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DO YOU THINK YOU'RE SAFE FROM ID THEFT? REALLY
You’ve been inundated with ID theft stories over the last few years, probably to the point that you ignore them.
I’ll tell you what can happen shortly, but first consider this:
A new survey of 2,000 adults conducted for Experian, one of the “Big Three” national credit reporting agencies found:
• 55 percent don’t always check to see if a Website is secure before shopping online.
• 63 percent of those who have online accounts don’t use a unique password for each account.
• 39 percent said it would be very difficult to steal their identity.
• 43 percent of smartphone owners rarely or never use a password to unlock their phones.
• 47 percent of tablet owners rarely or never use a password to unlock their tablets.
• 57 percent of online shoppers don’t always go to sites directly but instead click on links, which can be fraudulent, designed to capture personal information.
Changing cards is work
Someone stole our credit card number a week ago, and we had to get a new card with a new number to replace the old one used to automatically replenish my MetroCard subway account.
After waiting on hold for more than half an hour I finally hung up and gave up trying to contact the subway folks in New York City. So I’ll wait until I have more free time to tell them.
It is such a drag and takes so much time to tell all the companies where the old card is on file for automatic bill-paying. And we just started, hoping we don’t overlook anyone and have a payment rejected, with late fees tacked on.
But our problems are nothing compared to a friend’s — I’ll call him Allen, since he doesn’t want his name out there to attract more of what happened.
The couple was in Florida when Allen got a phone message from his online brokerage company.
“They wanted me to contact them because they were having trouble wiring the $40,000,” Allen recalled. He was surprised to say the least. “Someone from Nigeria had called the brokerage and gave out my name, my Social Security Number, and my mother’s maiden name, and the brokerage felt it was me and asked the man how he wanted them to do it,” he said.
“The man said sell some stocks, so they did and were trying to wire the money. But they couldn’t because the address was not right. That’s why they called me.”
Allen immediately objected and got the brokerage to reverse the stock sale. Allen then ordered the brokerage to never send him money by cash, only by check. He also got a verbal password and a key fob to use every time he logs onto his account.
Soon after that, the brokerage called asking for information regarding a money transfer account that Allen was supposedly setting up. “And the crook had not used the verbal password although it was set up,” he said, angrily. “After that I went to all my banks and brokerage houses adding passwords and orders to move money only by check.”
Also, he eliminated the online accounts he had set up at banks, except one for bill payment, which only has money to cover payments.
Soon thereafter, a crook tried to get into one bank account via a half-hour TDY call (phones used by the deaf). “They came from some place in Oregon and were trying to get funds sent and had my account number. The bank said they wouldn’t do it because the person did not know how much was in the account. So they said they would send the crook a copy of my statement so he’d know how much was in the account. I got a copy of the statement saying, ‘We sent it on your request.’”
Allen couldn’t believe it. This happened after he had ordered no cash to be sent and set up a password. “They are so stupid!” he exploded. “If it can happen to me, it could happen to you or your wife.”
Allen has another beef: Congress has not passed a law for bank and brokerage fraud like the one capping a victim’s liability for credit card fraud at $50. “And banks are under no obligation to give money back unless you can prove it was fraud,” he said. “In trying to prove a fraud, it’s your word against theirs.”
With brokerages, there is some protection. The Securities Investor Protection Corp., created by Congress, supplements lost stocks and cash up to $500,000, including a ceiling of $250,000 for cash losses.
True bottom line: We’re not safe. Protect yourself!
Economist Nicholas Perna is the economic adviser to Webster Financial Corp. and managing director of consulting firm Perna Associates. He was also a visiting lecturer at Yale University.
Harlan Levy: What do you think of October's surprisingly high new jobs number, in spite of the shutdown?
Nick Perna: It's a real puzzlement, to quote actor Yul Brynner as the King of Siam in the movie The King and I. The subtleties of how the payroll and household surveys are conducted may disguise some of the weaknesses.
If you were at work for part of the survey period, then you're currently employed for the payroll survey. The payroll survey number of a 204,000 job increase in October didn't really capture the shutdown.
Quite disconcerting was the drop in labor force participation in the household survey, as people simply stopped looking for work. The 7.3 percent unemployment rate would have been much higher if these people had not dropped out in previous months as well.
Third-quarter Gross Domestic Product numbers were a little bit on the strong side with 2.8 percent growth. However, much of the positive surprise was the build-up in inventories, which can be a problem if they get worked off in the next couple of quarters.
Probably a better measure of the underlying growth is GDP excluding inventory. That was up 2 percent in the third quarter and also in the second quarter. So the underlying growth in the U.S. economy is more like 2 percent, which is mediocre at best, when you've got over 7 percent unemployment.
H.L.: So what's the real jobless rate?
N.P.: We've got other measures of unemployment. The U-6, which includes people who have dropped out of the workforce but have been looking recently and those who are unwillingly employed part-time, tends to correct for some of the omissions in the official rate. That's 13.8 percent in October.
The 7.3 percent really only tells part of the story. Beneath the surface, if you look at the U-6 and other aspects such as pay, you can only conclude that we're in a very incomplete recovery from a recession that started five years ago and supposedly ended three and a half years ago.
H.L.: Is Congress's focus on reducing the deficit and cutting spending rather than spending more on infrastructure repair, and other jobs programs significantly retarding the recovery and inflicting permanent damage?
N.P.: This is controversial - but not among people who know economics. We didn't apply enough stimulus near the bottom of the recession, and then backed off stimulus too quickly, and not just with the sequester.
