Market Plunge Baffles Wall Street

http://online.wsj.com/article/SB10001424052748704370704575228664083620340.html

Market Drop Fueled by a Crisis, Anxiety and an Error

http://www.nytimes.com/2010/05/07/business/economy/07norris.html

Forbes: Greek Woes Or Trader’s Mistake? Take Your Pick
http://blogs.forbes.com/streettalk/2010/05/06/greek woes or traders mistake take your pick/

Eight Things the Plunge Means for Your Money

http://online.wsj.com/article/SB10001424052748703686304575228704252831856.html

BLOGOSPHERE COMMENTS ON THE 2:45pm FINANCIAL MARKET CRASH in May 2010

Stockmarket crash of 998 points – Procter and Gamble down over 30 at one point in late-trading

http://www.subprimeblogger.com/2010/05/06/stock-market-crash-of-998-points-procter-and-gamble-down-over-30-at-one-point-in-late-trading/

Remaining Problems That Could Cause A Second Stock Market Crash in 2010-2011

http://www.getmoneyenergy.com/2009/11/remaining-problems-could-cause-second-stock-market-crash-2010-2011/

Dow Jones Industrial Average | Stock Market Crash By Trading Error?

http://www.busybuzzblogging.com/2762/dow-jones-industrial-average-stock-market-crash-by-trading-error/

The Web Struggling To Keep Up With The Stock Market Crash/Bounce

http://techcrunch.com/2010/05/06/stock-market-crash-web/

Where Things Stand

http://www.bespokeinvest.com/thinkbig/2010/5/6/where-things-stand.html

DEEPER INSIGHTS INTO THE 6th MAY MARKET CRASH

May 6, 2010 Recap: The Day the Market Broke

http://tradermike.net/2010/05/may-6-2010-recap-the-day-the-market-broke/

8 Theories For Why The Stock Market Plunged Almost 1000 Points In A Matter Of Minutes On May 6th

http://www.benzinga.com/266954/8-theories-for-why-the-stock-market-plunged-almost-1000-points-in-a-matter-of-minutes-on-may-

You Don’t See That Every Day: 6 Minutes of Insanity

http://www.smbtraining.com/blog/you-dont-see-that-every-day-6-minutes-of-insanity

What Caused the Crash Today?

http://pragcap.com/what-caused-the-crash-today

Does Anyone Want to Defend the Decision to Cancel Trades?

http://fridayinvegas.blogspot.com/2010/05/does-anyone-want-to-defend-decision-to.html

Algorithmic Trading and Price Volatility

http://rajivsethi.blogspot.com/2010/05/algorithmic-trading-and-price.html

How a Typo Crashed the Market

http://www.thedailybeast.com/blogs-and-stories/2010-05-07/how-a-typo-crashed-the-market/

Forget The “Trading Error” — Today’s Sharp Pullback In Stocks Is Hardly A Surprise

http://www.businessinsider.com/henry-blodget-dont-miss-forest-for-trees-trading-error-or-no-market-closed-down-350-2010-5

Dissecting the Crash by ZeroHedge
http://www.zerohedge.com/article/dissecting crash

7 Facts Nobody Wants to Hear About the Market Plunge by Steve Place
http://www.investingwithoptions.com/2010/05/06/7 facts noone wants to hear about the market plunge/

-998.50. If You Like Roller Coasters, You’ll Enjoy This
http://seekingalpha.com/article/203631 998 50 if you like roller coasters you ll enjoy this?source=hp_wc

OTHER INTERESTING LINKS

Can the government control a stock market crash?

http://money.howstuffworks.com/government-control-stock-market-crash.htm

I suvived the crash of 2:45pm TShirt from StockTwits
http://www.zazzle.com/i_survived_the_crash_tshirt 235723238369605089

The Market Plunge and Liquidity in the Start Up Business
http://seekingalpha.com/article/203665 the market plunge and liquidity in the start up business

As we approach the end of 2009, sentiment is definitely not as jittery compared to 12 months ago. However, the are a number of important issues that need to be resolved in order to create a sustainable recovery.

