe that in the near future, by learning new things especially in pursuing investments and to have that dream of retiring comfortably, I know I can do it. Pursuing that dream means not being discouraged by situations like what is happening now.
***
This is the last of the installment of emails from OFWs around the world that I have received. I hope the series gave you an idea on the diversity of situations that are playing out for Filipinos out there. Thanks to all those who participated! Meanwhile, here’s something I received in an email that made me laugh out loud. Don’t know who to pat on the back for this, so let’s just enjoy. Remember, this is just someone’s way of having a break from the stress!
New vocabulary emerging from the current global financial crisis:
CEO -- Chief Embezzlement Officer
CFO -- Chief Fraud Officer
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius
BEAR MARKET -- A 6 to 18-month period when the kids get no allowance, the wife gets no jewelry and husband gets no…you know :-p
P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing
BROKER -- What my broker has made me
STANDARD & POOR -- Your life in a nutshell
STOCK ANALYST -- Idiot who just downgraded your stock
STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves
FINANCIAL PLANNER -- A guy whose phone has been disconnected
MARKET CORRECTION -- The day after you buy stocks
CASH FLOW -- The movement your money makes as it disappears down the toilet
YAHOO -- What you yell after selling it to some poor sucker for $240/share
WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240/share
INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse
PROFIT -- An archaic word no longer in use
A letter for you. Photo courtesy of Sifah
(The other week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were very kind and replied and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope the series will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
By Leo Obrero
My family and I live here in Norridge, Illinois since 1994. I migrated to the USA in 1978 and had worked for several companies from factory to office work like most of our kababayans before me. Then in 1984 I was hired by the United States Postal Service as a clerk inside its processing and distribution center here in Illinois. I started as a letter sorting machine (LSM) operator.
After eight years of stressful skirmishes with this LSM, I bid out. I moved to another section working in graveyard shifts for sixteen years facing the same pigeonholes every night. But thank God I had this job. I can proudly say that had it not been for the USPS, I would not be able to retire with financial stability.
I decided to retire effective the end of October on a voluntary early retirement basis because: I could not tolerate anymore the stress that's beginning to take toll on my health. I would like to travel around the world with my wife while we are both not wearing diapers yet, and vigorous enough to enjoy and feast on our second honeymoon. I would like to pursue the career that I am passionate about, at least on a part time basis, as financial adviser either here or there in Manila. I am also FINRA (formerly SEC/NASD) registered with Series 7, 63 and 24 licenses since 1992. It's another chapter in my life here in America that really opened my mind in regard to money matters and financial planning.
Almost three years ago, my wife and I decided to buy another house, not really as an investment but for my eldest son, whom we thought would make good of his promise to help us pay the mortgage. Things changed afterward when he moved to California to work as Nuclear Medicine Technologist at UCSD-MC. The housing bubble burst and we ended up with two mortgages. If we are sell now, we'll be losing more or less twenty percent of the contracts' price value plus taxes and mortgage payments made from the time we bought it. But no one is buying.
Here in my neighborhood, million dollars’ worth of newly constructed houses and old alike that had been in the market for as long I could remember are gathering spiders' webs. Well, Halloween is coming anyway that saves the owners from buying artificial decor. So yes, my plan to retire in Batangas is held in abeyance until our youngest son, whom I am living with in this house, can afford to pay the mortgage. My wife still works as a nurse. She'll be 61 come November. One more year and she can retire.
The big but is, we need health insurance. Medicare will not kick in for both of us until we're 65. These are among the things we're a bit concern about. The big chunk of my retirement money is still intact under the custody of the Postal Service's accredited trustee. I was lucky enough to transfer it to government bond index fund from equity index fund before the market crashed, otherwise I wouldn't have this time communicating with you. My pension from SSS and Postal Service will start soon. Should be enough to retire in Batangas comfortably for my wife and I, but for reasons mentioned earlier we have to delay it for a while.
