President Obama takes a straightforward approach to personal finances. Image: Muhammed/Ficker/CC BY

President Obama dropped in on the White House Personal Finance Summit Wednesday to give his opinion on a variety of budget related issues. He seemed a bit blind-sided when asked by Meg Marco, of the Consumerist, how he handles his own finances. After a brief pause, he answered, “don’t spend all your money.”

Saving some of what you earn

“My grandmother worked her way up from being a secretary to a vice president of a regional bank,” Obama told the small group of writers. “She was from Kansas, and she had a very straightforward view, which was save a little bit of what you’re earning and the magic of compound interest applies.”

College debts

“That is something Michelle and I have tried to apply, not always successfully,” the president said. “I’m very sympathetic to what young people are going through today, because Michelle and I graduated from law school with combined debt of $120,000, and it took us 10 years to pay off.”

Spending discipline

Obama said in the current economy, young people often are forced to deal with the “quadruple whammy” of unemployment, school debt, housing expenses and, often, the need to care for elderly parents. He said developing a “spending discipline is important.”

Spend on things that increase wealth

“Our first starter home was a $180,000 condo,” Obama said. “That was still a good investment. … It remains smart to spend on things that will increase productivity and income in the long term.”

The President finished by applying his theme to the national economy. “That’s an important distinction that we as a country have to make. … The economy has to get back to producing more and not just spending more.”

Practicing what he preaches

Last month, the White House made financial disclosure reports for President Obama available to the public. Those reports reflect that Obama practices what he preaches. In 2010 he earned $1.57 million, nearly quadruple the $400,000 he earns annually as President of the United States. Most of Obama’s investments are in Treasury Bills and Treasury Notes, opting for long-term security over risky high return investments.

Sources

Daily Finance
The Consumerist
Wealthinformantics

The United States Senate doesn't want people using their 401(k) accounts as a piggy banks. Image from Wikimedia Commons.

The United States Senate is currently considering a bill that would prevent people from using their 401(k) funds as a source for personal loans. The new legislation that is being put forth would potentially put a limit on how many times a person can draw from retirement accounts before retirement.

Retirement accounts are not piggy banks

A bill is going before the Senate that would put a permanent cap on the number of times a person can legally draw on 401(k) or other IRA funds before retirement, according to BusinessWeek. Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) are proposing the bill to limit withdrawals from 401(k) and other retirement funds in order to keep people from draining retirement accounts and jeopardizing their futures because of a temporary shortfall. Senator Kohl was quoted as saying that a retirement account is not intended for use as “a piggy bank.” The bill is called the “SEAL 401(k) Savings Act.”

Nearly a third of account holders borrow

By the end of 2010, almost 28 percent of all people who had some sort of 401(k) or similar account had an outstanding loan they took from the account, according to a study by Aon Corp, and the average balance was $7,860. Aon Corp also found that of the people who took out installment loans from their retirement funds, 58 percent had at least two outstanding loans. Aon also found that close to 70 percent of people who borrow from retirement accounts default. Fidelity Investments, according to USA Today, found that about 22.5 percent of 401(k) account holders with Fidelity had a loan balance outstanding at the end of 2010. This indicates that between one-fifth and one-third of people who have a 401(k) or other type of retirement account end up having to use it as a source of emergency funds.

Retirement becoming more daunting

The prospect of being able to retire one day, and to do so with confidence, is becoming more daunting for many people. Social Security, Medicare and Medicaid are typically pillars of security for retirees because portions of their paychecks have been going toward these programs for decades. However, it is becoming apparent that these entitlement programs may not be the guarantee they once were. Social Security is on track to becoming insolvent, and the Social Security Administration would need to raise $6.5 trillion to become totally solvent again, according to CNN. The Social Security Trust Fund is set to be depleted sometime within the next 25 years according to many estimates, and current Social Security payroll taxes won’t cover all outlays.

Sources

BusinessWeek

USA Today

CNN

Record profits, high gas prices and the current budget cutting craze could spell the end for billions in oil and gas subsidies. Image: Flickr/brownpau CC-BY-SA

On Monday, House Speaker John Boehner said he was willing to consider cutting oil company subsidies. But he backtracked later after the Obama administration responded by writing a letter to Congress urging it to eliminate tax breaks for the oil and gas industry immediately to use the money for investing in clean energy. Oil industry officials, on the eve of announcing record profits, said eliminating gas and oil subsidies would raise the price of gas and eliminate millions of jobs.

Oil industry adds taxpayer dollars to record profits

Tax breaks for the oil and gas industry cost taxpayers more than $4 billion a year in lost revenue–enough for 1.4 million Americans to buy a tank of gas every week for an entire year, according to ABC News. The official industry line is that oil and gas subsidies encourage the exploration that ensures a reliable energy supply. According to the nonpartisan Center for Responsive Politics, the industry spent $340 million on lobbyists from 2008 to 2010. But with gas prices approaching $4 a gallon and oil companies preparing to announce another round of record profits later this week, those tax breaks are getting harder to defend politically. With global oil demand and prices destined to rise indefinitely, tax breaks to encourage exploration are viewed as an anachronism by advocates of ending the subsidies.