Here are some of the problems that must be addressed to bring and end to the US financial and mortgage crisis:

1. Housing inventory: The United States has an historically large number of vacant homes. Of the houses built in the past decade, almost one in ten is currently empty. Then we have the “shadow inventory” of around 600,000 new or foreclosed properties that the construction companies, banks and lenders are keeping out of the market in an attempt to stop prices sinking further. Add to that all the homes that are likely to be foreclosed on over the next two or three years (three million is an often-quoted number) and you can see how the supply glut will keep a lid on property prices.
2. Mortgage resets: While most subprime home loans have already reset to higher payments, resulting in a wave of defaults and foreclosures, the real problem will come when a slew of option ARM mortgages reset at 40-80% higher levels in 2010-2012. Around 80% of option ARM holders pay only the minimum every month, so their debts have been increasing while their home values have been falling. There are an estimated $500 billion in option ARM loans outstanding around the country, with California’s one million or so accounting for 60% of the total value. When the payments on these loans jump, many people will default and risk foreclosure, which in turn will keep prices down.
3. Foreclosures: As at mid-2009, a quarter of all home loans in the U.S. were already under water, and industry pundits say that half will be in the red by early 2011. The number of delinquent borrowers is increasing fast, and is set to snowball over the next few years as more homeowners find they can’t afford to pay the mortgage. Only a small percentage of delinquent borrowers have so far had their loan terms modified, and many of these have simply defaulted again. Foreclosures haven’t kept pace with defaults either, meaning that there is a big backlog of pre-foreclosure properties. Unless a speedy solution to the problem can be found, the market will be flooded with foreclosed homes.
4. FHA mortgages: Since 2007, an increasing number of new home loans have
   been FHA-issued. The FHA (Federal Housing Authority), which provides home loans
   with low down payments to qualified low-income, high-risk buyers, accounted for
   close to 40% of new mortgages at the end of 2008.The risk is that this fount of
   liquidity for the real estate market would dry up if the FHA were to impose
   stricter conditions on buyers or lower its lending limits. Many of the
   properties currently being bought with FHA mortgages are foreclosures. The
   buyers typically have few assets and are particularly vulnerable to economic
   shocks such as job loss or an interest rate increase, so it’s safe to bet that
   quite a lot of these homes will be back on the market as foreclosures before too
   long.
5. End of the $8,000 first-time home buyers’ tax credit: A recent study by J.D. Power and Associates found that first-time buyers made up 56% of the market in the first half of 2009, compared with 44% in the first half of 2008. Many of them were enticed to enter the housing market by the federal government’s $8,000 first-time homebuyer credit, which, unlike in previous years, doesn’t need to be repaid. We still don’t know whether the government will extend the program after it expires on November 30, 2009, or if it will roll out a new first-time buyers’ scheme next year.
6. Employment and earnings: Hundreds of thousands of jobs are being lost every month in the United States, and the unemployment rate is the highest since 1983. Those regions where job losses have been particularly severe – such as the former manufacturing powerhouses of Ohio, Michigan and Indiana – have some of the lowest house prices. The fact that average earnings for Americans who are working are almost 5% lower than a year ago is another blow to consumer spending power, and is also weighing on home values.
7. Fear and uncertainty: In the current climate of recession, rising unemployment and billion-dollar bailouts, people are tending to be more conservative with their spending and taking on fewer large debts. Many prospective homebuyers are delaying their purchasing plans and staying in their old homes or even saving money by renting while the market stabilizes. With interest rates at an all-time low, people are also concerned that they will go up soon, which would add to the cost of owning a home.
8. Consumer credit ratings down: Millions of Americans have had their credit scores slashed, are drowning in debt and don’t have the cash for a down payment on a house. At the same time, lenders are tightening up their approval conditions and often turning down applicants with less than perfect credit. This is making it harder to buy property and many homes are going unsold.
9. Baby boomers will sell to fund their retirement: Of the 77 million Americans who were born between 1946 and 1964, a third have no retirement savings. The oldest baby boomers are now 63 years old. For many boomers, the only asset they have is the equity in their homes, which they will have to sell in order to live. This will unleash a steady stream of properties onto the market and help prevent prices from recovering.

