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October 31, 2005

Enjoying My New Buick LaCrosse

Even the longest journey begins with a single step. But this wasn't supposed to be a long journey; it just turned out that way. It's difficult to say exactly how long I've been thinking about buying a new car … several years at least, but I didn't become serious about it (read: do any research) until late 2004, and it wasn't until April 2005 that I began earnestly shopping.

A couple months ago I wrote a round-up of my car-buying saga, and also published the complaint letter I wrote to Buick for screwing up my order. Now the saga has finally come to a conclusion. An amazing five months after placing my original order, I finally have a shiny new car in my garage.

I decided to accept the vehicle that was built with incorrect options, after a two-month-long clash with Buick customer service that reached all the way to the GM Executive Office. It's quite a story…

Let's enjoy the suspense for a minute, and take a look at the vehicle I now own. Here's the option description:

  • (4WE19) 2006 Buick LaCrosse CXS
  • (422U) Exterior color: Deep Sapphire Metallic
  • (192) Interior color: Ebony
  • (R13) Chrome appearance package
  • (P23) Chrome wheels, 17"
  • (U3L) CD/MP3 player and Concert Sound III system
  • (KA1) Heated front seats
  • (JL4) StabiliTrack stability control system
  • (PCI) Driver Confidence Package:
    • (UK3) Steering wheel audio and temperature controls
    • (UG1) Universal Home Remote
    • (DD8) Electrochromatic rearview mirror
    • (DK2) Heated outside mirrors
    • (AG2) Power adjusting passenger seat
    • (UD7) Ultrasonic rear parking assist
    • (TR0) Rear reading lights

My vehicle is unique because it has the Driver Confidence Package but it does not have the steering wheel audio and temperature controls. This is the factory error that caused so much trouble for me, my dealership, and GM. Other noteworthy standard equipment (standard on the CXS trim level) includes:

  • 3.6L VVT DOHC V6 engine (240HP, 225lb.-ft.)
  • QuietTuning
  • Leather seats
  • Split-folding rear seats
  • OnStar telematics system
  • Tilt and telescopic steering column
  • Adjustable seat belt shoulder straps
  • Automatic dual-zone climate control
  • Vanity mirrors on both sun visors
  • Full-range traction control
  • All-wheel antilock disc brakes
  • Driver and front passenger airbags
  • Head curtain airbags (for outboard passengers in front and rear seats)
  • Fog lamps


Here are a bunch of photographs. You'll see my reflection in several of them due to the fact that the car is still very shiny and I took most of these pictures on a well-lit day. Click each thumbnail for a high-resolution image:

Kyle Markley picking up his new 2006 Buick LaCrosse.

Me, picking up the vehicle on a rainy Oregon day. This is an interesting picture because there's another blue LaCrosse in the background, on the right, without the chrome trim. Mine is much prettier.

2006 Buick LaCrosse CXS, exterior, side view of front.

Driver's side view of the front of the car.

2006 Buick LaCrosse CXS, front lights and chrome.

Front lights and chrome trim.

2006 Buick LaCrosse CXS, grille.

Waterfall grille (and advertisement for the dealership.)

2006 Buick LaCrosse CXS, chrome wheel.

This is the LaCrosse's available chrome wheel.

2006 Buick LaCrosse CXS, side rear window.

Side rear window and "C" pillar. This window is too small to usefully see out of, but it's pretty.

2006 Buick LaCrosse CXS, tail lamps.

Tail lamps.

2006 Buick LaCrosse CXS, gleaming Buick tri-shield logo.

Here's a picture of Buick's tri-shield logo, gleaming in the sunlight. You can also see a distorted view of my hands in the reflection from the chrome.

2006 Buick LaCrosse CXS, front view.

Front view of the car. Those birds in the background are surely looking forward to tagging my new car.

2006 Buick LaCrosse CXS, driver's door and controls.

Driver's door and controls.

2006 Buick LaCrosse CXS, rear seating area.

Rear seating.

2006 Buick LaCrosse CXS, console.

Console as viewed from rear seat.

2006 Buick LaCrosse CXS, audio and temperature console controls.

Controls for MP3 audio system and automatic dual-zone climate control system.

2006 Buick LaCrosse CXS, Driver Information Center controls.

Controls for Driver Information Center.

2006 Buick LaCrosse CXS, shifter.

I think the wood-textured shifter is one of the LaCrosse's nicest visual touches.

2006 Buick LaCrosse CXS, side view of shifter.

Side view of shifter, showing trigger. The trigger also fires the frickin' laser beam attached to the roof.

2006 Buick LaCrosse CXS, instrument cluster.

Driver's instrument cluster.

2006 Buick LaCrosse CXS, basic steering wheel.

Steering wheel without the audio and temperature controls. Sigh!

2006 Buick LaCrosse CXS, wiper, turn signal, and headlight control.

Wiper, turn signal, and headlight brightness control. This is the vehicle's only control stalk.

2006 Buick LaCrosse CXS, interior and exterior light controls.

Light controls; interior on left, exterior on right.

2006 Buick LaCrosse CXS, engine.

Under the hood of every new vehicle lurks an engine that's still clean.