But here's the good news. As you know, President Bush signed the bailout legislation. As Warren Buffet said, "it's not a panacea" but I hope it will restore Mr. Market's confidence and normal mood swings. The world is watching. I hope for the best.
There's still a burning desire in me to go back to Batangas. I hope before the sands in my glass-hour runs out, I am able to contribute something that will make a difference, even in a little way, to the lives of the younger generation.
(Last week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were very kind and replied and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope the series will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
Marikit Diwa, from Brunei
I’m 37, working in Brunei. I went overseas for work early last year. Money was too good to pass up despite the fears about leaving the comfort zone. I agonized over the decision for weeks though, but in the end, money was too tempting--some three times over my pay in my old job. Plus, free housing, even utilities water, power and best of all, it's tax free!
I work for a newspaper so I get to hear all the horror stories about the credit crunch, high food prices, oil, the Wall St. mess like I have a front-row seat. I have money in a unit investment trust fund (pure equity, so tough luck). So, that's on top of my worries every time markets fall because of all those things. I checked an online site daily on how I much I gained when the market was really doing well. But when stocks started falling for a time, I didn't check daily anymore because it just worries me. Now that stocks are really down, I can't help but check. It's like a road accident. You can't look away.
On the flipside, when the peso weakens, I can't help feeling thrilled (more money for my mommy) although I know it's not really good news :). What can I say, for the OFW, more peso is the motto :)
Do I worry whether the financial crisis will affect my future? I'm too myopic to do that. Although I do think about whether it's possible to invest in an ultra-safe, zero-risk product, so I can go home and just live off from the interests and not need to work ever. (Is there such a thing? What product? And how much money do I have to invest so I can count on monthly interest earnings of some P40,000. Too good to be true, right? ).Right now, my immediate worry is really my UITF. And whether or when I should invest again now that stocks are down. I’m also thinking of investing in trust fund products (I think they're similar to UITFs) here. A knowledgeable friend told me it's not a bad idea just to diversify, but I'm just too scared to make a move now because the market is too unpredictable. I'm staying put here for the meantime. I need the money. Brother's drowning in credit card debt; sister is hurting from ballooning mortgage payments. I'm not entirely sure, but I think they're one of those who resorted to the balloon payment mortgage in the US. At least she said their mortgage has been rising. Of course, I'm saving. And I want to save more. But like they say, the road to hell is paved with good intentions. I'm not really the planning type. I have a dream, sure…a house by the beach. But in terms of planning how to get that, nada. Is that scary or what, considering I'm 37? Right now, my only concrete plan is to save. I don't even have a target amount. Nor do I know what to do with the money. Even scarier, right now, everything is in the bank. So I hope in hell my bank doesn't go the way of those US banks. Otherwise, I'm screwed.
Photo courtesy of 2create
(Last week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were very kind and replied and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope the series will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
By Jennifer, from the USA
I'm in my mid-30s, married with one kid, and working full-time in a big consulting company. I have been working in the US for almost seven years now (not counting the time I was still a Manila-based consultant but had US projects). I have been a legal US resident for these seven years.
The financial crisis definitely poses concerns, but personally, not to a point of panic. I think that it has effects on everyone in different ways at varying levels, depending on their circumstances. Lending or credit would have major impact on small business owners, or homeowners needing loans, and non-homeowners who hope to have a home. 401k is affected by the tanking and fluctuating stock markets. It is also likely that investors may freeze or withdraw plans for future investments. In my personal circumstance, these are not a big worry at this time.
I feel that having a decent-paying job makes me worry less about the financial crisis. I don't feel I have that much to lose in the bigger scheme of this financial crisis, as long I secure my personal finances, home mortgage, family spending, with a job stable enough to last the crisis.We did plan for some investments early this year, and had to pass-up. I think that the crisis make me put more effort to ensure I keep this job and also shy away from investments, whether small or big, that would be risky to pursue at this time.
(Last week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were very kind and replied and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope the series will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
by Ross Delgado, from the USA
I have been here in US since 2001. Like most Filipinos, I came here armed with nothing but hope for a better life. I never planned on living here the rest of my life. I was to make more money in less time and get the hell back home. At least that was the plan.
