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Show DAILY Sunday. March 2. 2008 HERALD C7 MPT THE WALL STREET JOURNAL The Weekly Guide to Managing Your Money '20US WSJ.com Sunday Ihw Jones 5 Company. Inc. All Rights Reserred. How the Credit Me ss S que eze s You Scott Patterson By day, it seems, hear stories about a crunch" that's squeezing pocketbooks around the country. What's it all about? The bad news started in the housing market, as a big runup in prices deflated and homeowners began to default on mortgages in record numbers. That hurt the value of arcane debt ?curities tied to "subprime" mortgages made to high-risborrowers leading to big losses at investment banks and hedge funds. On Friday, giant insurer American International Group booked a $5.3 billion quarterly loss its biggest ever after it took a huge write-dowon assets linked to subprime mortgages. The loss helped trigger a or 2.5 drop by the Dow Jones Industrial Average, The squeeze is reaching beyond Wall Street to Main Street, hitting everything from the availability of student loans to credit-carinterest rates to the prices of municipal bonds in retirees' portfolios. It's important to have a basic understanding of what's going on in order to keep your cool if things heat up more. rate securities. This short-terdebt, in which interest rates are Mortgage Meltdown As problems in the subprime mortgage market have ballooned, affecting a wide range of debt securities, shares of banks and other financial Every ............................... in "" of Subprime Mortgages ' Delinquent 60 Days j S .,. s$: i ,, "f 5 A ifrfc:::: yM: -is- lo..:r:.....:..., '' Jones Wilshire Dow 20 ' r-- k n t, d It Starts With Housing .Most of the problem areas today have a common denominator: houses. Several years ago, as the housing market got hotter and hotter, lenders lowered their credit standards. They let people with bad credit records purchase homes at inflated prices. Some buyers put no money down. It was a recipe for disaster. Billions of dollars in securities tied to subprime mortgages ii iiIim muni III pli'inii '03 2007 2006 Sources: First Amerkan CoreLogk, Dow . wide-rangin- g d $1.55 - Street Journal Sunday writers regularly contribute to the Journal's 1.45 1.40 weekday Your Money Matters" podcast 1.35 Listen at WSJ.comPodcasts 1.30 1.25 s: 1.20 m" I II I 2007 2008 Source: Reuters via WSJ Market Data Group last week and the Nasdaq Composite Index fell 1.4. For the year to date, they are down 7.5 and 14.4, respectively. 0.9 Car Sale: Ford Motor may reach a deal this week to sell its Jaguar and Land Rover luxury brands to India's Tata Motors for more than $2 billion. Pharma Deal: Shareholders at drug company Pharmion vote Thursday on a $2.4 billion acquisition by biotechnology company Celgene. OPEC Meets: Members of the Organization of Petroleum Exporting Countries meet Wednesday in Vienna, amid soaring oil prices. No change in policy is expected. LAST WEEK Stocks Fall: The Dow Jones Industrial Average dropped Click Deficit: Consumers clicked on fewer ads listed with Google search results in January, suggesting the economic slowdown is spreading to Internet advertising. Briefly: Microsoft was hit with a $1.35 billion fine by the European Union for failing to comply with a 2004 antitrust order....The Federal Reserve's preferred inflation gauge remained at 2.2 in January, above the Fed's comfort zone....Sprint Nextel posted a $29.5 billion loss, as it wrote down the value of its merger. TOL STREET JOURNAL Vice President, Partner Biuinttm Larrj.RouK5nsj.com 2 ' The Journal Report Director, David Crook, Editor David.Crook(a wNj.com Mark Pope 8 Special Project! (212)597-586- 8 MarkTj nertrrwsj.com 43(K)IlmTK INilRTH EMAILS Sot-r- ii Street Bmnswk-k.N.J- on "" '" 08852 our free Web site : WSJ.comSunday '" . For a Si'B ial Journal Si bstriwion Ofikr, Call: All of this week's edition is available ,wl 0 Sr'SMY0,'J(aVVSJ.mM ARTKRS York, N.Y. 10281 concerns the financial stability of bond insur ers including MBIA and Ambac Financial Group, which insure billions of dollars in municipal bonds issued by states and local governments. The reason once again: housing. Branching out from their traditional muni. business, the, companies insured a large amount of subprime assets, such as CDOs, that have plunged in value. The bond insurers are now on the hook for some of those losses and that financial obligation is threatencredit ing their sterling triple-ratings from agencies such as g hard enough for fami to navigate the and emotionally charged decisions related to elder care when everyone gets along. Throw in a family with tensions or outright hostility and it's no wonder that disagreements sometimes end up in court, an expensive proposition that can easily magnify divisions. Another way to handle these problems is growing in By Tom popularity: Lauricella mediation. A media tor is sometimes brought in, at the order of a judge seeking to settle a dispute without taking it to a jury. But elder-car- e practitioners are urging more families to take the step voluntarily, especially in disputes over how to handle guardianship for family members who can no longer care for themselves. Mark Dennen's family was embroiled in nearly two years of litigation centering around guardianship for his father, then 92 