The depletion allowance and other scams

Some tax breaks for the oil and gas industry date back nearly a century. They were intended to encourage exploration when costly investments in primitive technology often resulted in dry holes. A vestigial provision from the Tariff Act of 1913 actually allows oil companies based in the U.S. to claim greater deductions for the lost value of tapped oil fields than the companies actually pay for drilling rights. One of these provisions is known as the “depletion allowance.” The depletion allowance lets oil companies count the oil as capital equipment and allows them to write off a percentage for each barrel they pump. Eliminating it would save about $1 billion a year.

Other tax breaks date back to the Cold War. To counter Soviet influence in the Middle East in the 1950′s, the State Department let oil companies reclassify the royalties they pay to foreign governments as an income tax, allowing them to deduct 100 percent of those royalties from their tax liability–a practice that will cost taxpayers $8.2 billion in lost revenue in the next decade.

The Transocean/BP tax dodge

A common oil company tax dodge is using foreign tax havens. When the Deepwater Horizon oil rig exploded and sank in the Gulf of Mexico, it was flying the flag of the Marshall Islands to circumvent taxes and safety regulations. To avoid paying U.S. taxes, the rig’s owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999. In 2008, it moved its so-called headquarters, staffed by about a dozen people, to Switzerland. According to the trade publication Tax Analysts, by moving its symbolic headquarters overseas Transocean avoided paying $1.8 billion in U.S. taxes from 1999 to 2009. Tax breaks permeate every aspect of the oil and gas industry. While BP leased the Deepwater Horizon, it wrote off 70 percent of the rent–a deduction of about $225,000 a day.

Sources

CNNMoney.com

New York Times

ABC News

Rep. Jesse Jackson Jr. owns an iPad but says it destroys jobs. (Photo Credits: Jackson: CC BY-ND/Selmarkblog; CC BY-SA/John.Karakatsanis/Flickr)

Rep. Jesse Jackson Jr. (D-Ill.) was for the iPad before he was against it. Just one month ago, Jackson lauded Apple’s groundbreaking tablet as a revolutionary educational tool. On Friday, however, iPad owner Jackson turned around and exclaimed before Congress that the iPad is a dangerous device that is “probably responsible for eliminating thousands of American jobs,” reports the Huffington Post.

The iPad will kill publishing, says Jackson

The recent bankruptcy of Borders Books and the sea change toward textbookless campuses has the junior congressman from Illinois up in arms today, and the iPad is the catalyst.

“What becomes of publishing companies and publishing company jobs?” Jackson asked the House. “What becomes of bookstores and librarians and all of the jobs associated with paper? Well, in the not-too-distant future, such jobs simply won’t exist.”

Jackson also objected to China being the primary production source of iPad parts.

“There is no protection for jobs here in America to ensure that the American people are being put to work.”

Biting the hand that feeds the US

Business Insider points out that Jackson is not considering the wealth the iPad has generated – not only for Apple, but a wide variety of industries. MarketCues suggests that the iPad will prove to be the nexus from which a number of billion-dollar industries could conceivably spring. E-readers and the iPad provide publishers with myriad opportunities to create interactive textbooks while greatly reducing the costs of producing frequent new editions, a boon for students.

Traditional publishing is an old technology in need of evolution, suggests @Craigmod. The lessened environmental impact of digital publishing coupled with convenience and immediacy that e-books provide translates into good will plus e-commerce transactions. More than 65 percent of iPad owners use the device to read e-books, and the iPad generates more than $2 billion in total revenue per quarter, according to Morgan Stanley.

The revolution will be tablet-televised

Publishers must adapt to the revolution and not flip-flop like Jesse Jackson Jr. Amazon already sells more e-books than print books (per late 2010 figures). Similarly, iPad users also support periodicals. According to YUDU Media, iPad users spend as much as 30 times more time on sites like GQ.com, VanityFair.com and Wired.com via iPad app compared to a desktop computer browser. In fact, sales of the Wired.com iPad app surpassed the Wired print edition in late 2010.

As the iPad TV ad says, “It’s already a revolution, and it’s only just begun.” Jesse Jackson Jr. may have lost his invitation.

Sources

@Craigmod

The Hill

Huffington Post

MarketCues

Nieman Journalism Blog

Publishing Perspectives

Real Clear Politics

TSTC Publishing’s Book Business Blog

YUDU Media

Economies evolve, pontificators pontificate

Stocks tumbled when Standard & Poor's announced that partisan budget bickering has led the agency to downgrade the U.S. credit rating outlook. Image: Flickr/My Alternative Photos CC-BY-SA

Citing doubt that Congress can solve its debt problem, Standard & Poor’s downgraded the long-term credit rating outlook for the U.S. Despite the uncertainties surrounding partisan budget battles, the current top credit rating for U.S. sovereign debt remained unchanged. Investors and traders panicked on the news and stocks plummeted.

Budget battle affects U.S. credit rating

Budget gridlock in Washington is starting to affect the audience politicians care most about with the downgrade of the long-term U.S. credit rating outlook. Monday Standard & Poor’s lowered the U.S. credit outlook based on the risk that politicians could fail to agree on a plan to reduce the federal budget deficit to sustainable levels. Standard & Poor’s is one of three major agencies investors rely on to evaluate public and private debt scenarios. S&P credit ratings are viewed as a reliable measure of an investor’s risk in buying debt, a key factor in determining interest rates. S&P downgraded the U.S. long-term credit rating outlook from “stable” to “negative.” S&P maintained the country’s current top AAA credit rating, but a negative outlook means there is a one-in-three chance that the agency could further downgrade the U.S. credit rating within two years.

