On July 21, 2008 the Securities Investor Protection Corporation (SIPC) issued a warning on their website about a known phishing scam.

Here’s the lowdown:

Would-be identity thieves are sending out emails claiming to be from a brokerage firm working on behalf of the SPIC. The firm is supposedly handling the liquidation of an SPIC account and trying to “return money” to you - the investor.

Here’s a quote from the SPIC press release:

The scheme involves an “insurance investment claim” supposedly to be made through the brokerage firm on behalf of SIPC.

In order to get the information needed to “file the claim”, the would-be thief includes a fake SIPC “Beneficiary Information for Automatic Deposit of Payment” form that requires information that could be used to directly withdraw funds from an investor’s accounts.

The phony form even includes a false detailed form routing number: “SIPC 4531/09 (4-00).”

The brokerage firm mentioned is legitimate, but is not involved in the scheme. This is just one in a list of schemes that have targeted the SIPC in recent years.

If you receive this email, the SIPC is asking that you forward it to them at this address:vdrew@sipc.org

For more information on how SPIC brokerage accounts are actually liquidated, you can download their PDF here.

Please pass this on to anyone you think might be affected!

Federal prosecutors have uncovered what could turn out to be the largest hacking and identity theft ring to date. Over 40 million credit card numbers are believed to have been compromised.

The credit card numbers were stolen from large department stores including:

• Barnes and Noble
• T.J. Maxx
• Office Max
• The Sports Authority
• BJ’s Wholesale

There were 11 people charged from as many as five different countries including the United States, China, Estonia and Belarus. Investigators know that at least one of the eleven ringleaders still at large.

Police believe the hackers drove around looking for loopholes in wireless security networks. When they found one, they installed a “sniffer program” - a program that taps into the merchant’s credit card system and steals their customer’s credit card and pin numbers.

The thieves took it a step further though. They chose some of the credit card numbers and had the numbers imprinted on new, blank credit cards. That way they could withdraw cash at ATM’s, or shop anywhere they wanted to. Right now authorities believe that they sold the rest of the numbers on the black market, as well as selling them on underground internet trading sites.

The head of the identity theft ring is believed to be a man named Albert Gonzalez from Miami. He was indicted Wednesday on enough charges to earn him life in prison (identity theft, computer fraud, wire fraud and conspiracy to name only a few).

Apparently, Mr. Gonzalez had previously worked for the FBI as an informant - that’s after he got his hand caught in the cookie jar the first time. That’s how the whole thing went down. The Secret Service got wise to Gonzalez, and they traced him to his accomplices.

So, what can you do if you are worried that your credit card accounts have been compromised?

Start by checking your credit report, and your credit card statements carefully. If you have reason to suspect fraudulent activity, then make sure you freeze your credit reports until you get things straightened out.

For more information on how to combat identity theft, you can click here.
For more information on the identity theft crime ring you can click here.

What do you think about all this mess? Have you ever shopped at any of these stores?

American Express is going to discontinue their IN:NY, IN:Chicago and IN:LA cards. These cards were originally targeted at a younger segment of the market.

These cards had a different program from the Membership Rewards Program. The program had partners that were local to the cards. For example, New York cardholders had different partners in their program compared to other cardholders from LA or Chicago. From November 1st, these three cards will be discontinued.

This episode reminds me of the the Classic Coke versus the New Coke experiment a while back. American Express wanted to reach out to the younger segment as their traditional client base has been wealthier and older individuals. But I guess looking back, the reason they had an older consumer base is because their charge cards required cardholders to pay in full every month. American Express has over the years got into the regular credit card segment by coming up with a series of no annual fee credit cards.

But with the recent credit crisis, and rise in delinquency rates, I guess it wasn’t a surprise that they are closing unprofitable credit cards. The true lesson is that while American Express’ traditional high end clients may not be growing as fast as one would like, they are still a better segment because they will be less affected by the economy than us regular folks.

But at the end of the day, these cards were discontinued simply because there was not enough demand. The design of the card looked really nice. But there just weren’t enough cardholders to make them viable. Existing cardholders will have their cards replaced by the Blue Card - which frankly has a much better reward program. Gone is the slick black design and in is the clear card design that the Blue series has.

