Archive for February, 2012|Monthly archive page

Making Medicare Stronger

In Uncategorized on February 29, 2012 at 5:34 pm

Over the past few years, health care cost increases have been slowing – both for Medicare and private health care. And both CBO and Medicare estimate that cost increases are slowing. Despite these encouraging trends, there is much more we need to do – both to reduce costs and strengthen the Medicare program for future generations and to improve health care quality so patients get the best care possible.

Achieving these goals takes serious work. That’s why the Affordable Care Act is designed to learn from the best health systems and experts in the country to find better ways to improve health care.  Under health reform, we will reward doctors and hospitals that focus on spending time with patients, that better coordinate care, and that improve the quality of care patients are receiving while lowering costs.

Health reform also establishes the Independent Payment Advisory Board (IPAB). IPAB will be composed of fifteen experts including doctors, consumers and patient advocates who will be recommended by Congressional leaders, nominated by the President, and confirmed by the Senate.  It will recommend policies to Congress to help Medicare provide better care at lower costs.  Congress could pass these or other changes to strengthen Medicare.  Starting in 2015, if Medicare cost growth per beneficiary exceeds a growth rate target, IPAB recommendations would take effect only if Congress fails to act.

Today, Congressional Republicans are working to repeal and dismantle the Independent Advisory Board before it even gets started even though experts like former Bush Administration Medicare Official Mark McClellan called for “[strengthening] and [clarifying] the authority and capacity of the Independent Payment Advisory Board (IPAB).”  And a coalition of economists including Nobel Prize Winners said “…the Affordable Care Act contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending. These provisions include…An Independent Payment Advisory Board with authority to make recommendations to reduce cost growth and improve quality within both Medicare and the health system as a whole”

At the same time, House Republicans passed a plan for Medicare last year that does nothing to reduce overall health care costs.  Instead, the Republican plan shifts costs to seniors and empowers insurance companies. Below is a table on how the Republican plan and IPAB compare.

Rather than revisiting the past and trying to repeal the Affordable Care Act, Congress should work on strengthening Medicare and creating jobs.


Republican Medicare Plan


Ration Care?

Yes. Under the Republican plan, nothing would prevent private insurance companies from rationing care.

No. IPAB is legally prohibited from making recommendations that would ration health care.   


Increase premiums and cost sharing?

Yes. Under the Republican plan, administrative costs and health care prices would rise, and seniors would pay about $6,400 more per year for their health care coverage, according to the non-partisan Congressional Budget Office (CBO). 

No. IPAB is legally forbidden from modifying Medicare premiums or cost sharing.

Control Costs?

No. Under the Republican plan, administrative costs and health care prices would rise according to the CBO.  

Yes. IPAB would lower Medicare costs, premiums, and cost sharing according to CBO.  Former CBO Director Robert Reischauer called IPAB a “big deal” that “could generate substantial savings.” Hundreds of prominent economists, including three Nobel Laureates, agree that IPAB is an important component of the Affordable Care Act that will slow health care cost growth.

Who is in Charge?

Insurance companies. The Republican plan ends Medicare as we know it and repeals the Affordable Care Act, giving free rein to insurance companies to decide what care you get and when, with no clear limits to protect consumers or prevent insurance companies from taking in exorbitant profits.

You and your doctor. IPAB strengthens traditional Medicare, making it sustainable for doctors, patients and taxpayers. 

Protects Your Guaranteed Medicare Benefits?

No.  The Republican plan would eliminate Medicare’s guaranteed benefits and limits on cost sharing and premiums. Instead, insurance companies would determine which benefits seniors on Medicare would receive and how much they pay.

Yes.  IPAB is legally prohibited from cutting benefits or increasing premiums and co-payments.  And it builds on the health law’s coverage of preventive benefits and closing of the drug donut hole. 


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Gas prices spike 8% in February

In Uncategorized on February 29, 2012 at 5:34 pm

NEW YORK (CNNMoney) — February has been one heck of a month for American motorists, who have been hit with an 8% spike in the price of gas. And things are expected to get worse during the summer driving season, when gas prices could break their current record.