S&P move highlights risks of U.S. debt

S&P’s downgrade of the long-term U.S. credit rating outlook raises the stakes for Congress and the Obama administration to reach an agreement on a plan to reduce the federal budget deficit, which has reached about $1.5 trillion — the equivalent of almost 10 percent of U.S. gross domestic product. If allowed to continue growing at the present rate, the federal budget deficit could raise the cost of borrowing and further devalue the dollar, which would exacerbate the problem by degrading the government’s ability to finance the deficit. A bipartisan agreement on a long-term deficit reduction plan is not realistically expected until the conclusion of the 2012 elections. If a viable solution is not reached by then, S&P could make good on its threat to downgrade the current U.S. AAA credit rating. Such a move would send mortgage rates soaring and trigger a relapse of the credit crunch, which would send U.S. economic recovery off the rails.

Treasury tries to deflect effect of S&P announcement

The Treasury Department said S&P’s decision to lower the long-term U.S. credit rating outlook to negative “underestimates” U.S. leadership. At a press conference in Washington, a Treasury official said the cost of borrowing is not expected to rise on news of the S&P downgrade and reiterated the soundness and liquidity of U.S. debt. The official also said S&P should avoid making decisions based on politics and let the political momentum to reduce deficits run its course. Before those remarks were made, stocks stumbled out of the gate on Monday, losing more than 1 percent in early trading. Blue chip stocks shed more than 200 points as investors worried that the S&P downgrade could increase the cost of financing growth worldwide.

Sources

CNNMoney.com

Reuters

Bloomberg

Fox Business

A Senate report investigating the cause of the financial crisis accuses Goldman Sachs of misleading both its clients and Congress. Image: Flickr/greyloch CC-BY-SA

Goldman Sachs emerged as the villain in a senate investigation report on the financial crisis released Wednesday. Other Wall Street banks, financial regulators and Congress also shared the blame, but Goldman Sachs was singled out for fleecing its clients on mortgage-backed securities and collateralized debt obligations. Details of the report also suggest that Goldman executives committed perjury during Senate hearings on the financial crisis a year ago.

Goldman described as greedy snake pit

Goldman Sachs was described as a “financial snake pit rife with greed, conflicts of interest, and wrongdoing,” by Sen Carl Levin, D-Mich., chairman of the Senate subcommittee investigating the causes of the financial crisis. The 63-page report, presented by Levin and Sen. Tom Coburn, R-Okla., contains documents discovered during the two-year investigation that they say prove Goldman misled both its clients and Congress. In particular, Goldman allegedly sold risky securities and then bought insurance against their failure, knowing that when the loans went bad their clients would suffer significant losses and the firm would make a profit. The report detailed several incidents where Goldman said its interests were aligned with investors who bought collateralized debt obligations, when in fact the firm held a 100 percent short position against those same CDOs.

Goldman execs may face perjury charges

The Senate report also questioned the truthfulness of testimony given by Goldman Sachs’ executives, including CEO Lloyd Blankfein, at a Senate hearing on the financial crisis last April. Documents submitted to the Senate investigation by Goldman appear to conflict with statements Blankfein made under oath to the subcommittee. In the hearing, Blankfein denied that Goldman held a huge short position against the housing market and bet against its clients. He described what appeared to be conflicts of interest as “managing risk.” A Goldman spokesman said the Senate report confirms that the testimony given by Blankfein and others was “truthful and accurate,” but it has changed business practices to “strengthen relationships with clients.” Levin said he will refer the case to the Justice Department, an implication that Blankfein and other executives could be charged with perjury.

Business as usual on Wall Street

Goldman stock fell as much as 3 percent after the report was released. But analysts figure that Blankfein and Goldman will somehow wiggle off the hook. Analysts at S&P Equity Research expect Goldman stock to rise and view the Senate financial crisis investigation as only a “potential negative.” The fact that Goldman has simply denied wrongdoing seems to be enough for the firm to expect that nothing will come of Levin’s wrath. According to S&P Equity Research, “we expect GS to report robust global banking fees and strong trading revenues.” Goldman may ultimately be successful in arguing that what they did wasn’t illegal, just business as usual on Wall Street. Caveat emptor.

Sources

ABC News

Reuters

Fortune

The CEO of Chase disclosed that the federal probe into the robosigning scandal reached a settlement. Image from Wikimedia Commons.

A settlement is soon to be announced regarding the robosigning foreclosure controversy. Some of the nation’s largest mortgage lenders rubber-stamped foreclosure documents without looking at them and may have foreclosed on some people who didn’t deserve it. A legal probe into foreclosure practices has reportedly reached a settlement with those lenders.

JPMorgan exec discloses deal with some federal agencies

Chief Executive Officer of JPMorgan Chase Jamie Dimon recently disclosed that the government probe into the robosigning controversy had come to an agreement with the mortgage lenders being investigated, according to Reuters. Dimon confirmed that no fines had been levied yet, but they are likely to come. The nation’s largest mortgage lenders and servicers were the subject of a sweeping investigation by nearly a dozen federal agencies and the attorney general of every state in the union. The agreement is not complete; it is only the settlement between the financial institutions involved and the Federal Reserve, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. A settlement with all 50 state attorneys general has not been reached.

