Societe Generale Bank Uncovers $7 billion Fraud by Futures Trader

By Emma Vandore, Associated Press Writer

French bank Societe Generale said Thursday it has uncovered a 4.9 billion euro ($7.14 billion) fraud -- one of history's biggest -- by a single futures trader whose scheme of fictitious transactions was discovered as stock markets began to stumble in recent days.

CEO Daniel Bouton said the trader's motivations were "irrational," netting the trader no personal financial gains. Still, the bank is seeking to have him prosecuted in court.

A person familiar with the case named the trader as Jerome Kerviel. Bank officials said the trader was a Frenchman in his 30s who probably acted alone. The person spoke on condition of anonymity because of the sensitivity of the case.

The bombshell destabilized a major bank already exposed to the subprime crisis. France's second-largest bank by market value said it would be forced to seek euro5.5 billion (US$8.02 billion) in new capital.

Societe Generale filed a complaint Thursday with a court in Nanterre, west of Paris, accusing the trader of fraudulent falsification of banking records, use of such records and computer fraud, the bank said in a statement.

The Paris prosecutor opened a preliminary investigation Thursday based on a complaint filed by a small shareholder concerned about losses incurred because of the fraud, a judicial official said. The Bank of France, the country's central bank, said it was immediately informed of the fraud and was investigating.

Societe Generale's shares, which have lost nearly half their value over the past six months, were suspended in Paris on Thursday morning, then dropped 5.5 percent to 74.77 euros ($108.97) when they resumed trading.

The bank said it detected the fraud -- comparable to a full year of its profits in stable times -- at its French markets division the weekend of Jan. 19-20.

Once uncovered, Bouton said the bank alerted market regulators and moved immediately to close the trader's positions, incurring heavy losses amid sharp declines on world markets.

"This is a bad time for banks and the industry in general. But detecting the fraud over the weekend was problematic because world stock markets on Monday and Tuesday fell hugely around the world. When the positions had to be unwound, the bank did that in a terrible market of falling equities," said Janine Dow, senior director at Fitch Ratings financial institution group in Paris

"In hindsight, it was this guy's superior knowledge of the control system of every aspect of trading at the bank that allowed him to build up fraudulent positions and hide them," she said.

The bank said the trader had misled investors in 2007 and 2008 through a "scheme of elaborate fictitious transactions." The trader, who was not named, used his knowledge of the group's security systems to conceal his fraudulent positions, the statement said.

The man admitted to the fraud, the bank said, and was being dismissed. Four or five of his supervisors were to leave the group. Bouton offered to resign but the board rejected that.

The trader had worked for the bank since 2000 and earned a salary and bonus of less than euro100,000 (US$145,700), executives said.

"I'm convinced he acted alone," said Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking, who interviewed the trader when the fraud was uncovered.

The trader was responsible for basic futures hedging on European equity market indexes, the company said. That means he made bets on how the markets would perform at a future date.

Until last year, the trader had been betting that markets would fall, but then changed his position at the start of this year to bet they would rise, said Kinner Lakhani, an analyst at ABN Amro in London who specializes in Societe Generale shares, citing the bank's management.

He said there had been "daily rumors" this week that something was afoot at Societe Generale. "The market was sniffing something," he said.

Because the trader previously had worked in trading accounting offices, "he would have known how the risk management worked," Lakhani added. In a conference call with analysts on Thursday, bank officials "talked about this guy bypassing systems and setting up false counter-trades."

Societe Generale said the trader was involved in "plain vanilla" forms of hedging. Futures trading began with selling commodities like sugar or oil to be delivered at a future date, but has expanded enormously to many kinds of extremely complex financial instruments.

The fraud appeared to be the largest ever by a single trader. If confirmed, it would far outstrip the Nick Leeson trading scandal in 1995 that forced the collapse of British bank Barings. Leeson, the bank's Singapore general manager of futures trading, lost 860 million pounds -- then worth US$1.38 billion -- on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.

The fraud was not as big as the 1991 scandal that led to the demise of the Bank of Credit and Commerce International. Claims by depositors and creditors there exceeded US$10 billion at the time. International bank regulators seized BCCI, which had headquarters in Luxembourg, London and the Cayman Islands, acting on auditors' reports that described huge losses from illegal loans to corporate insiders and from trading transactions.

Axel Pierron, senior analyst at Celent, an international financial research and consulting firm, was stunned that 13 years after the Barings collapse, something similar has happened.

"The situation reveals that banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can getting round them to hide his losses," he said.

At Societe Generale, the announcement came on the back of 2.05 billion euros ($2.99 billion) in write-downs linked to subprime-related difficulties and the crisis in financial markets.

The bank is now planning a capital hike in the "following weeks" by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley.

The write-down and losses will lead the company to post a net profit of 600 million euros to 800 million euros ($874 million to $1.16 billion) for all of 2007, the Paris-based bank said. Full-year results will be announced Feb. 21. In 2006, net profit was euro5.2 billion.

Associated Press writers Matt Moore in Davos, Switzerland, Thomas Wagner in London and John Leicester in Paris contributed to this report.

How to overcome 7 common tax terrors

Kay Bell

Admit it. You're afraid of your 1040. That's OK. A lot of us are. And our tax fears, sometimes irrational, sometimes warranted, cause us to do a lot of dumb things when it comes to our annual returns.

Some people put off filing, some don't file at all. But fear doesn't have to paralyze you. Here are seven common tax terrors, how real they are (or aren't) and how you can overcome them.

These fears paralyze many taxpayers, but Bankrate's solutions can help you move through them.

7 reasons taxpayers tremble

1. Afraid I can't do my taxes myself.
2. Afraid I'll overlook a tax break.
3. Afraid I'll make a mistake that will cost me money.
4. Afraid that my tax adviser is incompetent or a crook.
5. Afraid I'll get audited.
6. Afraid to e-file because my personal info could be lost or stolen.
7. Afraid to file because I can't pay.

1. Afraid I can't do my taxes myself
This fear, unfortunately, is too often justified. And it gets truer every year as federal lawmakers add provisions and pages year after year. The tax law publisher CCH Inc. notes that the 1913 tax code took up 400 pages in its "Standard Federal Tax Reporter." By 2007, CCH filled more than 67,000 pages of that document with tax law intricacies.

"The law is very complicated and filling out the returns is somewhat mind-boggling," says Robert Simon, partner at Eisner & Lubin in New York. "The media keeps telling everyone how difficult it is and people just get panicky. They sit down and start (the filing process) with all this in the back of their minds. I can understand why people would be afraid to do it."

Such fear, says Simon, is nothing to be embarrassed about. "If you ask congressmen who actually wrote the laws, many don't do their own returns," he says. "They're writing policy, not looking at it from an accounting point of view."

The way our tax system works also adds to this fear.

"Many people aren't good with numbers, then once a year they wind up trying to deal with numbers," says Simon. "Any other time you spend money, before you walk out you have someone there telling you what you owe. But when you're doing your taxes, you're doing it yourself. You're telling the government what you owe them."