On Wednesday, the price of unleaded gasoline rose for the 22nd day in a row to a nationwide average of $3.73 per gallon, according to the motorist group AAA.

Gas prices are up about 14% so far in 2012. The average price is down 38 cents, or about 9.3%, from the record high of $4.11 reported on July 17, 2008.

In places like Alaska, California and Hawaii, the price of gas has surpassed $4 a gallon.

The rise in gas prices is being fueled by the climbing price of oil and Iran’s ongoing threat to shut down the strait of Hormuz. Signs of an improving economy, along with the Dow Jones (INDU) industrial average closing above 13,000 for the first time since May, 2008, have also helped boost oil and gas prices.

How much is gas in your state?

And gas could soon go higher. Gus Faucher, senior economist for PNC, projects that gas prices hit a new record of $4.25 a gallon in the summer driving season, which runs between between Memorial Day and Independence Day.

But that’s not necessarily a bad thing. High gas prices could be a harbinger of happier times.

“We had much lower gas prices during the recession,” Faucher said. “That’s one of the reasons why gas prices have moved higher — the economy is much stronger. I’d rather have higher gas prices and a stronger economy.”

Even with the jump in prices, Americans still pay much less than many European nations — even ones that produce their own fuel.

Take the United Kingdom, for example, which produces much of its own oil from the North Sea. U.S. consumers are worried about having to pay $4 for a gallon of unleaded gas. But the Brits are paying double that, according to figures from the International Energy Agency.

What’s behind the gas price spike

Norway also harvests oil from the North Sea, but a gallon of unleaded gas in the capital city of Oslo costs $9.23, according to the Norwegian web site Din Side.

“Gas prices are much higher, and that’s because of taxes,” Faucher said. To top of page

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Are bonds only for scaredy cats?

In Uncategorized on February 29, 2012 at 5:34 pm

NEW YORK (CNNMoney) — If you’re investing for retirement that is still more than 20 years away and you do not have inclination to sell when stocks take a dive, is there any advantage to owning bonds at all? Or are bonds only for scaredy cats who will sell their stocks during a market plunge? — Tom McCarthy, Wilmington, Delaware

It’s easy for long-term investors like you to think bonds are nothing more than a drag on returns and undeserving of a place in your portfolio.

After all, if you check out “Ibbotson Associates’ Classic Yearbook,” a compendium of stock, bond and Treasury bill returns since 1926, you’ll find that stocks have not only outperformed bonds over the past 86 years — earning an annualized return of 9.8% vs. 5.4% — they’ve also beaten bonds much more often than not over rolling periods of five, 10 and 20 or more years within that span.

But I wouldn’t say that there’s no advantage to owning bonds. Nor would I recommend that an investor, even one in it for the long term, invest only in stocks. While history shows what happened before, it doesn’t predict how things will play out in the future.

True, stocks have beaten the pants off bonds in the past. And I fully expect stocks to continue to do so over long periods in the future. But I’m not convinced enough to make an all-or-nothing bet on stocks. When dealing with uncertainty (and your retirement money), it’s prudent to hedge your bets.

There’s another compelling reason for long-term investors to own bonds. As impressive as stocks’ gains have been, they’ve come with quite a bit of drama.

From March 2000 to October 2002, the Standard Poor’s 500 index dropped almost 50%. It no sooner recovered when it fell again, this time by nearly 60% from October 2007 to March 2009. Over the 10-year stretch from 1999 through the end of 2008, stocks posted a negative 1.4% annualized return.

I mention these figures for two reasons. One is to prevent you from committing what Stanford professor Sam Savage calls the “flaw of averages” or the fallacy of using single numbers to represent uncertain outcomes. By focusing on stocks’ long-term annualized gains, you may overlook how far they have fallen and how long they’ve remained depressed en route to those gains.

The other reason is that even though you think you’re in for the long-haul now — when the Dow has been on a roll — it’s been my experience that most investors feel differently when things fall apart.

