Author: A.T.

Yes, I’ve noticed there’s a new tax bill. Some of you may be wondering why I haven’t been outlining for you all its ins and outs. What could be more topical or important to people like us? (Others of you have been following this space long enough to know there could be a nuclear war, and my column would probably be about ostrich meat or the latest genie joke.) Sure, if there were 2 million of you and you each paid me $180 a year, I’d gladly staff up to provide this kind of coverage (and change the name of this column to The Wall Street Journal).

But the fact is, I do have a few preliminary thoughts on the likely new law, even if they’re not yet the clever-ways-to-manipulate-it-to-your advantage variety. And I also have a genie joke.

Basically, the new bill is pretty good, I think, given political reality. It’s high point is clearly hiking the cigarette tax to fund better health care for kids. A perfect trade-off, because you want to tax the things you want to discourage, like smoking, not the things you want to encourage, like hard work and investing. And you certainly want to invest in the health of our future — our kids. The best thing about the tobacco tax (all-too-modest as the 15-cent-a-pack is) is that it’s at least semi-voluntary (you can quit), and that if the burden falls most heavily on the poor, so do the benefits: on the margin, low-income people are most likely either to quit or not to start in the first place because of the price of smokes. No one who earns $80,000 a year is going to quit (and no kid who has signing privileges on his dad’s Visa card is going to find a pack priced out of reach) because 20 cigarettes cost $3, or whatever. But to those at the minimum wage, the impact actually could make a difference, on the margin. For those who do thus decide to avoid the tax hike by quitting, they get two huge benefits: the health benefit, of course, but also a big boost in their disposable income. Because not only will they avoid this extra 15 cents a pack, they will also avoid the rest of the cost of the pack as well — perhaps $1,000 a year for a fairly light addiction, which is a heck of a raise to a guy earning $6 or $8 an hour.

So that part is a clear winner.

I also am happy to see capital gains were not indexed to inflation — a completely sensible notion in concept, but, as the Clinton administration argued, a really dumb idea because of the complexity of execution (not just in all the extra calculations we’d have to do, but also in trying to avoid game-playing with the other side of it: indexing interest deductions taken to finance the investments that produced the gains).

Did we need a capital gains tax cut just now to get the economy out of the doldrums? Clearly not. Or to encourage people to shun relatively safe interest- and dividend-paying investments in favor of riskier investments, like stocks? Clearly not that either. Choosing this specific time to provide that added incentive may prove as perverse as it would have been to raise the capital gains tax in the months following the crash of 1929.

In short, there would have been better ways to do this, and it might have been held in reserve for a time it more needed doing. (I’ve long argued for a targeted ZERO capital gains tax rate on all purchases of NEWLY-ISSUED securities, to encourage the formation of new capital and the financing of new projects and growth, but no additional tax break on the mere TRADING of existing securities. It also makes no sense to me to make people wait a year or five to get the benefit of a tax break — there are already huge incentives to holding for the long term, such as the avoidance of tax altogether until you sell, so why artificially obstruct the natural flow of capital based on where people think it will earn the best return? Especially in the context of my NEWLY-ISSUED distinction, eliminating the holding period would work very well.)

Still, I’m as human as the next guy (no — I am!), and so I’m delighted that MY vast fortune will swell as a result of the cut to 20% and 18%. And that I can sell my house with no tax (even though I could have already, so long as I bought another of equal or greater value within two years). And that when I sell my little South Beach apartment building (14 tiny units, not great shape, yours for $499,999), I will get to keep an extra $25,000. Hey, I’m not crazy.

But I also do worry about the impact on charities. With tax rates fairly high, the benefit in giving appreciated securities — which is really pretty painless — was so neat it almost made you forget you still were, after all, getting poorer not richer by "beating taxes" this way. Now, especially to those living in low- or no-tax states, the benefit with an 18% or 20% rate will be less . . . and the lure of actual cash will be stronger. Beating taxes is a lure. Pure, after-tax cash is a lure. You’re pulled one way, you’re pulled the other — I predict that, by sliding the fulcrum of this tug of war away from the satisfactions of generosity to the primal appeal of self-interest (me! me! me!), the tax bill will inadvertently cut into charitable giving a bit.

