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The Best of Five Things You Need to Know: Point/Counterpoint Edition

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What you needed to know (and what it meant)!

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Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Point/Counterpoint: Should the Federal Reserve Cut Rates by 100 Basis Points?

Point
The Fed Should Cut Interest Rates by 100 Basis Points

By Steve Forbes, Billionaire

I believe the U.S. Federal Reserve should cut their key interest rate, now at 5.25 percent, by 100 basis points when it meets Sept. 18 to solve this ongoing liquidity crisis.

However, the Fed should make it clear that while they're going to solve the short-term crisis, they will, over the next year or so, start to mop up the excess liquidity.

Counterpoint
The Fed Should Give Me a Sandwich

By Jerry, Homeless

Although Mr. Forbes makes a valid point about the importance of solving the ongoing global liquidity crisis, I am in a slightly different camp. I believe removing excess liquidity from the system, which occurs when the Federal Reserve sells bonds from its portfolio and withdraws those funds from the market, is a process of credit tightening which the Fed has never fully done.

As a result, I respectfully disagree with Mr. Forbes' appeal for a 100 basis point cut in the Fed Funds target rate, and would instead lean more toward a sandwich.


2. Point/Counterpoint: Should You Carry a Credit Card Balance?

Should you carry a credit card balance? To discuss this important topic we turn to another Minyanville Edition of Point/Counterpoint.

Should You Carry a Credit Card Balance?

Point
Carrying a Credit Card Balance Is No Big Deal

By Carrington Potter Brown-Huffington

I confess. I carry a credit card balance each month. But it's not what you think! My husband, Ashley, and I have sterling credit, and therefore pay only a low, low super-platinum prime annual interest rate of 3.99%. We carry a credit card balance each month, but instead of working to pay that balance down, our balance works to pay us!

How does that work? Let me explain.

We typically borrow against one of our platinum cards with a $400,000 limit, and reinvest the money in a higher-yielding money market account that pays 4.5% interest, therefore earning a convenient spread. Isn't it wonderful? And think of the frequent flier miles we earn! One mile for every dollar used - $400,000 limit? You do the math!

Last March we flew to Tuscany - just to visit a little vineyard we own there - and the airfare was entirely free thanks to the mileage we earned while using one of our credit cards. Plus, we used the money we earned on the spread to finance the entire trip. Essentially, our credit cards pay us to travel! Isn't it marvelous? Why work for your money when you can make your money work for you?

Counterpoint
That's Strange, I Mailed in That Payment Weeks Ago

By Eric Jones

So you didn't get that check, huh? That's really strange, because I mailed it in weeks ago. Priority mail too. Wow. Weird. The worst part was that it was for the full $28,454.72 MasterCard balance. No, I understand completely. You're running a business. Ok, so... huh... I'm just trying to figure out what to do here. Should I overnight another check? Because I could do that. Or how about this. Just hear me out for a minute. How about you guys go ahead and just, I don't know, just maybe turn the credit card back on... wait, just, just let me finish... so you guys would turn the card back on so I could use it for, uh, my business, and then I would send in two checks in two separate envelopes, one for the whole balance, the whole thing, $28,454.72 and... ok, right, with the late fees and extra interest that would come to $29,103.56, OK, no problem, just writing that down on the check right... now... so I'll send in this check here in my hand right now for the whole balance and in an entirely different envelope I will send in what we'll call a "Safety Check" for the minimum payment of $45... you know, just in case the check for the whole balance gets lost again. Haha five times! Five times that check has somehow disappeared at the post office. What do those people do down there, throw the credit card payments in a special box and burn them? Haha. Oh, OK, no, I understand. Then I'll just go ahead and send in a check and when you get it you can turn the card back on.


3. Point/Counterpoint: Are the Rich More Skilled Than the Poor?

As President Bush noted, income inequality in this country is largely due to a "skills gap" between those who are rich and those who are poor. For a closer look at this widening "skills gap," Minyanville Presents: Point/Counterpoint

Point
I Am Simply More Skilled Than You


By Edward Stentmantle Van Fauntlethorpe

Let's face the facts. My tremendous wealth, the value of which places me squarely among the top 1% of all income earners in America, is a reflection of my skill set. In plain terms, I am simply more skilled than you.