People get very upset when they see the value of their retirement savings drop by half — or more, as investors in the technology-heavy Nasdaq stock index discovered when it plummeted almost 75% from the beginning of 2000 through mid-2002. (To this day, Nasdaq is still 35% or so below its peak nearly 10 years ago.)

Even the most steady-nerved investors can end up panicking like scaredy cats during major market crises and find themselves fleeing the stocks they swore they’d stick with.

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And even if you do manage to resist the urge to bail during periods of upheaval, you’ll find that it’s no picnic waiting until the money you invested at the top of the market slowly crawls its way back to even.

Finally, it’s not as if stocks’ long-term gains are guaranteed even if you do hang in there. Stocks are capable of generating a range of returns. When you invest in stocks, you shouldn’t assume you’re going to earn a given return. Rather, you should think in terms of probabilities, with your chances of earning returns at the top of the range lower than your odds of earning those at or below the middle of the range.

The same goes for bonds, except that the range of potential returns isn’t as wide because they’re not as volatile.

By adding bonds, you do reduce your potential upside. But because bond values don’t drop as steeply as stocks, you also reduce your potential downside. So mixing some bonds into your portfolio softens the ups and downs and narrows the range of future outcomes. Or to put it another way, it gives you a better idea of how much money you may end up with, although it by no means is a guarantee.

For a look at just how much adding different amounts of bonds to an all-stock portfolio might limit the potential upside and buffer you from the downside, you can check out Morningstar’s Asset Allocator tool.

I’m all for investing fairly aggressively when you’re young and have decades until retirement. But I also think it’s important not to overdo it. I don’t like the idea of all-stock portfolios, if for no other reason than it’s generally a good idea to hedge your bets — at least a bit.

Do you know a Money Hero? MONEY magazine is celebrating people, both famous and unsung, who have done extraordinary work to improve others’ financial well-being. Send an email to nominate your Money Hero. To top of page

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Alaska’s oil windfall

In Uncategorized on February 29, 2012 at 5:34 pm

Oil revenue accounts for 90% of Alaska's tax haul, and a booming energy sector puts more money into residents' pockets.

Oil revenue accounts for 90% of Alaska’s tax haul, and a booming energy sector puts more money into residents’ pockets.

NEW YORK (CNNMoney) — Alaska has a big vested interest in high oil and gas prices.

Oil revenue accounts for 90% of the state’s tax haul. So its budget swells and oil royalties gush into a special state investment fund — the only one of its kind in the United States.

And that can translate into windfalls for residents, who share in the oil bounty through annual dividends paid by the fund and, in boom times, direct payments from the state.

For example, when oil and gas hit record highs in 2008, residents received $3,000 checks, twice what they normally get.

“Things become much easier for the state when oil prices are high,” said Gerald McBeath, a professor at the University of Alaska at Fairbanks. “It makes it possible for them to increase funding for schools, construction and protection services.”

But, of course, there’s a dark side to high oil prices.

Alaska is a net importer of food and other consumer staples, the cost of which rise when energy prices spike. Residents get hit with outsize fuel and food prices.

What’s behind the gas price spike

In addition, the state investment fund’s investments — primarily stocks, bonds and real estate — usually take a hit if the economy cools.

Still overall, rising gas prices mean higher revenues for the state’s treasury.

In 2011, Alaska collected $7 billion from oil companies, up from $6.2 billion in 2010.

Now if oil prices continue to climb, the state will exceed the $8.9 billion it had projected it would earn in 2012. Back in 2008, revenues hit $11.3 billion.

And unlike fiscally-strapped states struggling over which public services to cut, Alaskan officials are deciding whether to increase state-backed programs or create new ones. Examples include a $4.3 billion hydroelectric dam or more dividend checks to residents.

“Whenever we have money in the treasury, people come forward with ideas to spend it,” said Steve Colt, a professor at the University of Alaska at Anchorage. “There’s a long laundry list of smaller projects that people are advocating for.”

The state’s treasury now holds reserves of $12.1 billion, the largest amount of any U.S. state.

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Alaska collects income from oil companies in three ways: excavation taxes, corporate taxes on oil profits and royalties. The treasury gets 75% of the royalty payments, and the oil investment fund gets the rest.