The Obama administration may have implemented commendable policies to put us on the right track to recovery, but the truth is, this is a huge problem that requires a lot to contain it, and it will be some time before the US financial crisis is over.

(Please feel free to share any good resources you’ve come across in the comments section below.)

1. In depth coverage of Global financial crisis from the Financial Times (FT)
2. John Taylor on the Financial Crisis (John Taylor)
3. How the financial crisis has killed the governance reform agenda
4. The World Health Organisation’s (WHO) View on the Financial Crisis (WHO)
5. Global Financial Crisis Overview & Consequences (Global Issues)
6. The Implications of the Global Financial Crisis for Low-Income Countries (IMF)
7. America in financial crisis from MSNMoney (MSN Money Central)
8. Latest Financial Crisis, Banking crisis and Credit Crunch news (Daily Telegraph)
9. Yahoo Financial Crisis News and Headlines (Yahoo)
10. The Guardian’s View on the Financial Crisis (The Guardian)
11. The Global Financial Crisis by the IFAC (IFAC)
12. Financial crisis may have been good for the climate (New Scientist)
13. Europe’s Response to the Financial Crisis (Europa.eu)
14. Financial Crisis and Recession
15. IFC’s Response to the Financial Crisis (IFC)
16. The First Global Financial Crisis of the 21st Century
17. Colorado State University Guide to the global financial crisis (Colorado State University)
18. AOL Money & Finance Financial Crisis Guide (AOL)
19. The Financial Crisis of 2007-2009: Causes and Remedies
20. Financial Crisis in Wikipedia Free Encyclopedia (Wikipedia)
21. 2007-2009 Financial Crisis (Wikipedia)
22. The World Bank’s View on the Financial Crisis (World Bank)
23. The IMF’s View on the Financial Crisis (IMF)
24. A Plan for Addressing the Financial Crisis by Lucian Bebchuk
25. Iceland Financial Crisis from the Icelandic Government Information Center (Iceland)

There are a lot of good websites and links to resources about the various financial crises over the years including the one we’re in right now.

Here are 25 of the best sites, blogs and detailed reports related to the financial crisis:

1. Global financial crisis of 2008–2009 (Wikipedia)
2. The Financial Crisis by the Wall Street Journal (WSJ)
3. Real Estate Financial crisis of 2007–2009
4. The World Bank Group Crisis Talk (World Bank)
5. Global Economic Crisis by the ADB (Asian Development Bank)
6. The IMF’s Response to the Asian Crisis (IMF)
7. Latest Financial Crisis, Banking crisis and Credit Crunch news (Telegraph)
8. Credit Crisis News from The New York Times (New York Times)
9. International Financial Crises (International Economics)
10. Financial crisis by the African Development Bank (the African Development Bank)
11. The Asian Financial Crisis
12. Financial crisis by the OECD Observer (OECD)
13. The global financial crisis: implications for the South
14. Interview with Danny Leipziger on Financial Crisis (World Bank)
15. America in financial crisis (MSN Money Central)
16. THE 1997-98 ASIAN FINANCIAL CRISIS
17. The 1997 Asian Financial Crisis
18. The Crisis & What to Do About It (NYBooks.com)
19. The Korean Financial Crisis of 1997-98
20. Confronting the Crisis: Its Impact on the ICT Industry
21. The Unfolding Crisis (World Bank)
22. 2008 Financial Crisis (WikiInvest.com)
23. Causes of the Financial Crisis (2009)
24. Global Financial Crisis of 2008
25. Coping with Japan’s financial crisis

The California Foreclosure Prevention Act was introduced in an attempt to slow the torrent of foreclosures flooding the state – and with many more to come – and to allow extra time for lenders and borrowers to agree on loan modification terms.

Realistically, nobody expected it to make much of a dent in the number of foreclosures, given that so many people simply can’t pay the mortgage owing to California’s  escalating unemployment and poor economy, not to mention the huge price drops that have put them a long way under water.

