Thursday, September 29, 2011

3 Films about the Financial Crisis

We've been sitting on top of what may be another financial landmine for several weeks now, so I think now's a good a time as any to look back at how global financial crisis of a few years ago came to be. Here are three interpretations of that fateful moment in modern human history, three different looks at a series of events that continue to affect how we think and behave in the world of business and finance to this very day.

1. Too Big to FailThe Hollywood Treatment

The plot revolves around former US Secretary of the Treasury Henry "Hank" Paulson (played by William Hurt) and how he and his team handled the crisis, from JP Morgan's acquisition of Bear Stearns to the bankruptcy of Lehman Brothers, up to the moment he and Ben Bernanke developed and proposed the bailout program to the US congress.

2. Inside Job - An Angry Documentary

This documentary by filmmaker Charles Ferguson and narrated by Matt Damon won the Oscar for Best Documentary in 2011. Here, Paulson and his fellow Wall-Street-to-Washington compadres were painted in a less flattering light than in Too Big. While most of the more prominent figures in the middle of events (e.g., Paulson, Tim Geithner, Larry Summers, etc.) declined to participate in the film, it did not lack for important insights and comments from several people who were in the know. One particularly interesting angle that the film looked at is the degree of complicity of the academe in igniting and perpetuating the crisis. It also presents a "user friendly" explanation for how the crisis came about, similar to those we presented in this blog previously.

3. Inside the Meltdown - The Sane Take

Inside the Meltdown is an episode from PBS's FRONTLINE series; you can view the full program online here. It covers more or less the same period that Too Big does, but without the drama, and is several degrees more objective than Inside Job. Needless to say, if you must choose only one among these three, choose this.

Monday, September 26, 2011

Thursday, September 22, 2011

3 Common Myths of Capitalism

1. Being "pro-capitalism" is the same as being "pro-business"

The point of capitalism is that business should be able to freely compete against one another, and that benefits consumers in the long run. It's not good for businesses per se because they have to work really hard to come out on top. That's why many businesses hate capitalism and spend a huge amount of money to convince the government to implement rules and restrictions that will favor them, even if these rules are not in the interest of consumers. So "pro-capitalism" really is "pro-consumers."

2. Capitalism generates an "unfair" distribution of income

True capitalism rewards people who are productive, people who work a lot of hours, people who are talented, and people who come up with good ideas; people who don't do these things get less. The one negative that people might be concerned with is that some people have very little skill and so are not able to earn that much left on their own. This is why some people support anti-poverty spending, but that's completely different from interfering with capitalism. Regulating prices, limiting quantities, and imposing all sorts of restrictions on business--these make the economy less productive, give us a smaller pie, and make it even harder to implement programs that help those who are less fortunate.

3. Capitalism was responsible for the recent financial crisis and the recession

In so many words, it's not capitalism's fault that what happened happened: the government interfering with capitalism--with its regulations, subsidies, and bailouts--is clearly to blame. Oh yeah, the private sector was also involved (a bit).

Lesson learned: The less straightforward a statement is, the more likely that it is bull shit.

Monday, September 19, 2011

Living Off Freelancing (Part 2 of 2)


Click here for Part 1.

Three Freelancing Money Tips

These are basic tips I have followed for the past two years. I cannot say that these tips would assure you of a regular 6-digit income in the future, I am still figuring that out for myself. But I know that by following these tips, we are able to live comfortably (this is relative) without going in debt and we are on track to save around 30% of our household income for this year.

1. Start with a huge buffer fund

I was only confident to go to freelance when I knew that we had money in case I did not get paid for three months. If that buffer fund runs out, I am looking for work again. So my goal since going freelance has been to continue adding to that buffer fund so that I will not have to go back to regular work again.

When my laptop gave out earlier this year, I used that fund to buy myself a new one. I am a researcher and it is absolutely critical to my work. I am still waiting for a check that was supposed to come 15 days ago. I am again using that buffer fund for my expenses.

A friend who went freelance told me that she used to stay up at night wondering where she will pay her rent after her current project. That is a nagging source of stress and it puts you in a bad position when negotiating. These sneaky clients can smell desperation and the only way to stand firm in what you feel is your worth is to have the ability to walk away from a project that is not worth your time.

2. Peg your lifestyle to the minimum amount you can earn on a regular basis

There were months I took home 15,000 pesos. There were months I took home more than 100,000 pesos. Instead of living a lifestyle that costs around 50,000 pesos, I set our budget assuming that I can only contribute 20,000 a month.