Now, back to our story…

After the vehicle arrived in August, I wrote a letter to Buick customer service complaining about the missing steering wheel controls and asking them to give me a guarantee that they would build my vehicle correctly if I re-ordered. Neither myself nor my dealership were comfortable with the idea of placing a regular re-order through the same system that had already failed us twice.

Buick ignored my letter. No phone call, no e-mail, nothing. I know their mailbox isn't a black hole because I had written them a letter after the first screw-up (when they canceled my order) and received a telephone call in response. I gave them two weeks, then tried e-mail.

In my e-mail I asked whether they received my letter, and very briefly outlined what had happened to me. The response I got, while at least not a form letter, was merely an offer to help me locate a vehicle and did not even mention the topic of my letter. My reply included the full text of my letter.

It's important to know that my car dealer was also in contact with Buick about my incorrect order. He was originally promised an explanation of why the vehicle was built incorrectly within two business days. He got a phone call in two business days, but they said they weren't able to figure out what happened and that they'd keep investigating. (No, they never followed through with an explanation — big surprise, eh?) When I finally purchased the car, my dealer told me that we had crossed paths several times in our efforts with Buick customer assistance.

I thought I was getting somewhere when they opened a case file based on the e-mail containing my letter, and said "We will follow-up with you this week with an update or the final resolution."

They didn't. Nine days later, I send them a reminder e-mail. No response in the next twelve days, so I gave up on e-mail and decided I'd call them.

The great virtue of the telephone is that they can't ignore you. The best they can do is put you on hold, and thankfully they didn't do that to me very much. I learned that the person who had been assigned to my case had left the group. The case had been reassigned, but I hadn't heard anything from my new support contact.

I tried calling them several times, at varying times of day and days of the week, but I was always connected to voicemail. The voicemail message promised a response within a few business days, so my later messages reminded them that it was taking too long. In the end I never, ever, spoke with this person.

On the one-month anniversary of my case being assigned to a specific support person, my I gave up on and called back into the general support number. I told the first person I talked to that I wanted them to own my case from now on. They reviewed my file and gave me an important piece of information: I was talking to the wrong people! The customer assistance center is designed primarily for vehicle information and warranty and service issues. They don't have anything to do with vehicle ordering. They weren't sure who I should be talking to, but suggested Marketing Support.

A single telephone call with marketing support convinced me that they wouldn't be able to help, either. Fortunately, they were forthright about it, and simply told me that GM does not, as a matter of policy, ever offer guarantees on orders. I asked if I could speak to someone at the factory, but they said they didn't know how to contact the factory. Believing I had exhausted all possibilities, I gave up. Convinced that I could not order the vehicle I wanted as a new car, I started looking at used cars, and particularly at the Oldsmobile Aurora.

I also tried to directly contact the factory in Oshawa, Canada where the LaCrosse is built by sending an e-mail to the local autoworker's union (CAW 222), but nothing resulted from that.

A few days later, something interesting happened. I came home from work to discover a message on my answering machine from someone stating they worked in the GM Executive Office. The marketing person I talked to must have been taken aback when I told them that their order policy lost them a sale, and did something wonderful — they contacted someone "higher up" who might be able to help. The customer assistance center should have done this themselves; that I had to go through marketing is itself a flaw in the system.

The person from the executive office did everything correctly as far as customer service is concerned. The message she left gave me her name, phone number, and time when she planned to call back. When we spoke, she was already familiar with my case and said she would investigate. She even told me the names and occupations of the people she was contacting. I learned about the constraint system used by the factory and that there were currently no constraints on the LaCrosse, so it was likely that a re-order would succeed.

Unfortunately, when I pressed the matter, she explained that GM would not offer a guarantee that a re-order would be built correctly. I thanked her for her efforts and told her that I would not re-order without a guarantee, so that GM had lost a sale.

I had already test driven an Aurora and was thinking very seriously about buying it when I got an e-mail from my dealer, who still had the incorrectly-built vehicle in inventory. This e-mail included a specific offer for the incorrectly-built vehicle.

I decided that because I wasn't getting anywhere with GM, and because I had mixed feelings about the Aurora, and because the vehicle wasn't wrong in any fundamental sense (the steering wheel controls are redundant), and because the price was attractive, and because I was tired of this whole mess, that I would buy the vehicle that was already here.

This was the best outcome for everyone involved. I got a mostly-correct vehicle at a great price, the dealership sold a vehicle that had been sitting on their lot for two months (and never even test driven during that time, I learned), and the factory got "off the hook" by not facing any real consequences for their error. I would have preferred to punish the factory somehow, but that wasn't possible.

Buick makes fine automobiles — I bought one, even after all the trouble I went through — but their customer-hostile "customer assistance [sic] center" and vehicle ordering policies need to change. The next customer will not be as patient as I am. Five months is far too long.

I still have not been offered an explanation for why my vehicle was built incorrectly.


UPDATE 2005-10-31 07:47:21 UTC: I forgot to link to this Dilbert comic which effectively summarizes my experience.

October 28, 2005

Recall Effort is Wrong

Shocking! Outrageous!