However, it was hoped that the California Foreclosure Prevention Act would at least force mortgage companies to make more of an effort to modify loan conditions for struggling homeowners.

Unfortunately, this hasn’t worked either, since all the big mortgage lenders were granted exemptions from the new law as soon as it went into effect. This essentially renders the law useless and leaves most distressed borrowers no better off, as the exempt lenders account for over 90% of properties presently under threat of foreclosure in the Golden State.

Federal government efforts to help those facing foreclosure – such as the Making Home Affordable program and the HOPE hotline on 888-995-HOPE or www.hopenow.com – can benefit some of California’s distressed homeowners. State authorities have also teamed up with Spanish-language TV network Univision to provide information and assistance to Spanish-speaking mortgage-holders. There are also community-based counseling programs across the state.

This would give the lender some cash flow while waiting for the market to rebound, and keep homes occupied and off the market, where they would contribute to delaying the housing price recovery. As the name suggests, the aim is also to keep neighborhoods from deteriorating because of mass foreclosures, as well as to remove the need for families to look for alternative accommodation.

Even if the Neighborhood Preservation Act does become law, we still don’t know how many lending institutions would actually make use of this facility.

It has been suggested that this legislation should be accompanied by a law that gives homeowners the right to remain in their homes as renters. If a renters’ right law of this nature could be enacted quickly, it would help Californians cope with the huge wave of foreclosures expected in the state over the next three years when a million option ARM mortgages reset at sharply higher levels.

Related Articles:

• The California Mortgage Crisis: No End in Sight
• US$18 million Website to Help Americans Recover from the Financial Crisis
• Alternative Options When You’re Facing Foreclosure

While the housing market might be picking up in a few parts of the U.S., the problems in California have only just begun.

Historically, California been one of the most expensive states to live in, but residents have been willing to put up with high real estate prices for the privilege of enjoying the California lifestyle. So, it’s not surprising that the Golden State is suffering particularly hard in the current mortgage crisis.

For many Californians, their dream home has now turned into a nightmare. Real estate prices have slumped by 40% to 60% since peaking in 2006 after a huge run-up that started in the late 1990s.

Meanwhile, some homeowners are seeing their monthly repayments rise to unaffordable levels – even though official interest rates are at an all-time low – and hundreds of thousands more will find themselves in the same boat over the next two or three years.

Mortgage Defaults

Almost one in ten Californians with a mortgage is now in default, i.e. they have missed several payments and are likely candidates for foreclosure. June 2009 figures show a 9.5% statewide default rate, up sharply from 6% a year earlier.

If the recent trend continues, 60% of these properties will enter foreclosure over the next several months. Industry observers say a commercial real estate crisis is looming too, with a large number of retail, office and industrial properties already in negative equity.

There are close to half a million foreclosed homes in the state at the moment, with around 80,000 to 90,000 new foreclosures being filed every month.

Many of the homeowners now under water are sub-prime borrowers, who typically took on so-called 2/28 mortgages. This is a 30-year loan, the first two years of which carry a low, “teaser” rate that has in most cases now reset to a higher level.

With California’s nearly 12% unemployment rate, soaring personal bankruptcies and cutbacks to government services, a large number of these sub-prime borrowers have had their homes foreclosed, or have simply handed back the keys and walked away.

Coming soon: the option ARM reset crisis

Hard as it might be to believe, we’ve so far only seen the beginning of California’s mortgage misery.

Brace yourself for the full blast of the option ARM reset crisis, which is starting to unfold now. In this state where (formerly) million-dollar homes are nothing special, option ARM mortgages were marketed enthusiastically to buyers of relatively pricy homes in “nice” neighborhoods.

Many of these buyers put down little or even no equity, which left them with no buffer when prices started to drop.

Also known as pick-a-pay loans, option ARMs allow borrowers to select their preferred monthly repayment level once the introductory low-rate period ends. You can choose how much to pay each month by switching between different mortgage types: interest-only, or fully amortizing over 15, 30 or 40 years. If, as many borrowers do, you make less than the standard payment, the difference gets added on to your mortgage debt.