The remedy: Don't be afraid to ask for help. You have lots of preparer options, from a personal accountant who can fill out your return and help you plan throughout the year to franchise operations that gear up between Jan. 1 and mid-April. If your tax situation is not overly complicated, computer software might be enough to help you file with a bit more confidence. Take a look at your tax needs, then find the tax assistance that best meets them.

2. Afraid I'll overlook a tax break
Even folks who are brave enough to tackle their taxes on their own often face this fear. Again, it's not an unreasonable one. And once again, those folks in Washington, D.C., feed this fear.

Take, for example, the alternative minimum tax, or AMT. This parallel tax system can be quite costly for millions of filers, but rather than make a permanent change to the law, for the last several years Congress has opted instead for a temporary "patch." Even worse, the 2007 law change was enacted so late, it will caused a lot of grief not just for us filers, but also for the Internal Revenue Service. The slow lawmaking process has forced the 2008 filing season to be delayed until mid-February for up to 13.5 million taxpayers.

The remedy: Accept that tax filing is going to take some homework. Before you start your return, check out the countless publications -- including Bankrate's Tax Guide, of course -- so you'll know exactly where this year's taxes might trip you up. Again, you also can turn to software or a tax pro for help in claiming all your possible tax breaks.

3. Afraid I'll make a mistake that will cost me money
This is a close relative of fear No. 2. But here, the fear is not of omission, but commission.

This includes things as simple as filing the wrong tax form. It happens. In trying to get through filing as quickly as possible, some folks opt for the easy, in this case, the 1040EZ, way out and end up cheating themselves.

Or they choose the incorrect filing status, such as single when they're eligible to file as the more tax-advantageous head of household. Those are just a couple of the many mistakes that filers make ever year.

The remedy: Slow down. No longer how long you wait to do your taxes, you still have time to do it right. Read the instructions. If you're using software, don't skip steps just to finish. Answer all your tax pro's questions. If he or she says to provide more information, then provide it. A little extra work and attention to detail could cut your tax bill or get you a bigger refund.

4. Afraid that my tax adviser is incompetent or a crook
You know you need help, but you're afraid that the person you turn to could be more of a hindrance. Unfortunately, sometimes this fear is well-founded.

The Government Accountability Office issued a report in April 2006 with the disturbing finding that in a limited study of commercial tax prep chains in major metropolitan areas, all the returns completed in those offices were wrong to some degree.

Then in April 2007, the IRS alleged that some Jackson Hewitt franchises filed bogus returns for clients, cheating the federal government out of $70 million. The agency obtained court orders to shut down 125 branch offices in Detroit, Atlanta, Chicago and Raleigh, N.C.

Even big name, high-dollar help sometimes produces unexpected tax costs. Remember KPMG? A few years ago that global accounting and consulting firm acknowledged that some of its tax shelters didn't meet IRS standards and agreed to pay the government millions to settle the inquiry. Last month, the law firm Jenkens & Gilchrist announced it was closing its offices across the U.S. in the wake of a nonprosecution agreement it reached with the IRS about tax shelters it offered clients.

By the way, the taxpayers who participated in those companies' questionable shelters ended up owing additional taxes and penalties.

The remedy: Everybody makes mistakes, even tax professionals. The key is to make sure you don't end up paying for your tax preparer's mistakes.

Start with the hiring process. Investigate several potential preparers and thoroughly check out each before you hand over your personal tax documents.

Once you're a client, don't take every recommendation at face value. Ask questions and make sure you understand the answers. Most of all, remember the adage "If it sounds too good to be true, it probably is." There are some tell-tale signs that a tax shelter is in fact a tax scheme that could cost you dearly.

5. Afraid I'll get audited
If fear No. 4 comes true, then this is definitely one to be scared of. Audit fears, however, tend to be much greater than actual audit realities. True, there are some red flags, such as excessive medical or charitable deductions, that might catch an IRS examiner's eye. But overall, the risk of audit is small -- about 1 percent of individual returns were audited in 2006.

So don't let fear of IRS questions keep you from filing. And definitely don't let it stop you from claiming legitimate tax breaks.

"If you're really doing stupid things on your tax return, expect to get audited. Deservedly so," says Enrolled Agent Eva Rosenberg, who is based in Southern California and the Internet's Tax Mama. "But if you're afraid to use a legitimate tax break because you're afraid you're going to be audited, stop it! Stand up for your rights. There's no reason to be afraid."

The remedy: Make sure you can show an IRS examiner why you filed as you did. This means keeping good records, especially if you're self-employed. People who work for themselves and file Schedule C with their returns tend to get scrutinized a bit more, so your business record keeping needs to be more precise.

6. Afraid to e-file because my personal info could be lost or stolen
Slightly more than half of us send in our returns electronically. But that leaves another 60 million, give or take a million, folks who still file the old-fashioned paper way. This fear is one of the contributors to that mind-set.

Yes, identity theft is a major issue. In fact, the IRS keeps careful track of e-mail phishing scams that falsely claim to be from the tax agency. And yes, hackers still manage to break into online financial data systems periodically.

The biggest problem the IRS has had in recent years, though, has been with such information left on laptop computers that were lost or stolen, not with someone compromising the government's online tax database. But that doesn't mean you should ignore Internet safety precautions.

The remedy: Any tax data transference requires two parties. Make sure the starting point of such a relay, your computer, is secure.

"You're one of the end points and the IRS server is the other," says Gary Morse, president of Razorpoint Security Technologies in New York. "Make sure that your personal machine is secure, that it doesn't have any viruses, Trojan horses or any other back-door access points that could be attacked."

This means installing a firewall and virus protection, either as software or a hardware barrier, and then updating it regularly.

Of course, says Morse, taxpayers still must trust the IRS to safely store our data, but at least e-filers can know they did their part in the security process.

As for data losses, almost every computer user knows the frustration of dealing with a crashed machine. Tim Margeson, general manager of CBL Data Recovery Technologies Inc., headquartered in Armonk, N.Y., points to an oft-repeated warning as the surest way to avoid this: Save and back up your files regularly. This is especially important for home PCs, even beyond tax season, because of what Margeson calls "the unique issues -- children and pets and food" -- that the machines face.

You don't need any fancy software to back up your data, says Margeson. "You can just copy the files the same way you copy other material, send it from 'my docs' to a CD or USB drive."

"There's no reason that a computer or data loss should cause filing problems," says Margeson. "The IRS doesn't really accept that as an excuse for a late or no return."

7. Afraid to file because I can't pay
The only thing scarier than filing taxes is what could happen if you don't file. The IRS penalty for not filing is actually worse than if you file but don't pay your tax bill in full.

If you owe tax and don't file on time, the late-filing penalty is usually 4.5 percent of the tax owed for each month, or part of a month, that your return is late. However, if you file on time but just can't pay your tax bill then, you'll generally face a late-payment penalty of only one-half of 1 percent of the tax owed for each month, or part of a month, that the tax remains unpaid.

The total nonfiling and nonpayment penalties could reach a cumulative 25 percent maximum penalty. But if you file your forms on time and then make arrangements to pay, you can avoid taking that hardest tax penalty hit.

The remedy: File! And file on time. If you can't afford to pay your full tax bill, send Uncle Sam at least a down payment. Even sending in an extension request with a nominal payment is better than not filing at all. Then worry about coming up with the cash.