This means that we continue renting and commuting. Our only ‘splurge’ in our fixed expenses is we live in a business district and the awful rental rates that come with it. But we walk to do our groceries, the hospital is near in cases of pedia visits or sickness, and there are a lot of small establishments in the area to hang out in. I usually spend nights with my partner walking or jogging around.

We can afford a couple of vacations. Either by waiting it out in group deal sites or joining the other when we have a field assignment (nature of our industry include a lot of travel). We can buy little stuff that makes us happy. Then we plan for the big purchases.

Aside from that, we just live a simple life. Until now, it has been easy to find amusement or joy in the little things.

3. Use scenario planning

Our regular budget relies on the minimum amount I can confidently promise to deliver. Then I start drafting several scenarios depending on how much more I earn on top of the minimum amount.

In order to do this, list down the categories of items you spend on or want to spend on (aside from fixed or regular expenses). Some of the categories I can think of that belong here would be travel, health/ sports, shopping, and technology gadgets.

I usually plan for three scenarios. For example:

  • Scenario 1: What do I spend on if I earn an extra 100,000?
  • Scenario 2: What do I spend on if I earn an extra 200,000?
  • Scenario 3: What do I spend on if I earn an extra 300,000?

That is one good thing with freelancing. A good month or two could bring in more money than you have earned the past 6 months. Scenario planning is helpful in order to avoid unconscious buying. I am not against splurging (I plan to buy Louboutins again if I meet Scenario 2). I just think stuff we buy would be better if these are things we actually planned for.


I plunged to freelancing with big hopes of gaining freedom and control over my life. While I enumerated the realities and difficulties of this track, I can say that it has lived up to its promise so far.

I have walked away from shitty clients and said no to projects I felt would eat up so much of my time. Yes, it is hard to measure progress. But I learned to define success indicators on my own terms.

Whereas my turnaround time before could take weeks because of two to three layers of review process, I could produce outputs in days. I could try out some methodologies that would be too risky to try in a regular organization. I am able to pay attention to my postgraduate studies because of the time I have. I can write about the topics I used to care about but I did not have the time to do.

I share this post because I think freelancing is a viable track. I write this post for other females, especially mothers, who keep on trying to balance work with caring for their family. No, this life is not easy. But with proper planning and preparation, it can be done.

About me: I am a friend of Investor Juan and one of the early readers of his blog. I have contributed here previously. I finally started my own blog, but it is not about personal finance. I write about the topics involving my work namely, government, technology, and society. I think IJ can do a better job than I do in discussing finance, so the best I could do is to contribute here when I am writing something about money. I hope you found this useful.

Monday, September 12, 2011

LBC Bank: Another One Bites the Dust


Dear Investor Juan,

I'm afraid I'm here to ask about another bad news :(

This morning (Sep 10), we noticed that the LBC Development bank branch here in the province already has huge "X" marks on its doors. There were two guards manning the bank, one from PDIC, one from LBC. Upon asking the PDIC guard, he disclosed that LBC hasn't been paying its loans to BSP. And upon searching the web, I came across this article.

Does this mean that LBC Development Bank has really gone under? :( No withdrawals will be allowed going forward? I'm wary of the situation because my family has an account exceeding the 500k insurance limit. We know some of the LBC branch employees and they seem to have no idea why PDIC is suddenly taking over.


Dear Anonymous,

Unfortunately, it does seem that this development has taken everyone by surprise. Mainstream media was only able to confirm the news yesterday (here are articles from ABS-CBN and the Inquirer), a full day after you and Bombo Radyo broke the story out.

That another rural bank was closed by PDIC is not really surprising, given the more stringent capital requirements that have been imposed by regulators since the Legacy fiasco. What would make people worry is that the bank in question bears the name "LBC," a very well known and, arguably, highly reputable brand, mostly due to the prominent "Hari ng Padala" commercials of its LBC Express affiliate. A bit of due diligence would, however, have revealed that LBC's name was not as immaculate as it may have seemed, with the group being embroiled in a couple of financial scandals over the past five years (e.g., see this article from a year ago).

Regarding your deposit, the insurance coverage is 500,000 pesos per depositor per bank. If your holdings are spread among several family members, and each person holds less than the covered amount, then your family should be able to get its money back in full. If anyone holds more than 500,000, however, even in multiple accounts in the same bank, I'm afraid that your chances of recovering your deposit in full is slim: your only chance is if LBC Bank has enough assets to cover its obligations, and we should remember that the reason why the bank was closed in the first place was because it did not have enough capital.

