Graziadio Business Report Blog

This post first appeared on Dr. Forsyth’s blog, Financial Wisdom Preparatory Institute.

Joetta Forsyth, PhD

I recently had a bad encounter with a bank. However, there is a basic principle that I follow that kept me from financial harm.

I applied for a business credit card, which I wanted to facilitate payments and I intended to pay off each month. It was a little late in the day and the person who handled business accounts had left. Another person at the next desk over offered to “help” me.

I explained that I wanted to take out a business credit card and gave him my business checking account ATM card, which he used to look up my account. He told me about a “great deal” on a card — I wouldn’t have to pay fees to get the frequent flyer miles, etc.

I told him that I was confused because I had called the bank and they did not tell me those terms. His reply, delivered with a beaming smile, was that it was a special offer only given in person. I asked to see the terms and conditions, and he told me that they would be mailed to me after I applied for the card. I had to ask twice more. I flat out refused to apply for the card without seeing the terms and conditions first. He finally gave up and went to print them out. I told him I would read them and come back the next day. At home, I discovered that the right side of the print out was cut off and I couldn’t even tell what it said. Continue reading ‘My Shocking Bank Experience and the Need to Read Terms and Conditions’

Joetta Forsyth, PhD

Our financial crisis came about because of flawed thinking about how to help the poor.

Financially sophisticated parents would never tell their children to borrow to the ceiling to buy a house or anything else. And yet, lawmakers thought that the way to help the poor was to encourage them to borrow heavily. The mass inducement to the poor to borrow beyond their means was nothing short of an act of incredible cruelty. So how can we help the poor and get out of the mess we’re in?

There has been talk about bailing out homeowners so that they can make their mortgage payments. But this is just more of the same flawed thinking. Imagine the misery of just being able to make payments year after year. Dinner consists of macaroni and cheese, entertainment is renting a movie once a month, life revolves around hovering on the brink of disaster. These mortgage bailouts aren’t “relief,” they’re an act of cruelty designed to extract the maximum possible. And in-trouble homeowners throw good money after bad, hanging on in the hope of a bailout…

We need to let borrowers who got in over their head default.

The transition back to an apartment will hurt, but then life can begin again. Cash will be freed up for consumer purchases and saving for a comfortable retirement—possibly replacing the car that should be scrapped anyway. Instead of an economy full of people who don’t have a spare dime due to their mortgage payments, we will have an economy of  people who can spend again. This will stop the layoffs. The more people who have jobs, the more of a base we will have to tax, which, ultimately, will help us pay off the massive debt being incurred. Jobs are everything; they are the key.

Yes, this will cause real estate prices to fall more. But propping up prices is worse.

Continue reading ‘It’s Time to Hit the Reset Button’

Joetta Forsyth, PhD

Listeners from across the country submitted questions to Graziadio School faculty during the conference call on America’s Financial Crisis this Tuesday.

With over 200 participants on the call, there were too many questions for the panel to answer in the short time.

Below are responses from panelist, Dr. Joetta Forsyth, Assistant Professor of Finance, to just some of these questions. (Read why she believed a bailout was necessary)

Now that Congress has passed the bailout plan, we are working on answering more of these questions and posting the responses shortly.

1. The Bush Tax Cuts mixed with a boom economy and lack of fiscal leadership led to the largest deficit of our time and the current economic condition.  What would you do as the incoming President to improve our situation?

I have a different interpretation of what happened. There are a number of factors that lead to this crisis, and the list is staggering:

Continue reading ‘Questions on the Financial Meltdown Answered (1)’

Joetta Forsyth, PhD

The United States is facing the greatest financial crisis since the Great Depression. Financial institutions are failing, as is confidence in the financial system.

U.S. Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson have testified that Congress must act immediately to bail out troubled financial institutions, or we could face a financial collapse. There is much furor over the proposed $700 billion bailout, which didn’t get the required number of votes today to pass the House. Why, taxpayers ask, should people who were responsible and didn’t buy a house that they couldn’t afford, pay to bail out people who did, along with Wall Street fat cats? Exacerbating the problem is the fact the some of the people who are viewed as contributing to the crisis are now asking Americans to trust them to solve the crisis, using what could be an enormous amount of taxpayer dollars.

I share the same fury. And there is plenty of blame to go around. However, I would like to focus on the immediate problem. We are being told that something has to be done immediately, or we might have a financial collapse.

The key questions are:

• Are we really facing a financial collapse?
• Will this collapse happen rapidly or can we intervene if necessary later?
• What would be the consequences of a financial collapse?

Continue reading ‘America’s Financial Crisis’