I’ve been watching a lot of “American Greed” on CNBC lately, and it reminds me of someone that I know personally.  For privacy purposes, I’ll call him Bob. 

When I first met him, I was very impressed with him.  Bob lived in a sprawling mansion in a gated community with expensive cars parked outside his home.  

This week I found out he’s currently in federal custody, looking at up to 30 years in prison with a $1 million fine, as a result of his white collar crimes.  He has plead guilty to bank fraud and conspiracy to commit bank, mail, and wire fraud in connection with a scheme to fraudulently obtain millions of dollars of mortgage loans from lenders.

Bob is 4 years younger than me and when I first met him I thought to myself, “Wow, this guy is doing very well.  I wonder what he does for a living.”   I quickly learned from Bob that he was a real-estate developer who built million dollar custom homes and he also owned a real-estate investment company. 

I was interested in learning more about Bob’s business and one day he explained the process to me.  Basically, his real-estate investment company helped people find homes below market values, where he would help renovate (if needed) and help to put section 8 tenants in the home, all this for a very steep fee of up to $30,000.  People flew from all over the country to have Bob hold their hands to invest with him.  He would wine and dine them and when they visited his mansion, they were hooked!

Bob said if I was interested in investing with him to let him know.   At the time I was laid-off, so I told Bob there was no way I would be able to get a loan because I was unemployed.  He told me he could help me get a loan by stating I was a consultant employed by his company.  That would have been totally illegal, but at the time I didn’t think about it.  However, there was no way I would invest with Bob because I would never pay his hefty fees of up to $30,000.  I would do the work myself.

What Bob failed to explain to me back then, which ultimately landed him in trouble, was that he helped his client falsify mortgage applications to get loans that they probably didn’t qualify for.  He also paid kickbacks to appraisers so they appraised his client’s homes for much more than they were worth so his clients could pull equity out their investment properties.  He was also in bed with a local corrupt bank which went belly-up to conduct much of these transactions.  The CEO/Co-Founder of the bank recently pleaded guilty to fraud and is also looking at 30 years in prison and a $1 million fine.

Another problem that caused Bob to get a lot of attention was that he didn’t take care of his customers.  Once he got their money he pretty much dropped catering to them.  He didn’t return phone calls, and things fell apart when transactions were not handled the way they should have been.  When the real-estate market started going south, even more investors started complaining.

In following Bob’s case there are a few things I’ve realized:

1. Follow the law.  This is the obvious.  There are no shortcuts and eventually things will catch up with you.
2. Offer excellent customer service (crook or no-crook) because with the Internet people can easily ruin your reputation and get the authorities to notice you.  Before the Internet had blogs and forums, it would have been difficult for all the investors to find each other to discuss their common problems.
3. There is limited privacy with the Internet.  I suspect Bob may have to change his name if he ever decides to look for a job in the future when he gets out of prison.  Google his name and all sorts of articles with his picture appear.  The Internet can be deadly!
4. Nothing goes up in a straight line.  Just like the Internet Bubble, the real-estate market and the economy, things eventually go down.  If the real-estate market and economy was still hot, Bob would have still been in business.  His clients may have complained about his poor customer service, but they may have been happy with the value of their property increasing.
5. When it Rome DON’T do what the Romans do.  Back when everyone was making money in real-estate, everyone looked the other way.  The banks, Wall Street, mortgage brokers, real-estate lawyers, borrowers and appraisers all looked the other way.  They knew most of these loans were bad but they were still processed only to get paid.  We all know what happened after! 

If you are starting a business the U.S. Small Business Administration (SBA) can help you get a mentor, write a business plan, finance start-up, buy a business or franchise, lease equipment, protect your ideas, and a whole host of other services.

If you own a business the SBA can help you to make decisions, manage employees, market and sell, pay taxes, get insurance, forecast, finance growth, etc.  The SBA can even help you to eventually sell your business, transfer ownership, liquidate assets, and file bankruptcy.

Some of the most requested items from the SBA are getting a business loan, business grant, business license, tax identification number, business certified as woman or minority owned, etc.