State settlements to come

The controversy stemmed from the discovery that a lot of foreclosure proceedings started when paperwork to begin foreclosures was approved in a robotic fashion, or “robo-signed,” without proper review. The resolution of the robosigning foreclosure debacle is important, as foreclosure practices may change. JPMorgan, for instance, expects to hire at least 3,000 more employees to ensure compliance with the settlement agreement, according to Bloomberg. In other words, there will be an increased amount of regulation in the mortgage industry when it comes to foreclosures, which means it will cost the lenders in the mortgage industry more to lend and service a loan. Those costs will be passed on to the consumer at some point, likely in the form of requiring more money up front to get a loan. There is also a backlog of foreclosures on the books at these banks, as they have become more skittish about foreclosing on borrowers who are delinquent in paying their mortgage.

Mortgage modification failed participants

One failure of the Obama administration and the various stimulus programs was the various mortgage modification programs that were made available through the federal government. People who were behind on their mortgages or facing foreclosure could apply for a modification. The distressed homeowner’s lender would receive an incentive payment from the government if it modified the borrowers’ mortgage on a trial basis. However, according to USA Today, not many people were helped. The goal was to keep 3 million to 4 million people in their homes; instead only about 630,000 people had their mortgages permanently modified.

Sources

Reuters

Bloomberg

USA Today

The government shutdown does not mean that people don't have to file their income tax return by the deadline. Image from Wikimedia Commons.

If the government has to shutdown because of the budget showdown, it will not affect the income tax return deadline. The Internal Revenue Service extended the deadline to April 18 this year because of a holiday in Washington D.C. However, tax return checks will be delayed.

IRS employees affected by shutdown

In the event of a government shutdown, there will be a few agencies that are unaffected in their operations. The Internal Revenue Service will not be among them, and all IRS agents and personnel will be told to stay home as long as the shutdown lasts. Unfortunately, according to Bloomberg, that does not mean that the deadline to file an income tax return is postponed. The government shutdown will, unless an unlikely deal is made at the 11th hour is made, begin on April 8.

Electronic filing urged

The IRS will not be able to receive any paper returns during the shutdown, delaying the issue of a tax refund check to those who filed a paper return. The IRS is urging taxpayers to file electronically because any online tax return filings will be processed as normal.

Government workers will be affected most

It is contended that the shutdown is going to occur because Congressional Republicans insist on defunding Planned Parenthood  because the organization provides abortions. Members of Congress, according to CNN, and the president, will still get their paychecks automatically. The people who will suffer are government employees. Those who are considered “unnecessary personnel,” or people who do not perform services for the government that guard the life or property of the people, will be sent home. Those who perform necessary services, like the Federal Bureau of Investigation and the military, will still have to go to work. However, they will have to work completely for free, and there’s no guarantee they will be reimbursed for that time.

Sources

Bloomberg

Time

CNN

The Bush tax cuts were the last foray into supply side economics, which led to wage deflation, job stagnation and astronomical deficits. Image: CC fotopedia

Rep. Paul Ryan, R-Wis., submitted a budget proposal known as the “Path to Prosperity” this week. It relies heavily on supply side economics that insist lower corporate taxes translate to more jobs and higher government revenues. Supply side economics were the principle behind the Bush tax cuts of 2001, which gave record profits to corporations while producing the weakest job growth since the Great Depression.

Supply side economics versus reality

Paul Ryan says cutting spending and taxes will generate an extra $100 billion in tax revenues, spark a new housing boom and bring unemployment down to 2.8 percent by 2021. Ryan wrote “Path to Prosperity” with the help of the Heritage Foundation, a conservative Washington think tank formed to advance supply side economics. Heritage Foundation analysis in Ryan’s plan predicts that by reducing the corporate tax rate from 35 percent to 25 percent, unemployment will fall from the current 8.8 percent to 6.4 percent within a year, down to 4 percent in 2015 and 2.8 percent in 2021. However, reaching 4 percent unemployment in the next four years would require the economy to overheat and cause runaway inflation. The Federal Reserve would respond by raising interest rates to cool things down long before that magic number is reached.

The job-killing Path to Prosperity

The “Path to Prosperity” predicts that the tax cuts will create a huge influx of jobs and set off a new housing boom, which in turn will create even more jobs. Ryan’s plan says next year it will attract an additional $89 billion in housing market investment. However, falling home prices, a backlog of millions of foreclosures and a glut of unsold homes will drag on the housing market for years to come. When it comes to jobs and Republican policies in the the near-term, Fed chairman Ben Bernanke said the GOP goal of 61 billion in spending cuts would cause a net loss of 200,000 jobs by 2012. Goldman Sachs predicted such cuts in spending and revenue would reduce GDP up to 2 percent. The Ryan “Path to Prosperity” offers only tax and spending cuts that primarily effect the poor, elderly and disabled. It doesn’t say why U.S. corporations sitting on billions in cash that aren’t hiring need more money to do so.