The Oregon Constitution Party has mounted an effort to recall Judge James, who recently overturned Measure 37. (Yeah, Oregon has active minor political parties. Aren't we cute?) As I've already written, I think the judge's decision was wrong and I'm a strong supporter of Measure 37. But this recall effort is very bad.

When a politician ignores their representatives, a recall is appropriate. It's their job to represent the people. The case of judges is very different. Judges interpret law in order to settle conflicts. Judges are guaranteed to make people unhappy — after all, someone has to lose the conflict. And very importantly, judges are a defense against the tyranny of the majority. The popular will should not always win. This is not a democracy; true democracy is horrible.

Judges can't do their job under the constant threat of recall. Especially in politically-charged cases like that of Measure 37, vast numbers of people are guaranteed to be made unhappy by the result. Judges should not be placed in no-win situations where they face a recall no matter how they rule.

The proper outcome is for Measure 37 to be reinstated on appeal. Judges shouldn't be recalled merely because they've made an unpopular and/or badly-argued ruling. Let's only recall judges when they do egregiously awful things. Not for doing their job … even when they do a bad job.

(Hat tip: Dave)

October 27, 2005

Credit Card Arbitrage Update

It worked! Two weeks ago I applied for two 0% credit cards, and today I received the second in the mail and verified that everything has unfolded according to prophecy.

Well, not quite. The hitch is that I did this too soon. I got spooked by the fact that Citi hadn't sent me another of their regular solicitations for the Citi Diamond Preferred Card, and that the card had disappeared from their website. I thought it was no longer being offered, and that the replacement was less useful for my purposes. It turns out that they were simply late on this month's solicitation — I received my new credit card and the solicitation on the same day! Due to this, I missed out on a month of interest accumulation. My 0% rate is only good through August, not through September.

I noted earlier that they only allowed a $9,600 balance transfer. It turns out that $9,600 is the total credit limit they granted me, so this card is maxed out. (That amount is slightly more than my other card's balance, so I actually have a small credit on it right now.)

The more interesting side of this adventure was converting a $14,900 Discover balance transfer check from 1.9% to 0% by using the introductory balance transfer offer on an American Express Blue card. I was afraid this wouldn't work. (1) I applied for two credit cards a mere week apart from each other. (2) I used up almost my whole credit limit on my Discover card, more than doubling my total credit card debt at the same time I applied for the American Express card. (3) Given the unexpectedly small credit limit on the Citi card, I feared I wouldn't be able to transfer the whole balance to the American Express, even if they weren't freaked out by #1 and #2.

Well, it worked. I got the new card today and verified online — at both American Express and Discover — that the balance transfer happened. My credit limit was set to $1,500 above the balance transfer, so it appears that they deliberately left me some spending room. (Thanks!) Another nice thing was that I discovered just how quickly today's banking system moves. After I took the $14,900 balance transfer check to deposit at my bank, I got a phone call from Discover's fraud protection people the very next day. That's impressive! It seems their suspicions are aroused by a single gigantic transaction on an account that had been idle for months…

Tantalizingly, I still have three balance transfer checks remaining, and their offer doesn't expire until late next month. I could try to do this again and get another $15,000 to another 0% credit card. But I'm not going to try. I don't think it would work again; I suspect my FICO score has taken a serious plunge. I'll check it next month to appraise the damage.

My only gripe is that the minimum payments will be higher than I expected, with Citi requiring 1.5% of the balance and American Express requiring 2%. My old credit card has been spoiling me with a mere $10 minimum payment. I don't see this as a large problem, though. I see it as an incentive to use the cards for purchases during the year. I made sure to only apply for cards where purchases would also be 0% during the introductory period.

October 26, 2005

Central Banker Joke

President Bush has nominated Ben Bernanke to become the next Chairman of the Federal Reserve after Alan Greenspan retires early next year.

They say he'll be a credit to the nation.    <rimshot>

I love central banker jokes; they're the gold standard of economic comedy.

October 25, 2005

How to End the Mortgage Interest Deduction

The tax-deductibility of mortgage interest is not a good thing. Sure, it saved me $1500 on my taxes last year, and I appreciate that. But that's me wearing my homeowner's hat (eyepatch?) or my libertarian "all tax loopholes are precious" T-shirt. When I look at this deduction as an economist, it stinks.

Renting is a substitute for homeownership, so to the extent mortgage interest deductibility is an incentive for homeownership, it harms those involved in renting. Lessees get no tax break comparable to their homeowning peers, and lessors are harmed by the artificially-reduced demand for units.

It's not true that the tax benefit of mortgages is entirely consumed by higher housing prices. Certainly, deductibility does contribute to higher house prices at the margin. And, as a result, to higher property taxes! But the impact of deductibility decreases with the size of the down payment, and is zero for those who pay cash for their homes.

Mortgage lenders have a tremendous advantage over other lenders. Tax deductibility of mortgage interest reduces the effective (after-tax) interest rate of a mortgage, an incentive that other forms of lending cannot match. If you're in the 25% tax bracket, a 6% mortgage only costs 4.5% after taxes. If you live in Oregon and pay the 9% state income tax too, that mortgage only costs you 4%! The mortgage lender can get revenues based on a 6% interest rate while customers only effectively pay 4%. It's tough for a non-mortgage lender to compete against such a huge subsidy.