Many existing large companies started out with help from the SBA which include Stapes, Sun Microsystems, Apple, Jenny Craig, outback Steakhouse, Cray Research, Calloway Golf, Intel, Costco, Ben and Jerry’s, Nike, America Online and FedEx. (See video of the SBA Introduction above).

The SBA started in 1953 by the federal government as an independent agency help, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. The SBA helps Americans start, build and grow businesses via an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.

For more information visit SBA.gov.

The main two types of life insurance are term life and whole life, however, there is also universal and variable which are variations of whole life insurance.

Term Life

The difference between term and whole life is that term insurance covers you only during the life of the policy while you pay the premiums.  If you have a 30 year term life insurance policy, pay your premiums for 25 years but stop paying and then die, the policy will not pay.

There are three types of term life insurance:

Level Term allows you to pay a fixed premium up to 20 years.  This is a good deal because your premium will not change if your health changes for the worst and it protects you against the effects of inflation.

Annual Renewable Term gives you the option of renewing your policy regularly, however, at increasing premium rates.

Decreasing Term steadily decreases your death benefit.  This may make sense for people who have a family when they are younger and are the breadwinner. As they grow older into retirement with adult children and a nest egg, they don’t need a large death benefit.

Whole Life

Whole life insurance is designed to cover people for their entire life.  Whole life charges a fixed premium each year and is typically higher than term life.  The advantage sold by many insurance companies is that part of the premium resides in an account that pays interest and accumulates a cash value.  The remainder of the premium covers term insurance. As the accumulation of cash grows in a whole policy the premiums can decrease and can eventually pays the premiums.

Unfortunately, whole life insurance tends to pay low interest rates to policyholders, while the insurance companies earn a much higher return because they invest the money in stocks and bonds.  As an investment whole life insurance isn’t desirable to most.

Universal Life

Universal life is a form of whole life insurance that combines term insurance with a savings feature which is invested in a tax-differed account.  In years when the insurer earns more on policyholders’ accumulation accounts than promised, they pass along the extra gain to policyholders.  This may sound good, however, in some situations, customers can end up paying more than they expected because of overly optimistic assumptions insurance companies make about customers returns.  

Variable Life

Variable life is also a form of whole life insurance that has a cash value that is invested in equity or debt securities.  Policyholders can change and select different investment instruments.  The insurance company guarantees a minimum death benefit amount, however, policyholders bears the risk of the securities investment.

Below is a chart comparing term, whole, universal and variable life insurance policies.

The 10 largest insurance companies are listed below:

American International Group
Berkshire Hathaway
UnitedHealth Group
WellPoint
MetLife
Allstate
Prudential Financial
St. Paul Travelers
Aetna
Hartford Financial Services

Relevant Post: Get quotes for life insurance policies

The House and Senate are currently working on merging the two Healthcare Bills they recently passed.  In the Senate democrats cannot afford to lose a single vote so it’s likely the bill will entail most of the Senate democrats want.  Although the final bill is weeks or months away, the following is what you may expect:

1. You must purchase healthcare and file proof with your 2014 tax return or pay a $95 fine to the IRS.  The fine increases to $350 in 2015 and $750 in 2016.
2. Government-regulated health insurance exchanges for individuals and small businesses will provide affordable plans. Insurers must offer coverage that in 2010 would cost no more that $5,950 for individuals and $11,900 for families.
3. Out of pocket expenses will be capped based on income. A family of three making $73,240 in 2009, would be required to pay no more than $7,733 in medical costs.
4. Medicare will cover more people.  Anyone making less than $14,440 and under 65 years old will be eligible.  
5. People with preexisting medical conditions cannot be denied coverage.  Until this goes into effect in 2014, the government will spend $5 billion to subsidize people deemed high risk with preexisting conditions and have been uninsured for more than 6 months.
6. Riskier people cannot be charged outrageous premiums.  Older people will pay a maximum of 3 times more than younger people and smokers 1.5 times more than non-smokers.
7. Kids will stay longer on their parent’s medical insurance.  Dependents are usually cut off after graduation from high school or college.  The age would be extended to 26.
8. Drug manufacturers must discount brand name drugs by 50% for people spending between $2,700 and $6,154 annually on prescriptions (A.K.A. Medicare coverage gap).
9. Individuals earning up to $43,320 or families earning up to $88,200 will receive credits throughout the year to subsidize their premiums.
10. Cadillac plans may be eliminated.  The portion of a premium exceeding $8,500 for individuals or $23,000 for families will be subject to a 40% tax paid by the insurer.  This is done to discourage such plans.