You see, I had three wonderful kids that I had to leave. I go back home every one or two years to see them.
The strengthening of the Philippine peso pushed my family and me back on the financial side. I know having a strong peso saves the country a lot of money, especially when it comes to servicing our national debt. But however stronger the peso becomes, we in the middle and lower class could not feel its supposed positive effects on the economy. The same amount of money I am sending one or two years ago wouldn't suffice anymore. And I can personally see that every time I go back. The cost of living expenses keeps getting higher every year. We just could not keep up.
That was when the economy was good.
Now the US is in recession. Even if they pump that $700 billion reserves back into the market, we know that it is going to be just a quick fix. I can't help but feel anxious about the whole thing.
Personally, whatever savings I have left in the money market is almost decimated by the fall of huge companies here in US. My initial plan of going back home for good didn't simply take the backseat; it went out of the car too.
(Last week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were very kind and replied and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope the series will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
By Raquel Erhard, Germany
I am a stay at home mom with two girls, ages 4 and 6. My husband works in a bank here in Germany, a country I've been calling my second home for more than seven years.
Whenever I think about the global crisis, I tend to focus on the positive side. The news here in Germany is that the financial fall in the US will not be felt greatly because we have enough reserves, etc. etc. I have a feeling these are all big talk simply to reassure the masses. Well, I am trying not to panic since I dont see my husband panicking. And I'm being very positive in saying this -- but I am also hoping that prayers would help the Philippines. There might be other effective methods, but am sending more prayers.
As of now, am not panicking as I still get to keep my credit cards and my husband hasn’t restricted me into an allowance. The problem is that the prices of commodities in Germany, which have been rising before the crisis, just won’t stop going up. Butter, which used to be for 49 zents is now up to 89 zents and that's just an example. We have also noticed that before, we could already have a cart full of groceries for 50 euro; now, we pay 80 euro and we only have a few pieces in our cart.
Even before the global crisis, we have already worked on some saving measures. We're a creative and resourceful family so I am sure we would be able to work around it. We used to shop at specialty stores, now we visit more discount stores. I visit flea markets and garage sales, which used to be a taboo for my husband, who doesn’t care for secondhand clothes especially for the kids. Now he tolerates them.
I have also stopped visiting online stores like eBay and Amazon. I am trying to curb my buying impulses. You see, I know and I feel something is really changing. We have finally decided not to hire a weekly cleaner; we will keep the money for the cleaner on the side for whatever purpose in the future. I just know that there would be less weekend out of town trips and restaurant visits; and we might have to celebrate again at home instead of in theme parks.
Good thing we already saved a lot when it comes to some basic needs such as fruits and vegetables. We are lucky enough to have a big garden in our backyard and in the mountain, where we could harvest more than enough fruits and vegetables during the summer months--most of them we freeze for use in the winter.
Our Halloween decors are all homemade or they came from the garden, so no need to give out money. This might also be said for Christmas decors, too.
As for the kids, they have started to receive allowances per week. We want them to be responsible when it comes to money, thus we are starting them early. The kids had their own savings accounts since they were babies. What allowances they receive from the government and gift money are saved in there. That account would remain theirs and theirs alone.
Did the global crisis affect our priorities? I don't really think so. We still have the same Christmas lists, the same Christmas budget for the whole family as before. We still are going on a planned winter holiday in Austria next year. We still plan for our 2010 visit to the Philippines. And we are enthusiastically working on our big, big dream. It would involve a lot of money.Yet as a stay at home mom, I also have plans to help out. Since I have been giving free English course lessons, I am also planning to accept tutorial for English courses at home. English teachers are in demand here now; and the extra money would help. But really changing our priorities, we haven't really talked about it. What are our plans now? Hopefully, live happily ever after. And continue working on our dream; that dream that we won't let die just because of this global crisis. I did tell you I am a positive thinker, right?