Thus, the trend — obvious to anyone who sees the incessant commercials on TV — toward home equity loans and lines of credit, and paying off other debts by refinancing the mortgage. Frighteningly, this turns unsecured debt into secured debt, and debt secured by an automobile into debt secured by the home. This is a large distortion of the consumer credit market.

It's unclear without looking at the numbers (and I am really lazy) whether tax deductibility of mortgage interest is "anti-progressive" in the tax sense, but my intuition tells me it is. While "middle-class" families save a thousand or two on taxes, the rich may save tens of thousands, both because they buy more expensive homes (paying more interest) and also because the deduction applies to income that's taxed at a higher rate to begin with. I am not bothered by "anti-progressive" taxation and in fact I would consider it a feature, not a bug, because it would boost economic growth. The point of mentioning it is to simply note that it's offensive to fairness for the mostly-poor renters to subsidize the opulent homes of the rich. (But I'd rather not go into this much; it's easy to dismiss by characterizing deductibility as merely a reduction in the effective tax rate, not a subsidy.)

The tax deductibility of mortgage interest isn't fair to renters, isn't fair to non-mortgage lenders, has complex effects on home prices and property taxes, and is of dubious fairness from an overall tax standpoint.

Fortunately, it's easy to get rid of. Here's the Cap'n's plan:

  1. Announce that mortgage interest deductibility will be phased out, beginning in 5 years.
  2. In five years, place a $20,000 cap on the size of the deduction.
  3. Reduce the cap by $1,000 each year thereafter until deductibility is gone.

Announcing that it will begin in the future, instead of immediately, gives people time to plan and time for markets to adjust — no one will "get caught" by the change. A generous initial cap ensures that very few people will be affected in the beginning. Steady reduction of the cap will gradually remove the offending provision of the tax code.

The specific numbers are negotiable. I picked figures with the expectation that they would leave almost all 30-year mortgage holders virtually unaffected, unless they refinanced. Yes, I agree that 25 years is a long time to wait, and I'd be happy if it was faster, but I fear this is a political sacred cow and wanted to propose something slow enough that it won't spook people. In the meantime, the problems of the current arrangement would persist, so it's worthwhile to reexamine these numbers with an eye toward targeting the shortest politically-acceptable duration, whatever that is.

October 24, 2005

Media Shield

Journalists should not be granted any kind of special legal privileges. Coyote Blog takes on the proposed federal shield law in the best post I've read over the past week.

October 21, 2005

Adults in Congress?

It's surprising, yes, but there might be a few adults in the Senate. There is a bit of ambiguity — they could simply be grandstanding — but I'm in a generous mood so I'll give them credit.

The $230 million Alaskan "bridge to nowhere" survived a challenge from Sen. Coburn (R-OK) who wanted to divert about half of its cost to rebuilding I-10 that spanned Lake Pontchartrain until it was destroyed by hurricane Katrina.

Almost everything surrounding this is bad. It's not good that federal dollars have been allocated for a project that benefits only Alaska. It's not good that the challenge amounted to a diversion of funds to an equally unjustified project that would benefit only Louisiana, instead of not spent. The good news is that fifteen senators voted in favor of the diversion:

The 11 Republicans who voted to shift the bridge money to Louisiana were Sens. Wayne Allard of Colorado, George Allen of Virginia, Richard M. Burr of North Carolina, Mr. Coburn, Jim DeMint of South Carolina, Mike DeWine of Ohio, Lindsey Graham of South Carolina, Jon Kyl of Arizona, Jeff Sessions of Alabama, John E. Sununu of New Hampshire and David Vitter of Louisiana. The four Democrats were Sens. Evan Bayh of Indiana, Kent Conrad of North Dakota, Russell D. Feingold of Wisconsin and Mary L. Landrieu of Louisiana.

I'm encouraged by these fifteen senators (again, assuming they weren't just grandstanding) for a larger reason than mere opposition to pork spending. It's an opportunity for senators to rediscover that they represent their State, and that it's not in the interest of their state to fund some other state's projects. I quote Sen. Stevens (R-AK) whose bridge was imperiled:

"If the Senate decides to discriminate against our state, to take money only from our state, I will resign from this body," Mr. Stevens said. "If one senator can decide he'll take all the money from one state to solve a problem of another, that is not a union. That is not equality."

Taking money from Georgia and Arizona and Nevada and Ohio in order to fund a bridge in Alaska is precisely a case of taking money from those states to solve a problem in another. Sure, Alaska wants its money. But the other 49 states should object because they'll pay the cost but get no benefit. A lot of federal pork could be cut if Senators would remember who they're working for.

The way to fix a monstrously bloated spending bill is precisely to introduce a very large number of subsequent pieces of legislation that each target a single piece of pork. When considered alone, instead of bound up with an enormous spending bill, pork can be seen for what it is and 49 of the 50 states will be incentivized to vote against it.

October 17, 2005

Oregon Measure 37 Declared Unconstitutional

Shocking! Outrageous!