"Never don't file," says Rosenberg. "There's no reason to put yourself in that position. File the return and establish a plan to deal with the consequences of not having the money."

You have payment options. Use a credit card to meet your tax debt, then pay it off as quickly as possible. Go with the card that has the lowest interest rate or a zero-percent rate if possible. The IRS also has payment plans. Though these add interest charges to your tax bill, at least you can be assured that you're meeting your filing and payment obligations.

Face your tax fears early
By now, you should be a little less anxious about that impending return. And by taking a few steps now, you should be able to completely overcome most of these fears by the time your next return is due.

Look at what caused your heart to race and your palms to sweat this filing season. With those fears fresh in your mind, map out a strategy to overcome them, starting now.

"Trying to pull things together at the end of year when you're not organized during the year is not a good idea," says Simon. "You need to plan throughout the year, not in April."

That way, when next tax season rolls around, fear won't be a factor.

How to get your financial records in order

By Tom Herman

How do you know whether you need to spend more time getting your financial affairs organized?

Answer: When a professional organizer sends you her latest book on the topic -- and you lose it before you get a chance to open it.

That's what happened to me recently, much to the amusement of several colleagues who sit near the mountains of books, papers, magazines, notepads, umbrellas, coffee cups and tax publications lying around my work space and spilling out of more than a dozen file cabinet drawers. One friend politely informed me I don't really need an expert organizer. I need an archaeologist.

But it's never too late to get started, and even the most paper-addicted pack rats can benefit from the growing number of books, pamphlets, software programs and getting-organized kits that focus on personal finance. Among the most popular software programs are Intuit Inc.'s Quicken and Microsoft Corp.'s Microsoft Money. They can help you pay bills, figure out where you're spending your money and create a budget. Millions of people have turned to these and other online products offered by banks and other financial institutions to pay bills and manage finances.

Getting your finances neatly organized is critically important if you care about your family and other heirs. Missing documents, records or stock and bond certificates can be hazardous to your family's wealth -- in addition to being frustrating and time-consuming experiences.

Some of the best organizing tools are free. For example, Merrill Lynch & Co., the nation's largest securities firm, offers a handy document you can download and use to jot down key personal contacts, location of important papers and other items. More free planning tools and organizers can be found on the Web site of Ronald Rogé, a financial planner.

Here are some thoughts from lawyers, accountants and organizing experts on how to be better organized, including what documents to keep, where to keep them and for how long.

Getting Started

Start by compiling a list of key people to call, including relatives, physicians and lawyers, in case of emergency. I carry around such a list in my wallet. I started doing this after a family friend was hit by a car on Park Avenue in New York City many years ago. She had no personal identification papers on her. Fortunately, a woman who had witnessed the accident raced to her side and asked her, just before she passed out, if there was someone who should be contacted. Our friend gave her the name and phone number of one of her sons, who raced to the scene. Our friend survived and told me that her saga underscores the importance of having a "loved-ones" list with you whenever possible.

Consider photocopying all your credit cards and other important items you carry in your wallet. If you lose your wallet or it's stolen, you'll know exactly what's missing and how to contact the credit-card companies. Store this list in a safe place at home with other details, including the location of any unused gift certificates you have received, as well as your point totals for frequent-flier or other similar programs.

Make sure to tell your family and advisers where you keep important documents, such as your will, health-care proxy, living will, insurance policies, household inventory, deeds to property and important tax records. Be sure to include the location of your bank safe-deposit box -- and where you have stored the key.

It's not enough just to compile these lists. Make sure to update them regularly, says Stephanie Winston, a professional organizer based in New York City and author of several books on the subject (including "Getting Organized," the book I somehow managed to lose).

Beware of mindless clutter, Ms. Winston says. She recommends a paper-handling system called "TRAF," which means toss, refer, act or file. While it may feel good to save everything, that could backfire if you can't find what you need in a hurry.

Pay attention to security. Store your information in a safe place. All your careful organizing plans can easily backfire if you allow your information to fall into the wrong hands. If you use a Palm Pilot, as I do, use passwords to protect all the information you've stored there. If you store your list on your computer, be sure it's password-protected. Also be sure to print out copies regularly and give them to a trusted relative or adviser.

Wills and Other Documents

Lawyers constantly marvel at how many highly intelligent people don't have a will -- and at how many people who do have wills haven't updated them for decades. Granted, nobody likes thinking about this subject, and lawyers say clients often are superstitious. Those clients fear that if they draw up a will or update it, they're sure to die on the spot.

But remember: When someone dies without a will -- or without an up-to-date will -- that can lead to lengthy family feuds, even over seemingly insignificant details.

Another reason many people don't have a will is they're uncomfortable discussing such delicate subjects with children and other family members. Get over it. Failing to have this conversation is an invitation to trouble.

Consider giving the original copy of your will to your lawyer or some other trusted adviser, along with the location of key documents. Make sure to tell your heirs what you've done. Don't put the only signed copy in your safe-deposit box; your heirs will need to get the will quickly.

Take the time to make sure you have a well-written power of attorney, and pick someone you trust completely.

Check with your lawyer to make sure that any power-of-attorney form you sign does precisely what you want it to do. For example, if you want the person holding your power-of-attorney to be able to make gifts of money or other property on your behalf, say so in writing. While state laws may vary, be as precise as possible on this subject.

And remember that a power of attorney isn't just for the elderly. Sudden illness -- or accidents -- can strike at any age, making it important that someone be authorized to manage your finances.

If you move to another state, make sure to get a thorough financial check-up from a pro just to make sure you don't need to make important revisions.

Above all, act now while you're healthy -- and be careful whom you select to help you. One of the classic mistakes is to wait until you get sick to start thinking about a power of attorney and other tough topics.

Updating Your Finances

Buy-and-hold may be a commonly recommended strategy on Wall Street -- but not when organizing your finances. With all the swings in financial markets these days, it's important to update your finances regularly.

One area many people overlook: U.S. savings bonds. They sound simple, but they bear close watching. For example, many investors own savings bonds that stopped paying interest years ago. The Treasury estimates that, as of April 30, savings bonds worth around $15.1 billion had stopped earning interest and were still in the hands of investors.

To learn about the status of your bonds, go to a Treasury Department Web site. Click on the section "Individual/Personal," and then click on: "Find out if your Treasury securities have matured." There, you'll find tables that will help you figure out whether your bonds are still earning interest, or for how long you can expect them to earn interest.

If you own any bonds that no longer are earning interest, be sure to cash them in or exchange them as soon as possible. Also check to see whether you or other family members own any stock certificates representing shares in companies that have gone bust. Even though those certificates may be worthless, they may help cut your taxes.

If you don't claim a loss for a worthless security on your original return for the year in which it actually became worthless, "you can file a claim for a credit or refund due to the loss," the IRS says. Use Form 1040X to "amend" your return for the year in which the security became worthless. But keep in mind that you must file it "within seven years from the date your original return for that year had to be filed, or two years from the date you paid the tax, whichever is later," the IRS says.

Here's another idea: If you have stock certificates for Enron or other well-known corporate disasters, consider trying to sell them to collectors through an online auction.