Option ARM Mortgages

Option ARMs typically recast to a higher repayment level after five years, or once the loan balance reaches 110% to 125% of the initial mortgage. In other words, there are a lot of option ARM mortgagees out there with loans that have been growing in a market of sharply falling home values. And now these borrowers are looking at having their monthly mortgage bills bumped up by 40 to 80%.

To make matters even worse, a large proportion of these option ARM mortgages were issued to so-called alt-A borrowers with good credit but questionable or inconsistent payment capability. Since alt-A mortgages don’t require proof of income or assets they attracted a lot of self-employed people, but also droves of borrowers who overstated their incomes (hence the nickname “liar loans). It’s no wonder experts are warning of an impending disaster.

Aside from a good credit record and FICO score, an alt-A borrower needs to show a lower-then average LTV (loan-to-value) ratio on the property to convince the lender that they will be able to pay the mortgage. The result is that a large number of Californians with middling incomes were able to buy big, fancy houses they couldn’t actually afford, and are likely to lose over the next few years.

Nationally, about 40% of those who took out option ARM mortgages in 2006 and 2007 have already stopped making repayments, but less than 10% of these delinquent borrowers have had their loan terms modified by their lenders.

A Big Problem from 2010

The really big problem will come when the majority of California’s roughly 1 million option ARM loans recast higher in 2010, 2011 and 2012. At that point, or before, we will see homeowners throw in the towel and simply abandon their properties en masse. And they can usually do this without fear that their mortgage companies will come after them for the losses they will incur when they sell the houses for less than the outstanding loan.

Unlike the rest of the country, in California you’re not liable for any shortfall in the sales price if you walk away and hand the keys back to the lender. Officially this only applies to the first loan you took out on your home, but in practice it’s hard for them to pursue you even for a refinanced mortgage.

This has spawned a new trend in the state: an increasing number of homeowners with negative equity are now abandoning their homes even though they can still afford the repayments. Some of these people are even turning around and buying a more affordable foreclosed property instead.

So far the foreclosure problems have been worst in the Central Valley, with Riverside County the hardest hit. But once the number of option ARM resets starts to snowball in 2010, huge swathes of swanky neighborhoods in coastal locations like the west side of Los Angeles, Orange County and San Diego will turn into foreclosure-towns too.

Related Articles:

• Preventing a Catastrophe in the California Crisis
• 10 Tips on How to Avoid Foreclosure

In fact, the money is actually being spent on a website redesign as there’s already an existing “website to foster greater accountability and transparency” in the use of funds covered by the American Recovery and Reinvestment Act of 2009 at www.Recovery.Gov.

So, why do we need a multi-million dollar site to report on how much money the government is spending, especially as we’ve already got one?

In an announcement from the General Services Administration, officials mentioned that the new site will allow “taxpayers to see where their dollars are being spent” but failed to reveal pertinent details about the deal where apparently only 59 companies were eligible to bid for the contract.

Although the Recovery.Gov site is supposed to create greater transparency, the management of its own redesign has certainly been surrounded by secrecy and too many unanswered questions.

As for accountability, it’ll be interesting to see how anyone justifies spending US$18million on a website upgrade.

UPDATE:

As it turns out, the contract’s price tag may be quite understandable if we take a closer look at the details:

1. The current cost of the redesign is only US$9.5 million. US$18 million is the total value of the contract including the possibility of an extension through to 2014.
2. US$9.5 million is still an enormous sum to develop a website when you consider that the technology licensing cost for UsaSpending.Gov (a larger site which tracks the entire Federal Budget) was only US$600,000. Using this as a reference, it may be reasonable to assume that a fair value for the project may fall in the region of US$2 to 3 million.
3. Further investigation reveals that there is a very tight deadline on the project, where the contractor has less than 60 days to deliver a finished product. OMB Watch explains that this could be a major reason for the high cost.

In view of the expedited timeline, the premium included in the project cost may be more understandable, even if it’s still unacceptable.

The number of foreclosures is at a record high, and looks set to balloon over the next few years.

If you’re in danger of having your home repossessed, the good news is that mortgage lenders are generally quite keen to negotiate a deal to allow you to keep it.