Reader Dave let me know that Oregon Measure 37 was overturned on Friday by Marion County Circuit Judge Mary James. This judge was appointed by Gov. Kulongoski. The full text of the decision is available online; the case is MacPherson v. Department of Administrative Services, Marion County Circuit Court No. 05C10444.

Oregon Measure 37 was passed by referendum with 60.39% of the vote in 2004. The fundamental idea behind the Measure is that land use regulations that restrict property owners are a kind of takings, and the Measure provides for financial compensation or a waiver of the regulations. The regulations would fully apply to the property after a transfer (although I'm fuzzy on how inheritance worked).

The plaintiffs in this case, opposed to Measure 37, reasoned that their decision to purchase their land was based on the land use regulations already in effect on their neighbor's land. Plaintiffs believe they are damaged by their neighbors seeking or obtaining regulation waivers (because their neighbors' uses affect their own land) or compensation (because it would be paid out of their taxes) under Measure 37.

The most amusing argument is from the nonprofit conservation agency 1000 Friends of Oregon, who argue that Measure 37 jeopardizes the continued existence of the group because it is no longer able to effectively lobby for land use plans.

These are the arguments I thought were interesting:

  • The only legitimate reduction in State plenary power is via Constitutional amendment, it cannot be done by the legislature or by simple referendum.

This argument rests on the belief that Measure 37 is a limitation on State power, rather than a means of compensation for takings. The opinion asserts (p. 11) that "There is no question that the land use regulations themselves are valid, and no claim that the regulations rise to the level of a taking, which would require compensation." As a principled defender of property rights, I disagree — land use regulations are prima facie a kind of taking.

The slippery slope argument that cousins to Measure 37 could be adopted that would undermine the DEQ regulations or public school compulsory attendance laws are very interesting. It would warm my cold libertarian heart to see both of those things go away, so I welcome the slippery slope. (I confess I cannot follow the unstated reasoning that would apply it to school attendance, but gee I sure like the feared outcome.)

  • "[T]he means chosen to determine the amount of compensation is not reasonably related to the [state] interest."

The argument is that compensation should be based on the reduction in property value at the time the regulation was passed, rather than based on the reduction in property value today.

No. That won't do. The "injury to the owners" is continuous from the time the regulation was imposed until the present, unless a property transfer had intervened (because the new buyer would factor in the effect of the regulation.) It's true that the injury started when the regulation was imposed, but that's irrelevant to compensation. The injury is not an acute pointlike event in the past, it's continuous to the present. Besides, the remedy most people receive under Measure 37 — waiver of the regulation — restores the property's full, present-day, unregulated value. The amount of monetary compensation (the alternative to waiver) should be commensurate with the value of the waiver.

Judge James's argument is that she disagrees with how the compensation is calculated, therefore it "has no rational relation to the aim of Measure 37" and therefore it's not "reasonably related to the [state] interest" so therefore it's unconstitutional. Give me a break!

  • Measure 37 violates the equal protection clause.

This is very badly argued. The reasoning is that Measure 37 divides people into two groups based on whether or not their purchase was before or after a land use regulation was imposed that affected their property. People whose ownership predates the regulation are given preferential treatment, and that's unconstitutional.

Baloney. The distinction between the two groups — pre-owners and post-owners — is not arbitrary and in fact it's directly relevant to the purpose of Measure 37. This very court opinion found it to be a valid class distinction (p. 13). Besides, Measure 37 is compatible with a strict reading of the Oregon Constitution (Article I §20) because the "privileges" or "immunities" are granted to all citizens "upon the same terms." Dates of ownership and regulations are nondiscriminatory.


I'm sympathetic to the argument that some people purchased land because of the regulations on their neighbors' use, because they believed those regulations protected the purpose for which they bought their own land. However, I don't think they deserve compensation. The value of their land was based on the fact that the State was violating the property rights of their neighbors. It is wrong to profit from State malfeasance.

October 16, 2005

Refco

Mover Mike is all over the Refco scandal. I don't expect I'll be writing about it.

October 12, 2005

Arbitrage with Balance Transfer Checks

The financial gods have smiled upon me. Mere days after applying for a new credit card to extend my 0% period on about $8,800 I've spent over the past year, I discover that I'll be able to get even more free money than I expected.

I got some balance transfer checks in the mail from Discover. They've sent me some every few months, unsolicited, but I've always thrown them away without much thought. Now that 0% credit card offers are beginning to evaporate, I'm paying more attention.

The deal on these particular balance transfer checks is a fixed 1.9% APR until March 2006, with a 3% balance transfer fee, with a $5 minimum and $50 maximum on the fee. They're checks, so I can do whatever I want with them. For example, I can open a CD with them.

Six-month CDs are earning about 4% today, much better than the 1.9% APR on the balance transfer. I'd only have to worry about taxes and that pesky fee. Happily, the maximum $50 fee is reached at a balance transfer amount of only $1,666.67, but my credit line is $15,000. To avoid going over-limit, I'm only going to use $14,900. This provides a buffer for the $50 fee and approximately two months of interest at 1.9% APR — plenty of safety room.