So there. Best thing to do now would be to file your claim early, wait, and hope for the best.

LBC Bank's website is down as of this writing.

Thursday, September 8, 2011

Living Off Freelancing (Part 1 of 2)


I filed my resignation from my last regular job almost two years ago. I got a 6-month consultancy account for another agency. Even without getting another project for 2010, I knew that I could live off that money for one year.

I remember the relief I felt when I signed that contract. ‘I am free!’

I was done with waking up at 8 a.m. every morning. I was done staying on my desk even if all I had planned was to increase my Spider Solitaire winning percentage to 80%. I was through enduring meaningless yet obligatory office events, from Christmas parties, to general assemblies, to ISO audits.

I can spend my time working on projects that matter to me. I can spend a long weekend at the beach and it is okay. I can be there while my daughter is growing up.

No more arguing with supervisors who would not accept my ideas.

I was free!

Based on some of the reactions of the people who found out that I am working freelance, it was common that they envied the control I had over my time. Maybe that is also the same with you. So I thought I would share some of the nitty-gritty details of the freelancer’s life.

Some Realities

Freelancing can be a very frustrating life.

It would differ per industry, but I spend a lot of time writing proposals and meeting with potential clients. From my experience, this phase takes a lot of time. Some of the projects I got this January came from meetings and discussions I had with clients as early as September last year.

Since a consultant/individual contractor is not a regular item in a company’s operations, my payments tend to get delayed. Several projects paid me a month after my deliverable was submitted and accepted. And worse, when a company is in a crunch, my item is also the first to get cut. Probable project termination is also a part of the deal.

Another truth is (or maybe this is just for me), I have to be prepared to face a lot of rejections or failed negotiations. There was a deal where a client and I already agreed on the starting date but we could not agree on the rate.  It was most probably because I botched the negotiations. Argh.

And there lies another source of frustration in freelancing. Every fault or misstep is solely attributable to me. There are no narrow-minded bosses, no inflexible administrations, and no incompetent officemates. It is just me. I learned to shrug it off. But I would not deny that I spent days blaming myself for being so stupid.

Aside from the actual operations of a freelancing career, there are also external factors that add difficulty to this track.

I did not expect it, but I actually felt lonely in my first year of freelancing. Yes, I work wearing pajamas and I could go shopping when malls are empty. But I missed having officemates to share a long lunch with. I adore playing with my daughter, but it could drive me crazy not having a conversation with someone who can put together three straight sentences of more than three words each for 8 hours. There are not many freelancers in my circle of friends, so there are not many I could drag to go swimming at Ace Water Spa on Monday morning.

Another problem is it is hard to determine if I am making progress or not. When I was in an organization, I could predict where I should be at a certain time. I knew how long it would take me and what skills I needed if I wanted to be a Director. I can peg myself against my peers – Am I doing well or not? Am I meeting my targets or not? It is harder to do that when freelance.

The operational difficulties I mentioned are factored in our family’s financial plans. I really understand it when other friends are hesitant to make the shift to freelancing because of their fear of irregular income.  If I did not prepare well, things like contract delays, payment delays, and project termination could have led us straight to credit card debt.

To be continued in Part 2--freelancing money tips!

About me: I am a friend of Investor Juan and one of the early readers of his blog. I have contributed here previously. I finally started my own blog, but it is not about personal finance. I write about the topics involving my work namely, government, technology, and society. I think IJ can do a better job than I do in discussing finance, so the best I could do is to contribute here when I am writing something about money. I hope you found this useful.

Thursday, September 1, 2011

Speaking of Ponzi and Pyramid Scams...


Dear Investor Juan,

I wanted to post this on your blog but I keep getting blocked by the internet here in China.

