1. Larry MacDonald pointed to some interesting articles including a brilliant piece by Eliot Spitzer on CEO pay . Companies are supposed to be controlled by their shareholders. CEOs are employees. A company’s board of directors is supposed to represent the interests of the shareholders. However, CEOs have too much control over who serves on their boards of directors, and they also have too much control over the choice of compensation consultants who make recommendations on CEO pay. It’s time that we fixed the system to represent shareholder interest rather than continue to complain about unethical CEOs. Who among us wouldn’t line our own pockets with millions of dollars if we could do so legally? This doesn't excuse CEOs, but the solution is to take away their opportunity to line their pockets unfairly. 2. A guest post by Neal Frankle explains why the 10-year returns of mutual funds are going to start looking very bad . Obviously, recent poor stock market returns are a bi...

Wired magazine had a great article explaining the causes behind our credit problems. Unfortunately, they blamed math as the root cause of the problem, which is silly. It’s like blaming a hammer for smashing your thumb. A decade ago, most investors didn’t like to put their money into mortgage pools (unless they were backed by the U.S. federal government) because they couldn’t quantify the risk. Then along came a clever guy named David Li who developed a formula to measure the amount of risk. This formula came to be used in finance all over the world to measure the risk of baskets of mortgages and other types of debt. The main problem before Li came along was that although financial markets could measure the risk of an individual mortgage, they couldn’t measure correlation: the degree to which debtors tend to default at the same time. Li had a solution. However, Li didn’t really work out the correlation himself. He examined the movement in prices of individual debts (in the c...

Looking at history we have a tendency to see certain events as inevitable, but they didn’t seem inevitable at the time. We can agree now that the tech boom of the late 1990s was destined to crash, but the crash didn’t seem inevitable to most of us while we were living through the boom. This provides a lesson for our present difficulties. As is often the case, the truth is somewhere in the middle. We are too confident in our ability to see the reasons behind past events. But we also have too great a tendency to believe that our present situation will persist. Many believed that the tech boom would continue indefinitely taking us to a glorious new future. This turned out to be very wrong. On the other hand, many of us now see the tech crash as inevitable. However, another plausible outcome could have been for tech stocks to remain flat for 20 years while their value caught up with their prices. The markets have more than one way to get back in line. History tells us that th...

The basic idea of insurance is that you pay a premium to an insurance company that agrees to cover you for a low probability large loss. For example, you might pay $500 per year for house insurance, and the insurance company agrees to rebuild your house if it burns down. For some reason, typical health insurance plans have this basic idea of insurance backwards. To illustrate what I mean, I’ll look at Sun Life’s basic personal health insurance plan (as of February 2009). I don’t intend to promote or criticize Sun Life in particular; other insurance companies have very similar plans. Sun Life’s basic plan has fairly low yearly dollar limits: - Prescription drugs: max $750/year - Dental: max $500/year - Alternative treatments: max $25/visit and $250/practitioner - Hearing Aids: max $400 per 5 years - Dental accidents: max $2000/injury - Medical equipment and in-home nursing: combined max $2500/year and max $20,000 lifetime To run a profitable business, an insurance compan...

General Motors and Chrysler are asking for $10 billion in aid from Canada . This sounds like a big number, but it’s hard to put into context without some analysis. Millions, billions, and trillions can all sound the same until you think it through. This aid package amounts to about $300 for every Canadian, including children. If the government agrees to this bailout, you can imagine $300 flying out of your pocket and going to GM and Chrysler. This money would be transferred from all of us to benefit the auto workers. According to the Canadian Auto Workers (CAW), 33,000 of their members work for GM, Chrysler, and Ford. Out of these, about 12,000 work for GM, and 11,000 work for Chrysler. So, the GM and Chrysler bailout would support 23,000 employees. This amounts to about $430,000 per employee! This doesn’t tell the whole story, though. There are other jobs that depend on the auto sector. The CAW claims that “there are approximately 7 jobs created for every one job in the...

1. Million Dollar Journey tells us how to get free HDTV in Canada legally . 2. Gail Vaz-Oxlade tells us the difference between living within your means and doing without (in a post no longer online). The distinction is crucial. We need to find a way to enjoy life within our means. If we think in terms of doing without we’ll eventually break down and spend. The same applies to the food we eat. It’s important to find a way to eat that is satisfying and doesn’t have us gain weight. Doing without enough food isn’t sustainable. 3. Preet’s continued discussion of fee-only versus fee-based financial planners generated quite a few comments. 4. The Big Cajun Man hosted the Carnival of Personal Finance that included my article Teenager Jobs that Pay Well .

I try to avoid making predictions because as Niels Bohr once said “prediction is very difficult, especially about the future.” However, I see the world on the verge of a long, slow decline in cell phone use. Am I predicting that people will no longer feel the need to have a phone with them at all times? Absolutely not. As a matter of fact, I think that the percentage of people who carry communications devices is likely to increase in the future. Cell phones are going to be replaced. Roaming calls will eventually be carried over the internet rather than a separate cell phone network. Many of us have wireless internet set up in our homes with a data rate many times higher than is needed to carry a phone call. In fact, if you used a cell phone continuously day and night for a month, the total amount of voice data transmitted would be less than the 60 Gigabyte monthly cap on typical home high-speed internet plans. Technology to carry phone calls over the internet (called voice over i...