The Alaska Permanent Fund was created in 1976, soon after oil started moving through the TransAlaska pipeline. The idea was to give residents a cut of the state’s oil revenues in the form of an annual dividend.

The royalties have helped the fund build a $41 billion portfolio.

The dividend to residents is based on the fund’s returns over the past five years. That helps smooth out oil’s boom and bust years. During good years, the fund gets more in royalties, but typically those years coincide with challenging economic times and tougher market conditions.

“You’ve got more money to make money with, and more money to lose money with too,” said Mike Burns, executive director of the Alaska Permanent Fund.

Indeed, the fund’s 2009 fiscal year covered both record oil prices and the fall of Lehman Brothers — and the ensuing stock market plunge. The fund reported a loss of 18.5% that year, but it generated 20.5% returns in fiscal year 2011.

The fund also makes longer-term bets on real estate and infrastructure.

Alaska’s fund is a 50% owner of the Manhattan headquarters of megabank UBS. It also owns a piece of Tyson’s Corner mall outside of Washington, D.C., and the North Bridge shopping mall in downtown Chicago.

The fund even has stakes in airports in London and Vancouver, a waste disposal plant in Great Britain and a propane storage plant in India. To top of page

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ECB loans out €529.5 billion to European banks

In Uncategorized on February 29, 2012 at 5:34 pm

Mario Draghi, president of the European Central Bank, at a press conference earlier this month. The ECB released a second round of low-cost 3-year loans to European banks Wednesday.

Mario Draghi, president of the European Central Bank, at a press conference earlier this month. The ECB released a second round of low-cost 3-year loans to European banks Wednesday.

NEW YORK (CNNMoney) — The European Central Bank announced Wednesday that banks borrowed €529.5 billion, or $712.4 billion, under a highly-anticipated lending program aimed at preventing a credit crunch in Europe.

In its second long-term refinancing operation (LTRO), the ECB offered banks unlimited three-year loans at interest rates as low as 1%. The ECB allotted nearly €500 billion in the first round of the operation in December.

The borrowing was a bit more than expected, as banks were expected to have taken up roughly €500 billion, although estimates ranged from €300 billion to €1 trillion.

“It was exactly the right amount,” said Tobias Blattner, eurozone economist for Daiwa Capital Markets. “It was not too high so as to raise concern about the health of banks’ balance sheets, but at the same time it was not too low to raise concerns about the ability of banks to continue to purchase the bonds of fiscally stressed countries.”

The ability of banks to take the ECB funds and purchase the bonds has lowered borrowing costs for Italy and Spain, the two largest economies struggling with sovereign debt problems. That has raised optimism that a full-blown debt contagion in the eurozone can be avoided.

Since the first LTRO, yields on 10-year Italian bonds have dropped to about 5%, down from highs above 7% late last year. Spain’s borrowing costs have also backed off last year’s highs, holding near 5%.

But banks are under no obligation to use the money for any specific purpose, and it remains to be seen if Italian and Spanish banks will continue to use ECB money to buy government bonds. Blattner said he doesn’t think they’ll be able to indefinitely maintain the level of purchases made the last two months.

Stocks in Europe were mostly higher after the ECB’s announcement. Germany’s DAX (DAX) gained 0.5%, while France’s CAC 40 (CAC40) rose 0.6%. Britain’s FTSE 100 (N100) was just above breakeven.

The ECB announced the operation earlier this year, as part of a series of “non-standard measures” to aid European banks struggling to secure funding amid concerns about exposure to sovereign debt.

Money market funds dip back into eurozone debt

The moves are widely credited with helping to mitigate the risk of bank failures in Europe, where the industry is facing record refinancing needs and higher capital requirements this year.

ECB president Mario Draghi has said the main objective is to support the banking sector and boost lending to the “real economy.” He has called on euro area governments to reign in spending, and stressed that the ECB is legally prohibited from financing national budgets.

The announcement came a day before European Union leaders gather in Brussels for a two-day summit to determine the size of their financial firewall and discuss the details of a pact on fiscal discipline. To top of page

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Stocks to open higher on Europe hopes

In Uncategorized on February 29, 2012 at 5:34 pm

u.s. stock futures, premarket

Click the chart for more premarket data.