years old, when a judge ordered the case sent to mediation. "Everybody brings in all this emotional baggage and the mediator helps bring things into focus," Mr. Den-ne- n says. "It's designed to get to a solution." The mediation brought the legal battle to an end just months before Mr. Dennen's father passed way. The basic idea behind mediation is that a dispute is resolved through an agreement among the parties, instead of a resolution mandated by a judge or negotiated by attorneys. The role of the mediator-usua- lly an attorney or someone with a in social background work- -is to facilitate communication and informed deci- - Steven.Townsleyfftdowioni's.com New Another Agreement Is the Aim Tki.kphone: (009) 200 Libert Woes recent round of er Kren.l)umto(Sg,c()m Mark Tyner, Art Director HfiADyl F Karen Damato, Newt Editor Steven A. Townslcy Director of Salei 3 (212)51)7-573. " CORPORATE 44 Miff. Lawrence Rout, Senior Editor Paul I). Bell J - ill 1 v. 2008 c S Moody's Investor Service and Standard & Poor's. Because insured bonds get a triple-rating based on the insurance backing, the anxiety about the insurers has already led some munis to dip in price. But investors can take comfort in the fact that muni defaults have traditionauy&pen rare and muni bond prices areiNJikeh to plummet even if the insurers are downgraded. The insured CDOs could take a greater hit-- yet another worry for big finan- .rial firms. Government regulators are struggling to figure out how to keep the bond insurers from losing their top ratings. Alternating chatter of bailouts or downgrades have roiled the broad stock market repeatedly during the past few months. Until there's some kind of resolution, investors should expect more mayhem. Further Ripples The latest permutation of the credit crunch has occured in a though large, corner of Wall Street: auction- - credit-mark- n little-know- Email: forum.sunday03(3wsj.com flation-Protecte- d E after-inflatio- ; five-ye- 2. The mediation process for decisions can and most say, should bring in experts such as social It's " 1.50 iPhone Add-OnApple introduces tools Thursday to allow outside programmers to create software for its iPhone, a move to spur demand for the multifunction device. 2007 I D govern- d ment bonds these days. Millions of Americans are rushing into these Treasury jjv Securities, or TIPS, to protect against rising prices. But this stampede has sent yields plunging to record lows. Today TIP OF these bonds WEEK fer a poor long- term bet. ' TIPS, issued by Uncle Sam, are safe from default and guarantee a certain annual yield above the official inflation rate. So if inflation rises, the yield rises in lockstep. But this "real," or yield is locked in when you buy. And right now, it's a pittance. On TIPS, it's just with 2.3 a few months ago. On TIPS, it's 0.4. Most individual investors will get even less, as they'll probably own TIPS through a mutual fund, which adds a layer of fees. If you want to hold TIPS long term, as many financial advisers suggest, you shouldn't rush to sell your TIPS fund. There are costs to consider. And if you sell now, will you remember to reinvest when TIPS are theap again? It may be more sensible to stick with the fund through market peaks and troughs. But do think twice before committing extra funds at these levels.. As a general rule of thumb, TIPS are usually worth look- - ; ing at only when the real rises well yield on the above By Brett Arends Mediating Family Elder- - Care Disputes at record levels versus the dollar, last week finishing above $1,50 in 4 p.m. trading for Wall (212)659-121- Bond-Insur- The euro is the first time. N CDOs that held eluding subprime mortgages. Investors fled from that SIV debt as they grew' concerned' about the values of the subprime mortgages. Banks such as Citigroup and HSBC have taken steps to shore up their SIVs with added funds in recent months, which is eating into their balance sheets and their willingness to lend. SOARS AS DOLLAR SAGS: EURO 11 twice before buying inflation-protecte- ENCORE . THE - 0 S A IN THE MARKET Drug Trial: Eli Lilly heads to court in a civil suit by Alaska alleging insufficient warnings on schizophrenia drug Zyprexa, which the U.S. last week declined to approve in a new injectable form. e I J sliced-and-dic- INVESTOR'S CALENDAR personal-financ- I -- 30 Jones Indexes were spread around the financial system as investors bet the housing boom would keep booming. Instead, it blew up, g effects. with Big banks and securities firms have done a amount of business in secucomplex mortgage-backerities. The most trouble has come from collateralized debt obligations, or CDOs, which bunloans from dle around the country often toxic subprime mortgages. Firms such as Citigroup, Morgan Stanley and UBS have taken huge losses, as they've written down the value of CDOs they own, and their share prices have tumbled. As banks try to make up their lost capita and keep from losing more their actions are reaching into wallets through consumers' rates and higher credit-car- d tighter lending policies. Compounding the CDO problem: Many big banks set up special entities, called structured investment vehicles, that issued short-terdebt and used the money to purchase assets in- - THIS WEEK set by periodic auctions, is used by borrowers such as