Tax Records

Most people should keep their federal income-tax returns for at least three years. But accountants and lawyers often recommend that clients keep returns for at least six years. That's because the IRS can go back that far if you didn't report taxable income you should have reported and it's more than 25% of the income shown on your return. Check to see if your state tax department has different rules.

There's no time limit if you file a return that is false or fraudulent, or if you don't bother filing a return at all. In that case, "an action can generally be brought at any time," the IRS says.

Some supporting documents need to be stored for much longer periods. For example, keep detailed records of how much you paid for your stocks, bonds, mutual-fund shares and other investments you haven't yet sold. When you sell them, you will need those records to establish what's known as your "cost basis." Also be sure to keep records of what you paid for your home and the cost of any improvements.

Before throwing away old tax returns, check to make sure the Social Security Administration has accurate records of how much you've earned each year.

If you get a Form W-2 from your employer, keep Copy C until you begin receiving Social Security benefits, the IRS advises. "This will help protect your benefits in case there is a question about your work record or earnings in a particular year," the IRS says in Publication 17.

When you do pitch old returns, make sure to shred them carefully so that they don't fall into the wrong hands.

Classic Blunders

Here are some things to watch out for when organizing your life

1. Neglecting to write a will. Not telling heirs the location of your financial accounts, safe-deposit box and key, and other important items.

2. Throwing away tax returns after a year or two. Save them at least three years -- and preferably six or seven.

3. Saving too much paper. If you do, you may be unable to find what's important when you need it.

4. Storing the only signed copy of your will in your safe-deposit box, instead of giving a copy to your lawyer or other trusted adviser.

5. Neglecting to carry an emergency list of loved ones, doctors and advisers in your wallet.

Source: WSJ reporting

Miscellaneous Tips

1. Direct Deposit. Whenever possible, have your paycheck, dividends, interest, income-tax refund and other income deposited directly into your account, rather than having checks sent to you in the mail. Ms. Winston says a client whom she was helping to get organized found a $13,000 check that hadn't been cashed. Fortunately, the client was able to get paid.

2. Paper certificates. If you still have stock or bond certificates lying around, consider turning them over to your stock broker, or the transfer agent, and having them transformed into electronic digits. That way, you don't have to worry about losing the certificates.

3. Filing taxes online. Filing electronically usually means speedier refunds and greater accuracy. IRS workers, after all, don't have to type your information into their systems. More than half of all returns filed to the IRS each year now are filed electronically.

4. Three key points: Update regularly. Back up your records regularly. And print several copies.

New age town issues its own currency

By Scott Malone

A walk down Main Street in this New England town calls to mind the pictures of Norman Rockwell, who lived nearby and chronicled small-town American life in the mid-20th Century.

So it is fitting that the artist's face adorns the 50 BerkShares note, one of five denominations in a currency adopted by towns in western Massachusetts to support locally owned businesses over national chains.

"I just love the feel of using a local currency," said Trice Atchison, 43, a teacher who used BerkShares to buy a snack at a cafe in Great Barrington, a town of about 7,400 people. "It keeps the profit within the community."

There are about 844,000 BerkShares in circulation, worth $759,600 at the fixed exchange rate of 1 BerkShare to 90 U.S. cents, according to program organizers. The paper scrip is available in denominations of one, five, 10, 20 and 50.

In their 10 months of circulation, they've become a regular feature of the local economy. Businesses that accept BerkShares treat them interchangeably with dollars: a $1 cup of coffee sells for 1 BerkShare, a 10 percent discount for people paying in BerkShares.

Named for the local Berkshire Hills, BerkShares are accepted in about 280 cafes, coffee shops, grocery stores and other businesses in Great Barrington and neighboring towns, including Stockbridge, the town where Rockwell lived for a quarter century.

"BerkShares are cash, and so people have transferred their cash habits to BerkShares," said Susan Witt, executive director of the E.F. Schumacher Society, a nonprofit group that set up the program. "They might have 50 in their pocket, but not 150. They're buying their lunch, their coffee, a small birthday present."

Great Barrington attracts weekend residents and tourists from the New York area who help to support its wealth of organic farms, yoga studios, cafes and businesses like Allow Yourself to Be, which offers services ranging from massage to "chakra balancing" and Infinite Quest, which sells "past life regression therapy."

LOCAL PRIDE

The BerkShares program is one of about a dozen such efforts in the nation. Local groups in California, Kansas, Michigan, New York, Oregon, Pennsylvania, Vermont and Wisconsin run similar ones. One of the oldest is Ithaca Hours, which went into circulation in 1991 in Ithaca, New York.

About $120,000 of that currency circulates in the rural town. Unlike BerkShares, Ithaca Hours cannot officially be freely converted to dollars, though some businesses buy them.

Stephen Burkle, president of the Ithaca Hours program, said the notes are a badge of local pride.

"At the beginning it was very hard to get small businesses to get on board with it," said Burkle, who also owns a music store in Ithaca. "When Ithaca Hours first started, there wasn't a Home Depot in town, there wasn't a Borders, there wasn't a Starbucks. Now that there are, it's a mechanism for small businesses to compete with national chains."

U.S. law prevents states from issuing their own currency but allows private groups to print paper scrip, though not coins, said Lewis Solomon, a professor of law at George Washington University, who studies local currencies.

"As long as you don't turn out quarters and you don't turn out something that looks like the U.S. dollar, it's legal," Solomon said.

FULL CIRCLE

The BerkShares experiment comes as the dollar is losing some of its status on international markets, with governments shifting some reserves into euros, the pound and other investments as the U.S. currency has slid in value.

But the dollar is still the currency that businesses in Great Barrington need to pay most of their bills.

"The promise of this program is for it to be a completed circle," said Matt Rubiner, owner of Rubiner's cheese shop and Rubi's cafe. Some local farmers who supply him accept BerkShares, but he pays most of his bills in dollars.

"The circle isn't quite completed yet in most cases, and someone has to take the hit," Rubiner said, referring to the 10 percent discount. "The person who takes the hit is the merchant, it's me."

Meanwhile, Berkshire Hills Bancorp Inc., a western Massachusetts bank that exchanges BerkShares for dollars, is considering BerkShares-denominated checks and debit cards.

"Businesses aren't comfortable walking around with wads of BerkShares to pay for their supplies or their advertising," said Melissa Joyce, a branch officer with the bank, which has 25 branches, six of which exchange BerkShares. "I do hope that we're able to develop the checking account and debit card, because it will make it easier for everyone."

21 Stocks to Make You Rich

Kiplinger Magazine (Yahoo Finance)


Of the infinite number of possible stock-picking strategies, one that we particularly like can be summed up in three words: The pros know. In other words, ask the experts what stocks they're buying and you're likely to come up with some pretty good ideas. Last year, we asked seven top portfolio managers to name their favorites, and their 22 choices returned an average of 29% to May 14, well ahead of the 18% gain of Standard & Poor's 500-stock index (for more details, see Our Team Gains 29%).

Now we've rounded up a new group of outstanding managers using the same simple criteria we used to pick last year's bunch: They all have produced superior records, over both the short term and the long term. When these folks discuss their best investing ideas, it's worth listening in.