NEW YORK (CNNMoney) — U.S. stocks were set for a higher open Wednesday, after the European Central Bank said that it well lend €529.5 billion, or $721.4 billion, to European banks in an effort to prevent a credit crunch.

The Dow Jones industrial average (INDU), SP 500 (SPX) and Nasdaq (COMP) futures were up between 0.1% and 0.2%. Stock futures indicate the possible direction of the markets when they open at 9:30 a.m. ET.

The ECB’s second Long-Term Refinancing Operation, in which banks will be able to borrow money for 3 years at interest rates as low as 1%, is an effort to prevent a credit crunch in Europe. In its first round of lending in December, the ECB doled out nearly €500 billion.

“The ECB’s second three-year loan operation will provide further vital support for the eurozone’s beleaguered banking sector,” said Jennifer Mckeown, senior European economist at Capital Economics. “But hopes that the funds will also solve the fiscal crisis and breathe life into the ailing eurozone economy are likely to be disappointed.”

Investors will also continue to keep a close eye on oil and rising gas prices. On Wednesday, gas prices rose for the 22nd straight day.

Trading could be choppy Wednesday, with stocks at multi-year highs and heading into the final trading day of the month. On Tuesday, the Dow closed above 13,000 for the first time since May 19, 2008.

The SP 500 closed at its highest level since June 2008, while the Nasdaq finished at its highest point since December 2000.

Following the best January since 1997, February has been another solid month for the stock market. The Dow is on track for a 3% gain, while the SP 500 and Nasdaq are about 5% higher heading into the final trading day of the month.

Europe needs a bigger financial firewall

World markets: European stocks were mixed in afternoon trading. Britain’s FTSE 100 (UKX) slipped slightly, the DAX (DAX) in Germany rose 0.5% and France’s CAC 40 (CAC40) added 0.5%.

Asian markets ended mixed. The Shanghai Composite (SHCOMP) dropped 1%, while the Hang Seng (HSI) in Hong Kong added 0.5% and Japan’s Nikkei (N225) ended just above breakeven.

Economy: The government said the U.S. economy grew at an annual rate of 3% during the fourth quarter, up from its initial estimate of 2.8%.

The February installment of the Chicago Purchasing Managers Index is expected to come in at 60, down slightly from 60.2 in January but still well above the 50 threshold that signifies manufacturing expansion.

The Fed’s Beige Book, a summary of reports from its 12 district banks, comes on the same day Fed chairman Ben Bernanke is scheduled to offer testimony on the economy and monetary policy before the House Financial Services Committee.

Companies: Apple (AAPL, Fortune 500) shares moved higher in premarket trading Wednesday, boosting the company’s value on the stock market to above $500 billion — another record high for what was already the world’s most valuable company.

Shares of First Solar (FSLR) tumbled after the leading maker of thin-film solar panels issued disappointing quarterly results. First Solar also lowered its forecast for sales in 2012 late Tuesday.

Shares of Staples (SPLS, Fortune 500) moved higher after the office supply chain posted better-than-expected earnings and sales figures for the fiscal fourth quarter.

Costco (COST, Fortune 500) also topped earnings and sales estimates for the fiscal second quarter, sending the stock higher.

Shares of Liz Claiborne (LIZ) moved higher as the company posted fourth-quarter earnings in line with expectations, and better-than-expected sales.

Gas prices spike 8% in February

Currencies and commodities: The dollar rose against the euro, but fell versus the Japanese yen and the British pound.

Oil for April delivery rose 53 cents to $107.08 a barrel.

Gold futures for April delivery fell $1.20 to $1,787.20 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury rose slightly, with the yield around 1.95%.  To top of page

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At $500 billion, Apple is worth more than Poland

In Uncategorized on February 29, 2012 at 5:34 pm

NEW YORK (CNNMoney) — Apple’s stock market value topped the $500 billion mark in early trading Wednesday, another record high for what was already the world’s most valuable company.