Exhibit A: the Bush tax cuts

The best predictions for the future of the “Path to Prosperity” lie in the past. When George W. Bush signed the 2001 and 2003 tax cuts into law, he boasted that he had launched a new era of sustained economic growth and prosperity. In reality, from 2001 to 2007 U.S. millionaires and billionaires got richer while average household income fell for the first time in history, jobs grew at the weakest pace in more than 60 years, the federal deficit rose to record levels, and the financial industry careened to the brink of collapse. In the middle of that period of job and wage stagnation, a Republican jobs package included a one-year tax holiday for companies that added up to $362 billion. Instead of hiring more workers, most of the money went to pay shareholders.

Sources

Fortune

Huffington Post

National Journal

Political Correction

The Consumer Financial Protection Bureau is due to start operating in July, but cannot seem to get past Congressional hearings and legal infighting. Image from Wikimedia Commons.

Congressional lawmakers continue to fight over the creation of the Consumer Financial Protection Bureau. The CFPB, which is intended to have regulatory jurisdiction over consumer finance, is supposed to start operations in July. So far, the rules over what it is allowed to do have not been established and it has no director.

Republicans trying to gut bureau before it starts operating

The Consumer Financial Protection Bureau, which holds regulatory sway over consumer credit like mortgages, credit cards and payday loans, is supposed to begin operations on July 21. However, Congressional Republicans are trying to dilute the regulatory powers that the CFPB is supposed to have once it begins operating, according to CNN. After a recent hearing in the nation’s capital, bills were introduced in the House of Representatives to change certain rules in how the federal agency will operate. Among proposed changes are to install a five member committee instead of a single director, easier Congressional override of any CFPB action, and to keep the CFPB from conducting any operations until a director has been appointed by the Senate.

Major objections to lack of oversight

Under the current rules, the CFPB would be an independent agency that would be funded by regulatory fees that banks pay to the Federal Reserve, according to MarketWatch. However, the formation of the organization has been repeatedly held up in Congress for a number of reasons. The most oft-repeated objections about the CFPB are that too much power would be placed in the hands of the director, and that Congress didn’t appoint Elizabeth Warren to set it up. Warren is not the head of the CFPB, but a special adviser that was handpicked by the President. However, the Treasury Secretary and Chairman of the Senate Banking Committee both announced their opposition to further restricting the bureau recent Congressional hearings, according to Bloomberg. Cynics could assume that the mere existence of another federal regulatory body is at least part of the objection.

Small banks against further regulation

A concern of small banks, community banks and credit unions has been that the new bureau could make it nearly impossible to keep the doors open, according to Reuters. Small banks have higher overhead and lower profit margins than their megalithic cousins. Bank of America and Wells Fargo are able to afford to pay fines easily, but community owned banking entities have a much more difficult time. Small banks depend on sources of revenue such as account fees and interest on short term loans just as much as large banks do, and higher costs of compliance will make operation more difficult for them. Not everyone wants to bank with corporate Goliaths.

Sources

CNN

MarketWatch

Bloomberg

Reuters

Is giving companies like Twitter huge take breaks killing local economies? (Photo Credit: CC BY-ND/Estupido/public var)

In an 8-to-3 vote, the San Francisco Board of Supervisors has decided in favor of an ordinance that will grant local company Twitter and others a tax break from the city’s corporate payroll tax on new hires, reports the Los Angeles Times. The 1.5 percent tax shelter will be good for the next six years, as long as companies like Twitter maintain their physical San Francisco offices. While Mayor Edwin Lee praised the move as a step in the right direction for maintaining the city’s popularity as a location for tech firms, critics believe such corporate tax holidays open the door for cities to be exploited by big businesses.

Twitter’s continued presence ‘a rejuvenation’

Offering Twitter a payroll tax break was necessary to keep the social media giant in San Francisco for years to come, said Lee.

“This moment represents a real step forward in the effort to revitalize and transform the Central Market area,” he said. “Central Market and the Tenderloin have been burdened with high vacancies and blight for decades.”

While Twitter officials would not comment on the payroll tax exclusion Wednesday, Lee told the San Francisco Chronicle that he appreciated Twitter’s enthusiasm for helping revitalize those key business districts. The creation of jobs and services in sagging geographic areas would benefit San Francisco across the board.

“There is great synergy between Twitter and the arts organizations and small retail businesses who are looking to expand in the area,” said Lee. “The city can work collaboratively with businesses, community-based organizations, property owners and area residents to catalyze meaningful change.”

Businesses will expect the tax holiday, critics claim

Over the next six years, the Twitter payroll tax break is projected to save the company about $22 million on its taxes, the Chronicle reports. That’s $22 million that San Francisco needs, said city supervisor John Avalos.

“I don’t believe giving an exception to our payroll tax is the way to go,” he said. “I believe that businesses in San Francisco and around the country should be socially responsible. … If we allow a company to threaten to leave, then give them a tax break so they don’t, we’re setting a bad precedent.”

Sources

Los Angeles Times

San Francisco Chronicle

San Francisco Mayor’s Office

Minnesota Gov. Tim Pawlenty on corporate tax holidays and offshoring

The GOP plan to cut spending by $5 trillion in 10 years includes cutting Medicare and making the Bush tax cuts permanent. Image: CC Ed Yourdon/Flickr

Rep Paul Ryan, R-Wis., has presented a budget proposal with severe long-term spending cuts that includes Medicare reform. Ryan’s plan would replace traditional Medicare with subsidies for seniors to buy private insurance. Republicans have tried to use the federal deficit to dismantle Medicare before but failed when opponents made clear that their purpose for defunding Medicare is to finance tax cuts for the rich.