hospitals, municipalities and student-loaauthorities to fund projects including road construction and student loans. Lately, Many of the institutional investors and wealthy individuals who have bought these securities have backed away; many grew worried because the securities are backed by bond insurers. When there isn't sufficient bidding at the auctions held every seven to 45 days, the borrowers must then pay much higher penalty interest rates. Last month, the Michigan Higher Education Student Loarf Authority said it would stop making some loans because of the disruptions. And certain student borrowers may face higher interest rates at lenders such as Sallie Mae due tothe auction-rat- e mess. Student-loaissues make up pttbout $80 billion of the $330 billion auction-rat- e market, according to the Associated Press. Many investors are wondering where the next shoe will drop in the credit crunch. Some worry about weakness in the market for commercial real estateeverything from shopping malls to office parks. Is there a silver lining in all this? Maybe just a' valuable lesson; When times are good, it can seem far too easy to spend and borrow money, hoping the good times last. But as many are now learning, the music eventually has to stop. That's something to remember when the economy starts roaring again, which it will. n companies have tumbled. 2 Hold Bets On TIPS elder-car- e worker's, J ' A-- M m spe- estat- sion making. The cost of mediation varies around the country. In big metropolitan areas, it can easily cost $300 to $500 an hour, although it's possible to find dispute resolution centers that are significantly less expensive. Robert Rhudy, a former al-aid attorney turned mediator, has championed the use of the practice to resolve disputes in Maryland. "In mediation, everybody who is affected by the situation has an opportunity, in a neutral and confidential setting, to tell their story," he says. Whenever possible, that includes the elderly family member. living and who should be caring for them. Mediation can be used to settle disagreements over livhow fiing arrangements, nances should be handled, who should be granted power of attorney, and even visitation rights among squabbling siblings. Agreements often specify the kinds of information, especially financial and medical updates, that will be provided to family members who live far leg- eld- er-care away. The personal nature of these disputes is what makes mediation helpful, says Forrest Mosten, a Los Angeles attorney who has been a mediator for nearly three decades. "The remedies that a court offers are very in mediation, an apology may end the dispute." Mediation also allows for informal or even interim solutions, Mr. Mosten says. "You can try things out and see how they work," he says. For example, instead of immediately pursuing a formal guardianship, one child could become a on a bank account. "If that works, then you don't have to go any further." There are some times when mediation alone isn't sufficient, says Nina Weiss, an attorney and mediator in Princeton, N.J. If a guardianship is in order, for instance, that must be ordered by the court system. Defusing Tensions The mediator can help ease communications among family members for whom the elder-car- e dispute may rewounds. open decades-ol- d 'Things like 'Mom always liked you better' and brothers and sisters who haven't gotten along since they were three years old come to the fore," says Mr. Rhudy. Common candidates for mediation are disagreements between family members who Live far away and a sibling who lives closer to the elder and may have a different assessment of that person's needs. Sometimes the disputes are between children and elderly family members who have their own view of where they should be Finding a Mediator One challenge facing families looking for mediation help is that there is no formal licensing or credential-in- g for elder-car- e mediators, notes James Bergman, a at the Center for Social Gerontology, an Ann Arbor, Mich., nonprofit group that has been a longtime advocate of elder mediation. "Anyone can hang a shingle out and say they're an elder mediator," he says. But there are plenty of experienced mediators, so it's largely a matter of trackjng down those with experience in the area and, importantly, a mediator the parties feel comfortable with. One place to start are local nonprofit mediation groups, such as the Montgomery County Mediation Center in Eagleville, Pa., which can generally be located online. There are also state organizations, such as the New Jersey Association of Professional Mediators. Some states have lists of mediators apofficially proved by their courts. And online, the Association for Conflict Resolution offers the public the ability to find mediators from among its members at acrnet.org. Also online, Mediate.com and EldercareMediators. com offer names of mediators (who pay small fees to be listed). Email: WW'J f g e-planning it ' estate-plannin- cialists and health-car- e professionals who would typically be' called upon as part of a court case. "The courts will recognize the same just that you avoid the expense" of litigation, says Joseph Mahon, an attorney in New Jersey (who isn't also a mediator). fl.iflLrtjrti ft iff ftf irr iJ J 1 if " d J"iJ encoreWsj.com 'HHfcll |