I have worked hard to get where I am. Whether it was the years spent learning Latin and Sanskrit at the Cheshire Wentworth Pre-Kindergarten Preparatory Academy, or all those summers spent learning management skills at my father's Italian vineyard, or the opportunities I forged for myself at Brown, and later at Harvard in Business Management School, it's difficult to say.

Of course, being tremendously wealthy carries its own set of responsibilities. In addition to earning seven figures introducing investment bankers and real estate developers to one another at high level cocktail parties, I supervise a staff of more than 15 people who together manage our three properties, take care of the paperwork on our various trusts and investment vehicles and see to it that the children are fed, clothed and provided for emotionally.

These are skills my family has instilled in generations of Van Fauntlethorpes dating back to the English conquest of Wales in the 1200s. One doesn't develop the skill to appreciate a fine 1968 Bordeaux overnight, just as one doesn't learn how to effortlessly manipulate a Ferrari through the Swiss alps without discussing acceleration techniques with the great-great nephew of the man who practically invented high-performance clutching for grand prix auto racing.

Naturally, the measure of a man is not by the size of his bank account. We are not vulgarians. My great grandfather, a swordsman of no small repute, once told me that the true measure of a man is his skill in the collective arts of chess, fencing and countryside skeet shooting. I have found that to be largely the case in my various encounters among my peers. Ultimately, we go to the grave with our skills having been displayed upon a great stage of peer-to-peer competition. The true judge will be the monuments, institutions and plaques left behind imprinted with our name.

Counterpoint
You Are More Skilled Than Me In Everything Except Maybe Armed Robbery


By About 5'11" Tall With Dark Hooded Sweatshirt and What May Have Been A Revolver, I Was Too Scared to Look to Confirm

It is difficult to refute the fact that your skills in the areas you mention are far greater then mine. I certainly didn't attend a kindergarten preparatory academy. But what about armed robbery? I have a feeling I may be slightly more skilled at that than you are. While you're thinking about it, give me your wallet.

Also, your watch.

I admit, I'm not much on wine. I prefer a cold Bud, and wouldn't know a fine 68 Bordeaux if it was right under my nose. Speaking of wine, what size shoe do you wear? 9 1/2? What a coincidence! Me too. Now, give me your shoes.

The weird part about it is I've never even seen a real Ferrari in person, but is that your BMW 7 series parked outside? Keys please! Hope it's an automatic, I don't know anything about high performance clutching techniques!

You know, I guess in the end what it all comes down to is you taking your pants off, lying down on the ground and counting to 1000 before getting up while I drive away in your car with your wallet, watch and shoes.


4. Point/Counterpoint: Will the Subprime Rescue Plan Save Homes?

Point

The Subprime Rescue Plan Will Help Save Our Home

By Richard Jones

Thank you Treasury Secretary Hank Paulson, thank you! With news of this subprime rescue plan you and the mortgage industry are proposing, we finally are able to see some welcome relief on the horizon. Why, mortgage lenders everywhere are signing up left and right to endorse the plan. Yes, relief is finally here!

I don't mind telling you, the little missus and I were worried. In 2002 we took out a $500,000 Option ARM mortgage, an adjustable rate mortgage with the option of making interest only payments for the first five years with a five-year incremental step-up in payments.

Everything was looking fine for the first five years. Our initial monthly payment on the Option ARM mortgage was around $1,600. Over the past five years it has slowly crept up to $2100. That extra $500 is beginning to hurt. In August, however, our mortgage lender sent us a note telling us what the 2008 payment is going to be. Prepare to grab the seat of your pants: $4,100!!!! That's right, $4,100!!! Who can afford a payment like that?!?!

Even worse, thanks to what they call "negative amortization," whatever that means, they say our original loan balance of $500,000 is now $535,000!!! How did that happen?!?! Obviously we were worried. That kind of mortgage payment would ruin us. We'd have to sell... assuming we could find a buyer. And I don't even know that we could sell for a price that covers the $535,000 mortgage!

