Finance & Economy

 

Want to make money without a full time job?

 

February 12, 2021 / Anya Bhargava, Co-Editor In Chief

All my friends were getting jobs, everywhere from Tropical Smoothie to Glory Days, and I wanted to join in. However, I knew that I needed a lot of flexibility this summer as I had a month-long internship, had to study for the SAT/ACT, and had signed up to volunteer at feedmore, not to mention that I still wanted some free time to relax and hangout with friends. The idea of getting a job quickly vanished. But, I still wanted to have the experience of making my own money. So, one of my friends introduced me to Instacarting. We went together and I learned how to work the app, scan the groceries, checkout, and deliver. Ever since, I've been hooked!

 

Right after my make-up AP exam (the trauma of which deserves a story of its own), my mom and I went together for the first time and we’ve made a great team ever since. Not only has Instacarting been a great and flexible way to make money, I love that I've been able to do it with my mom (a boss at literally everything). Although it seems like stereotyping, trying to guess what type of items the customer would want based on their name, gender, and address became like a game for us.

 

The first few times my mom and I Instacarted together, we were still learning and confused about certain aspects of the job. We were lucky enough to meet the most patient and helpful cashiers and staff. One cashier gave me a tip on how to pause the timer so that we could deliver within the time limit and another showed me how to use the Instacart card. They struck up conversations with us and it was strangely nice to see and talk to strangers once again, something that a lot of us realized we missed due to COVID.

 

One day, we were on our way to deliver and it suddenly began to pour. I started frantically looking for an umbrella because neither of us had raincoats and we knew we would get soaked walking up to their doorway. Thankfully, I found an umbrella, but it was pouring so hard that my legs and feet would get drenched anyway. We sat in the car just waiting for the rain to lighten up. The rain didn’t listen to our concerns, so here I was carrying 2 massive bags of heavy groceries, an umbrella, and my phone all in the pouring rain on an unusually windy evening. I definitely looked crazy and like a complete mess, but I came back cooled off and with adrenaline pumping through my veins.

 

On another delivery, we had a sweet old woman as our customer and when I went to drop off her groceries in front of her door, she came out and gave me an extra $2, saying that she “always gives her helpers a little extra”. It was a super sweet gesture and put a smile on my face for the rest of the drive back home.

 

Through Instacarting, I've definitely developed an immense appreciation for cashiers, delivery men, and other essential workers as well as found a great way to make some extra cash while spending quality time with my mom. I never thought this unconventional way of making money would teach me so much and be so much fun, but I'm incredibly glad I tried it out!

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THE 2008 financial crisis: analysis & prevention.

April 28th, 2018 / Sachin Sanjay

In 2008, The United States of America experienced a major recession in the economy. Other parts of the world, including Europe, also faced economic downturn during this period. The United States accounted for about 25% of the world’s gross domestic product (GDP). The primary cause of the recession in the U.S led by the housing crisis, was due to the implosion of subprime mortgage.  The housing crisis and the subsequent collapse of subprime lending market was due to the lack of stringent mortgage underwriting guidelines, inadequate controls and risk management, and ethical issues in the value chain including brokers, lenders, credit rating agencies, and consumers.

 

After the 2001 recession triggered by 9/11 terrorist attacks in the U.S, the Federal Reserve  Chairman, Alan Greenspan, and the board of governors, cut the federal rates from 6.5% to 1.75% to stimulate the economy.  As interest rates fell, the demand for housing market also started to pick up. The congress in late 90s had directed the U.S Housing and Urban Development (HUD) to enable low income and minority families to get home ownership.  As a result of this directive, HUD required that the two government sponsored finance entities (GSEs), namely Freddie Mac and Fannie Mae, should purchase far more "affordable" loans made to these borrowers by various lenders.  HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing. The housing market was thriving and in 2006, and almost half a billion worth of mortgage bonds were sold by major banks.  The agency neglected to examine whether borrowers could make the payments on the loans that Freddie Mac and Fannie Mae classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more of such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

About three to four million families lost their homes to foreclosure because they could not afford their high-interest subprime loans. Lower-income and minority home buyers -- those who were supposed to benefit from HUD's actions, were falling into default at a rate at least three times that of other borrowers.  Prestigious firms like Bear Stearns was acquired by J.P. Morgan in 2008 and Lehman Brothers had to file for bankruptcy.  Several leading financial institutions had to be bailed out with taxpayer money under the Troubled Asset Relief Program (TARP).

Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.  

The housing bubble in the U.S. was created due to major flaws in the mortgage underwriting standards such as making loans with no income verification, no major documentation, lower FICO scores, greedy and unethical behavior by brokers, lenders, officials, and consumers, which all contributed to millions of Americans of losing their homes and jobs. The rating agencies did not thoroughly review mortgage-backed securities and subprime bonds and gave them high credit ratings, making them more appealable to investors when in reality they were risky investments. The selling of these risky bonds by major banks were made by Collateralized Debt Obligations (CDOs).

 

To prevent a similar crisis in the future, key aspects including regulatory oversight, controls, risk management, consumer protection, free market economy, lending standards, and affordability have to be taken into accounts.  Consumers should be provided education and literacy on how the mortgage system works, including short, long terms, and adjustable interest rates, and consequences of default.

 

The proposed solution is to the ensure proper oversight of lenders and lending practices with a regulatory agency such as the Consumer Financial Protection Bureau (CFPB).  There should also be proper income verification regarding affordability of mortgage. The brokers, intermediaries, and lenders have to have enough capital to provide cushion in the event of defaults.  In the past, brokers could easily qualify a borrower with no documentation and income verification to obtain loans from lenders. These brokers were incentivized to generate business on volume and not necessarily on the credit quality of the borrower.  By introducing tighter underwriting standards based on credit quality, affordability to service the debt on a regular basis, better risk management, and classifying the mortgage bonds properly by their credit rating, will be critical in preventing or minimizing losses in the future.  The credit score rating process can be improved further to not only indicate the “credit-worthiness” of a borrower but also the ability to service debt over a longer term basis. One can also develop sophisticated analytical tools to determine default risk.

 

The GSEs have to also ensure that they don’t simply purchase all loans from lenders without proper documentation, checks, and controls.  The rating agencies also have to be accountable in their credit evaluation process of mortgage-backed securities. Having correct ratings on mortgage bonds are pivotal because before the 2008 crisis, many AAA to A rated bonds were actually subprime and riskier than a B level bond. If the governments across the globe monitor the lending institutions through regulatory body banks in this way, the chances of witnessing major economic crisis due to housing and mortgage related issues will be mitigated. These should help lower the crisis probability which will also keep inflation in check.

THE psychology of savings.

 

February 19th, 2018 / Sachin Sanjay

Savings are the reason that in “rainy days”, people, companies, and even countries can maintain themselves. Over the years, the average savings to income ratio for the common American man has decreased. Factors such as more spending and financial literacy, as well accumulating large amounts of debt, are some of the reasons for this. With a median balance of $2,400 in savings, most Americans are not prepared for unexpected problems and especially retirement. To combat this and make more Americans prepared for the future, social reforms must be made. Having the right environment applies to spending less on things that are not necessary is very important, it is more pivotal to save for the future. College tuitions, loans, and insurance normally increases over time as the 21st century is passing by so what one saved 25 years ago is less than what one must save for 25 years from now. All three of these ways to learn about the importance of saving ties back to the need of financial literacy. The common American must know what to do financially before they goes out into the real world.

 

The first way to save money is that in terms of saving money, there is short term saving and long-term saving. Goals such as saving 20 dollars a week contribute to saving $50,000 for retirement as well as an emergency fund for times of need. Establish a spending budget. If a week’s spending exceeds that budget on a birthday or shopping spree, reduce the budget the following week. It may seem like very little saving every week, but in thousands of weeks of one’s life, a saving account can have thousands of dollars. Public plans such as the 401k were built for this purpose. Tracking your saving by becoming more financially literate and checking your savings frequently will also help very much. The second way to save money is not to have too much credit card debt. It may sound obvious but just in the U.S., the public debt to GDP ratio is over 75%. For example, try to spend on small things using cash or try not to put debit and rather spend with credit. Credit card penalty rates can be as high as 35%, which can further plunge families into debt.  The third reason, which ties to financial literacy, is to learn more about saving and spending. If you do not, you are more likely to make wrong financial decisions which can lead to problems with banks, FICO scores, and loans.  In all, financial literacy is a crucial skill to learn for the future, along with saving money, managing money sensibly, and tracking spending.