A Berkshire bent

Many a mutual fund manager has bolted to the free-wheeling, less-regulated, potentially more lucrative hedge-fund world. Whitney Tilson and Glenn Tongue have done almost the reverse. They launched their first hedge fund in January 1999 (it returned an annualized 11%, after fees, to May 1, compared with an annualized gain of 4% for the S&P 500). Then in March 2005 they unveiled Tilson Focus, a concentrated mutual fund that invests in undervalued companies of all sizes. It returned 20% over the past year.

Tilson and Tongue look for safety, low price and rapidly growing value when they shop for stocks. If this reminds you of a certain investor in Omaha, it's for good reason. "We admit to being loyal Buffett disciples," says Tilson.

No surprise then that Warren Buffett's Berkshire Hathaway (BRK-A) is Tilson Focus's largest holding. Tilson and Tongue see safety in Buffett's triple-A-rated holding company: "Its balance sheet is Fort Knox-safe," says Tongue. The value of Berkshire's operating companies in particular, such as Geico, Gen Re and Shaw Industries, is compounding at a furious pace. Tilson says that pretax earnings of Berkshire's operating companies swelled by more than 30% a year from 1995 through 2006.

And Tilson and Tongue reckon that the shares are still cheap. When they apply a modest price multiple to the operating businesses and add the value of Berkshire's cash, bonds and big stakes in publicly traded companies, such as Coca-Cola, Moody's and American Express, they arrive at an intrinsic value of $150,000 a share for Berkshire, a 36% premium to the stock price of $110,000 (Berkshire Class B shares change hands for a mere $3,668).

The story with McDonald's (MCD) is different. This is a remarkable turnaround that Wall Street has consistently underestimated. The stock price has tripled since Tilson and Tongue first bought shares for their hedge fund in December 2002. A stream of successful new-product launches, such as McGriddles, salads and premium coffee, has produced more revenues (sales at stores open at least one year surged a tasty 8.2% in March) through a fixed asset base, resulting in rapidly expanding profit margins. Tilson thinks the stock, recently $51, is worth at least $60 a share.

Mueller Water Products (MWA) is a more traditional deep-value pick. Spun off from Walter Industries late last year, Mueller is the leading maker and supplier of water-infrastructure products, such as fire hydrants, valves, couplings and transmission pipes. The stock, which sells at a small premium to book value (assets minus liabilities), has been depressed by the housing recession. But the water infrastructure in the U.S. is in urgent need of repair or replacement, so Tilson thinks it's just a matter of time before Mueller's flow of profits increases. He sees more than 50% upside in the stock, recently trading at $16.

Overseas and out-of-favor

Since launching Causeway International Value fund in 2001, Sarah Ketterer hasn't been afraid to go against the grain. She favors companies that are attractively priced because of temporary difficulties, and she will take large positions in a country or sector if the fund's strict stock-picking regimen determines that's where the values are. With a $5-billion portfolio of large-company stocks, the fund seemingly has lots of room to grow. Yet Ketterer closed it to new investors to retain the flexibility to move back into midsize companies when prices in that segment moderate. Investors who got in before the doors were locked have been rewarded with a 17% annualized return over the past five years, which was achieved with relatively low volatility.

One of Ketterer's top picks, Sanofi-Aventis (SNY), illustrates how she achieves those low-risk returns. Shares of the Paris-based drug giant have fallen about 9% since July 2006 because of concerns about generic competition and delays in the launch of its anti-obesity product, Acomplia. But a rich pipeline of 65 potential drugs should ensure strong earnings growth in coming years. Meanwhile, says Ketterer, the company should generate a staggering $55 billion in free cash flow (cash left over after paying bills and reinvesting in the business) over the next five years, which should support the share price, recently $46. The company could use the cash to repurchase shares and to bolster its dividend. "The downside is practically nil, barring the unexpected," Ketterer says.

A somewhat riskier pick is Ericsson (ERIC), which built the infrastructure that handles 40% of the world's mobile-phone calls. The Swedish telecom-equipment giant should benefit from strong expected growth in mobile traffic over the next few years. But it operates in an inherently volatile business, and the declining value of the dollar hurts profits earned in the U.S. and in Asian countries with currencies pegged to the greenback. Still, "the stock is too undervalued to ignore," says Ketterer. The shares, at $38, could return 15% to 20% annually over the next couple of years, she says.

HSBC (HBC), the London-based banking giant, has taken its lumps from a subsidiary involved in the foundering U.S. subprime-mortgage business. But with a price-earnings ratio of 13, says Ketterer, it's "quite a bargain for a company that operates globally and with a strong Asia business that is expected to produce earnings growth of 20% to 30% a year." What's more, she adds, the bank is overcapitalized, meaning there's plenty of cash available for paying dividends and buying back stock. Even now, the shares yield a generous 4.3%.

Great companies with principles

Nicholas Kaiser has steered Amana Trust Growth fund to market-beating performance over the past ten years, even though he is, in effect, working with one hand tied behind his back. The fund invests according to Islamic principles, so it must avoid financial stocks and companies with high debt (because of a prohibition against collecting or paying interest) as well as businesses associated with liquor, gambling and pornography. As a result, about half of the U.S. stock market is off-limits. Despite these restrictions, Kaiser has delivered excellent returns: an annualized 14% over the past decade, compared with 8% for the S&P 500.

One of Kaiser's favorite picks is Apple (AAPL). He began buying the computer and iPod maker several years ago at $14 a share, and he still likes it at $109. Yes, the shares look pricey at 30 times expected 2007 earnings, but the P/E has actually been falling as Apple's bubbling product pipeline has churned out one hit after another. Apple's earnings in the first quarter of 2007 soared 85% over the same period a year earlier, well beyond analysts' expectations.

Kaiser believes the company can keep up this impressive performance. He cites the release this year of a new generation of power-hungry digital-design-and-imaging software programs from Adobe. The software, he says, will provide a major boost to sales of Apple's high-end Mac Pro workstations, which start at $2,500. "Every media desktop jockey is going to want to have one of those things," he says. This summer's release of the long-awaited iPhone and the fall debut of the Leopard operating system are further hits in the making, he says.

Kaiser holds a slew of transportation stocks in the fund, and one of his favorites is UPS (UPS). Although its U.S. package-delivery business provides nearly two-thirds of revenues, it faces fierce competition. What excites Kaiser is UPS's logistics business, which offers services ranging from consulting to running a company's entire shipping program. Although it generates just 17% of UPS's revenues, "it's the growth engine," says Kaiser. A $1.68 annual dividend provides a nice 2% yield on UPS's shares.

Clean energy is not one of Amana's mandates, but that doesn't stop Kaiser from endorsing FPL Group (FPL), a Florida utility that's one of the world's largest producers of electric power from wind. Although Kaiser views the utility's emphasis on renewable energy as a plus, he is mainly attracted by its growing customer base, which encompasses about half of Florida's population, and its unregulated wholesale business, which sells low-cost power generated from nuclear plants and other sources. FPL has a "good, steady flow of earnings, an increasing dividend, and it's something we know makes money," he says. The $1.64 dividend has grown nearly 10% annually over the past three years and provides a 3% yield.