GOP turns about face on Medicare reform

Republicans fought health care reform in 2010 by threatening seniors with dire warnings about slashed Medicare benefits. In 2011, a GOP budget proposal called “Path to Prosperity” purports to slash government spending by $5 trillion over the next decade. Ryan wants to dismantle Medicare, a $520 billion program that provides medical coverage to approximately 47 million older and disabled Americans. The GOP plan for Medicare reform calls for repealing the health care reform law that extends insurance coverage to 30 million Americans. For Americans currently 54 and younger, instead of Medicare they would get a federal payment to buy private insurance from a choice of government-regulated plans. It strips the poor and disabled from a right to health care under current federal law by converting Medicaid to a block grant for each state to design its own insurance plans. Retirees in the future would wait until age 67 to be eligible for Medicare.

GOP budget plan targets poor, disabled and retirees

If the health care law is repealed under the Republican plan for Medicare reform, some people without employer insurance may not be able to afford medical coverage or get insurance at any price if they have pre-existing conditions. States, which have gone broke during the economic downturn, will have their ability to offer vulnerable low-income people  protection further eroded. Analysis by the nonpartisan Congressional Budget Office said in the future retirees would pay more because benefits would be more expensive to deliver through private insurers. By 2030, the government payment used to buy health insurance would only cover about one-third of a person’s total health care costs.

Ryan downplays tax cuts for the rich

Dismantling the U.S. health care safety net has been a Republican goal for about 50 years. Ryan’s “Path to Prosperity” is an attempt to use deficit reduction as a means to achieve it. In addition to cutting spending, “Path to Prosperity” is a plan for more tax cuts. Cutting Medicare is part of Ryan’s strategy to offset lower corporate taxes and bring down the top individual tax bracket from 35 to 25 percent, essentially making the Bush tax cuts permanent. In a slick video presenting his budget proposal, Ryan doesn’t mention the tax cuts, but he says cutting Medicare is the only way to save it. It’s a familiar Republican strategy. In 1995 Republicans warned that the deficit was a threat to the survival of the nation. They proposed saving Medicare by privatizing it. President Clinton made clear to the public that the GOP plan cut Medicare in order to finance a regressive tax cut. Clinton prevailed 16 years ago because Medicare was more popular than tax cuts for the rich.

Sources

Washington Post

The New Republic

MSN Money

Salon

Even the conservative American Enterprise Institute thinks the GOP plan to blackmail Congress into a vote on the amendment is a bad idea. Image: CC Canon in 2D/Flickr

Senate Republicans are pushing a balanced budget amendment to the U.S. Constitution. They intend to force Congress to pass a balanced budget amendment in return for votes that would approve raising the debt ceiling, which the federal government will need to do to pay its bills. Economists dismiss the balanced budget amendment as irresponsible political theater, and chances it would be ratified are nil.

GOP turns record surplus into record deficit

More than a dozen Republican senators are co-sponsoring a bill for a balanced budget amendment written by Orrin Hatch of Utah and John Cornyn of Texas. Congressional Republicans tried to pass a balanced budget amendment during the Clinton Administration in 1992, 1995 and 1997, although Clinton’s 1993 deficit reduction package resulted in a $5.6 trillion government surplus by 2001 as projected by the Congressional Budget Office. Republicans quit pushing a balanced budget amendment when George W. Bush took office in 2001. A Republican Congress and the Bush administration spent the surplus on tax cuts and wars, increasing the federal deficit to $10 trillion by the fall of 2008 when the financial crisis reached critical mass.

Balanced budget amendment blackmail

Now with a Democrat in the White House, Republicans have dusted off the balanced budget amendment once again. Even Cornyn admits that forcing Congress to vote on such an amendment that has no chance of being ratified is nothing but political theater.  Cornyn told the right wing website Human Events that “Voters would then know, with very stark clarity, who is for a balanced budget and who is not, and it could have a big impact on the 2012 elections.” To force Congress into allowing such posturing, Republicans are resorting to blackmail. In exchange for allowing the federal debt ceiling to exceed its current $14.2 trillion cap, which a fragile global economic recovery depends on, Republicans are demanding that Congress vote on a balanced budget amendment.

Even conservatives think the balanced budget amendment is a bad idea

Among other fantasies, the Republican balanced budget amendment prohibits tax hikes. The last time the GOP tried the stunt, Clinton’s Treasury Secretary, Robert Rubin, warned that if an amendment was in force, a recession could quickly turn into something worse. The conservative American Enterprise Institute calls the balanced budget amendment “the most irresponsible action imaginable.” The liberal Center on Budget and Policy said it eliminates the government’s economic stabilizers, such as unemployment benefits that expand during downturns, from working when they are needed the most. There is a reason only 27 amendments have been made to the U.S. Constitution since it was ratified in 1788. Two thirds of the House and Senate must vote yes, then legislatures from at least 38 states must do the same.

Sources

CNNMoney.com

Perrspectives

Investors.com

The Virginia Senate has changed wording of a bill to open up title lending. Image: Flickr / waldoj / CC-BY-SA

In Virginia, short-term title lending is about to receive a boon. A new bill signed into law Monday will allow lenders in the state to offer their products to non-residents. The bill is specifically targeted toward increasing business for Virginia lenders.