Well, thanks to this subprime rescue plan we're back in business! Our refinancing papers are already in. We're going to take down a fixed-rate mortgage this time at a payment we can handle. Looks like things really do work out in the end, just like those mortgage ads say. My wife and I can sleep at night again. Thank you Treasury Secretary Paulson!

Counterpoint

Mr. Jones, I'm Afraid There's a Little Problem With Your Refinancing Application

By Darren Salisbury, Mortgage Loan Officer

Is this Robert Jones? I meant Richard, sorry. Richard Jones at 233511 Magnolia Stone Haven Wintergardengreen Court Acres Estates? Ok, good. Wow, uh... Mr. Jones, I, uh, I hate to be the bearer of bad news here, but there seems to be a slight problem, with, ah, with your refinancing application. No, no we got your check for the $500 processing fee, no problem there. That's not refundable, by the way, just want to be clear on that. Right. Yeah, it, uh, just kind of looks like we're not going to be able to approve this refinancing package. It just doesn't fall into any of the groups the subprime rescue plan has outlined.

Yes, I'm sure. Whoa, absolutely, I agree $4,100 a month is way, way too high for a house in, ah, where are you? Right, Magnolia Stone Haven Wintergardengreen Court Acres Estates.

Hey, did the developer ever finish the community pool and recreation facilities there? Wow, I'm surprised at that. They were the same developers as Crystal Glen Squire Thirstwood Cove Hammock Lake and they finished the community pool and rec center on that development six or eight months before they abandoned it. Well, on the bright side, with the upcoming Fed rate cut and all next week, maybe they'll come back and finish it. Would certainly help the resale value.

Yes, I checked on that and unfortunately you're outside the GSE guidelines and, look, Fannie Mae and Freddie Mac ain't exactly in the best position to be making rescue loans these days. Have you tried taking in some boarders, maybe raising some cash by renting out the east wing? Ok, just a thought. Well, good luck with everything. If it gets down to the wire, give me a ring back. My brother-in-law handles distressed property sales.


5. Point/Counterpoint: Will the Gap Between the Haves and Have Nots Create Social Unrest?

Point
Gap Between Haves, Have Nots Creating Social Unrest

We increasingly live in a world marred by strife between the Haves and Have Nots. Over the past two decades, the income gap has steadily increased between the richest Americans, and those at the middle and bottom of the pay scale.

The wealthiest 20% of households in 1973 accounted for 44% of total U.S. income, according to the Census Bureau. By 2002, however, that share had jumped to 50% while the share for households in the bottom fifth shrank to 3.5% from 4.2%.

Meanwhile, the income gap is showing up in booming sales of luxury items. Porsche Cars North America Inc. says sales are up significantly for the year. As well, strong sales at Neiman Marcus, Nordstrom (JWN), Tiffany (TIF)">TIF) and Saks Fifth Avenue (SKS)">SKS) are more than making up for relatively lackluster (by comparison) sales at discount stores such as Target (TGT)">TGT), Walmart (WMT)">WMT) and Costco (COST)">COST).

If this gap continues to expand, we may find ourselves facing a crisis of social unrest as warring classes go to battle over assets and resources.

Counterpoint
Hey, Check Out My New Watch!

Hey man, sorry I didn't get your call last night. I was out in the Hamptons at a private party where Eric Clapton was playing and because I was sitting next to him by the pool I couldn't see my personal valet signaling me that my global satellite phone was ringing. I would have called you from my helicopter after the party, but those things are so loud inside.

Anyway, what I wanted to tell you was check out my new watch! It's a Blancpain with mono-pusher split-second chronograph, split-second hand isolator, minute repeater, tourbillon, bi-retrograde perpetual calendar, and a see-through sapphire back. Hey, good eye! It IS white gold I could have gotten the platinum model for $1,600,000 but, who wants something that gaudy. This was a steal at a million solid. No, apparntly they don't charge sales tax on purchases over $250 dollars.

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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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