You could argue, of course, just the opposite — that by letting rich people be a little richer, they’ll have even more money available to give away. But my own instinct is that it won’t necessarily work this way.

Then again, the difference isn’t likely to be dramatic or, perhaps (given all the other variables you can’t control), even measurable.

I have some other musings on the tax bill, but we’re both getting carried away, distracted by tax loopholes, as usual, from our basic productive work. In your case: whatever it is you do for a living. In my case, writing for you the essence of this genie joke. (Forgive me if it hit your e-mailbox as it did mine.) The long form is a lot of fun and involves a lot of description of this 28-year-old golfer and his beautiful young wife. The short form is that they went to apologize to the owner of a golf-course-adjacent house whose window they just smashed with a terrible slice. "I’m not the owner," says the guy they encounter, "I’m a genie! In fact, until your golf ball smashed that window and then this vase, I had been trapped in here for 300 years!" Far from being angry, he offered them two wishes by way of gratitude, with the proviso that he then get one of his own. "I want to be a scratch golfer," said the man. "Poof, you’re a scratch golfer," said the genie. "I want ten million dollars," said the man. "Poof, you’ve got ten million dollars," said the genie. He then noted that he had been in that bottle for 300 years, without the company of a woman, let alone a woman as beautiful as the golfer’s wife, and so he made his wish, which involved spending the next hour with her. At the end of which, before they returned to the living room, he asked the wife: "How old is your husband?" "Twenty-eight." "And how long has he believed in this genie stuff?"

Enjoy your tax cut. Let’s hope it works largely as intended — as it may well — rather than spawn an industry of unproductive ways to convert ordinary income to capital gains, and overheat things that are already more than a little lukewarm warm.

Tomorrow: Sometimes Insurers Really Stink

From Bill Brinkley, Jr.: “You mentioned a while back that you can effectively ‘cancel out’ your position in a stock by shorting the exact number of shares you own. Somebody told me this a few years ago, and now you’ve got me thinking about it again as a way to lock in some gains on stocks I’d like to sell but don’t want to pay taxes on.”

This is called shorting against the box, from the days when your stock certificates were kept in a safety deposit box.

“My questions are these,” says Bill:

• “How long can you go on holding a stock both long and short? Forever? Doesn’t the IRS care?”

Forever is a long time, but it used to be the answer. Now, because the IRS does care, it looks as if this loophole may finally be closed as part of the new tax bill — and retroactively to short sales made after May of this year.

• “When you cover your short, any gains are treated as short-term capital gains, which here in my state creates additional tax to pay. So is the whole shorting plan really a good idea if you do someday have to close out your positions?”

Yes and no. I think the loophole will be closed, as it should be, so this may all be moot. And I should also point out the pothole in the loophole, lest you get any grand ideas: even under existing law, shorting against the box freezes your holding period. That is, if you held a stock 11 months and it hadn’t yet qualified as a long-term capital gain, shorting against the box would stop the clock unless and until you covered your short. So you can’t use this ploy to lock in a profit and see it risklessly mature as “long-term.”

The advantages are (or used to be) the ability to defer tax to a year when you’d be in a lower bracket, either because — in your case — you might someday be moving to a state with a lower income tax and/or because you expect the federal tax rate to come down. Shorting against the box allowed you to shift a gain into a year when it would be less heavily taxed.

Another possible advantage: Say you bought Coke at $10 and it’s $70 and you love it for the long term and certainly don’t want to trigger a huge tax by selling it . . . yet you think it’s likely to fall back a bit and you’re not happy about that. So you short some against the box, cover for a short-term gain at $60 or $55 or wherever, while you continue to hold your stock. I’m definitely not suggesting you do this, especially now with the new tax law, but that’s one way the strategy could have made sense.

Then again, there is the potential for this ploy to transform a lightly-taxed long-term capital gain into a more heavily taxed short-term gain. It’s not likely to happen with Coke, but continuing with this example, say the stock fell from $70 back to $10, where you bought it — or even to zero, when it turned out that Coke causes some dread disease and that Atlanta knew it all along. Well, you have a huge profit in your short — but, as you say, even if you held it for 30 years, it’s considered a short-term gain. And you’ve let the long-term gain in the shares you’re long wither away to nothing. So you’ve transformed a lightly taxed gain into a heavily taxed gain. Oops.