Source: News Week

Social Lending (also known as Peer-to-Peer Lending) are online communities connecting people so they can loan and borrow money from each other thus eliminating the middle man, the bank.  Because the bank is eliminated, lenders and borrowers can lend and borrow money at better interest rates for both parties with extremely low fees.  The current major players are Lending Club and Prosper.

Both Lending Club and Prosper are very similar except that Prosper uses an eBay auction style where the interest rates are set by lenders via a bidding process.  Lending Club sets the interest rate based on a formula and lenders and borrowers have to accept the rate.  There is no bidding.  

A borrower at Prosper offers a maximum interest rate; however, the interest rate can be reduced if enough lenders bid on the same loan.  Lenders who bid on a loan must offer the lowest interest rate they are willing to accept.  The offered interest rate is not disclosed to the borrower or other lenders.  As more lenders bid on the loan, the interest rate will be reduced.

Lending Club sets interest rates for the borrower and lender based on the borrower’s credit score and other financial parameters. A loan grade is then established which takes into consideration Assumed Default Rate, Lending Club Base Rate, and Adjustment for Risk and Volatility.

Unlike a bank, when you invest in loans, your money is not FDIC insured.  Only when your money is in cash in your account is it FDIC insured by both Lending Club and Prosper.  Keep in mind this is investing and not a savings account.  There are risks involved.  The main risk is for lenders having borrowers who default on their loan.

For more information visit Lending Club (Lenders / Borrowers) and Prosper (Lenders / Borrowers).  You can discuss social lending at Social Lending Forums.

Last week I had the opportunity to attend the Consumer Electronics Show (CES) 2010 in Las Vegas.  The biggest technology touted at the convention was 3D HDTV.  3D has been around for years, however, with HD and new digital technology 3D videos are now easier to make to bring into the home.

Many companies demonstrated their 3D products and services.  I must say the picture quality of 3D HDTV is absolutely remarkable; however, glasses are still required, which maybe a turnoff to consumers.   I can’t imagine every time I want to watch TV I have to find the remote and 3D glasses.   However, glasses may not be needed in the future.  One company demonstrated a 3D TV that didn’t require glasses which blew me away.  The picture quality of the non glasses 3D TV wasn’t as good as the ones that require glasses but it was interesting to see.

As with HD TV, in the near future I suspect there will be 3D HD channels as demonstrated by Direct TV at the conference.   Only time shall tell if consumers will be interested in 3D TV.  Check out the pictures below.

In today’s rough economy many people are selling their gold for money. 

Additionally, gold prices have set new records lately selling for $1,143 an ounce last December.

There are many companies capitalizing off people selling their gold jewelry which includes gold-party companies, jewelry stores and mail-in companies.  So how do you know what your gold jewelry is really worth?

Below are the steps you can use to determine how much your gold jewelry is worth:

1. Weigh your gold on a scale in grams.
2. Multiply the weight by the current price of gold to determine $/ounce.  Find price of gold at cnnmoney.com/data/commodities
3. Divide by one of the following
4. If gold is 10k divide by 74.8
5. If gold is 14k divide by 73.2
6. If gold is 18k divide by 41.5
7. If gold is 24k divide by 31.1
8. Multiply the above result by 0.50 and 0.80 to determine the fair price range

So let’s say you have several 14k pieces of gold jewelry weighing 50 grams.  The value can be calculated as follows:

50 grams X $1,119.50 per ounce / 53.2 X 0.5 = $526
and
50 grams X $1,119.50 per ounce / 53.2 X 0.8 = $842

Per the above calculation your gold jewelry is worth between $526 and $842.

However, keep in mind that if your jewelry as an antique it may have more value than just its gold content.

If you are interested in selling your gold, check out Empire Gold.