However, you do need to demonstrate that you are willing to work with them.

What Happens During a Foreclosure?

If your home is foreclosed, you will lose all rights to it no matter how much money you have put in to the mortgage, and you will have to move out.

The foreclosure will show up on your credit report for 7 years, and you might not be able to get any type of loan during that time. In addition, your credit score will take a hit.

In cases where the lender sells your foreclosed property for less than you owed them, they are permitted to take out a deficiency judgment against you. This means you have to pay them the difference, even though you’re no longer the owner.

The only state where you can’t be pursued for the balance of the loan is California – and that applies only where the mortgage has not been refinanced.

So, what are the Alternatives to Foreclosure?

1. Special Forbearance

Your mortgage issuer might be willing to set up a repayment plan to help you catch up with missed payments. This could even include a temporary lowering of your monthly mortgage bill, for instance if you have recently become unemployed. Of course, your lender will need to be convinced of your ability to stick to the new payment schedule.

2. Mortgage Modification

Another way to reduce your monthly payments is to ask the lender about refinancing your mortgage at a lower interest rate (contingent on market conditions) and/or extending the term of the loan. You might qualify if you’re getting back on your feet financially, but are earning less than before you defaulted on the mortgage. This arrangement could be either temporary or permanent. Check your mortgage documents first, though, to ensure that there is no penalty for paying off the initial loan early and refinancing.

3. “Hard money” Refinancing

If you’re fortunate enough to have a good amount of equity in your home (it’s worth a lot more than you owe), you could apply for a “hard money” cash loan secured against the property. This would give you a lump sum to pay for the months you’ve missed. The effect of a high interest rate is negligible since you are borrowing a relatively small sum compared with a complete refinancing loan.

4. Fannie Mae HomeSaver Advance™

Ask your lender if your mortgage is owned by Fannie Mae. If it is, you might qualify for an unsecured personal loan that will enable you to make up for delinquent payments.

5. Partial Claim

Your lender might be able to apply for a partial claim on your mortgage from the Department of Housing and Urban Development (HUD). If so, HUD would make a payment to the lender to get your mortgage up to date. HUD would also grant you an interest-free loan that you would pay back over an agreed period. To qualify, you must be at least 4 months, but no more than 12 months, behind. Also, your mortgage must not be in foreclosure.

6. Pre-foreclosure sale (short sale)

This means that you sell the house or apartment for less than the value of the mortgage, with the agreement of your lender. In some cases lenders are willing to take a loss, and to release you from your obligation to pay the loan balance, in order to get the mortgage off their books and not have to foreclose and be saddled with the property. This would preserve your credit rating, but remember that you would have to find somewhere else to live.

You might qualify if the appraised property value is at least 70% of what you owe, and the property sells for at least 95% of the appraisal. You also have to sell the home within 3 to 5 months (depending on the lender’s stipulations), and to have missed at least 2 months’ payments by the sale closing date.

7. Deed-in-lieu of Foreclosure

If it’s taking a long time to resolve your mortgage default, it’s possible that your lender will allow you to “give back” the property and walk away. This way, you avoid the hassle, stigma and credit issues associated with foreclosure, but you do still lose your home. Lenders generally see this as a last resort, though, since they would really rather avoid having to become property owners.

Most mortgage lenders would prefer to conduct a short sale in this situation, particularly if they believe they could go after you to cover any shortfall. Even so, you might be able to hand over a deed-in-lieu if all other options have failed, you have tried to sell without success, and you don’t have any other mortgage in default.

8. Walk Away

As the mortgage crisis continues to escalate, an increasing number of people are becoming so desperate that they are simply abandoning their homes, suspending their payments and mailing the keys back to their lenders (known these days as “jingle mail”).

This is definitely not a good idea. Your lender will most likely foreclose on you, your credit report and credit score will suffer, and you will not get another mortgage for the next 7 years. You might also find yourself facing a deficiency judgment, where you have to compensate the lender if they sell your home for less than the mortgage (this doesn’t usually apply in California).