• “When the tax year ends and you’re holding a short position, the 1099 from your broker contains a Total Sales for the Year amount. This amount includes sales of the stock you borrowed to create the short position. And you have to put this total amount on your Schedule D. How do you explain to the IRS (year after year) that some of that money was from short sales and there’s no gain or loss yet to report? (Because the Total Sale Price column won’t add up to the 1099’s figure.)”

No different from any other short sale. You just attach a little footnote to your return. (Or not, and if it ever comes up in an audit, you just explain, “Oh, that was a short sale.”)

But let me say once more: it looks as if this loophole may finally be closed — retroactively. So if you hold a stock you think you should sell, I’d just sell it. If you own one you think is a good long-term holding but has gotten way ahead of itself, you might consider writing calls against it or buying a put.

Tomorrow: The New Tax Bill

If you have time, do me a favor. Check out the BETA equity mutual funds selector on www.personalogic.com. (While there, you might also want to select a car or a camcorder or a laptop or a bike.) When you select Mutual Funds as the area you want to visit (and then click GO) you’ll be offered a chance to proceed with the guidance of "an expert." Right now, that offer is a little buried; you have to read to the end of the screen to see it. But that may be just as well, because the expert is . . . me.

Whether you proceed generically or with my hectoring, here’s the question: Does it make sense? Is it helpful? Does it work? How should we improve it? Did you get any screwy results?

This is a venture backed by Barry Diller, American Express, the Washington Post, Softbank, and Microsoft co-founder Paul Allen, so you can be sure they want to get it right. The goal is to be a completely objective aid to decision-making. The data is not intentionally skewed in any way to favor one mutual fund — or laptop or vacation spot — over another. It’s meant to work with your requirements and preferences and will show you at the end why certain funds (or laptops) ranked as they did — or failed to make the cut.

How will PersonaLogic make money from this? All suggestions are welcome. (But do you actually have to make money to get rich from starting an Internet company?) What I do know is that PersonaLogic co-founders Tom Sammon and Brad Scurlock have built a remarkable decision-making "engine," spending several years of their lives in the process. One of them was training computers to track Soviet nuclear subs not so long ago. Freeing him up for this is part of the "peace dividend."

As they tell the story:

It all started — long before our wealthy partners got involved — when Tom’s wife was expecting their first child. With the impending arrival of this very important cargo, Tom realized it was time to think more about things like safety and less about things like 0 to 60. Tom asked Brad, a car enthusiast, if he had any recommendations. This started Brad thinking: Why wasn’t there a program that helped people find their ideal cars? With their artificial intelligence and database experience, the two decided to create such a program.

They set about building a "decision machine" that would let them optimize the decision — find the model among the hundreds and hundreds of choices out there that would give them the most overall satisfaction for their money. And then they realized: The same decision engine that worked for cars would work for any other complex decision where there are hundreds of choices and lots of factors to consider.

Such as the selection of a mutual fund. Your feedback on the Mutual Fund section would be most helpful to me in spotting flaws, bugs and ideas for improvement. (See "E-mail Andy" below.)

(Actually, the company does have a way to make money. It contracts with other companies that want to use its decision engine on their sites to help walk customers through purchasing decisions. The PersonaLogic site is, for now at least, like a free showcase of its technology. Take a look.)

Thanks to my cyber-pal Dave Davis for what follows.

Several years ago Sally Bedell Smith wrote a book called In All His Glory: The Life of William S. Paley (the late legendary founder of CBS). My favorite anecdote from the book is this one:

“It is a measure of Paley’s idolatry that he embraced so many of [John Hay ‘Jock’] Whitney’s friends and elements of his lifestyle. He even convinced CBS to buy Whitney’s private plane. To Paley, Jock Whitney embodied the ultimate in American masculine style. Yet Whitney’s influence was less in matters of taste than in the way he operated. ‘Bill,’ summed up Walter Thayer, ‘liked the way Jock lived.’

