TAG | finance
Apparently the trendy thing for consumers to do now is to use cash or debit cards or checks instead of credit cards. A recent NPR report says that for the first time in a long time, Visa Debit cards surpassed Visa Credit cards. Supposedly, the rationale for using a debit versus a credit card is that if you don’t have a credit card, you won’t spend money you don’t have, because a debit card won’t let you.
I’ve got to admit I find that very silly. The only benefit of using a debit card over a credit card is forced spending control. This can easily be replaced with the slightest bit of willpower or a nagging significant other.
The costs, on the other hand, are somewhat significant. First, if you use a credit card, you can probably earn 1-3% cashback on all of your purchases. Thus, you only pay 97-99% of what the suckers using cash/debit/check are paying. Over time, that really adds up. Think about buying groceries for a family of four over the course of a year: probably $200 a week at least. If you get 2% cashback on those purchases, you get $4 per week, or $108 per year. That’s not bad for just grocery purchases. Second, if you use a credit card, you can help build your credit, which is always a good thing. Third, fraud protection on credit cards is better than on debit cards. Fourth, if you have an emergency, a credit card allows you to buy things that you need. If you cut up your credit card because you don’t have the self-control to use it, then you put yourself in danger of having no spending power when you need it. If you try to spend more than you have with debit, you’ll get nasty overdraft fees. Finally, credit cards allow you to take advantage of the time value of money – you don’t have to empty your bank account with every purchase; rather, you can keep money in your bank account, earning interest, until your credit card bill is due. I know the time value of money is not super-significant, but it’s better than nothing.
Of course, all of this assumes that you have the willpower to only spend as much as you can pay for every month. If you pay less than your full balance, then you’ll probably spend more than the benefits of a credit card. But if you’re already doing that with a debit card, why not just spend as much with a credit card as you would with a debit card? Is it really that hard not to go crazy with a credit card?
See it below, hat tip to the WSJ Law Blog.
Your Honor, for many years up until my arrest on December 11, 2008, I operated a Ponzi scheme through the investment advisory side of my business, Bernard L. Madoff Securities LLC, which was located here in Manhattan, New York at 885 Third Avenue. I am actually grateful for this first opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed. As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal. When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come. I am painfully aware that I have deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money. I cannot adequately express how sorry I am for what I have done. I am here today to accept responsibility for my crimes by pleading guilty and, with this plea allocution, explain the means by which I carried out and concealed my fraud.
The essence of my scheme was that I represented to clients and prospective clients who wished to open investment advisor and individual trading accounts with me that I would invest their money in shares of common stock, options and other securities of well-known corporations, and upon request, would return to them their profits and principle. Those representations were false because for many years and up until I was arrested on December 11, 2008, I never invested those funds in securities, as I had promised. Instead, those funds were deposited in a bank account at Chase Manhattan Bank. When clients wished to receive the profits they believed they had earned with me or to redeem their principal, I used the money in the Chase Manhattan bank account that belonged to them or other clients to pay the requested funds. The victims of my scheme included individuals, charitable organizations, trusts, pension funds and hedge funds. Among other means, I obtained their funds through interstate wire transfers they sent from financial institutions located outside New York State to the bank account of my investment advisory business, located here in Manhattan, New York and through mailings delivered by the United States Postal Service and private interstate carriers to my firm here in Manhattan.
I want to emphasize today that while my investment advisory business – the vehicle of my wrongdoing – was part of my firm Bernard L. Madoff Securities, the other business my firm engaged in, proprietary trading and market making, were legitimate, profitable and successful in all respects. Those businesses were managed by my brother and two sons.
To the best of my recollection, my fraud began in the early 1990s. At that time, the country was in a recession and this posed a problem for investments in the securities markets. Nevertheless, I had received investment commitments from certain institutional clients and understood that those clients, like all professional investors, expected to see their investments out-perform the market. While I never promised a specific rate of return to any client, I felt compelled to satisfy my clients’ expectations, at any cost. I therefore claimed that I employed an investment strategy I had developed, called a “split strike conversion strategy,” to falsely give the appearance to clients that I had achieved the results I believed they expected.
Through the split-strike conversion strategy, I promised to clients and prospective clients that client funds would be invested in a basket of common stocks within the Standard & Poor’s 100 Index, a collection of the 100 largest publicly traded companies in terms of their market capitalization. I promised that I would select a basket of stocks that would closely mimic the price movements of the Standard & Poor’s 100 Index. I promised that I would opportunistically time these purchases and would be out of the market intermittently, investing client funds during these periods in United States Government-issued securities such as United States Treasury bills. In addition, I promised that as part of the split strike conversion strategy, I would hedge the investments I made in the basket of common stocks by using client funds to buy and sell option contracts related to those stocks, thereby limiting potential client losses caused by unpredictable changes in stock prices. In fact, I never made the investments I promised clients, who believed they were invested with me in the split strike conversion strategy.