Virginia title lending

Senate Bill 1367 in Virginia passed the Virginia Senate easily and with a very close vote in the House. The bill officially opens vehicle-collateral same day loans to residents of all states. Previously, loan companies had to check that their customers were residents of Virginia before signing off on their loans. The state has not released exact estimates for the amount of business income this will bring to the state, though car title lenders donated about $240,000 a year for the last five years to Virginia legislators.

Limits on title loans

Virginia has recently tightened regulation on title lending. In 2010, limits were passed that keep title loans to 50 percent or less of the value of the vehicle. Payments are also limited to no more than 12 months. Despite these new limitations, Virginia has some of the most permissive regulations when it comes to title loans. Many of the states surrounding Virginia have recently limited short-term loans much more tightly, effectively pushing the lenders out of the business entirely. This has created a credit crunch for small loans in the region.

Differentiating short-term credit products

The Virginia Partnership to Encourage Responsible Lending and AARP Virginia both released statements blasting Virginia’s Senate Bill 1367.

“People are very vulnerable in this economy and desperately seeking help,” said David DeBiasi with AARP Virginia. “The last thing they need is ‘help’ that turns out to be exploitation.”

Short-term credit products vary widely, and title lending is one of several short-term credit products. Title loans require the borrower to sign over the title of a vehicle as collateral to a short-term loan. The interest rates on these loans vary but are usually higher than traditional vehicle loans.

Sources

Hampton Roads
Legislative Information Service of Virginia
Washington Examiner

The Missouri House is considering two payday loan bills, but only one provides reasonable protection for both consumers and business. (Photo Credit: CC BY-ND/Regions of Missouri)

The Missouri House Financial Institutions Committee is prepared to hear two new bills that could affect payday loans in the state, reports the Columbia Daily Tribune. Committee chair Rep. Don Wells (R-Cabool), who is the former owner of a payday loans company, will hear personal loan bills by Rep. Mary Still (D-Columbia) and Rep. Ellen Brandom (R-Sikeston) at 5 p.m. Wednesday at the Jefferson City Capitol Building. While Rep. Still’s HB 132 calls for drastic limits to state payday lenders, Rep. Brandom’s HB 656 takes a more moderate approach.

‘Consumer protections without killing the personal loans industry’

Rep. Wells told the Daily Tribune that any payday loan legislation that makes in through the Missouri Congress should implement “consumer protections without killing the industry.” His ideas are more similar in shape to those in Rep. Brandom’s Missouri HB 656, in that he supports limiting the number of payday loan renewals Missouri consumers can arrange; having at least a two-week “cool off” period; making sure that the fee per $100 borrowed on a personal loan is clearly posted for consumer consideration as a dollar amount, rather than a percentage; and allowing consumers to make long-term repayment arrangements without excessive penalty.

As Brandom told local media, the average payday loan in Missouri costs $17 for every $100 loaned.

“To me, that is the easiest way to understand it,” she said.

Still’s Missouri HB 132 hovers over dangerous 36 percent APR barrier

Rep. Still takes a more hard-line approach to personal loans. Her bill proposal seeks a 5 percent limit to the cost of payday loans, with a cap of $25 total. In addition, interest of more than 36 percent APR would not be allowed, even when the repayment period exceeds 90 days. Numerous studies have shown that a 36 percent APR is not sustainable for a business with any overhead whatsoever, a fact that, if Still’s words are to be believed, shows the FDIC simply does not understand the business model clearly enough to justify an official ruling.

“You can make money at 36 percent,” she said. “Some companies offer money at 18 percent. It is what the FDIC says is a reasonable rate.”

If Rep. Still’s aim is to protect consumers, then driving payday loan companies out of Missouri and forcing consumers with a need for the product to resort to less reputable, unregulated sources is inconsistent with her stated goal. Even the Missouri Catholic Conference, which has entered its own payday lending model for consideration, has not been insistent on a 36 percent APR.

Missouri’s largest personal loan company sounds off

A 36 percent APR would devastate smaller lenders with lower margins, but even the largest high-margin payday lender operating in Missouri – QC Holdings – cannot operate under such restriction. From a 2009 Missouri Better Business Bureau report, a QC Holdings representative said:

“Any federal law that would impose a national 36 percent APR limit on our services … would likely eliminate our ability to continue our current operations.”

Sources

Better Business Bureau

Columbia Daily Tribune

Apply some reason when thinking about payday loans

Republicans accuse Elizabeth Warren of having a “radical pro-consumer” agenda. (Photo Credit: CC BY-ND/David Quintana/Lost in the Ozone)

CNBC reports that the White House is struggling to fill the director’s chair for both the Consumer Financial Protection Bureau and the Office of Financial Research. Harvard professor and Obama adviser Elizabeth Warren may not have the stranglehold on the former, as was once thought, while multiple candidates for the latter position have balked at the prospect of six years of political infighting. Without clear leadership, both organizations will at best be all sound and fury, signifying nothing but the status quo for financially bruised consumers.

Fighting for political turf turns off OFR, CFPB candidates

The Office of Financial Research, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act, will be charged with improving the quality of financial data available to policymakers, such as information regarding credit cards, cash advances and the payday cash advance industry.

However, if the White House fails to fill the leadership chair, the OFR will never reach its potential. Such high-profile candidates as Yale economist Robert Shiller (of Case-Shiller Home Price Index) have excused themselves from White House consideration because they think the six-year commitment and Washington war games aren’t worth the hassle.