One of our readers, Ben, sent us these questions:

I have a credit card account with a credit line of 20K that I opened with a 0% balance transfer for 15 months. I just paid off the card with another balance transfer offer with similar terms and will be paying off the loan by the time the 0% interest ends. I have an excellent credit and have a couple of other credit cards with no preset spending limit that I use regularly but never carry a balance.
My questions:

1.) Should I close my first balance transfer account which now has no balance?
2.) Should I close my second account once the balance has been paid off?
3.) I have a couple of Visa/MasterCard type of charge cards that have very small credit lines and do not intend on ever using them. Should I close them out?
4.) I have several store cards that I opened only to take advantage of their initial purchase discounts (i.e. JC Penney, Old Navy, etc.) and do not typically use them–I want to close the accounts so I can take advantage of discounts by opening new accounts after 6 months if I choose to. Should I close out the accounts?

Thank you in advance for your reply.
Ben

Thanks for your questions Ben!

Honestly, I would not close out any of your accounts until that balance transfer is paid down. However, since your credit is so good, you can probably get away with it to a point.

The basic rule for closing out accounts is to close out the youngest accounts with the lowest limits first.

Try temporarily picking up a credit monitoring service. I really like True Credit for this. You should monitor all three of your credit reports and scores. This way you can see exactly how closing each account affects your score, and you can be sure that the closed accounts get reported correctly to all three bureaus the following month.

Once you are monitoring your reports, close out those store cards first. I would close out at most one account per month, and only as long as your score doesn’t start falling.

When you start getting into accounts with larger balances I would only close out one every three to four months.

Unfortunately, nether FICO nor the three credit bureaus are willing to reveal exactly what’s in the secret sauce that makes up your credit score – so the best we can do is make an educated guess.

That is why I say you should monitor your scores. If you close out your first two to three store accounts and see no drop in your scores, then move on to the low-limit Visa and MasterCards. If you see a small drop after that, I would wait three to six months before closing anything else out.

There are two exceptions to this advice:

If you have a card with a high annual fee, and you want to avoid paying it, then close it out first, wait several months, and then start closing the other accounts out.

Also, I am assuming that you are not carrying revolving debt on any of these accounts (other than your new balance transfer.)

Whatever you do, make sure that the total amount you owe on that balance transfer does not equal more than about 25% to 30% of the total amount you are able to borrow on all your cards.

Otherwise, you will see your score drop considerably because you will appear to be using far more of your available credit than you were before you closed your accounts out.

Regardless, leave the card you initially transferred the $20k to open. That should let you close out most of those smaller accounts without a problem. Honestly, I would probably keep both of those balance transfer accounts open even after you pay the full balance. At the very least, make closing them your final step.

I say this because there is occasionally a snafu with cards that have no pre-set limit. Some companies report the amount you charge each month as the limit, so those cards could look maxed out no matter what your balance is. If you keep the two balance transfer accounts open then you will not appear to be using too much of your available credit each month.

Basically, just take your time. Getting in too much of a hurry to close out these accounts is what will make your score drop. One or two low-limit accounts every three to six months is the safest way to do it.

Hope this helps! Thanks again for your questions.
Jenna

Have a question for us? Leave a comment below!

My kids have been playing Wii the whole weekend. So it’s now time to bring them to the park. So this will be short and sweet. Here are some carnivals that I participated in. There are some very good posts so please check them out.

Carnivals I participated in

Carnival of Financial Planning

Carnival of Money Stories #67

Carnival of Personal Finance - Best Financial Advice Edition

Carnival of Debt Reduction #147

Carnival of Everything Finance #19

Carnival or Personal Finance - American Flag Edition

Carnival of 20 something finance - Brazilian Carnival Edition

Carnival of Credit Report Stories

I would like to introduce our newest staff writer, Jenna Banks. We hired Jenna because she has actually been through all of the following things:

• Worked as a collections representative for a major credit card company.
• Had collection officers call her at home and at work
• Had a Judgement
• Had a wage garnishment
• Had out of control medical bills
• She’s been a victim of Identity Theft
• And at the end, she went through Bankruptcy.