The half-trillion dollar valuation puts Apple in some extremely exclusive territory, making it one of the five most-valuable companies at any point in history. Only Microsoft, ExxonMobil, Cisco (CSCO, Fortune 500) and General Electric (GE, Fortune 500) have ever surpassed that mark.

Exxon did it most recently in late 2007, when oil prices were soaring. Microsoft, Cisco and GE reached half a trillion dollars in market capitalization in 1999 during the height of the tech bubble.

Microsoft was the only company ever to have a valuation of $600 billion. Its market cap now sits about $267 billion.

Apple’s valuation is now higher than the gross domestic product of Poland, Belgium, Sweden, Saudi Arabia, or Taiwan. (For more comparisons, check out this excellent blog: Things Apple is Worth More Than.)

Despite its size, Apple is still one of the fastest growing technology companies. The company reported in January that its sales grew 73% last year. It also posted the second-most profitable quarter in history for a U.S. company.

The stock has been soaring for the past three years. Apple (AAPL, Fortune 500) shares reached $500 for the first time two weeks ago, setting yet another high-water mark for the tech giant.

The company’s market cap first topped the $500 billion mark in after-hours trading Tuesday as Apple’s stock rose to $537.54 a share. It was up even more in morning trading Wednesday, hitting an all-time high above $540 a share.

It was only a month ago that Apple’s market valuation rose to $400 billion for the first time. On Jan. 25, it passed ExxonMobil (XOM, Fortune 500) as the most valuable company on the stock market. Exxon now has the second-highest valuation at about $410 billion. PetroChina (PTR) is third at $281 billion, followed by Microsoft (MSFT, Fortune 500).

Despite Apple’s stunning rise in share price, the company’s stock gains haven’t even kept pace with its earnings. That means Apple’s shares are relatively cheap.

The tech giant’s stock trades at less than 13 times its expected earnings for 2012. That makes it cheaper than the tech-heavy Nasdaq 100, which trades at about 18 times forecast earnings. And Apple is wildly cheaper than some of the other tech companies out there with far less predictable futures, like Netflix (NFLX), Zynga (ZNGA), LinkedIn (LNKD) and the soon-to-be public Facebook.

Apple had $127.8 billion in sales during the 2011 calendar year, putting it neck-and-neck with Hewlett-Packard (HPQ, Fortune 500), the nation’s largest tech company by revenue. This year, Apple is on pace to become the biggest technology company in the world, measured by revenue, outpacing current global No. 1 Samsung.

That’s a pretty stunning achievement for a 35-year old company that had a market cap of just $10 billion a decade ago. To top of page

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Uncle Sam wants you to rent out its foreclosed homes

In Uncategorized on February 29, 2012 at 5:34 pm

Foreclosure home sales from Fannie Mae may help reduce neighborhood blight.

Foreclosure home sales from Fannie Mae may help reduce neighborhood blight.

NEW YORK (CNNMoney) — Want to become a landlord in one of the nation’s hardest-hit foreclosure neighborhoods? Well, Uncle Sam has a deal for you.

Fannie Mae (FNMA, Fortune 500) will offer up nearly 2,500 distressed properties in eight locations to investors who are willing to buy them in bulk and rent them out for a set number of years.

foreclosure fiasco

The properties, which are located in Atlanta, Phoenix, Las Vegas, Los Angeles/Riverside, and three Florida regions, include all types of housing units, from single-family homes to co-op apartment buildings.

“This is another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties, and reduce the supply of REO properties in the marketplace,” said Edward J. DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae.

The sales, which will cover a small fraction of the more than 180,000 properties Fannie and Freddie Mac (FMCC, Fortune 500) hold, will be open to qualified buyers under strict guidelines.

Most of the properties already house tenants and buyers will be required to continue to rent out the properties to them for as long as their leases last. Investors will also be required to rent the properties out for a specified number of years. The exact number of years has yet to be disclosed.

Steal this home! 7 foreclosure deals

Investors must post security deposits in order to bid and also must prove that they are financially stable, have property management experience and have strong ties to the local community, such as a history of working with local development organizations.