“A gentle rivalry flecked their relationship as a result. Once while watching television with Whitney at Greentree, Paley wanted to change the channel. ‘Where’s your clicker?’ Paley asked, figuring Jock would have a remote-control switch at his fingertips. Jock calmly pressed a buzzer, and his butler walked up to the TV set to make the switch.”

Now that’s rich.

“Incidentally,” writes Dave, “if you haven’t read that book, I recommend it highly. The hardcover edition is about two inches thick, but it goes very fast.”

“How do you buy shares of closed end funds selling at a discount? Why would they be selling at a discount? I thought that closed funds meant that you can’t get into them.”

Some open-ended mutual funds close temporarily (or permanently) to new investors — but that’s an entirely different thing. To redeem your shares, you still send them to the mutual fund company and get 100% of their then net asset value.

A closed-end fund is sold like a new stock, typically at $10 a share. Never buy them on the offering, because the underwriter takes his fee out of your funds and you are in effect paying $10 for $9.50 (or whatever) in assets.

But after the initial public offering — perhaps 20 million shares are sold at $10 each — the only way to buy the shares is from someone who sells them. And the only way to sell them is on the open market to someone who wants to buy them (i.e., you can’t redeem them with the fund company). Typically, they sell at a discount for several reasons.

One is that most money managers can’t beat the averages — so why pay 100 cents on the dollar for assets out of which is typically taken 1% a year in management fees? If GM is worth $50 a share, wouldn’t GM’s performance-minus-1%-a-year be worth only $45, if that? Well, a closed-end fund may own GM and 50 other stocks, and the same reasoning applies to the whole batch.

If you think this money manager can outperform the market by 1%, thus covering his fee and matching the market, then the fund should sell at 100 cents on the dollar. If you think she cannot just beat the market by enough to pay her own fee but add an extra 1% or 2% or 5% of performance to boot — as few can — then you might reasonably pay a premium.

Another reason closed-ends typically sell for a discount is that people know they do, expect them to — and thus resist bidding them up to full value. Or look at it this way. They know closed-ends rarely sell at a premium but can drop to 90% or 80% or in a bad market perhaps even 70% or 65% of net asset value. (Some, of course, will do better than others.) Knowing that, why risk paying 100 cents on the dollar. You expect a bit of a bargain to induce you to take this extra risk.

Theoretically, closed-end managers could end the discount and enrich their owners by going “open-end” — i.e., offering to redeem whatever shares were tendered at net asset value. Suddenly, each $1 of assets would be redeemable for $1, so the fund would sell for about 100% of its value.

But that could mean less money under management and, in turn, less money for the fund manager. So instead they often do the opposite. Rather than offer to redeem your existing shares, they “force” you to buy more. How? By offering you and all the other shareholders the “right” to buy additional shares at 5% or more “off” the going market price.

You’re not literally forced to buy, of course; but if you don’t, your own shares become a little diluted in value by the discount given those who do accept the offer.

(Closed-ends know many shareholders don’t like these rights offerings but make them anyway to expand the pool of capital they have under management, from which they can take fees.)

In short, closed-ends can offer great value. Or not. Only buy them when they do.

From Randy Bartlett: “Aloha Andy: You’ve espoused upon the virtues of index funds such as Vanguard’s in the past. Any comments on the info below?”

The information Randy refers to comes from Mutual Funds Magazine on-line (www.mfmag.com). “Although Fidelity’s performance lagged in late 1995 and in 1996, in the first half of this year it is once again among the leading fund families. In fact, the average return of Fidelity’s and Vanguard’s domestic diversified stock funds so far this year is within three-tenths of a percentage point. And, over the long-term, Fidelity’s actively managed fund approach beats Vanguard’s indexing philosophy.”

While I have high regard for the folks at Fidelity, I don’t think Fidelity can beat the market averages consistently — they’re so big, they ARE the market averages, more or less. Given that, the extra handicap of their low-load sales commissions (in some cases) and higher expense ratios (in most cases) make it unlikely to me that over long periods Fidelity will beat the index funds, let alone by enough to make it worth risking the possibility that they won’t. (Some of Fidelity’s hundreds of funds will do considerably better than average for a long time, but neither they nor we know which.)

Score one for the good guys.