(Last week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were kind enough to reply and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope the series will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
By Edwin Jamora, USA
I have just recently quit my job as director of finance in one of the largest housing authorities in the United States with over 3,000 employees. I've been unemployed since July 2008; however, I have just accepted a job in Chicago as director for one of the largest development corporation dealing with housing tax credits, asset management and property investments. I expect to start very soon.
My parents, very religious, took the church's "go and multiply" advice by heart and made parenting an algorithmic Fibonachi, that's why there's 11 of us in the family. We lived in the barrio and could not find opportunities in the Philippines because at that time, they're all reserved for the rich, the powerful and the conios. So, I paddled my boat to the land of apples and honey. I've been working in the United States for over 21 years now.
Growing up in the Philippines, I really thought that we have perfected corruption. To my surprise, corrupt officials are populating Wall Street and beyond as well. They could literally bring down a world financial system! That worries the heck out of me because I can't seem to believe that these crooks could actually shake the entire financial system and make our lives miserable. When I say "our", I just don't refer to Americans, rather, world citizens as well. For if America sneezes, the world catches cold.
Given that I worked in the financial, real estate, investment and asset management side, I had the privilege of understanding the complexity of what's behind the current financial turmoil and so I could fully and truly appreciate its implication on me personally, my family and my fellow overseas Pinoy friends.
My 401-k (read: retirement) is now down 15 percent. Two weeks ago, I felt comfortable because my retirement money is with Wachovia, where it sits at the moment. Suddenly, Wachovia is in the news. It's bad enough that I have increased my monthly remittance to the Philippines because of certain fixed expenses back home.
As you can see, Filipinos here in the States took a direct hit from the subprime crisis, from our retirement investments to our mortgage that can't be refinanced, to our rising credit card interest. Loans are now difficult to find. Worse, applying for one is even more difficult. So, we've cut down on a lot of unnecessary expenses and travels.Thing is, I don’t invest in Manila because I am not very familiar about the local investments procedures and I have had lousy experiences as a bank customer there. Since I don't want to surrender the decision making to investment administrators in Manila, and they have not won my confidence as of yet, I continue to be on the sidelines. However, I will never let those sick Wall Street people dictate my life. I am being prudent in all of my expenditures and wiser in spending money. My strategies are to stay put, cut down on expenses, find more extra income, and continue to be cute and happy. I was planning to go home and find a job in Manila. When all of these investment houses started tumbling down, I asked myself if it would be better for me to stay here. I'm still thinking. I can’t decide. Help me :-)
Photo courtesy of Aladdin Cordero
(Last week, I emailed Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the so called OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were kind enough to reply and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope this will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
By DB, from the USA
I was orphaned at an early age, which may or may not explain why I am always secretly afraid of going hungry. Even if I have received more education than most, and have worked for some of the most powerful people in business and politics, in the back of my head, I still feel vulnerable in my 30s as the glassy-eyed 7-year-old street urchin who came out under my feet as I was resting from my morning jog at the seawall near CCP several moons ago.
I currently work in the headquarters of a global company with a large business interest in the Philippines. As you know, "global" and "large" no longer mean anything because even as the company continues to acquire other companies, it also shed people not too long ago, and both fledgling and robust businesses can be prime targets for takeover.