Now, we realize that none of these things are positive! But what Jenna did next was very positive. She decided that she was finally going to learn to manage her finances and her medical bills and never, ever make the same mistakes that led to her bankruptcy again.

There is not much that can happen to you financially that Jenna has not experienced, and repaired in her own life. She has learned how to protect her self from identity theft, challenged items on her credit report, stopped her wage garnishment, and even crawled back from bankruptcy.

Jenna took her credit score from a dismal 540 to a slightly-less-dismal 670 in just over a year. She is well on track to being able to get loans at a decent interest rate within a year or two - despite the bankruptcy.

She is not an expert in good credit and rewards credit cards, but she can tell you which secured and unsecured credit cards are best for people who are repairing their credit, help you find out if bankruptcy is the right option for you, give you tips for negotiating with your creditors, and tell you the best way to manage your credit card accounts if you start to fall behind.

Everyone, please give a warm welcome to Jenna Banks! (And feel free to pick her brain if you have questions.)

I thought that I would never really make the deadline for this carnival of debt reduction. John told me earlier this week that I would be hosting and I did not really find out until friday that Mrs Credit Card arranged a trip to New York until Monday to get away for the kids spring break! I was tempted to send John an email asking if someone would swap places with me. While I could put together the carnival quickly if I decided to, I had always put in some effort into making a carnival interesting if I was hosting it. Furthermore, people who have been hosting carnivals are getting more creative in terms of having themes and even lots of photos!. But I decided to shoulder on.

So here I am writing on a Sunday night after visiting the Museum of Natural History with the kids the whole day. My feet are really hurting so I did not mind spending some time on the laptop. After logging onto the hotels internet access and paying $9.95 for 24 hour access, I suddenly realize that I did not have much time. Plus I was getting really tired. And I have no theme! So here is my ramble, and I hope the pieces do fall together.

Bears Stearns in Trouble?

One of the events that stuck to my mind this week was the fact that on Monday, a couple of friends of mine who work on wall street’s bond departments told me that Bear Stearns credit default swaps were trading at 900 basis points. Essentially, they were trading at distressed levels. On friday, Bear’s stock collapsed despite getting emergency funding through JP Morgan. Funny things was how the bonds guys knew this might happen and the stock trading community did not know about it until it was too late. If we look at our own lives, perhaps there are signs that we can gather if we are heading towards a financial disaster. How to Know if You’re in Deep Financial Trouble by Terry of Savvy Frugality is a good check list for yourself.

Diversify Your Revenue and everything!

Bear Stearns is likely to be put on the block for sale and part of the reason is that they did not diversify their revenues when things were great the last few years. While most investment banks are have thriving bond, stock and investment banking departments, Bear’s strength is mainly in bonds (and Mortgages!). The lesson here is that one has to diversify one’s revenue stream so that you do not become too cyclical with the economy. Applying that to a personal level, PT presents 12 Ways to Make Yourself Recession-Proof posted at Prime Time Money. Another important lesson comes from Steve Faber who says that simply reducing expenses is not enough. We also have to “grow our revenue” and he encourages us to enroll in - Continuing Education Certificate Programs to Earn Extra Money.

Where’s the risk management tool?

But Bear’s story is just the latest news headlines that have hit us since last summer when the sub-prime crisis first unraveled. It started to really make headlines when Merrill Lynch, Citibank and in fact all big banks announced massive write downs on the mortgage securities. Given the amount of write downs, it makes you wonder how banks look at their risk. Aren’t they sophisticated enough? Haven’t they looked at their total risk profile. Worse to come, AIG also announced massive writedowns. Bill Gross from PIMCO described this whole fiasco as the unwinding of the “shadow banking system”. The equity analyst also did not anticipate this because many of these securities were derivatives held “off-balance-sheet”! I guess the lesson is that there is no such thing as off balance sheet items. You have to look at everything as InvestorBlogger writes in his blog aptly titled Is your bank book your financial statement?.

