Your Questions About Debt Busting

Jenny asks…

The company im employed by has just gone bust, Will i get paid?!?

I just found out my company has just gone bust and weve been given 3 weekends left before were out of jobs. Will i still get paid for the last week? As it falls into the new month after we get paid.
Thanks ryan for stating the obvious. However im asking about my RIGHTS

John answers:

You are legally entitled to get paid for all hours you work. If the company is unable to pay you immediately due to the bankruptcy, you will be allowed to file a claim for the wages. Back wages are elevated in priority to be paid from teh assets. The priority of claims are as follows:

1. Claims for debts to spouse or children for court ordered support
2. Administrative expenses of the bankruptcy
3. Unsecured, post petition claims in an involuntary case
4. Wage claims of employees and independent salespersons up to $10,000 per claim
5. Contributions to employee benefit plans up to $10,000 per employee
6. Claims of farmers and fishermen against debtors operating storage or processing facilities.
7. Layaway claims of individuals who didn’t get the item they made the deposit on
8. Recent income, sales, employment or gross receipts taxes

James asks…

Why does the united states have a boom and bust economy?

John answers:

It revolves around credit for investments. Let’s take the housing boom, but stocks, oil, gold, tulips, salt and ants (a Chinese thing) have also been over extended.

Here is how it works. Let’s say housing prices are going up. People borrowed money to buy property to sell. They were even buying property in the middle of nowhere. To get the money, banks needed creditors. As prices increased creditors became increasingly strained. If I have $10,000 to buy bonds and have already bought $10,000 worth of bonds, I can’t buy another $10,000 worth of bonds. So the money runs out. The housing prices peaked and now that prices can’t go up anymore they start to drop as fewer people can get credit since there is less credit out there. That’s what is known as a credit squeeze. Now people are selling their investment property as the value starts to drop. Others walk away. Some hold onto the property and are “underwater” as they owe more on the house than what it is worth. The creditors get shafted as people refuse to pay back their bonds. The property owners get shafted as they are in debt. Those that didn’t get involved get shafted because neither creditors or the property owners have the money to buy stuff.

So why don’t enough people detect a bubble to not get involved in the first place? Schools don’t teach economics. People don;t know much about money and that class of people is referred to as “dumb money.” I took one semester in high school and that’s K-12. I would say history should be dropped in favor of economics.

John asks…

Does a low interest rate create a bubble, a debt bubble?

During the dot com bubble the interest rate was lowered and people were encouraged to spend, leading the our present crisis. Considering they are doing the same thing now as then isn’t it causing another bubble?

John answers:

Your confusion is due to a very flawed premise. The low interest borrowing during the DotCom bubble or any other bubble is not what caused our current crisis. What caused our current crisis was what always causes massive recessions/depressions. Too much Government intervention in the private sector.

You had to have heard by now that Fannie Mae and Freddie Mac were being radically mismanaged by the Government appointed executives as well as the Congressman and Senator put in charge of oversight, Barney Frank and Chris Dodd. President Jimmy Carter forced mortgage companies to provide “sub-prime” mortgages to undeserving borrowers. Fannie Mae and Freddie Mac, then guaranteed those loans with Taxpayer money. In the 1990’s, Bill Clinton greatly expanded that loan program creating what we now call “toxic assets”.

These bad loans were packaged as derivatives and financial institutions invested in them. Then the whole scheme collapsed causing today’s crisis. Not too much low interest borrowing, but too much lending to unqualified borrowers who could not repay the loans. Well, they don’t call them Toxic Assets for nothing.

Follow this up with the ill advised TARP (Toxic Asset Recovery Program) in the last year of Bush vote for by both Senators McCain and Obama followed by the Stimulus Bill, Omnibus spending Bill and Health Care Bill and you get what is clearly displayed on the graphic below.

The proof is that loan interest is at an all time low. Do you see anyone borrowing and spending right now? Sure markets surge and recede all the time. There are always boom and bust times. But the Free Market is always self correcting. These recessions do not last long. Depressions such as we have today can only be caused by Government. The solution is always the same, get the government out of the way, cut their allowance and send them to be without supper. Then, let the Free Market do what it has always done in America; provide goods and services we want and need at bargain prices. Right now, companies are holding their breath waiting to see what stupid move this government will take next.

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Betty asks…

how do I find grants to pay off my college debt

John answers:

You don’t.

I’m thinking that I must not be understanding your question.

I can’t believe that you’re really saying:

“Okay, now that I’m done with school, and I have an education that’s going to help me get a good job, who is going to pay for the whole thing for me?”

Are you?

Why would someone give you a grant to pay off your college debt? Is someone giving me a grant to pay off my mortgage? Or a grant to pay off my credit cards? If I buy a business, will someone give me a grant, so that I can actually get it for free?

What is this nonsense about grants?

Are there programs that will forgive (wipe away) some of your college debt? Actually, there are. For example, if you sign up with the Peace Corps, or its twin sister, AmeriCorps for two years, they’ll write down part of your student debt. That’s okay if you don’t mind making a pretty slim salary while working very hard in some rough US city or foreign country. The Army will forgive some of your debt if you sign up for the National Guard. If you got a teaching degree, and you’re willing to work in inner-city schools or critical need areas of the country, you can get some debt forgiveness there, too. Same things applies if you’re a doctor who is wiling to practice in places like the West Virginia mountains for a few years.

Are you getting the idea? If you’ll bust your butt for a few years in a less desirable job in some difficult part of the world, certain public service organizations will write down a little of the money that you owe.

Otherwise, I’m still confused. I could swear that you want to know whether the taxpayers or some organization are going to pay off your student loans for you – I’m guessing because you’re not happy with the realization of how much it’s going to cost you to pay it back.

That can’t be right though, so I apologize for misunderstanding your question.

Richard asks…

During the dot-com bust, Priceline’s stock dropped an astonishing 98.5%…….?

I mean, this has got to be THE WORST example. Were there any other stocks that declined by that much during that period?

Do you think Priceline is at risk of a crash like this in the future or have they stabilized?

They are expanding globally but there are signs that their growth may “slow”…….

and when a “growth” stock “slows”…….that could spell doom.

Is Priceline a risky stock or would you consider it to be stable?

I mean, they are expanding into South Asia and Latin America where the online travel industry is still young……….they have room to grow……..

share your thoughts.
I recall last August they had a bad earnings report where their stock dropped 16%.

John answers:

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A number of stocks dropped 100% when they went out of business. I don’t know if any others dropped that much then recovered.

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“The future” is a long time. I would assume every stock traded today will become worthless sometime within the next 2,000 years.

For the immediate future a drop like that seems extremely unlikely. Priceline’s IPO was in 1999 and the dot-com bust started in 2000. Any company that new is particularly vulnerable. After 14 years Priceline is not nearly as vulnerable.

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It is unlikely to spell doom. Almost every growth stock slows at some time. That does have a negative impact on the stock price, but it is rarely disasterous.

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Given that is has three times as much cash as debt I would not classify it as a “risky” stock although the risk is probably higher than most stocks I would classify as “stable” stocks.

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Given that it has a beta of 1.64 you have to expect the stock price to be more volatile than most companies its size. Volatility is a factor in evaluating risk, but not the only one.

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