Growing and reasonably priced

Most of the high-flying funds that returned 100% or more in 1999, the last year of the tech bubble, have long since crashed and burned. One exception is Turner Emerging Growth. The fund, which focuses on small, fast-growing firms, followed a 144% leap in 1999 with gains of at least 10% in every year except 2002, when it lost 20%. Its annualized 14% return over the past five years easily beat that of the Russell 2000 Growth index. (The fund is closed to new investors.)

Manager Frank Sustersic looks for companies with annual revenue growth of at least 10%, scrutinizing them for weaknesses in their business models. He's also sensitive to price; he dislikes P/Es that are higher than a company's growth rate. That kept the fund out of trouble when the tech bubble burst.

One of Sustersic's top picks is Parexel International (PRXL), among the world's largest providers of clinical research for pharmaceutical and biotech firms. The industry is experiencing "phenomenal growth," in part because the U.S. Food and Drug Administration is requiring more clinical tests, says Sustersic, a health-care analyst by training. Parexel, based in Waltham, Mass., operates in 36 countries and has a backlog of orders totaling more than $1 billion. Its U.S. operations have historically been unprofitable, but Sustersic says that's about to change -- one reason he likes Parexel despite its high P/E of 27 times this year's expected earnings.

Another firm benefiting from a hot market is Ladish Co. (LDSH), a maker of jet-engine parts and other aerospace products. The industry is experiencing a burst of growth, spurred in part by major new jetliners from Boeing (787 Dreamliner) and Europe's Airbus (A380). Like Sustersic's other favorites, Ladish has a healthy backlog -- more than $500 million worth of business. Its shares stumbled, though, after an earnings disappointment in the fourth quarter of 2006 that Sustersic attributes to a plant-maintenance closing that lasted longer than expected. As a result, the shares are selling for a relatively modest 18 times estimated 2007 profits.

Sustersic's third pick, Bucyrus International (BUCY), also made our list last year. The South Milwaukee, Wis., company manufactures large-scale excavation equipment for the surface mining of coal, copper, oil sands and other minerals. Weakness in coal prices has hung over the shares for the past year. But the long-term demand for coal is robust, and the firm has an order backlog of nearly $900 million, up from $659 million a year earlier. "I love firms that have good earnings visibility from a stable or growing backlog," says Sustersic. The stock trades for about 22 times this year's expected earnings, and analysts expect profits to grow by 33% this year and 28% in 2008.

Growth Franchises

Although most growth managers have been mired in a severe slump the past several years, Alex Motola, of Thornburg Core Growth, has maintained a high batting average. During the past three years, his growth fund, which invests in companies of all sizes, has returned an annualized 22%, more than twice the performance of the benchmark Russell 3000 Growth index. Motola says he searches for highly sustainable, growing franchises that are selling at reasonable prices and that are not subject to constant technological innovation or price competition.

His largest position is in Amdocs (DOX), a billing-software and customer-care provider for the telecommunications industry. Clients such as Sprint Nextel and Bell Canada hire Amdocs to install software and operate billing and customer-care applications. Between Amdocs' rising profit margins and recovering stock values in the telecom sector, Motola still sees good upside in the shares, which trade at 17 times estimated profits.

In Las Vegas Sands (LVS), Motola says he's making the rare exception of paying up for a pricey stock: The casino operator sells at 55 times estimated 2007 earnings. Motola anticipates a rising tsunami of earnings and cash flow starting in 2008. "The value is wrapped up in licenses and in Sands' ability to execute," he says.

Sands' founder and controlling shareholder, Sheldon Adelson, is successfully exporting his brand and expertise to Asia, Motola says. The septuagenarian hit the jackpot with Sands Macau. Las Vegas Sands will own or operate seven of ten new properties on the Cotai Strip, a Macau landfill project under construction. "Chinese have a high propensity to gamble," says Motola, who calculates that one billion people live within three hours' flying time of Macau.

Motola also likes the global footprint and powerful brand recognition of Western Union (WU), the venerable money-transfer outfit. A recent spinoff from First Data, Western Union has an unmatched network of 260,000 agents around the world and leadership in a highly fragmented industry. Motola says the company is a play on immigration and the increasing global migration of labor; Mexican immigrants use the network to send money back home, Filipinos working in the Persian Gulf send savings back to the Philippines, and so on. A strong cash generator, Western Union trades for 19 times this year's expected earnings.

Overseas stock shopper

If Alex Motola is one of the best young growth managers in the mutual fund business, David Winters is one of the top young value-investing practitioners. Winters learned his craft at Mutual Series, at the feet of a master, Michael Price. A couple of years back, Winters left his post as chief investment officer of Mutual Series to start his own fund, Wintergreen. Over the past year, Wintergreen returned 20%.

Winters says he's on a "global shopping expedition" and is finding the best deals overseas. One of his favorites is U.K.-based Anglo-American (AAUK), "an incredible treasure trove of assets that can't be duplicated." Winters enthuses over Anglo-American's rich diamond and platinum deposits. The metals-and-minerals giant holds a 45% stake in privately held DeBeers, which "has done a spectacular job convincing women, and the men who love them, that they need diamonds," he quips. Winters figures that hundreds of millions of aspirational Chinese women, trading up from jade jewelry, are potential diamond customers.

An adept numbers-cruncher, Winters looks for undervalued assets and an alluring discount to his assessment of a company's true value before he purchases a stock. But he also zeros in on quality of management. "People matter," he says. "In general, the best investments and worst investments are because of people." Winters looks for executives who focus on building a business's value.

Winters loves the management of Canadian Natural Resources (CNQ), a petroleum company with a large stake in the oil sands of Alberta. Led by Murray Edwards, a team of managers has acquired large oil reserves cheaply. If oil prices don't budge, Winters figures Canadian Natural will still do fine. Plus, managers own $1 billion of company stock. "They're in the boat pulling the oars in the same direction as shareholders," notes Winters.

He also admires the managers of Imperial Tobacco (ITY), which has "done a spectacular job for shareholders." A spinoff in 1996 from Hanson, a British conglomerate, Imperial has made intelligent acquisitions of cigarette brands and consistently returned capital to shareholders through higher dividends and share repurchases. Winters doesn't smoke, but he seems to have an addiction to tobacco stocks, which accounted for 21% of Wintergreen's portfolio at the end of 2006.

Pleasure Picker

Sector funds tend to be streaky and volatile. Mark Greenberg's AIM Leisure is an exception. Over the past decade, it returned more than 15% annualized, nearly double the market's return, with impressive consistency. Greenberg, who started following the leisure business -- what he calls "all the fun stuff in life" -- in 1983, picked an alluring sector. In the U.S., Europe and Asia, consumer spending on such non-necessities as travel, alcoholic beverages and movies routinely grows faster than the overall economy.

One of Greenberg's favorite stocks is Diageo (DEO), the largest owner of liquor brands, including Smirnoff and Tanqueray. "When you're at the bar, you say 'Captain Morgan,' not rum; 'Johnnie Walker,' not Scotch," says Greenberg, who worked as a hotel bartender while in college in Milwaukee. "When liquor is mixed, you can't even tell what you're drinking." It doesn't cost much more to distill branded liquor than generic, but Diageo can sell Johnnie Walker for several dollars more per bottle. The difference shows up in Diageo's robust cash flow and steadily rising dividends.