THE BACKGROUND

Regular readers of this comment will know that Californians got to vote on three ballot initiatives last year — Props 200, 201 and 202 — that came down hard on lawyers. “The tough 200’s,” we called them. “The terrible 200’s,” the lawyers called them.

The goal, of course, was not to harm the lawyers, any more than the goal of Automatic Teller Machines was to harm human tellers. The goal was to make life better for NON-lawyers. Not surprisingly, the lawyers defeated all three.

• On Prop 200, which RAND estimated would have cut auto insurance premiums dramatically, the lawyers ran millions of dollars of advertising claiming that rates would go UP 40%. They had to know this was a lie, but with it they succeeded in hanging on to the $2.5 billion a year that they take from the California auto insurance system.

• On Prop 201, which would have done at the state level what Congress had done federally — discourage extortionate class-action securities suits while leaving the door open for those with substantial grounding — they lied and said it would prevent defrauded shareholders from suing. They ran ads morphing Seagate Technology founder and CEO Alan Shugart back and forth with Charles Keating, convicted felon — never mentioning that anyone who had bought Shugart’s stock around the time of his alleged transgression would, by the time of the ads, have about tripled his money. A few law firms that specialize in these suits thereby succeeded in hanging on to the several tens of millions of dollars a year they make from these suits.

• On Prop 202, which would have limited a lawyer’s contingency fee to 15% when an acceptable settlement offer was made within 60 days of the initial demand letter, they ran ads claiming that lawyers would cease to work on contingency if Prop 202 passed — they’d all quit, presumably, and become gym teachers.

It was not a great day for democracy, because — as usual — the electorate was not presented the facts objectively and given the opportunity to make an intelligent choice.

The lawyers were working with a particularly maddening formula. First you do something really rotten; then you point to that rotten thing itself as proof you’re right. Not very elegant the way I’ve phrased it, but highly effective the way they did it. To wit:

• First you sue Al Shugart, co-founder of Seagate Technology, three times for alleged insider trading (the first case was settled for pennies on the dollar to get rid of it, the second was thrown out of court after eating up $3 million in legal fees, the third is still pending); then you blanket the airwaves with commercials implying he’s a stock swindler because “he’s been sued three times for insider trading.” You morph his face back and forth with Charles Keating, the notorious convicted S&L felon, never mentioning that investors in Seagate — unlike investors in Lincoln Savings and Loan — have made, not lost, a pile of money.

• First you sabotage the early 1970s drive for no-fault auto insurance by giving states “no-fault” in name only. (In states like Massachusetts, there’s all the suing and fraud there is in California. You just need to chalk up $2,000 in medical bills to be eligible to sue — which gives some people an incentive to rack up $2,000 in unnecessary medical bills. The year the threshold jumped from $500 to $2,000, the average number of treatments following a car crash jumped from 13 to 30.) Then, 25 years later when the next generation makes another run at it, you simply point to “no-fault” states like Massachusetts and Connecticut and say, “See? No-fault doesn’t save money. It’s a disaster. An old idea that hasn’t worked.”

First sabotage it, then point to the wreckage to prove it doesn’t work. (In Michigan, the one state that comes fairly close to the true no-fault that Prop 200 would have provided in California, people actually do pay substantially less for auto insurance than in California, while enjoying VASTLY better protection if they’re badly injured.)

THE FOREGROUND

That the lawyers played dirty was plain. Getting them to admit this, even after the fact, is naturally next to impossible — but, as it happens, not entirely so.

Al Shugart sued the trial lawyers for libel. I had all but forgotten about this until last week, when I heard the news: The case had been settled. The California trial lawyers have agreed to place full-page ads of apology and to contribute $350,000 to charities of Shugart’s choice.

Anyone else might have been able to weasel and say, “We just couldn’t afford to fight this suit.” But 5,000 trial lawyers? So, clearly, they were admitting to having used deceptive tactics to defeat Prop 201. In my view, they did the same on Prop 200, defrauding California consumers out of billions of dollars a year, to their own benefit.

Writes Jack (as I’ll call him):

Recently my Sunday paper’s real estate section guru-consultant-wizard-know-it-all trotted out the old ‘pay a few bucks principal a month more, and save gazillions!’ This was then followed with a nice little table showing all the money you get to ‘save’ by making your 30 yr mortgage a 20 yr one instead (or a 15 yr one). I see this advice at least once a year in his column.