If you’re lucky, you might be offered the chance to sign over the property with a deed-in-lieu, but there is no guarantee of this. Another important point is that you need to remain at your address to qualify for mortgage assistance, refinancing or repayment plans – so don’t burn all your bridges by walking away!

If losing your home has become inevitable, it is really better to try to reach an agreement with your lender to avoid any nasty surprises that could make a bad situation even worse.

Here are 13 personal finance tips that will help you to manage your finances and keep your head above water until you can return to the workforce:

1. Find out about Severance
2. Apply for Unemployment Benefits
3. Stay Insured
4. Track your Spending
5. Prioritize your Bills
6. Cut Unnecessary Spending
7. Try Not to use Credit Cards
8. Leave your Retirement Funds alone
9. Be Careful about using your Home Equity
10. Raise Cash
11. Take a Temporary Job, or Freelance
12. Consider Volunteering
13. Identify sources of Emergency Aid

1. Find out about Severance

Ask your former manager or HR department whether you are eligible for severance pay. You might also want to find out what the rules are in your state, to make sure you actually get what you are entitled to. Don’t forget that you could be owed accrued vacation, overtime, sick pay, pension benefits or unemployment insurance as well. Some firms provide job search assistance to laid-off workers – you should ask about that too.

2. Apply for Unemployment Benefits

Do this as early as possible as there is always a waiting period before you start getting your checks. Receiving unemployment will not affect your credit, nor should you be worried that it’s ‘welfare’. It’s not – your employer paid into the system for you while you were working, so you’re entitled to use it. You can normally claim for up to 26 weeks, and often longer when the economy is bad. With the average unemployment check at $270, it probably won’t replace your previous income, though. Your state’s employment office can tell you how to apply and how much you’re likely to get.

3. Stay Insured

You can usually buy continued health coverage under your former employer’s plan, although this can be expensive. You don’t need to do this right away, though, as you have 60 days to decide whether to take up so-called COBRA coverage. However, a high-deductible individual policy might suit your budget better while you’re out of work.

4. Track your Spending

When money is tighter than usual, you need to know what’s happening to every penny. Keep a record of everything you spend, either with a notebook and pen, or using a simple spreadsheet, personal finance software like Quicken or Money, or an online site such as Quicken Online, Mint, or Geezeo.

5. Prioritize your Bills

Once you know where your money is going, you can decide which bills and other regular outgoings are essential, and which you can cut out or hold off on paying. List all your expenditures in order of importance. At the top of the list should be your rent or mortgage payment, essential utilities like electricity and water, and transportation you need to get to job interviews (car payment and insurance, or public transit). Near the bottom you should have unsecured debts like student loans, credit cards and other personal debt you use to pay for things that can’t be repossessed.

Your list should remind you what your priorities really are, if things get so bad that you need to choose which bills to pay. If you don’t pay your credit card bill, your credit score will suffer and you might have to deal with some phone calls from the issuer, but not paying your mortgage or rent could mean losing your home.

In the event that you can’t pay an essential bill like the electricity or the mortgage, get in touch with your power company or lender before it falls due. Utility providers often have low-cost services for those with low incomes. You might also qualify for temporarily reduced payments on your mortgage or other loans, but it is important that you notify the lender of your situation rather than simply default on your payments. In many cases, you can defer your student loan repayments while you’re unemployed too.

6. Cut Unnecessary Spending

When you have a lot less money coming in, you have to adjust your spending habits as well. You simply can’t spend money on anything that is not strictly necessary, especially as you don’t know how long you will have to live without a real income.

There are many ways you can trim your spending, for example: invite friends to your house or to a picnic in the park instead of meeting them in a restaurant or bar; stop buying clothes other than those you need for job interviews; use Skype for long-distance calls; get several errands done in one car trip to save gas money; buy generic groceries instead of branded; adjust the thermostat on your heating/cooling system; clean your car yourself rather than go to the car wash.

7. Try Not to use Credit Cards

Charging purchases to your credit cards gets expensive if you have an outstanding balance. Try to avoid putting any more items on your cards for the moment. You should also attempt to lower the cost of paying off what you owe by negotiating a lower interest rate with your card issuer, or shopping around for a card offering a better rate for balance transfers. Here are some great tips on how to stop using your credit card.