No matter what you think of Rupert Murdoch's politics, there's no denying that he runs a potent media shop in News Corp. (NWS) Greenberg says Murdoch has been particularly adept at seizing international opportunities and harnessing the Internet (MySpace was a clever acquisition) for cross-marketing purposes. Fox has the highest profit margins of any Hollywood studio, says Greenberg, and the Fox Network churns out popular TV hits with global appeal, such as The Simpsons and American Idol. Shares of News Corp., which has disclosed that it wants to buy Dow Jones, recently traded at 17 times Greenberg's forecast for 2008 earnings.

His final pick exemplifies the discretionary spending of a leisure society: the fast-growing pet-store chain PetSmart (PETM). "It's amazing how much people love their dogs and cats," says Greenberg. The pet industry is growing twice as fast as the economy, and Americans pamper their little friends (dog-and-cat hotels are one of PetSmart's expanding businesses). PetSmart and privately owned Petco are the category-killers in this industry, elbowing aside tiny neighborhood pet shops.

6 Signs Your Bank is Evil

We knew there were going to be fees. But booby traps? Here's how to fight back.

By Liz Pulliam Weston

Banks have to make money to stay in business. I was an economics major, so I get that.

What I don't get is why so many consumers do nothing as banks get bolder and bolder about picking their pockets. It's no longer nickel-and-diming -- we're losing $10, $20 and $30 a pop as banks come up with ever-more-creative ways to "fee" us to death.

The banking industry collects more than $50 billion a year in various service charges, more than twice the total of a decade ago. It's time we pushed back.

Sometimes just shining the light of scrutiny on these policies is enough to get banks to back down; read below about what happened recently with ING Direct bank. Other times, we need to protest, involve our lawmakers or even move our money elsewhere.

Here are some of the most egregious practices, and what you can do about them:

Checks clear almost immediately; deposits take days

In recent years, changes in federal laws have all but eliminated "float" -- the time it takes for a check to clear from the writer's bank account. What used to take days now often takes hours or less. What hasn't been speeded up is the time it takes for deposits to clear and be available for your withdrawal.

The Fed is required by law to reduce maximum deposit hold times as check-processing gets faster, but it recently decided against requiring banks to make deposits available sooner. Essentially, regulators concluded that even though money disappears from your account a lot quicker these days, it still doesn't disappear fast enough to warrant the extra costs banks might face from crediting you with your deposits more quickly. So: Heads you lose, tails the banks win.

What you can do: Kick up a fuss with your lawmakers. Banks make billions from consumer accounts; they should be required to invest some of that in speeding up deposits. (You can locate your U.S. representative here and your senators here. You'll find telephone numbers, addresses and e-mail addresses on their individual pages.)

Stacking the deck against you

Most big banks, and many smaller ones, process checks that arrive the same day in order of their size, with the largest check processed first. Banks say they do this to increase the odds that consumers' most important checks, such as mortgage and car payments, get paid. Consumer advocates say it's simply a way to jack up overdraft fees, which make up the majority of account service charges that banks collect. Here's how it works: Let's say you have $500 in your account, and you write checks for $10, $55 and $450. If the bank processed from smallest to largest, only one overdraft fee would be generated. By processing them from largest to smallest, two bounce fees can be collected.

What you can do: Obviously, you should try to avoid writing checks when there's not enough money in your account to cover them. But even the most conscientious consumer can get tripped up now and then (especially if there's a hold on your deposits, or if the bank messes up -- as mine did recently by processing a $403.50 transaction as $4,035.00). So sign up for overdraft protection that links your checking account to a savings account or line of credit; the fees and other costs involved are generally much lower than when you bounce a check. If you do get hit with an overdraft free, ask your bank to waive it as a one-time courtesy.

Charging for 'potential' overdrafts

(Note to readers: This section has been rewritten to clarify how Wachovia Bank assesses bounced-check fees.) A poster named haberschmidt recently alerted the blogosphere to the way Wachovia Bank increases bounced check fees. Some of the poster’s charges are incorrect, according to bank spokeswoman Mary Beth Navarro, including his assertion that Wachovia deducts bounce fees before processing transactions that overdraw an account. Each night, Navarro said, Wachovia first credits deposits, then deducts all transactions that have posted, and then finally assesses bounced-check fees.

But Navarro confirmed that the bank does assess bounced-check fees when transactions exceed an account’s “available” balance, even if the real balance in the account is actually high enough to prevent an overdraft.

Here's how it works: You use your debit card like a credit card at a store, signing your name to the transaction instead of entering a personal identification number (PIN). Because this is a signature-based transaction, the money is processed through the credit card payments system, which means the cash takes a few days to actually leave your account.

Banks typically don't wait, however, to deduct the transaction from your so-called "available balance" -- the money that's available for other spending. Where Wachovia differs from many of its banking brethren is what happens when other transactions are processed that exceed this "available balance." With many banks, you won't get a bounced-check fee unless you exceed the actual balance in your account. With Wachovia, you can wind up with a fee if you exceed the "available balance" -- even if you actually have enough money in your account to cover the transactions.

What you can do: As above, it's important to closely monitor your accounts and to keep a pad of cash in them (read "Why you need $500 in the bank" for more details). That said, banks shouldn't be allowed to charge for overdrafts before they happen. If you're a Wachovia customer, raise hell, contact your lawmakers and consider moving to another bank.

The oxymoronic 'courtesy overdraft'

Courtesy overdraft, also known as bounced-check protection, is a far cry from true overdraft protection. Instead of tapping into one of your own accounts, you're borrowing the bank's money and being charged hefty fees for the privilege. What's more, banks often sign you up for this "service" without your consent, and the sneakiest ones even add the amount of the "protection" to the balance you see when you check your account at an ATM. In other words, you're being told you have more money in your account than you actually do, which can lead you to overdraft your account and create more fees for the bank. (For more details, read "Don't be duped by bounced-check 'protection.' ")

What you can do: Call your bank and ask if you have "courtesy overdraft" or "bounced-check protection;" if so, try to get it removed from your account and replace it instead with real overdraft protection.

Fat fees for using personal-finance software

One of the best ways to track your accounts and prevent problems like overdrafts is by using personal-finance software such as Money or Quicken. These programs not only allow you to easily download your recent transactions, but help you forecast your cash flow in the future so you can predict when you might need to get extra cash into your checking account. So naturally, some banks ding you for $6 to $10 a month for using the software to automatically download your transactions.

Do I have a dog in this fight? You bet I do. I'm a longtime user of this software, and I write for MSN Money, which is owned by Microsoft, maker of Money. Even if neither of those things were true, however, I'd find it awfully suspicious that the majority of financial institutions find a way to provide automatic downloads for free, yet a handful of large banks -- Bank of America, Citibank and Wells Fargo among them -- find it necessary to charge over $100 a year for the same service.

What you can do: You may be able to get around the charges by using a more manual download process that involves going to the institution's Web site and clicking a few buttons, but that's a hassle. A better solution if you like the more automated download feature may be switching financial institutions. Washington Mutual, Charles Schwab, ING Direct and others support the automatic downloads without charging for the privilege.