$14,900 invested for 6 months at 4% (simple interest) will earn $298. The cost of this would be $191.55 including interest and the fee. At first glance this looks attractive — a free $100 — but after taxes it's basically a wash. It wouldn't ordinarily be worth trying to game the system, and I'm sure that's what the folks at Discover had in mind when they sent me those checks. But I'm going to game the system anyway.

I had two offers for credit cards with one-year 0% balance transfers. I already applied for one, to transfer my existing balance. Now I'll apply for the other one, transferring the $14,900 I'm about to put on my Discover card. The introductory offer with the new card has no balance transfer fees, so this essentially converts my 1.9% APR to 0% APR while extending my period to a full year.

For a mere $50 fee, plus a negligible couple days of float to cover all the transactions, I can earn about 4.3% APY on $14,900 for a whole year. That's a profit of approximately $600 (or about $375 after taxes). This is free money! Plus, I'll retain a sliver of hope that I might be able to roll the credit card debt into yet another lucrative 0% offer a year from now.

This math is based on the assumption that I'll be able to do a balance transfer to the new card for the whole amount. Given the surprise discovery of a balance transfer limit on the card I just applied for, that might not be possible. But it's not something I have to worry about — whatever portion of the balance doesn't transfer, I'll just pay off immediately. Or I might invest it — remember, it's basically a wash at 1.9%.

The timing on this is very close. I received the balance transfer checks on the 11th, and my last 0% offer is only good until the 20th! I'm going to deposit the balance transfer check at my bank tomorrow over lunch, and apply for the new card on the 18th. (I'd prefer for Discover to see my balance transfer check before they see the payment transferring it away to another card… They will Not Be Pleased™.)

If everything goes as planned, I'll have a total of about $24,000 in 0% credit card debt, with two credit cards both offering 0% on purchases with an as-yet-unknown total credit line. I'll be merrily earning 4%+ on those balances, laughing all the way to the bank.

The moral of this story is that credit card companies aren't being careful enough, so I'm going to arbitrage the hell out of 'em. Arrr! It be like piracy, 'ceptin' it be legal, arrr…

October 11, 2005

Net Worth Report - 10/05

I've discovered that you're not really a personal finance blogger unless you open your books and talk about your goals. After recovering from my initial shock that lots of people are willing to publish so much information about themselves, I've decided it's not such a big deal, so I'll join the club.

I'll confess that I had never actually calculated my net worth until about a month ago when I was inspired by Savvy Saver. Previously, I'd just make a wildly inaccurate guess. (I had no idea how inaccurate, until now!) Going through the calculation has opened my eyes to the fact that my asset allocation is not what I'd like it to be — and you might discover the same, so I encourage you to do it, too.

My report is a raw data snapshot. I'm not going to attempt any kind of fancy accrual for assets (bonuses, stock purchase plans) or liabilities (property taxes, insurance bills) to smooth out the data.

My reports are going to be broken down by time horizon instead of by asset class, with the exception of personal property (net value of home and vehicle). Here's the mapping of several types of assets into my reporting categories:

  • Cash → Short-term
  • Checking, savings → Short-term
  • Credit card debt → Short-term
  • Time deposit (<1yr remaining) → Short-term
  • Time deposit (≥1yr remaining) → Medium-term
  • Precious metals → Medium-term
  • Stocks, bonds, and mutual funds → Medium-term
  • Employer ESPP → Medium-term
  • Employer stock options → Medium-term
  • Health Savings Account → Medium-term
  • IRA, Roth IRA → Retirement
  • 401(k) → Retirement
  • Employer profit-sharing plan → Retirement
  • Net value of home → Property
  • Net value of auto → Property

And here are my figures, as of 10/9/2005:

CategoryNet Worth
Total$305,360.56
Short-term$54,483.70
Medium-term$66,933.40
Retirement$111,933.94
Property$72,009.52

There are three reasons why my short-term investments are so large. The first is that I keep a $10,000 emergency fund. The second is that I'm taking advantage of 0% credit cards to earn money with a time deposit. The third is that I've been trying to buy a new car, so I've kept myself very liquid in order to have flexibility to choose the best financing option. I don't feel safe moving that money to a longer-term investment until my car situation is settled.

My net worth has actually fallen about $5000 over the past month, mostly due to a reduction in the value of unvested stock options.

I don't have much to say about financial goals right now. I've been carefree about financial goals because I've never been a big spender and frankly didn't see much need to worry about it. When I was in college I had the silly idea that I'd try to be a millionaire by the time I'm 35. Perhaps I'll explore the reasonableness of that goal in the future. I'll come up with some shorter-term goals, too.

In the future I'll try to report at the beginning of each month.

October 10, 2005

Self-Improvement

This post is not about economics, or about finance, or politics or even about pirates. This one's about ethics. But it's not a continuation of my ethics in emergencies series. I'd like to talk about everyday ethics.

I remember a conversation I had many years ago when I was in college. I was talking to someone about ethics (in a philosophy group) and this person believed that the whole subject of ethics was fundamentally about how to interact with other people. A person stranded alone on a desert island would not, in their view, have any use for ethics. I think this is tragically myopic.