8. Leave your Retirement Funds alone

Don’t be tempted to ransack your 401(k) or IRA to get through this rough patch. You will be stung for taxes and penalties now, plus you will lose the tax-deferred returns you could have made. If you have 30 years to retirement, and assuming 8% annual growth, taking out $10,000 now means $109,000 less when you retire. Retirement funds are protected in bankruptcy court, so they should never be used to pay your credit card debt, which is wiped clean if you go bankrupt.

9. Be Careful about using your Home Equity

When you have a job, a home equity line of credit can be a useful fallback, as long as you use it for real emergencies only. If your financial situation is uncertain – for example when you’re unemployed – you must avoid using home equity to pay unsecured debts since home equity is also protected in bankruptcy court.

10. Raise Cash

Now that you have plenty of free time, use it to clean up your house and hold a garage sale or sell your old stuff on Craigslist or eBay. Maybe you have a room you can rent out. Think about your skills and how you can use them to do casual work like dog walking, house sitting, yard work, home maintenance, tutoring, editing etc., to bring in a bit of money until you find permanent work.

11. Take a Temporary Job, or Freelance

If it’s taking some time to find a job, consider applying for a temporary position, even if it seems like a step down from your usual job. Depending on your profession, there might also be opportunities for freelance work. Keep your options open, and you will have a greater chance of finding gainful employment – and you might even enjoy it!

12. Consider Volunteering

Why on earth would you want to work for nothing when you don’t have an income? Because it can give you a sense of purpose and routine, and show you that there are people whose situation is worse than yours. Don’t forget that it can also be good for contacts, and might even lead to a job somewhere.

13. Identify sources of Emergency Aid

If you’re out of work for a long time, you should find out how to qualify for food stamps or other government aid. Contact the food banks in your area and ask if you can join. Your church might have emergency funds for people experiencing financial hardship, and your family and friends might be able to help too.

Despite the slowdown in the overall economy, two sectors offer opportunities for people to save money in the form of tax breaks – homes and cars.

Homes

Some economists predict that the greatest impact of the stimulus bill will not be felt until next year. In 2010 the bill will provide ample funding to state and local governments for employment-intensive infrastructure projects such as highways, bridges, public transportation, and so on. In the meantime, one of the effects brought about by the recession has been to reduce the costs of certain durables and make them bargains.

Housing foreclosures and the spreading bankruptcies of the American car industry have made house and car purchases very attractive, especially when the stimulus bill tax breaks are added to the deal. For example, if you are planning to buy your first home, the government will give you an $8,000 tax credit. This is not only an increase of $500 above the previous tax credit, but more importantly you don’t have to repay the government.

This step should encourage young couples to buy a home and thereby help stimulate the housing market. In turn, it could build up enough momentum to slow down and perhaps even reverse the present plunge in home prices.

Cars

Similarly, the bill enables new car buyers to get a tax benefit by allowing them to deduct the sales tax on the purchase of a new car from their taxable income. If enough people take advantage of this opportunity, it could have a positive impact on the industry – though the recent declaration of bankruptcy by General Motors indicates this measure may be too little and too late.

Still, in a depressed economy when every dollar counts, the tax break on a new car means significant savings. According to the National Automobile Dealers Association, the average price of a new car in 2008 was $28,280, and the average trade-in value of a used car was $15,203.

NADA notes that the common practice is for states to tax the difference, which in the average case would be $13,077. In Massachusetts, for example, the tax rate is 5% rate, which would amount to $654. The stimulus bill reduction would reduce taxable income on the purchase by that much.

Other Ways to Reduce Tax

These tax breaks are only two ways to reduce your taxes. There are two other basic methods of minimizing what you must pay the government each year: you can reduce your taxable income and increase your deductions. Various tax credits reduce your tax. For example, tax credits are available for college expenses, for retirement savings programs, and even for child adoption.

Although not many people may be suited to adopting a child, however generous the tax credits, just about anyone can benefit from taking some college courses, which do not even have to be connected to your career.

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