Closing accounts because of bad credit

ING Direct, an online bank, says it was all a mistake. But some 5,300 customers were recently sent e-mails telling them their checking accounts would be closed because of their low credit scores. Many of these customers were understandably disturbed, since there are plenty of ways your credit scores can plummet that have nothing to do with your ability to manage a checking account.

When I called ING Direct USA CEO Arkadi Kuhlmann to ask about this seemingly unprecedented move, he couldn't apologize fast enough. "That was obviously an error," he said of the mass e-mailing. "The letter was worded wrong. . . . We do not give or deny one of our accounts" based solely on credit scores. The bank does use credit scores, he said, to help determine the size of a customer's overdraft line of credit. Within hours of my phone call, ING Direct customers who received the original e-mails reported receiving e-mails from the bank's chief operating officer, Jim Kelly, apologizing for the mess and assuring them their accounts would be restored.

What you can do: If you run across an obviously unfair bank practice, don't keep it to yourself. Someone who received the original ING Direct e-mail posted a message about it on the Consumerist Web site; Wachovia's practice of "potential" overdrafts was highlighted on Wesabe.com. Shout about what you see on those sites, or on MSN Money's own Your Money message board. Draw enough attention, and perhaps we can head off some of the worst policies before they become "industry standards."

Don't take your passwords to the grave

Your survivors will have enough on their minds when you die, so take steps now to ensure it won't be a major trauma to access the financial accounts you keep online.

By Liz Pulliam Weston

There's no question that online banking, electronic bill payment and personal-finance software make our lives easier.

But could we be creating a digital mess for our heirs when we die?

One poster on the Your Money message board shared her family's trauma when her father died without divulging the passwords to his computer or online accounts.

"I am the co-executor of the trust and the most financially savvy of my siblings, so it was up to me to help mom. But what do you do without passwords?" poster Tuppermom asked. "And most companies don't just give you access -- it is a process that can take weeks and months (if they don't just say 'Oh -- he's deceased? OK, we'll close the account' and then NO ONE has access!!)."

Tuppermom's family got lucky when it stumbled upon a folder that contained passwords for some of her father's work-related accounts and one of his online banks. That provided enough clues to find and gain entry to most of his other accounts. The family's lawyers helped them get access to the rest, although the process took time.

The experience was so traumatic that Tuppermom and her family revised their own estate plans to include complete lists of online IDs and passwords for each of their accounts. Concern about identity theft and security, she wrote, shouldn't go so far that family members are left in the dark.

The family "learned that ID protection is not JUST about nobody knowing the passwords," Tuppermom wrote. "It is also about protecting the asset behind the password -- and making sure that if you can't access it, someone you trust can."

Who would take over for you?

Your family could lose access to other potentially important digital files, too, if it doesn't have your passwords, including:

• Photo and music collections.
• Calendars and address books.
• E-mail accounts.
• Security and wireless-networking software.

But getting access to your financial accounts will likely be the most critical issue if you die or become incapacitated.

If you're not sure how important an issue this might be, try to imagine who would take over the functions of your financial life if you were lying in a coma. Then ask yourself:

• Could this person find and access bank and brokerage accounts?
• Would he or she know what bills should be paid and when?
• Are any of your accounts paperless and thus likely to be overlooked?

I'm a big fan of receiving most bills and statements solely by e-mail, as I wrote in "Go paperless for safer banking." But without a paper bill or statement, the person handling your affairs might never discover the account.

Any delays in accessing your accounts and paying your bills could cause serious financial repercussions. Unpaid bills could devastate your credit scores and wind up in collections. Insurance coverage could lapse. Bounced checks could result in your bank accounts being closed. Neglected investment accounts could suffer losses. The list goes on.

Now imagine that both you and the person you've designated to handle your affairs have died. (This isn't much of a stretch, if the other person happens to be your spouse and you ever travel in the same car. One accident could wipe out both of you.) Figure out who would take over in that case, and ask the same questions again.

Spare them the distress

You might be tempted to let your heirs figure it out on their own. After all, they eventually should be able to access accounts -- those they know about, anyway -- using your death certificate and will, trust or court document showing their right to settle your estate.

But you may be causing them unnecessary trauma and significant financial distress, particularly if they have to cover the bills for your funeral and then wait months to be reimbursed, or they wind up supporting your family and their own.

Your Money poster T-Bird_Money has thought this through:

"In my case, I'm a single parent, with bills needing to be paid. My brother, who would be the executor, has his own login on my computer as administrator, so he could go in and change the password on my user in case he needed access," T-Bird_Money wrote. "I have an Excel sheet listing all accounts, usernames, and passwords with semi-current amounts. Also listed (are) all life insurance policies with face amounts and contact info. Until such time that the life insurance proceeds come through, he may need to go on to Scottrade and sell some stock to keep paying the mortgage and expenses for things."

The issue of passing on passwords is so important in this increasingly digital world that Los Angeles estate-planning attorney Jon Gallo, the co-author of "The Financially Intelligent Parent," requires his clients to fill out a "game plan" that includes their account numbers, online IDs and passwords.

This document is placed in a sealed envelope in Gallo's office along with the client's other estate-planning documents. Because account details can and frequently do change, Gallo asks clients to update the document annually. The system creates piece of mind for his clients and, eventually, for their heirs, he said.

"Their family members are not going to be firing on all cylinders anyway," Gallo said. "This can really help."

Your game plan

A lawyer's office is a good repository for such sensitive information, but it probably shouldn't be the only one. As Hurricane Katrina and numerous other recent disasters have shown us, one catastrophe can wipe out an entire area, so having copies of the document in more than one place makes sense.

Marty Kuritz, the author of the estate-planning organizer "The Beneficiary Book," recommends making several copies of the document, storing one each in:

• Your home safe or other secret, secure, water- and fire-resistant location in your home.


• A secure off-site location such as a safe-deposit box.


• An out-of-state location, such as with a trusted relative.

Kuritz also suggests writing down the answers to common security questions, including your mother's maiden name, the street where you were raised and the name of your first pet. Finally, you need to tell your trusted someone(s) where to find the documents.

"Secret passwords, combinations, etc., are truly for no one's eyes but a privileged few," Kuritz cautioned. "Verbally communicate (the documents' whereabouts) to your most trusted people who have an absolute need to know."

Both the print and online versions of Kuritz's book include fill-in-the-blank forms to organize this information. You can also create a simple spreadsheet that lists accounts, account numbers, contact phone numbers, online IDs and passwords. (I've included on my list due dates for any bills, as well as how those bills are received, online or by mail, and how they're paid, by automatic debit or online bill pay.)

To get you started on your list, consider including:

• Your computers and laptops.
• Bank accounts.
• Online bill-payment systems.
• ATM cards.
• Credit cards.
• Brokerage accounts.
• Retail or seller accounts (eBay, Amazon.com, etc.).
• Voice-mail accounts.
• E-mail accounts.
• Home-security systems.
• Computer-security systems.
• Entry gate at gated communities or storage facilities.
• Keyless-entry locks.
• Cell-phone locks.
• Safe combinations and the location of any keys.