Ask the grumpies: What the heck happened to Toys R Us?

Leah asks:

Trying to understand leveraged buyouts: why are they done, and why, legally, can it happen even if the people in the company don’t want it to happen? One of my friends was making noise about how Toys R Us didn’t go under due to a bad business model. He said it was due to a leveraged buy out and the company being saddled with debt. How does that even work?

We don’t really know.   Which isn’t to say that people don’t know, I mean, there’s definitely some knowledge that Mitt Romney’s company killed it by doing a leveraged buyout in 2005, but we don’t really understand the whole leveraged buyout thing and why it’s allowed given that it can destroy companies at minimal risk to the hedge fund doing the destruction.  Seems like something government should be regulating better, but isn’t.

Here’s a brief explanation on why Toys R Us went under from CNN Money.

Here’s bloomberg with a longer explanation.

Here’s NBC News.

More detailed info on how leveraged buyouts are supposed to work and that it didn’t in this case.

The Atlantic also explains at length.


Ask the grumpies: how to find an HSA provider

FF asks:

Do you have any thoughts/advice on choosing an HSA provider?

I already have the ACA plan figured out. I first check whether my doctors are in-network. Next, I come up with a detailed list of what I expect to need based primarily on my expenses for the current year. I then calculate what I would pay for the entire year under each plan I’m considering, taking into account both premiums and OOP expenses (including before/after deductibles and copays). This can get very complicated. I also calculate the worst-case scenario (total premiums plus OOP max). This year, for the plans I was considering, the answer was the same for both the expected and maximum scenarios. Plus the HDHP + HSA will have further tax advantages.

What I’m concerned about now is the Health Savings Account, which is not offered via the ACA, but separately through financial institutions if you have a compatible health plan. So far, the most useful information I’ve found is from Consumer Reports:

People who have high deductible health care plans (HDHP) are allowed to put money into a Health Savings Account (HSA) which functions basically as a super-charged IRA that can only be spent for medical purchases.  By supercharged, we mean the money isn’t taxed going in and the earnings aren’t taxed going out.  It’s pretty amazing.  (Note that these are different than Flexible Savings Plans, which are sometimes called Health Spending Accounts just to be really confusing– these have to be used up each year or the money goes back to the employer, just like a dependent daycare account.)  By IRA, we mean an individual retirement account that functions as a tax-advantaged bucket for retirement savings.  (FF already knows all this.)

Back when I last looked at HSA, there weren’t a whole lot of options– you basically went with what your employer offered you because that was what was available, and most employers offering HDHP also put money into the HSA themselves because that money came with tax benefits for them.  Having outside HSA didn’t make a lot of sense because there was no market for them.

Today there’s a market for HSA outside of individual employers, which means that there are a lot more options for HSA.  Many places that you can stash an IRA will also let you do an HSA.  What you should be looking for in an HSA is similar to what you should be looking for in an IRA provider, with a few additional wrinkles.

First off:  If your employer offers an HSA contribution, chances are that’s going to have to go into the HSA account that they have chosen.  According to that consumer reports article FF linked to, you can keep that HSA account open, let the employer money go into it, but then transfer to an outside HSA account if you want.  I have never found it easy to move money from work accounts to outside accounts, but depending on fees, this may eventually be worth it.

Second:  As the consumer reports article notes, you need to know if you’re going to need the money long-term or short term.  If you’re credit-constrained or have high medical expenses, then you will need to use the money right away.  That means you need an HSA account that has things like savings accounts or certificates of deposit for safe money.  If you’re not credit constrained, then it makes sense to just think about this as another retirement account, which means you want something that has access to low cost index funds in the stock market and maybe in the bond market too, depending on what’s available in your other retirement accounts for diversification purposes.  So, if you need short term then make sure the HSA has short term options.  If you need long term, make sure there are long term options.

Third:  Compare fees.  This part is just like with an IRA.  You want the lowest fee funds.  Watch for hidden fees.

So… that’s pretty much all of my thoughts on the topic.  The consumer reports article you linked to looks really good to me.  It’s not saying anything stupid AFAIK and covers everything I thought of.

Grumpeteers who have purchased HDHP for use with your HSA, what do you recommend?

Ask the grumpies: how to prevent the Earth from dying

omdg asks:

Is the earth dying? What’s the best way to prevent this from happening?

The BEST way to protect the environment is to get governments to legislate governmental protection.   Companies need to be competing on an even playing field in which they all have to be good stewards of the environment.  Otherwise firms have an incentive to cut corners in the interest of profit maximization.  Government regulation can take away the ability to cut corners.

All the little environmentally friendly things you can do (reduce/reuse/recycle) are great, but they alone are not enough.  Voting and contacting your legislators to support climate-friendly initiatives are really the only way to make big dents.  Think of it as the latte factor vs. large fixed expenses– the stuff we do individually is like cutting out your latte factor, but the stuff big organizations do makes a bigger difference faster.

Here’s a good article from business insider that breaks down the benefits by thing we can do.

In terms of “is the earth dying”… no, but we are having a mass extinction.  The more immediate problem is that climate change is moving climate around bringing drought and floods where there were none.  This will increase costs and cause mass migrations which will cause political/social/etc. problems like, I dunno, war, famine, death… standard apocalypse stuff.

So yeah, if this is something you care about (and we all should), make sure you vote for science believers, and keep contacting your elected officials on the topic.  They won’t know it’s important if we don’t tell them.