The current global crisis will eventually blow over and we will move on just like we did with the others. It’s just a question of how soon. I can't do anything about it, so I try not to make gloomy news worry me too much.When you have weathered a lot of personal crisis in life, this is peanuts. I just have to keep reminding myself that if the worst thing that can happen is to lose my job, my possessions, and all the comforts I currently enjoy, for as long as I am healthy and still have my faith and dignity, I can always bounce back. It just makes for an interesting journey. I can be concerned, nay even be afraid, but I will continue to do as I have always done. I have no dependents, so it is easier for me. On the other hand, my cousin who is a bonafide OFW said he is not really affected by the crisis since his type of work is in high demand. He will always find work like my RN cousin who is also outside the Philippines. Both of them saved like crazy so they have a lot of reserves in the Philippines, both liquid and otherwise. Meanwhile, my seemingly rich friends here with the large houses and luxury cars now complain, "Sa Pilipinas noon, wala nga akong pera, pero wala naman akong utang." I can always go back to my grandparent's shack in Ilocos and plant kamote if I have to. Our neighbors do not have much, but I have never heard anyone go hungry there. Last time I visited, the old man (who is as old as dirt) who toiled our farm still wore the same pants with the same holes in it. When I asked him why he is always so happy, the old man said, "Because... I woke up this morning." I just walked out unscathed from an accident that totaled my car a few months ago, and survived (in spite of the $30,000 bill for four wrecked trucks and vehicles, thank God). Let's not forget about what is important here. I do think of the street urchin and the likes of him every time I eat my meals, especially now. I am, by nature, frugal, but now, with the exception of the basics (food, clothes, and shelter), I am on a spending moratorium. Vacation plans abroad, except those that have been prepaid in advance, are on hold indefinitely. Plans to adopt a baby by next year may be scrapped altogether. I continue to automatically deduct money from my main account to another bank account for my scholar in the Philippines whom I have never met, and I will honor commitments I have made for a head start school project somewhere in the suburbs. My personal savings are FDIC-insured up to $100,000, and the retirement funds up to $250,000 so no changes there. I would invest more but I am holding off for the bottom. Meanwhile, I continue to put in the same amount in my 401K even though it dropped 20 percent. I have capped off my bonds for a year ago -- which also serve as part of my emergency fund. For the more liquid emergency fund, I have it in an Internet-based bank, which gives higher interest rates. If there is anything at all that I learned from all of Ciel Habito's graphs that made me cross-eyed then but is now thankfully behind me, it is this--this so-called crisis is just part of the cycle. I will just ride it out. I am young; I can wait for the stocks to rebound. But I do not agree that governments should bail out businesses that have been irresponsible. I plan to continue keeping a low profile at work (the more senior managers are always the first to get axed. 75 percent of the lay-offs last Christmas were VPs and directors). Keep an eye on an education-oriented franchise business that I am also involved in-- it lost about 20 percent of customers this year and is not getting new ones fast enough. People have stopped spending on non-essentials! If it does not recover next year, it makes no sense subsidizing it with money earned from my full time job. I can keep dreaming of winning the lotto so I can be a full time philanthropist but I figured if I really want it, I have to go get it myself. So I am currently working on another business concept that is not a franchise, but has great promise. This has been keeping me busy lately, on top of studying for another certification. God is good, things can only get better.
Lovelyn and family
(Last week, I interviewed via email Filipinos working all over the world to find out how the US global financial crunch is affecting one of the major sources of the country’s liquidity—the OFWs. Some are regular readers of MoneySmarts, while some are friends of another blogger Reyna Elena. They were kind enough to reply and a short version of their emails (in the interest of space) were included in a feature I wrote for the Philippine Daily Inquirer. I am publishing this week in installments the full version of their emails. I hope this will help us understand how Filipinos all over the world are affected and are responding to the crisis.)
By Norissa Marie "Lovelyn" Dacawi
I'm an Igorota from Tublay Benguet, a town 18 kilometers away from Baguio City. I am 34 years of age and the mother two boys, Lukie and Dylan—six and almost two years old respectively. Make that three as my husband, Boogie, sometimes thinks he is my son. We've been here in Italy for seven years now after working two years in Malta.
Back in the mid 90's when hiring nurses abroad was not yet rampant, I accepted the offer to be a nanny for a wealthy family in Malta. Just to be employed and go abroad, I did not continue reviewing for my CGFNS after passing the Nurses' Board Exam. Newly married back then, the nanny offer came with another offer to hire my husband as the keeper for the family's swimming pool. We were lucky to leave the Philippines and work as a couple, something we always considered a blessing.
