Month: April 2014

A Prequel To Gone With The Wind Is Coming

Wondering how a prequel to Gone With the Wind can be truly ‘authorized.’

101 Books

I’ve never quite understood why readers would be interested in a sequel (or prequel) written by someone other than the original novel’s author.

Essentially, it’s glorified fan fiction. I could go out and write 300 pages of a novel called 1985 but how would I, or anyone, really know if George Orwell would bless such a sequel.

All that to tell you that an authorized prequel to Gone With The Windwill be released in October. The prequel, written by Donald McCaig, is called Ruth’s Journey. The story will focus on Mammy, who has been given the name “Ruth” by McCaig, and her journey from Haiti to Georgia.

McCaig has made a career out of the Gone With The Wind story. He wrote an authorized prequel called Rhett Butler’s People in 2007. The only other authorized prequel or sequel to Gone With The Wind was the much-pooped-upon Scarlett sequel, written…

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Accept and Expect Failure

Mark Tuminello’s latest blog post –

Mark Tuminello success and failureIn a recent article on Bloomberg View, Peter Orszag analyzed the value of failure, and makes the point that a fear of failure could actually be a detriment to the economy.  He cites two books that highlight failures that have resulted in great success.  ”Brilliant Blunders: From Darwin to Einstein — Collossal Mistakes by Great Scientists That Changed Our Understanding of Life and the Universe” by Mario Livio is about theories by great scientists that turned out to be wrong, and the progress we made because of the failure.  These aren’t examples of pure strings of success, but rather a series of risky chance-taking.

For evidence of a fear of failure in the United States, we can look at the rate of nonfatal fall injuries among children under 14, which have declined over 10% over the past 15 or so years.  Are we trying to safety-proof life?  Are we learning to risk less?  Could that translate to fewer risks at the corporate level, with companies less likely to risk the loss of jobs, for instance?  We know that risk in the financial sector can have disastrous effects.

In Megan McArdle’s “The Upside of Down: Why Failing Well is the Key to Success, failure is depicted as an essential, inescapable part of what it means to be human.  If we start to believe that success means ‘no failures,’ we may prevent ourselves from meaningful successes and progress.  Her calling for the reinstatement of high monkey bars to allow kids to learn that there is sometimes a price for trying to achieve great heights – a broken bone.  This could seem a little heartless, subjecting our children to injury – but removing risk could actually hurt them more than a broken bone.

This could be playing a part in the lack of dynamism in the US economy.  We see fewer Americans moving across state borders.  The rates of job destruction is falling, as is job creation.  These numbers, most likely, mean that growth is going to be slower.  We can even see this with policy makers at the federal level, where the new tendency is to avoid risk as a rule.  Taking a major political risk is something rarely seen in Washington because of the lack of bipartisanship.  We have come to believe that true legislation, or in other words progress and growth, can only happen when one party controls the house, Senate, and the White House (the last major legislation to pass was the Affordable Care Act when Democrats were in control of all of these).

Winston Churchill once pointed out that both success and failure is never final.  Orszag builds on that by remarking that they’re not only never final, but also both essential.  We must therefore learn to expect and accept it.

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Are Student Loans the Next Housing Bubble?

New post from Mark Tuminello –

Mark Tuminello student loan bubbleThis article from the Huffington Post caught my eye.  The article points out nine ways that the housing ‘bubble’ of the last decade resemble the current state of higher education.  I work in both the financial and higher education sectors, and wanted to share some of the thoughts here.

The first similarity is that the same players are at work here.  We’ve got borrowers taking on loans that they may not be able to pay back.  We can expect that a percentage of students will become swamped with the debt they accrue in college.  The producers here aren’t homebuilders, but the providers of education – universities.  They continue expanding the offering, not planning for a potential fall in price.  The government, a provider of loans in the housing bubble, is actually the largest student loan provider.  And the non-governmental lenders, some of them, are lending irresponsibly.

Excess capital was a major component of the housing bubble collapse, and are similarly incentivizing risky loans to students.  Then there is ‘universal belief.’  In the case of higher education, borrowers (students) believe that they have to go to college, whatever the cost.  This encourages taking loans for students who may not be in the best place to start borrowing large sums of money.

We have overvalued assets.  Degrees cannot be re-sold, with their only financial value being better access to higher-paying jobs and connections.  Since these aren’t guaranteed results of higher education these days, college risks being unprofitable.  Add that to the fact that there is no down payment, no requirements of former employment, and we’re starting to see a problem develop.

Like in the finance sector, student loans are being securitized and sold.  Student loan risk is not being properly assessed.  They are based on credit score, which is insufficient when we consider these are people who have not been in the workforce in any serious way, and will be looking for jobs amidst relatively high unemployment.