It goes beyond spending programs. One the major things that Washington did was to discontinue the so-called payroll tax holiday, which suspended 2 percent of Social Security contributions. But that was part of the budget deal at the beginning of 2013 which moved the tax rate back up.
Then we had spending cuts under the across-the-board $1.2 trillion sequester.
What this all did was leave the heavy lifting up to the Federal Reserve, which had no alternative but to try to lower long-term interest rates with quantitative easing - buying monthly lots of Treasury bonds and mortgage-backed securities. The Fed had to do this, because it had already reduced short-term interest rates close to zero.
What we have is a worldwide gross misunderstanding that confuses the short term with the long term and has the Congress trying to stimulate the economy by cutting spending and raising taxes.
This approach is similar to Charles Dickens characters in the 19th century being thrown into debtors' prison. How were they supposed to pay their debts back?
H.L.: And the same thing is happening in Europe.
N.P.: It's very similar in Europe, largely at the behest of the Northern Europeans, especially the Germans.
Interestingly, Mario Draghi, head of the European Central Bank, who is extremely well qualified, is now at loggerheads with the Germans, because he recently cut interest rates. He understands economics and realizes that he has to do what Fed Chief Bernanke has done.
Q. Why are the Germans doing this?
A. I think a big portion of it goes back to the Weimar Republic in the 1920s when there was hyper-inflation. The Germans have been steadfast opposed to anything that smacks of future inflation.
On top of that is a cultural thing. Northern Europeans view themselves as hard-working and industrious compared to the Southern Europeans.
What you then get is opposition to increasing deficits or using Northern European money to stimulate the euro economy.
There's also something very subtle. If the euro zone existed exclusively of Northern Europeans and didn't have the more problematic countries like Italy, Portugal, and Spain, the euro would be much stronger. The weak euro we have has dramatically benefited the Germans by making their exports much more competitive than they otherwise would be. And they think it's due to their superior productivity and quality, when in fact a lot of their prosperity is due to the unintended consequences of the single European currency.
One thing that Draghi is afraid of is deflation, because deflation is like a cancer for financial systems. What happens is that when prices fall across the board, then loans owed to the banks don't fall in value, but the collateral behind them falls. This means that the ability of borrowers to repay and the capital of banks are both diminished. You end up with a lot more bad loans.
So while the Germans are worried about inflation, Draghi is worried about deflation, and Draghi has a better fix on the risks.
H.L.: How much growth in the U.S. do you expect next year?
N.P.: One of the big provisos is that we reopened the government and raised the debt ceiling only until early next year. If we have a replay of the shutdown and another piece of brinkmanship over the debt ceiling, then the outlook would be really quite negative. But I think this is less likely, because the Republicans are concerned about what has happened to their reputation over the last few months.
What the strategy is turning out to be is perhaps a big fight over the confirmation of Janet Yellen as successor to Ben Bernanke and filling up some key vacancies on the Federal Reserve Board. These positions have to be confirmed by the Senate, where even though the Republicans are in the minority, then can block confirmation. This could exert a lot of leverage on the administration without doing all the collateral damage from a shutdown and debt ceiling fight.
More and more Republicans are voicing concern over Yellen and the filling of the vacancies. This could have some impact on financial markets that might start to get nervous, but it's not beyond the realm of possibility that Bernanke just might stay on for another month or two. It would push into next year any winding down of the quantitative easing program.
H.L.: So, what about next year?
N.P.: If we can reach détente in Washington, we should see at least 2.5 percent GDP growth, which is better than this year.
First of all, it comes from lessened anxiety about what Washington will do.
Also, there is a pent-up demand for autos and housing. The auto fleet has gotten old, and people have already stepped up their purchases of cars well above the recession lows, but still well below pre-recession peaks. So with more confidence and more job growth, we'll get more car sales and more confidence. One hand washes the other hand.
Also, I don't think inflation will be a problem in 2014 or 2015. It's currently not a problem. The consumer price index shouldn't rise more than 2.5 percent next year or in 2015.
Meanwhile, the unemployment rate should be down to about 6.5 percent by the end of 2014. In real terms it will be perhaps down a half percent or a little bit more from 13 percent.
H.L.: What about interest rates?
N.P.: Most important of all is to try to get a fix on interest rates. If my forecast is correct about unemployment and inflation, then the Fed might start raising short-term rates very late next year. And it might start tapering, cutting back on the monthly purchases earlier in 2014, possibly in March or May.
Meanwhile, long-term interest rates will be rising, because they're not directly controlled by the Fed. The financial markets will be looking at a little more strength in the economy and the increasing odds that the Fed will begin tapering off quantitative easing, and this will lead to upward pressure on long-term rates fairly soon.
Stocks have done so well because the alternative has been very low returns from bonds, and even risk-free bonds are risky if you think interest rates will rise. They're free from credit risk, not interest rate risk.
H.L.: What do you think of the Twitter (TWTR) IPO?
N.P.: What is an IPO: an arrangement whereby a select group of people get cut in on the value of the new offering at the expense of the shareholders. Twitter issued shares at $26, which immediately traded up into the 40s. What I don't understand is why it wasn't priced in the 40s. Then all that capital would have gone to Twitter instead of to some buddy of some buddy at an investment bank.
The holders of stock options benefited, but the idea behind an IPO is to raise capital for the company. Instead, some of that capital which could have been used by Twitter to expand went into the pockets of people lucky enough to get into the IPO.
But then again, if I fully understood that, I'd be rich instead of handsome.