Speaking of risk management systems, it is clear that today’s financial institutions have been found wanting in this area. To be fair, it is a very complicated area as many loans and securities today are modeled by PhDs! For us mortals, our situation can get complicated but fortunately, we do not need rocket scientist to figure that out. There are lots of tools available and they all serve their purposes. Here are a few reviews and thoughts on the latest tools.

Millionaire Money Habiits writes about mvelopes personal finance software review

Pete presents 3 weeks with Geezeo.com - A Review posted at Bible Money Matters

Kevin presents No Debt Plan » Blog Archive » Budgeting Tools posted at No Debt Plan.

Hire the Best - Fire the Crap

When Merrill Lynch and Citibank announced massive losses on their sub prime securities, their CEO took the heat for that. And rightly so. When John Thain came to Merrill, he opened said in interviews that their risk management system could be improved upon. That must have been the understatement of the year. We have to give kudos to Merrill to looking outside and hiring someone with better risk management background. In the same spirit, The Happy Rock has just fired himself as his own CPA! and now Spends The Big Money For Tax Prepation.

History Always Repeats Itself

In 1998, Long Term Capital blew up when liquidity dried up and all their trades went sour and they could not unwind them. They were also high leveraged. You would think those lessons have been learned, but we all know history always repeats itself. Recently, Carlyle Capital has gotten into trouble because of margin calls and over leverage. And to think that they were some of the smartest guys in private equity. Here are a few posts that reminds me of this.

nickel presents Seven Deadly Sins That Lead to Debt posted at fivecentnickel.com.

Ryan Healy presents Why People Stay in Debt posted at Debt Reduction Formula.

debt freedom fighter presents Money, Mathematics, and Personal Behavior – Dave Ramsey is Right! posted at Discover Debt Freedom!.

Why Minimum Monthly Payments Will Cost You Big advice will always be ignored by most.

Would Carlyle have learned anything by reading these articles? ha - probably not. But once again, to folks like us, I would devour every word of these.

Over leverage is dangerous

A major reason of the mess that we are facing is simply the amount of over leverage in the system. From financial institutions to hedge funds and to us as individuals. Financial institutions have “off balance sheet” items (which are legitimate). Individuals as well got over leveraged because we could get 0% downpayment, get our brand new plasma TV with our HELOC! Warren Buffet used to describe an LBO as putting a dagger on the steering wheel. It makes you careful (debt makes you efficient!), but one accident and that’s it. The lesson here is do not set yourself up such that you have a razor thin margin for error. Here are a couple of posts that relates to that.

paidtwice presents Don’t Set Yourself Up To Crash and Burn - Wiggle. posted at I’ve Paid For This Twice Already….

Randy Peterman presents The Moved Buffer Theory Budget posted at Watch My Money Maker.

But how this all this happened?

After the fact, every financial journalist began to talk about how this whole sub prime mess cam e about. Easy financing, new debt securities that carved and tranched risk into different risk profile and then sold them off to investors. Because of the investors huge appetite for risk, underwriting standards become lax. This is all good and well writing on “hindsight”. insert : : Here’s an interview by Emily Starbuck Gerson with Debtors Anonymous!

Problem is why didn’t anyone foresee this years ago? Maybe it is time we looked at some trends in the personal finance world that might get us into trouble these days. For example, FMF has warned us to Be Careful with Home Equity and 401k Credit Cards. Actually, he did not even write this post! But I’ll let him get away with it since he got a good guest blogger.

To mark to market or not

Since AIG had to announce a massive $11bn write down, they have made noises and arguments against “fair value accounting”. In fact, there has great amount of debate about this recently. While investment banks and hedge funds have to “mark to market”, banks and insurance companies can shift their declining assets into their “long term buy and hold books”. Part of the debate going on now is whether having to mark to market in a declining market actually makes things worse since everyone has to sell in a falling market which sets a spiral. However, the other side of the argument is that the Japanese banks were not required to mark to market in the 90s and they took ages to finally get around their bad debt problem. As far as folks like us are concerned, we are marked to market and it is for the better. In the spirit of full disclosure, Aryn discolses February Debt Reduction Process at Sound Money Matters

Not everyone was hurt

Despite the market action during the last six months, not every hedge fund or money manager was hurt. Paulson fund was a standout. He correctly anticipated the sub prime mess and was massively short short prime related securities. His funds were up a few hundred percent and one of them was up about as high as 500%! Who says manages cannot beat the S&P. His 2007 performance alone means he can lag for as long as he wants going forward! In the spirit on Paulson’s fund outperformance, here are a few stand outs from this weeks submission.