To conceal my fraud, I misrepresented to clients, employees and others, that I purchased securities for clients in overseas markets. Indeed, when the United States Securities and Exchange Commission asked me to testify as part of an investigation they were conducting about my investment advisory business, I knowingly gave false testimony under oath to the staff of the SEC on May 19, 2006 that I executed trades of common stock on behalf of my investment advisory clients and that I purchased and sold the equities that were part of my investment strategy in European markets. In that session with the SEC, which took place here in Manhattan, New York, I also knowingly gave false testimony under oath to the staff of the SEC on May 19, 2006 that I executed trades of common stock on behalf of my investment advisory clients and that I purchased and sold the equities that were part of my investment strategy in European markets. In that session with the SEC, which took place here in Manhattan, New York, I also knowingly gave false testimony under oath that I had executed options contracts on behalf of my investment advisory clients and that my firm had custody of the assets managed on behalf of my investment advisory clients.
To further cover-up the fact that I had not executed trades on behalf of my investment advisory clients, I knowingly caused false trading confirmations and client account statements that reflected the bogus transactions and positions to be created and sent to clients purportedly involved in the split strike conversion strategy, as well as other individual clients I defrauded who believed they had invested in securities through me. The clients receiving trade confirmations and account statements had no way of knowing by reviewing these documents that I had never engaged in the transactions represented on the statements and confirmations. I knew those false confirmations and account statements would be and were sent to clients through the U.S. mails from my office here in Manhattan.
Another way that I concealed my fraud was through the filing of false and misleading certified audit reports and financial statements with the SEC. I knew that these audit reports and financial statements were false and that they would also be sent to clients. These reports, which were prepared here in the Southern District of New York, among things, falsely reflected my firm’s liabilities as a result of my intentional failure to purchase securities on behalf of my advisory clients.
Similarly, when I recently caused my firm in 2006 to register as an investment advisor with the SEC, I subsequently filed with the SEC a document called a Form ADV Uniform Application for Investment Adviser Registration. On this form, I intentionally and falsely certified under penalty of perjury that Bernard L. Madoff Investment and Securities had custody of my advisory clients’ securities. The at was not true and I knew it when I completed and filed the form with the SEC, which I did from my office on the 17th floor of 855 Third Avenue, here in Manhattan.
In more recent years, I used yet another method to conceal my fraud. I wired money between the United States and the United Kingdom to make it appear as though there were actual securities transactions executed on behalf of my investment advisory clients. Specifically, I had money transferred form the U.S. bank account of my investment advisory business to the London bank account of Madoff Securities International Ltd., a United Kingdom corporation that was an affiliate of my business in New York. Madoff Securities International Ltd. was principally engaged in proprietary trading and was a legitimate, honestly run and operated business.
Nevertheless, to support my false claim that I purchased and sold securities for my investment advisory clients in European markets, I caused money from the bank account of my frauduelent advisory business, located here in Manhattan, to be wire transferred to the London bank account of Madoff Securities International Limited.
There were also times in recent years when I had money, which had originated in the New York Chase Manhattan bank account of my investment advisory business, transferred from the London bank account of Madoff Securities International Ltd. to the Bank of New York operating bank account of my firm’s legitimate proprietary and market making business. That Bank of New York account was located in New York. I did this as a way of ensuring that the expenses associated with the operation of the fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses.
In connection with the purported trades, I caused the fraudulent investment advisory side of my business to charge the investment clients $0.04 per share as a commission. At times in the last few years, these commissions were transferred from Chase Manhattan bank account of the fraudulent advisory side of my firm to the account at the Bank of New York, which was the operating account for the legitimate side of Bernard L. Madoff Investment Securities — the proprietary trading and market making side of my firm. I did this to ensure that the expenses associated with the operation of my fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses. It is my belief that the salaries and bonuses of the personnel involved in the operation of the legitimate side of Bernard L. Madoff Investment Securities were funded by the operations of the firm’s successful proprietary trading and market making businesses.
Your Honor, I hope I have conveyed with some particularity in my own words, the crimes I committed and the means by which I committed them. Thank you.
I see so many commercials from car insurance companies that say: “People who switched to this insurance saved $x on average.” That is, for the most part, a pretty worthless statement. Why would anyone switch to a different car insurance provider if it cost more money? They all essentially provide the same product. Thus, the statement that people who switched to this insurance saved $x on average says this: people with particular characteristics switch to insurance companies whose insurance algorithm favors those characteristics. In other words, car insurance customers act rationally.
Additionally, if you are a good driver, you should be dissuaded by an insurance company who offers “accident forgiveness.” An insurance company is going to have to cover their costs one way or another. If they don’t increase premiums for someone’s first accident, that just means they are using everyone else’s premiums as a whole to subsidize that person. So if you are a good driver who doesn’t get in any accidents, this is not a good thing. It’s not like a company who offers accident forgiveness is less profit hungry.