WELL, this is always stated as an absolute truth, and is very misleading. The ultimate extreme of this technique would (obviously) be: buy your home for cash & save a fortune! Yet compare mortgage rates the last couple of years with Vanguard 500 fund, and I know where I would want my money to be.

A personal story to illustrate the point:

I bought an ‘income’ property near Hughes Aircraft 8 years ago ($250,000 then, $160,000 today — something to do with the disappearance of my ‘endless’ supply of aerospace engineers to rent to after all the plants closed). Global peace can be hard on the pocketbook. Thank goodness I went for maximum leverage (smallest possible downpayment), and put my monthly disposable income into MSFT, instead of HOUSE!

Ultimately, the 30-yr fixed mortgage I had was so far ‘upside down’, that it made no financial sense to keep it alive. The real estate market would have had to rocket up for the next decade or two for me to come even close to break-even. I did a ‘short-pay’ instead (essentially walking away from the property), even though I could have sold my MSFT and paid the loan off in cash. I was ABLE to do so, because I had so LITTLE of my money into the deal. Had I made accelerated payments (or, God forbid, paid cash), I would have taken a bath.

Well. Clearly it would have been brilliant to buy Microsoft (MSFT) or even just the Vanguard Index Trust eight years ago rather than put that money into a larger downpayment. As described yesterday, you can’t count on this always to be the case — especially if you don’t have the luxury of walking away from a debt you’ve incurred, and not paying the piper, as Jack did. (Someplace in here there’s a great pickled pepper possibility, but I’ll spare you.)

Technically, Jack didn’t default. He got the bank to take the property back without the bank’s going to the considerable expense of foreclosure, in return for its agreeing not to pursue him for whatever they lost on the loan. Maybe they didn’t know he owned all that Microsoft. Technically, too, Jack should declare as taxable income the amount by which the loan balance was forgiven, but he says he’s hoping the bank will forget to report it, in which case he will feel no obligation to do so.

I was curious whether Jack had any qualms about any of this. He explained his reasoning:

If the bank wants to be nasty, they can report the ‘forgiven’ amount to the IRS as income. So, instead of owing the entire amount to the bank, I may owe TAX on it instead. Still a lot better than owing the entire amount. As best I can tell, this tax liability reporting is done inconsistently, depending on the lender & admin procedures. Haven’t heard anything yet regarding any tax liability (it has been a while — and I’m not about to ask the bank & remind them!).

For a while, there were even some outfits in So. Cal. you could deed your property to first (for a fee), and then they will default on the loan on your behalf — this loophole took the tax liability away from the original loan holder. It sounded a bit too shady for my liking — and I know the authorities are prodding & poking at this loophole as well.

Credit-wise, my ‘short pay’ is better than a ‘foreclosure’ which is better than a ‘bankruptcy.’ It also stays on your record shorter. I agonized for a while, but then how much money should one be willing to pour into a black hole to keep a perfect credit record? There must be SOME limit, right?

Also:

1. I had a partner in all of this who disappeared (back to India, I think), leaving me to hold the bag & make mortgage payments for the last two years. Since my credit record is spotless (including mortgages on other properties I have), I will play up the ‘abandoned by business partner’ angle in a letter to explain this one particular ding if it ever comes up.

2. Since so many thousands of aerospace folks lost their jobs in So. Cal. & lost their homes, a ‘short-pay’ is pretty common in these parts, and not the sudden death & stigma it used to be to your credit rating a decade ago.

2. I’m young (well, – late thirties), have a six-figure income, AND been socking almost 40% of my gross earnings (living below my means — I read your book!) into equities for the last decade (and boy, oh boy, those MSFT leaps I’ve been buying the last couple of years…), and have no foreseeable need for credit (other than my existing mortgages; and credit cards – which I pay off in full every month – also from your book!).

All of the above just to say, yes, there may be consequences to “short pays,” so, if you have a CHOICE in the matter, like I did, be sure to take all of the above into account.

My own old-fashioned feeling is that, if you have a choice in the matter, make good your debts — and declare all your taxable income. But I found Jack’s perspective informative, at the very least.