FHFA said that bidders must purchase all of the homes that are for sale in a given metro area. In Atlanta, that’s as many as 572, while in Chicago it’s 99.

Despite the fact that the strict requirements could limit the number of applicants seeking to invest in the properties, the government agencies have said there is strong interest in the program. FHFA said it has received more than 4,000 responses to a request for public input on how best to dispose of the vast number of homes Fannie and Freddie Mac (FMCC, Fortune 500) have acquired from borrowers who defaulted on their loans.

Real estate consultant John Burns said there should be no problem at all finding buyers.

“I’ve got three or four clients myself, maybe more, who will bid on every one of those portfolios,” he said.

Multi-million dollar foreclosures

Burns believes the sales should help bolster the housing market. By taking these distressed properties off the market, it will prevent them from further weighing on home prices in surrounding neighborhoods, said Burns. It will also add to the rental property inventory, which should help offset recent rent hikes.

And, by filling up what otherwise could be vacant homes, it should also reduce blight. Vacant homes attract vandals and criminals, which reduces property values and make it more likely that other nearby homeowners will walk away from their mortgages.

“We believe that this initiative holds promise for providing support to local neighborhoods that were especially hard hit by the housing crisis and will help meet the rising demand for rental housing in many communities,” said Michael Stegman, a housing finance advisor at the Treasury Department.

FHFA will not say when the first sale is expected to go to contract. Given that it is a complicated process that includes analyzing and comparing bids, it will probably take a couple of months before any final buyers are selected. To top of page

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It’s time to give college a rethink

In Uncategorized on February 29, 2012 at 5:34 pm

(MONEY Magazine) — The best part about winter is that I no longer have to endure the fall conversations with parents about how well their freshmen are “fitting in” at college.

I may lose a few friends for saying so, but Americans are too concerned with whether their kids are “finding themselves” — at an average yearly tab of $17,100 (public, in-state) to $38,600 (private).


What we should be concerned about, in the words of Anthony Carnevale, director of the Georgetown University Center on Education and the Workforce, is the “misalignment between our education system and the labor market.” The latter, he notes, “is demanding much more specific preparation” than students get.

Whether you, your child, or both are financing college, to earn a decent return on that investment your student needs to base academic choices at least in part on employment trends. Universities, which have an interest in maintaining the status quo, aren’t leveling with families about which courses of study make the most financial sense. “We know more about this than we ever tell young people,” says Carnevale.

The plain truth is that if your child has the aptitude, he should pursue an engineering degree or study math and science. End of discussion.

Those majors can yield starting salaries of $90,000 and above. Accountants, actuaries, software developers, pharmacists, and nurses are also in high demand and highly compensated.

5 colleges slashing tuition

Of course, not everyone can or should go into those fields. And I’m not saying that the critical-thinking skills gained through a traditional liberal arts education aren’t valuable — but they won’t be enough.

Soon 45% of all new U.S. jobs will require a bachelor’s degree and further career-specific training, or an undergraduate degree in a high-demand area. Today 25% of our workforce meets this benchmark.

Given the need and the expense of graduate training, you must think about condensing your child’s liberal arts degree into three years. It’s a model popular in Asia, particularly for students who will study law or medicine.

Some U.S. universities offer concentrated degrees or structured ways to shorten the time and money spent on a B.A. Others suggest summer classes as a means to that end.

Look up the latest costs for all U.S. colleges

Yes, there’s a risk to picking a course of study based on current data and projections. My wife’s minor in Japanese seemed like a great idea in the ’80s. Now it comes in handy at sushi restaurants. Fortunately for us, she majored in finance.

Still, given what college costs, you want the best chance at your investment paying off. At the least, make sure your kid knows the highest-paid English majors aren’t poets; they’re technical writers.

Do you know a Money Hero? MONEY magazine is celebrating people, both famous and unsung, who have done extraordinary work to improve others’ financial well-being. To nominate your Money Hero, email  To top of page

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An inside view of LulzSec’s hacking rampage

In Uncategorized on February 29, 2012 at 5:34 pm

CloudFlare CEO Matthew Prince discusses cybersecurity and threats from hackers at the RSA conference.