Vicki is now credit card debt free.

Ana presents Debt Reduction Success Story in Army Times posted at DebtFREE-Revolution. Debt Reduction of $90,000 in one year! That has to be equivalent to Paulson’s 500% return last year!

Debbie tells us how How She Got Out of Credit Card Debt.

Take Action - Replenish Capital with Sovereign Funds

So far, we’ve already have had a big big financial institutions replenish their capital from investments from Sovereign funds. Merrill Lynch, Citigroup, UBS have all had foreign investments to shore up their capital. Congress may get jittery about this but these banks did the right thing because having adequate capital in times of a liquidity crunch is vitally important. Mr. Debtbeater recently Cut Up His Credit Cards. Hey, if that is what it takes, so be it.

Deleted Scenes

Well, even George Lucas had to delete tons of scenes from his final movie and unfortunately, here are some posts that can’t fit into the movie (or could it be that it is midnight and I’ve no desire to stay up any longer!). But at least, these post are still in the collectors DVD!

Dividend Money Presents student loan reduction strategy

Amanda presents 4 Credit/Debt/Money Documentaries

Squawkfox presents Rent vs. Buy Calculator

Erek Ostrowski presents Getting Out of Debt (Part 1)

Bear sells out for $2

Just when I thought I could go to bed, the news is out that Bear has sold itself to JPM for just $2 a share! What more can I say?

Acquiring home improvement tools - an idea for neighborhood non-proprietary minded male friends

“Wow, so many tools and so little money to buy them”. Yes there are great cards that help with cash back on purchases at Home Depot and low interest rates but do I really want to buy more tools that fill up my garage? Well yes and no.

Having international friends now living in the USA who have not been raised in the American culture of home improvement and obsessiveness about tools to address every possible home maintenance need, I am amazed when I look in their garages. They are completely devoid of home maintenance and improvement tools and such. And although I don’t quite see how they can survive in suburbia without the essential hedge trimmer and workbench of tools, It makes me realize that there must be a better way than to keep acquiring more tools that fill up my garage.

They have relatively no tools, and are perfectly happy to keep it that way. Yes, you might say “just call a plumber or electrician or handyman”, but we know that it is cost of labor, not the cost of tools that keeps the do-it-your-selfer engaged in such activities. In fact, for many, it is the cost of labor that helps one justify the expense of more expensive labor saving tools and devices at Home Depot.

We all have close neighborhood friends who all struggle with the issue of acquiring 1-time-use tools and storing them for a lifetime - right? Well, what to do?

I’ve decided that if we are all in agreement, to start an inventory list of tools that we can publish to each other, it would reduce our number of trips to Home Depot, save gas, time and the probability for excessive tool acquisitions. I’m going to propose this to my friends and see what they think. We’ll all have to be ok with allowing others to borrow them and there needs to be some ground rules of course. I’ll let you know what happens and then start building an inventory list. Any thoughts on this?

It’s a little belated - but a very Merry Christmas and a Happy New Year to everyone. Right now, the whole family is in Orlando (yes the Disney thing).

I’ll sure be reporting on some interesting experience, including car rental tips, hotel tips and some interesting stuff that has already happened in the last couple of days.

Not only do we get deals from retailers, we also seem to be getting “deals” from credit card companies. Here is the latest offers from my Chase Flexible Rewards card.

If I use my card at www.chase.com/rewardsplus, which the shopping site for Chase, I will stand to get more reward points for every dollar I spend. Here are a few example of a few offers :

8 Bonus Points for Every Dollar Spent at LandsEnds

2 Bonus Points for Every Dollar Spent at Apple Store

I have actuall done most of my Christmas shopping and hence I will not be spending much more. But here’s another example of credit cards incentivising cardholders to shop at their own “in-house” online stores.