The student loan asset security market is valued at over $2.5 trillion, and I haven’t read a lot of studies as to what effect a collapse of a bubble that size would have on a recovering economy.  Nevertheless, speculation would leave us to believe that the value of a college degree continues to go up.  With an increasing number of graduates, that might be too great an assumption.

Looking at these similarities, it may be wise to look back at the housing bubble and see if we can avoid making more of the same mistakes.

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Personal Finance – Required Curriculum

mark tuminello personal finance high schoolOklahoma is going to see a strict new financial literacy law go into effect in May, requiring all high school students to pass a personal finance class before graduation.  Subject matter includes banking, investing, taxes, loans, insurance, and identity theft.  The scarily low levels of financial literacy makes this seem on the surface like a terrific idea.

But what if teachers lead students astray?

Daily Finance recently ran an article about the matter, and they take a decidedly firm stance that this law is a bad idea.  The fear is that in order to give enough information to make the course meaningful, the teachers run the risk of teaching beyond their qualifications.  Math teachers, English teachers, shop teachers – these professionals all have certifications, degrees, or relevant experience that gives them the proper insight to properly instruct.  Are high school teachers becoming certified in financial disciplines?  Will high schools hire financial instructors?  This all, ironically, brings about a real cost issue to the matter of instructing students about finance.

The director of the Economics Center has found that 82% of teachers do not feel qualified to teach these concepts.  It’s a real dilemma – who will teach a course if nobody knows about it?

With tightening budgets in school systems, teachers already feel that they aren’t receiving professional development for their existing work load, let alone an entirely new curriculum.  And there is the very real scenario where a teacher could be tens of thousands of dollars in credit card debt and teaching students how to plan for their financial future.

Some Oklahoma schools are battling these fears with integrated courses.  Required course material is being embedded into their existing class offering – math, home economics, science, and other subjects will all be taking a bit of the workload.  In this way, they hope to require less training for each individual teacher, while highlighting the importance of personal finance in a greater way than a one-semester course would allow.  This integrated approach also allows students to see how the lessons of personal finance can be applied to a variety of real-world scenarios by a variety of teachers – this does seem to be a much stronger approach than a simple course with a final full of memorizable information.

Some schools are outsourcing expertise from professionals in their community.  The teacher, in these cases, serves more as a facilitator, bringing experts in to teach.  In this way, the community is utilized and a variety of approaches could be discussed.

 

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Innovation in the Financial Marketplace

mark tuminello finance innovationInnovation is an important part of the American psyche.  There’s no doubt that we are seeing a huge amount of innovation around us these days, with news of cloud computing, robots, driverless cars – these movements will transform our lives in ways we can’t quite predict.  We admire innovators for their work, for finding ways to make old systems better and for the economic opportunity that often follows.

So where it this beneficial financial innovation?  This is the subject matter of a recent piece on Businessweek.  Whether financial innovation is an oxymoron or not, it feels like we’re often finding fancier ways for doing the same old thing.  Credit-based derivatives and securities are really just leveraged bets.  On the other hand, dismissing financial innovation is unwise.  Perhaps the issue is that we’re not properly recognizing those in the industry who really are innovating.  Charles Schwab’s discount brokerage, Grameen Bank’s micro lending in developing nations, Kickstarter’s social funding platform – these are innovations that are profitable and have something positive to offer society.

The article goes on to outline ‘social finance.’  Nonprofits out there are looking to receive funding from global markets for funding programs that fight some of the worst problems.  These include homelessness, disease, incarceration, etc.  It’s no secret that many of these causes are underfunded, and some innovators are hoping to find an efficient way to raise money.  The idea started in England and has since been utilized in Australia and North America.

Here’s how it works.  Investors earn their return only if measured goals are hit.  In this way, success of any given program becomes very important to investors.  Successful nonprofits will be able to raise funds more effectively, and money will be directed to programs who are achieving goals.

This is a potentially big marketplace, with plenty of work to do.  Money is tighter than ever, with government budgets bringing round after round of cuts.  If this were to catch on in the mainstream, results could be exciting both for investors and nonprofits.

The idea is still young, with only a few test runs so far.  The earnings are below market-rate, which is currently a big hurdle.  And how exactly these nonprofits pay back dividends is also a question.  For a recent financing by the Center for Employment Opportunities, the government agreed to pay back investors if the program was successful.  They integrated 2,000 former inmates from a prison in to the work force.  It was a huge achievement, and the government was happy to pay back a little more to investors who took the risk.

One of the reasons this is so exciting is that it is believed that big investors will be excited about the idea of values-based investing.  If this could also provide a return – these innovators could be on to something big.

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