CloudFlare CEO Matthew Prince discusses cybersecurity and threats from hackers at the RSA conference.

SAN FRANCISCO (CNNMoney) — On June 2, hacktivist collective “LulzSec” burst onto the cybersecurity scene with a splashy exploit: It published a trove of data stolen from 1 million user accounts on Sony’s website.

LulzSec’s website immediately crashed under a massive traffic attack from foes seeking to hack the hackers. Within the hour, LulzSec signed up for a website optimization service called CloudFlare — and nine minutes later, its site was back online.

That’s how CloudFlare, a Silicon Valley startup with a staff of 30, found itself in the middle one of the year’s biggest cybersecurity battles.

“Everyone — from three-letter government agencies to white-hat hackers to black-hat hackers — spent the next 23 days trying to discover, ‘Where exactly is Lulz hosted, and how can we knock them offline?,” said CloudFlare CEO Matthew Prince. “We literally sat in the crossfire of that.”

LulzSec burned bright and fast. It followed the Sony hack with a string of high-profile feats — including crashing the CIA’s website — then abruptly announced its retirement and shut down.

Eight months later, Prince shared his war story during a packed session at RSA’s annual security conference in San Francisco.

“When they took down the CIA’s website, that was a difficult day for us,” Prince said dryly. “We made a lot of friends with some government agencies.”

New cybersecurity reality: Attackers are winning

CloudFlare provides an invisible but vital Web service: It speeds up the performance of websites and protects them from traffic surges and attacks. That’s something typically handled by large vendors like Akamai (AKAM) and Level 3 (LVLT). Launched less than two years ago, CloudFlare shook up the industry by offering many of its services at no cost.

That’s what drew LulzSec in. With a name and e-mail address, customers can sign up on ClouldFlare’s website for free and start using it seconds later. LulzSec offered its enthusiastic endorsement, tweeting out: “We love CloudFlare, Mr. CEO of CloudFlare.”

CloudFlare wasn’t sure it loved LulzSec.

“This was a little bit of an existential crisis for us. We sat back and thought, ‘Is this who we want to have on our network?’” Prince said.

The company decided to keep LulzSec for two reasons. One, it didn’t want to go down the “slippery slope” of censoring which sites it serves. And second, it wanted to see what a lightning rod like LulzSec would do to its network.

Prince calls LulzSec’s 23-day rampage the kind of stress-test money can’t buy.

In terms of actual traffic and attacks, LulzSec turned out to be a fairly run-of-the-mill customer.

On its busiest day, the LulzSec site did around 6.3 million pageviews — a minuscule fraction of the 30 billion pageviews a month CloudFlare now supports. LulzSec drew a constant stream of “denial of service” (DDoS) attacks, which aim to shut a site down by overwhelming its servers with traffic, but they too were fairly routine.

“On the peak day, they got about 21 GB of attack traffic,” Prince recalled. “We had an attack this morning that got 30 GB of traffic per second.”

DDoS attacks are typically viewed by security pros as more of a prank than a serious attack. They’re low-tech, short-lived and don’t involve any actual data breaches. The target site simply crashes until the traffic deluge dies down.

But they’re becoming a tool of choice for cybercriminals. CloudFlare’s network has seen a 700% increase in DDoS attacks over the past year.

As an example, Prince offered up the case of the “Valentine’s Day Massacre.” On Feb. 13, around 1,000 small-time florists got an e-mail instructing them to send $1,000 to an account in China or face a website blackout the next day. worked with CloudFlare to keep the florists’ sites online.

Prince said he envies that level of coordination.

“The real talent these hacking groups like Anonymous have is not hacking skill but the ability to get a lot of people to move in the same direction,” he said.

In the end, Prince said that was one of his biggest takeaways from L’affair LulzSec.

“The LulzSec folks caused real harm,” he said. “It’s cute and it’s fun and they were sort of media darlings, but if we are going to defeat organizations like this, we have to start adopting some of their tactics. We have to start working together more as a community.” To top of page

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