Book Review

Book Review: Debt-Free Forever

June 1, 2010

[Front Cover of Debt-Free Forever]

Many Canadians have a debt problem. A recent report titled Where is the Money now: The State of Canadian Household Debt as Conditions for Economic Recovery Emerge by the CGA Canada showed how bad the debt situation is in many households. It found that even with the temporary relief afforded by a credit card or line of credit, one quarter of Canadians would not be able to handle an unforeseen expense of $5,000. About 1 in 10 would have difficulty with a sudden expense of $500. The reason for the dismal statistics is pretty clear: Only one third of non-retired Canadians committed resources to any type of regular savings.

In an environment of easy credit, low interest rates and a debt picture that would make Greece proud, Gail Vaz-Oxlade’s rallying cry of “debt free forever” may sound quaint and anachronistic. But Gail couldn’t care less how it sounds. She takes a no-nonsense, tell-it-as-it-is approach to show deeply indebted Canadians how to dig themselves out of debt and stay out of it.

Now, getting out of debt, saving a bit of money and putting some money away for day when the “Caca hits the fan” isn’t exactly rocket science. Even a child knows the secrets to financial success but it is following through that is the problem. That’s where Gail comes in. She is there every step of the way, cajoling and coaxing the reader to stay with the plan, all of it delivered in the inimitable style that will be familiar to viewers of the wildly popular TV showTil’ Debt Do Us Part. Here’s a sample:

Now comes the hard work!

Crap! Really? I have to do the math?

Darn tootin’. You’re going to sweat some before you can clean up the mess you’ve made of your money and your life. This is where you figure out what you’ve been doing wrong so you can stop. If you skip this step, you’re lazy, uncommitted, and looking for an easy way out. There is no easy way out.

We live in one of the richest countries in the world. It is very sad that so many Canadians are skating so close to the financial precipice. Gail is on a mission to help as many Canadian as possible worry a lot less about their financial affairs. This book is one more way of getting her message out. The book is published by Collins and carries a list price of $21.99. I got my copy at Costco for $12.99.

Book Review: The Little Book of Main Street Money

May 25, 2010

[Front Cover of The Little Book of Main Street Money]

Jonathan Clements’ personal finance column Getting Going for The Wall Street Journal used to be a weekly must-read for many years until he left the Journal to work in financial services. His column ran for 14 years and touched on a wide variety of topics — everything from coping with bear markets to divorcing the right way. So when I ran across this Little Book at our local library, I was curious to find out more about the “21 Simple Truths that Help Real People Make Real Money”.

Mr. Clements did not disappoint. In this short book, running a modest 194 pages, Mr. Clements has distilled the wisdom gathered over decades observing and writing about Wall Street and watching Main Street readers grapple with financial decisions. This book is not just about the mechanics of saving, investing and constructing portfolios but like his columns for the Journal, Mr. Clements talks about subjects such as human capital, money and happiness and longevity risk. For example, Mr. Clements has six suggestions for getting off the hedonic treadmill and squeezing more happiness out of a limited supply of dollars:

  1. Buy experiences, rather than things.
  2. Count your blessings.
  3. Strive for a sense of control.
  4. Find a purpose.
  5. Give a little.
  6. Make time for friends and family.

A minor quibble: Canadian readers might find the US terminology a bit distracting. Fortunately, the offending terms are limited to a couple of chapters. You can find the table of contents listing the 21 simple truths here. A sample chapter is available on the Wiley website. The book is published by John Wiley and has a cover price of $23.95.

Book Review: The Big Short

April 22, 2010

[Front Cover of The Big Short]

The Big Short is Michael Lewis’ engaging tale of a handful of investors who saw the madness in lenders offering toxic mortgages (such as, and I’m not making this up, the interest-only negative amortizing adjustable-rate subprime mortgage) and rating agencies handing out triple-A rating on these mortgages like candy on Halloween Eve. The subprime mortgages were then sold to investors around the globe who, perhaps blinded by the pristine credit rating, were glad to bear the risk in these securities for little more than a few basis points premium over Treasury bonds.

Some savvy investors found a way to make explicit bets against subprime mortgages through credit default swaps that investment banks, often the same ones that had assembled the subprime mortgages into bonds and sold it to other investors, were only too happy to put together. As a rule, these individuals were Wall Street outsiders — one was Michael Burry, a one-eyed doctor with Asperger’s syndrome who had launched a hedge fund with initial capital raised primarily on his postings on Internet message boards. Michael Burry invested mainly in stocks and managed to handily beat the S&P in his initial years but in 2004, he started noticing the decline in lending standards and started hounding investment banks to sell him credit default swaps on the crappiest subprime mortgages eventually building a $1 billion short position, which was costing him just 2 percent annually (i.e. for a premium of $2 per year, Michael Burry could collect $100, if the underlying bonds defaulted). When the bonds eventually defaulted, as Michael Burry was sure they would, he realized profits of about $720 million.

It must have helped that the author has a background in bond trading because he does a good job in explaining the mind-numbingly complex derivatives brewed up by Wall Street’s finest that almost brought down the global financial system. I read this book on the recommendation of a reader (Thanks Gaby) and I’m glad I did. Though this book is not really about what caused the credit crisis, it is best one I’ve read so far on the events that led to the financial meltdown of 2008. The book retails for about $17.50 on Amazon.

Also see: Jon Stewart’s interview with Michael Lewis on The Daily Show. Canadian Business magazine recently interviewed Michael Lewis.

60 Minutes interview with Michael Lewis is embedded below (Part 1 and Part 2). Hat tip to Invest in the Markets.

Vanity Fair magazine ran a lengthy excerpt from the chapter In the Land of the Blind. Hat tip to Guinness 416.

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