Everyone needs ethics, all the time, because we are constantly faced with alternatives. Ethics is the science that provides the mental framework for evaluating alternatives, enabling us to select the "best" (note the normative language) alternative. In the plainest language, we need ethics because we have to make choices. Ethics guides our goal-setting and helps us evaluate whether our means are compatible with our ends.

The subject on my mind tonight is pride. Ayn Rand described pride as "moral ambitiousness", and I've always loved that description because it's terrifically useful. Pride is about continuously improving one's own character — building value within yourself, as against seeking value from the external world. Pride is a truly individual virtue. It has nothing to do with other people. A conception of ethics that is limited to interpersonal interactions is blind to the important virtue of pride.

Therefore it is with some sense of irony that my most recent exercise in self-improvement is something I decided not to do by myself. I wanted the help of an expert, because there is much to learn. (Not a professional, but someone who is clearly my superior.) I enlisted the help of a friend to be my teacher/assistant/guide.

The specific self-improvement I'm trying to achieve isn't relevant. What matters here is that my expert is … unreliable. We haven't done very much yet — scheduling issues, you see. I was aware that this might happen, and in fact I'm not surprised it did. But now I'm in an uncomfortable position. I still don't want to do this on my own — it will take much longer and the results won't be as good — but I also don't want to change experts, again because the results won't be as good. I perceive a large quality gap between my chosen expert and the runner-up.

It's not a good situation to have your self-improvement tied to another person's actions. I'll try to ameliorate this by talking to my expert and seeing if we can raise the priority by making this a trade instead of a favor.

Ha! Incentives! This post was about economics after all… ;)

If improving the incentive doesn't work, I'll go it alone. Patience is a fine thing in many circumstances, but not when it stymies progress toward your goal. My advice is this: surround yourself with fellow travellers, but do not let them alter your course. Do not let your goals become subordinate to the whimsies of others. It is better to pursue a goal alone than to wait for help that isn't coming.

Credit Card Redux

A long, long time ago (last December), I decided to change my typical habit of spending cash in favor of using a credit card for most purchases. I did this because I got a credit card offer that had a one-year 0% rate for purchases. (It also offered 0% on balance transfers, but I didn't have any balances to transfer.)

Creditors are hoping for two things when they make offers like that. One, they're trying to acquire new customers. It worked — 0% on purchases is a great deal and I was happy to oblige them. The other thing they're trying to do is encourage people to accumulate a large balance. That worked too — I don't mind carrying a balance at 0%.

At this point, the plan breaks down. The creditor's hope is that the large balance people accumulate at 0% won't be paid off when the 0% period ends. They know that most people won't be prepared to pay off the balance in full. They want people to start paying 9% or 15% or 23% or whatever ridiculous interest rate is applicable.

Last year I took out a CD for my credit limit, assuring that I would be able to pay the balance in full if that was necessary. This lets me earn a few percent on money that would otherwise have been spent. But I hoped I wouldn't have to pay off the balance.

I've been watching my mail closely as it's gotten near the expiration of my 0% period. I've regularly received solicitations for two cards offering the same deal as my current one (0% balance transfer and 0% on purchases) — the Citi Diamond Preferred Card and American Express Blue. They've sent me the same offer every month, and have been kind enough to send mail so that the new offer arrives before the old one expires. This has given me the opportunity to be patient, waiting for the terms of the offers to change.

It happened. I haven't received a replacement offer from American Express yet, and I verified that the Citi Diamond Preferred Card is no longer being offered. This month's solicitation was for a Citi Diamond Preferred Rewards Card, which is not offering 0% on purchases. I checked their website and the old card is nowhere to be found. With less than a week remaining on the previous offer, I decided it's not worth the risk to wait for American Express and I applied for the Citi card (under the old terms).

Curiously, they only allowed a balance transfer of $9,600. This wasn't a problem because my other card's balance was only about $8,800. (I requested the full $9,600 balance transfer anyway — I'm expecting to make some large purchases soon, and would also be happy getting a check back for the overpayment.) The credit card companies must have finally figured out that lots of people are taking advantage of 0% balance transfers to earn interest with CDs, and are trying to limit balance transfer amounts to the size of a typical household's credit card debt.

I'll hope I can do this again, in August. (The new card's 0% is only good through August.) But with interest rates rising, I doubt that I'll be able to take advantage of 0% on purchases again. It's hard to tell if 0% balance transfer offers will still be around, either. Happily, I'll be able to earn at least 4% on a CD until then.

October 07, 2005

I'm A Sell-Out

I've signed up for Google AdSense out of the hope that is blog might be able to pay its own web hosting costs. This is a test post to see if I've done my scripting properly.

I'm trying to be a little bit fancy by having ads only on the main page, individual posts, and the full-text archives — but not on the essays, archive navigation, and other miscellaneous pages. My scripts were not designed with this sort of thing in mind. (Perhaps "designed" is too strong a word. Let's just say these scripts are not examples of my best software.)

You probably don't care about this. That's fine. Move along, there's nothing to see here…

October 06, 2005

Musical Interlude

Recently I've been spending a lot of time at my other keyboard. (Hence the generally light blogging.) I've been working on Rachmaninoff's very famous Prelude in C# Minor, which is actually the second movement from Morceaux de fantaisie.