My sisters got invited to join Global Fusion. They want to join and emailed me the following:

"We met our friend JANE* by chance. I know it might sound pretty shady, but she's part of a networking company known as Global Fusion. She introduced us to her mentors who turned out to be multi millionaires (legitimately, we saw photocopies of the documents and everything). She told us that she joined because she wanted to give her dad a car because he's old na, and she wanted to spoil him in his last years. She pawned her earrings pa for it and borrowed money from friends to join. But in the end, she was able to get them back within a week. She now uses the money for currency trading or stock trading. I don't remember. The millionnaires actually explained how it works, and theoretically, it works. The thing is, it also pays off in reality, every week. We honestly think this would be a good investment. No risk, high return. They're hoping to get us because of our UP Diliman connections, which they were planning to expand into. Jane also got to go to an Asian cruise for free, with pocket money pa. Also, she's going to be part of the European cruise in 4 months. So, please think of this as an investment. We even visited their office across the street in Maddison square. We were hoping you'd allow us to join. We were hoping we could borrow some money. We're not stupid enough to do it if we weren't sure about it's credibility/legitimacy. Around 4 friends have joined na. it would cost around 26k for 3 heads, or 8,900 for one, but that's all we have to pay because the rest will be through networking. The mentors said they'd train and help us, so our money is pretty much secured."
(*Not the name stated in the letter.)

From what I gather they get paid for networking (perhaps they get a portion of the sign up funds from other people who sign up?) although I can't tell for sure. I tried researching BFAD/DOH for their products but couldn't find anything. I checked SEC and PSE but could not find it in any of the listed companies. I can't find their articles of incorporation or any of their financial statements for that matter. I've been trying very hard to discourage my sisters but they refuse to believe me. This is why I must ask, am I doing something wrong? Perhaps I am looking in the wrong direction? If so, what should I be searching for? I'm sorry to have to disturb you with this but my internet access is extremely limited here and Google is suspended every now and then. This just strikes me as something very similar to a pyramid scam and I don't want my sisters involved (and to report it if it is).

I'd very much appreciate your help in this matter if only to point me in the right direction.

Thank you!


Dear Bert,

As I've mentioned several times in this blog before, my initial reaction whenever the words "networking" and "multilevel marketing" or "MLM" get mentioned is skepticism, rooted in the possibility that what's being discussed may just be another Ponzi scam right off the mill. Typical apprehensions about these kinds of schemes has been well articulated by one of our readers:

"I think MLM is a valid business model; it can work well as long as what is being sold is the product and not the 'recruitment'. A lot of people are joining this primarily because of big referral incentives, which give it a very bad image. A lot of MLM-based companies also just 'front' with bad products to pass off the business as legitimate. I've been part of an MLM-based organization once, and I've earned pretty well, as I strongly believed in the product and did direct selling (of the product)."

The reader describes one way to earn big in MLM: to be a good, hardworking, and effective salesperson. A legit MLM organization would have a product or service that meets the needs or wants of its market, whereas a pure Ponzi or pyramiding scam would only offer the promise of high returns for new recruits. Since all MLM organizations fall anywhere between these two extremes, it is important for any potential "partner" to figure out what he or she is expected to sell in return for the promised riches.

Regardless of whether one is hardworking or not, regardless of whether the organization is legit or not, a sure way to earn big in MLM is to join early enough. This is why we should all believe the testimonials of the nouveau riche that these MLM organizations parade in front of potential recruits: these are the people who were able to board before the train left the station, be it by luck or connection or divine intervention. And that is where the trouble lies: eventually, this thing gets big enough that people who got in last will be left holding their ____ in their hands as the supply of greater fools eventually runs out. It's impossible to figure out exactly when this will happen; the only thing we can be sure of is that it will.

I don't think we have sufficient information to be able to come up with an unassailable conclusion about the legitimacy of Global Fusion. So we would have to make do with what we have:
  • Googling "global fusion scam" will lead you to this video. In case you can't watch it from where you are, here's the gist of it. The video is from the ABS-CBN's XXX program from February of last year. It discusses allegations that Global Fusion's glutathione product has not been approved by BFAD and contains an insufficient amount of glutathione; both allegations have been verified as true by the program.
  • Tell your sisters that the venture can't be a "no risk, high return" proposition because no such thing exists. If it truly were no risk-high return, why would the owners of Global Fusion share their gold mine with the public? Out of the goodness of their heart? If there is really no risk, if making money really were as easy as that, then Global Fusion will have already solved the world's problems.
  • On the contrary, MLM involves the transfer of risk from the founders of the venture and early participants to latecomers; not only do the people at the bottom of the pyramid bear a bulk of the total risk, but their risk also increases proportionately as the network becomes bigger. And if they do decide to join, it's more likely that you sisters would be coming in at the bottom rather than at the top.
Based on the red flags, it's my opinion that Global Fusion leans towards the Ponzi end of the extreme too much for comfort. But that's just me.

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