In 2001, we came to Italy as tourists. We stayed with my sister and cousins who were already legal residents of this country. Amnesty came out the next year, and so did the our eldest, Lukie. The first week we got here, I was employed as a housekeeper and kept the job for five years. I only stopped working when our second son, Dylan, was born.
My husband now works as a porter in one of the top hotels here in Venice. He's been with the company for four years now. With the current global financial crisis, clients continue to come in. However, our household is affected by the increasing cost of living. It is only compensated with the 'mancha' (tips) he receives but if the trend of soaring bills and the increasing prices of commodities doesn't cease, we might not keep up.
Just this June, we were charged a 10 percent increase on house rent. City services (gas, water, electricity and garbage collection) now cost 50 percent higher. 'Abbonamento' (a month prepaid ticket for bus and boat) increased twice during the summer.
We are confident we can cover home expenses, but luxuries like vacationing in the Philippines will be put on hold. The original plan last year was to go home this coming Christmas. With our plane ticket alone costing 1,250 euros each for my husband and I, and 1,120 for each our kids, these would cost around P300,000 if converted to Philippine money. The last time we went home, the 5,000 euros (P300,000) allotted for our daily expenses was not enough to sustain us for our 45 days of stay. We had to borrow some amount during our last week.
Another plan that has been put on hold is applying for a house and car mortgage. For now, we can't afford to spend more than what the family is earning. I believe that we don't really feel the effects of this ongoing crisis because we don’t have debt, and we try not to want more of this and that—like an iPhone, a MacBook and such.
OFF TOPIC:
Speaking for Venice alone, recession has not greatly affected employment for our fellow Filipinos. Except for the influx of workers coming from Albania, Bangladesh, Romania, Russia and other countries that accept low wages. 'Anziani' (old people) that compose most of the Italian population go for low paid caregivers to stretch the pension they receive from the government. Though Italians prefer hiring Filipinos, regardless of a higher pay demand, the competition is still quite high.
What’s up with SM Advantage’s automatic personal accident coverage? I’ve seen this circulating in emails, but saw the advertisement in newspapers only today.
There’s something that doesn’t smell right. SM Advantage and Philam Insurance automatically deducts 20 points from a cardholder’s rewards card to pay for a P100,000 personal accident insurance.
Granted the insurance will provide a 24-hour coverage worldwide, accidental death benefit, disability benefit etc. etc., but the issue is there’s something really funny about being enrolled unless proven unwilling.
The company didn’t even so much as send an official email to cardholders informing them of the deal. If you don’t know about it, don’t read the newspapers and don’t get to see the ad, you’d never know you’re covered. And guess who is going to claim benefits if you had no idea you have a personal accident insurance!
For those who think they would rather use 20 points to buy a tube of toothpaste or something, you need to fax an accomplished form in the ad you might never see, or submit the same form to a Customer Service counter at any SM Department store or branch. Talk about making it easy for unwitting SM Advantage cardholders to opt out!
If by October 31 you haven’t sent that form yet to the company, sorry na lang???
It’s not the measly 20 points that’s driving me up the wall. It’s the principle that any consumer deserves to be given a real choice before actually being charged!
Since AIG’s troubles hit the news, many of you have asked about the health of the Philam Group’s pre-need company.
Truth is, the entire financial system—banking, brokerages, pre-need, insurance, etc.—is working as one to calm jitters and restore confidence in the system. AIG/Philam’s troubles has affected everyone because confidence in one form of saving instrument or investment flows into the next, and loss of trust affects everyone.
Here are some official figures that you may want to take note of:
P51.6 billion—is Philam Plans Inc.’s trust fund as of 2007, secured in cash, cash equivalents and liquid assets such as government securities.
P700 million—paid-up capital, which is seven times larger than the minimum cap set by the Securities and Exchange Commission.
300,000—plan holders of pension, education and life plans. One of the biggest in the industry.
It is no secret that the pre-need industry is not as strictly regulated by the government, and this has caused some to fold up in the past. Trust is harder to restore, and insiders say the industry really is just coasting along.
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PS. Those who want to download the full text of the PERA Bill, click on this link.