It's much too difficult for me. I don't care. I'm not even trying to learn the whole thing, just the last third or so. To this untrained ear it seems musically straightforward — just lots of big chords played very loudly. The only technical complexity in this section is the sheer number of notes because it's usually four keys on each hand.

And did I mention loud? I think the correct method is to break one's fingers while playing. The dynamic mark is sffff and the notes are accented too, just in case all those fs were too subtle.

I haven't done any research on this piece so I don't have anything scholarly or useful to say about it. But I'll say that the reason I want to learn it is because I think it's marvelous "angry" music. Mad at the world? Need to destroy something? How about banging on the piano as hard as you can until you're exhausted? This is good for that.

October 03, 2005

Paying for Vital Things

Kevin writes regarding my "Relief and Outrage" post:

The federal government has a very good reason for spending a lot of money to rebuild New Orleans. It's called the POSL (Ports Of Southern Louisiana).

You claim that paying to rebuild the homes/infrastructure/levees should be the responsibility of the local government and citizens. While the simple truth is, they are too poor to pay for it anyway, the vested interest is this:

  • POSL is the largest port in the United States.
  • POSL is the 5th largest port in the world.
  • POSL exports 52 million tons a year (50% of that, agricultural products)
  • POSL imports 17 million tons - things like crude oil, coal, etc.

I've omitted other supporting details, but the argument is essentially that the New Orleans area is vital to the nation's economy and that a city is needed to run the transportation infrastructure there.

I agree, it is vital. When I heard the news that a hurricane was headed for New Orleans, I felt a sense of dread from the fact that so much commerce through the lower Mississippi River area would be disrupted. I agree without hesitation that it's in the interests of the entire country for this region to get back to normal.

And yet, I am totally unmoved by claims that the federal government should pay for reconstruction. Firstly, this "vitality argument" ignores all the reasons I gave in the earlier post about why we shouldn't subsidize people to live in disaster areas. But let's consider the vitality argument on its own merits, and assume arguendo that federal spending would help the "vital" task of getting the transportation infrastructure back to normal more quickly.

So what? Federal spending could arguably help anything. Farmers troubled by a drought? Give 'em subsidies — farming is "vital", isn't it? Banks wrote a bunch of bad loans? Bail 'em out — the financial industry is "vital", isn't it? People prefer to buy things other than health insurance? Create a national health care system — the government has a vital stake in the health of its subjects, doesn't it? In all of these cases it can be argued that the economic impact of "doing nothing" is enormous. Food is one of the United States' largest exports. The economy would be seriously undermined by a cascading banking collapse. National productivity would be harmed if millions of people needed medical care but couldn't get it.

Note carefully that my examples are all real, and that they glide away gradually from a sudden catastrophe like Katrina. Droughts are a kind of natural disaster, but they're relatively frequent and very slow-acting. Banking crises are (when they strike) sudden disasters, but are not natural. Low health insurance coverage is the product of human choice, arguably neither natural nor a disaster — but observe that people still call it a "crisis" in need of federal funds.

Every "crisis" has a constituency ready to belly up to the slop trough. Socialism is the predictable end state. If anything that's "good for the country" is ipso facto acceptable for the government to do, you'll be amazed to discover that everything any politician has ever dreamed of doing to buy votes is good for the country! Bread and circuses for all!

It's not merely that subsidizing risk encourages risky behavior. Beyond that, these things are outside the legitimate scope of government action. Governments properly exist for the purpose of protecting individual rights, and that's all. It is not the purpose of government to "help people in need." Helping people in need — with other peoples' money — is wrong. If Bill Gates decides to donate $10 billion to hurricane relief, that's his business. But if the government takes that $10 billion through a special tax, the oil companies … oops, I mean Bill Gates, is just being looted. There is no difference in principle between looting from a small number of very wealthy people, or in looting a smaller amount from the broad swath of all American taxpayers. It's wrong.

Returning specifically to the subject of Katrina, federal relief is interesting from a geographical standpoint. Which area do you suppose has a greater economic connection to the Ports Of Southern Louisiana — Alaska, or Mexico? I'll wager it's Mexico, hands-down. So why should Alaskans pay for rebuilding, but Mexicans not? Should the accidents of history that made Alaska but not Mexico a state have any bearing on the matter? After all, we're talking about economic impact, not politics.

Different people in different regions of the country have different levels of dependence on Louisiana's transportation infrastructure. Why, then, should all taxpayers be affected in the same way? Given the principle of contributing due to economic importance, shouldn't the reconstruction tax be adjusted based on each region's economic connection to Louisiana? Or further, on each individual's?

The short answer to that is yes, it should. But I don't have a literal "tax" in mind at all. I believe the right approach to rebuilding is the free-market approach. The people most connected to the region will contribute toward its rebuilding through the higher prices charged by businesses operating in or through the disaster area. In exactly the same way that Intel's customers fund the construction of new multi-billion dollar chip fabrication plants, the customers of the companies affected by Katrina will pay for the billions in construction funds those companies need to raise, too.

If it really is economically vital, the free market will pay for it — because it's profitable to do so. If the market doesn't pay for it, you need to rethink your assumption that it was ever vital in the first place.

Tiny Island