“With respect to your piece on Home Mortgage Deductions, could this reasoning also apply to paying down your mortgage? I feel like such a sap getting a 15-year mortgage at 8% instead of a 30-year at 8.25%. We’re sending about $300 extra to the mortgage company each month. Being in the 15% tax bracket and filing a joint return, are we doing an OK thing? — Mitch”

Don’t feel like a sap, Mitch. By doing this, you are “earning” 8.25% risk-free on all the extra money you use to pay down the mortgage, all those $300 checks. I.e., not having to pay 8.25% for 30 years is as good as earning 8.25%.

That may not sound like much when the stock market is rising 15% in a single quarter, but it won’t sound bad at all in quarters when the market drops 10% or 15%, and we’ll have some quarters like that one of these days, too. (At least, we always have before.) What’s more, the 8.25% you are “earning” on your additional principal payments is “tax-free” if you don’t itemize your deductions, or only lightly taxed at 15% if you do.

(In other words, just as the 8.25% interest you’d pay on a 30-year mortgage really is 8.25% after-tax if you don’t itemize deductions, or else about 7% if you do, so, too, is not having to pay it worth either 8.25% or 7% to you.)

Indeed, it’s even better than this, because not only are you “earning” 8.25% on those extra $300 monthly payments, you are also reducing the interest rate from 8.25% to 8% on the portion of the loan you would have paid even if you had gone for the traditional 30-year mortgage. So that extra $3,600 a year is saving you interest two ways. That bumps the rate you’re earning on it up to about 9% by my Intuitive Calculator. Unfortunately, I couldn’t figure out the way to calculate it precisely on my Real Calculator, but the great thing about the audience for this column is that several of you, I know, will ride to my rescue. I await your e-mail.

The point is: 9% risk-free and virtually tax-free is terrific. What’s more, this is a form of forced saving, and who among us can’t use a little help from time to time saving money? That has some value, too.

If you were in a high tax bracket, the case would be less clear. Say you lived in a high-tax state and between federal and local income tax were around the 50% bracket. That 8.25% 30-year mortgage would really cost you roughly 4.25% in interest after tax, so not having to pay it would be like earning only 4.25%, or perhaps a bit more than 4.5% after giving credit also to the lowered interest rate on the rest of the loan.

If you could afford the risk and thought you could find a company whose stock would grow at 10% compounded over 30 years — free of any tax until you sold it, and then taxable at only the long-term capital gains rate, which is likely to be lower than your current 50% rate — you would clearly come out far ahead taking the 30-year loan.

(But not far ahead of Mitch. Mitch, if he doesn’t itemize, is earning close to 9% after tax by taking the 15-year loan. You, in this example, are earning 10% that is not risk-free and will eventually be taxed.)

Mitch: If you have a safe way to earn 18% instead of 9% — paying off your credit card debt being the only one I can think of — then maybe you are a sap for taking the 15-year loan. Otherwise, 8.25% (or in this case more like 9%) guaranteed, and in easy little increments, is just fine as one element of your investment mix.

Depressed? Check out this site to see some of the famous people who’ve suffered the same nightmare. A brilliant and, until recently, suicidal friend turned me on to it. (He tried a year-long saga of esoteric drugs, even electroshock therapy at some of the country’s finest institutions — no help. But today, on Prozac, he’s back, productive, his old annoying self.)

Ready to roll? "Wherever you go, that’s where you’ll be," another friend used to say when people talked of trying to solve their problems by changing the scenery. But of course that applies to congenitally happy people as well as those in pain — wherever they go, that’s where they’ll be — and so, in the hope that you’re happy wherever you are, I commend you to this site (scroll down when you get there) which I used to plot a trip through Connecticut, Massachusetts and Maine. For each leg, I’d just enter the "city pairs" — cities like Oakland, Maine, and Cornish, New Hampshire (combined population, about 14) — and up would come the maps and directions, which I’d then print out. Scroll down a little further and you can get points of interest by zip code. (I skipped that. You’ve seen one giant ball of twine, you’ve seen them all.)

Need Wheels? In my case, Hertz provided the transportation. But if you’re in the market for a new vehicle, check out this beta site and let me know what you think.