An anonymous source close to the appointment process told CNBC that the OFR post requires a very particular type.

The position “needs a tough-guy-like attorney” who isn’t afraid of dogfights, said the source.

Check your radical pro-consumer agenda at the door

Republican critics of Elizabeth Warren claim that she’d be inappropriate for the office of Consumer Financial Protection Bureau director because of a “radical pro-consumer agenda” that would drown every consumer finance industry from credit card companies to payday cash advance lenders in penalty fees. Even though Prof. Warren is very close to the appointment process – President Obama has put her in charge of the search – Republicans and now even some Democrats and Independents are uncertain that Warren’s appointment would be confirmed.

Republican Sen. Judd Gregg of New Hampshire told ABC News that even considering Elizabeth Warren for the Consumer Financial Protection Bureau position is “a terrible adulteration of the process.” Such big-budget power (estimated as high as $500 million) in the hands of an appointee that can operate outside the bounds of Congressional oversight is unacceptable, said Gregg.

“My concern is that she would use the agency for the purposes of promoting social justice versus for the purposes of promoting better credit and having a stronger financial system,” said Gregg.

Enter Richard Shelby

Senate Republican Richard Shelby, the senior GOP member of the Senate banking committee, is considered the top Republican choice to head the Consumer Financial Protection Bureau. According to ABC News, Shelby vetoed the nomination of Joseph Smith to the Federal Housing Finance Administration and opposed appointing Nobel Prize-winning economist Peter Diamond to the Federal Reserve board. Clearly, Shelby knows how to oppose Democrat-favored appointees.

Sources

ABC News

CNBC

Credit.com News

‘Consumers need a cop on the beat’

The Consumer Financial Protection Bureau isn't bankrupt, but its funding could be in jeopardy. (Photo Credit: CC BY-ND/Shirt Fight)

The conservative majority in the U.S. House of Representatives appears determined to rain on Elizabeth Warren and the Consumer Financial Protection Bureau, reports the Huffington Post. Dodd-Frank Act opponents Majority Whip Eric Cantor, Rep. Michele Bachmann and House Financial Services Chair Spencer Bachus have already voted to cut the Federal Reserve-funded budget of the CFPB from $143 million to $80 million. If the trend continues, the CFPB – which is scheduled to open on July 21, 2011 – will be the only federal bank regulator in the U.S. subject to political budget cuts.

The CFPB seeks to heal wounds of banking abuses

Harvard Law Prof. Elizabeth Warren, co-author of the book “Two-Income Trap,” has studied at great length how banking abuses have harmed U.S. families. The middle class sinks ever deeper into poverty, borrowing just to keep up with expanding bills and compensate for stagnant salaries. The Consumer Financial Protection Bureau’s goal is to unify the following seven federal agencies, per the Federal Register:

• Federal Reserve Board of Governors
• Federal Deposit Insurance Corporation
• Federal Trade Commissioned
• National Credit Union Administration
• Office of the Comptroller of the Currency
• Office of Thrift Supervision
• Department of Housing and Urban Development

Until now, none of these agencies had consumer protection as the primary agenda. Warren believes the middle class needs an advocate, and the Consumer Financial Protection Bureau will serve to help stem the tide of personal bankruptcies.

“The numbers are sobering,” Warren said at a Feb. 23 Chicago lecture. “Since the late 1970s, (personal) bankruptcy filings have doubled and doubled again. Women have been hit particularly hard. Over the course of 20 years, the number of women filing bankruptcy petitions increased by 662 percent. By the early 2000s, a woman was more likely to file for bankruptcy than to graduate from college.”

Support the Consumer Financial Protection Bureau

According to the Consumer Federation of America, the CFPB will play a major role in making sure that consumers are not abused by such things as subprime credit cards, which bear high rates and fees; bank overdraft loans, which have astronomical interest rates; military loan companies that attempt to operate outside the boundaries of federal regulation requiring a cap of 36 percent APR; and the most unscrupulous payday advance loan outlets, where fees can become excessive.

As John Wasik writes for Reuters’ Prism Money blog, consumers should be paying attention to what House Republicans are trying to do to the Consumer Financial Protection Bureau.

“I believe everyone with a credit card, bank loan or savings account needs to back Warren now,” writes Wasik. “Contact your senators and congressmen and urge them to leave the bureau’s funding alone, which is tied directly to the budget of the Federal Reserve.”

Sources

Consumer Federation of America

Federal Register

Huffington Post

Reuters

‘I’m not here to support criminal schemes,’ said Rep. Maxine Waters

Fannie Mae and Freddie Mac are starting to limp back to health, but Treasury Secretary Timothy Geithner is still serious about reducing their role in the market. Image from Wikimedia Commons.

Troubled mortgage insurers Fannie Mae and Freddie Mac are starting to creep back toward solvency. The federal government has lent both houses more than $130 billion since Fannie and Freddie were placed under conservatorship in 2008. However, a new round of foreclosures is on the horizon, and that may undo any progress that has been made.

Losses slow as Freddie and Fannie get houses in order

Freddie Mac and Fannie Mae were one of the largest recipients of emergency loans during the federal bailouts of the past several years. Both mortgage houses received a combined sum of more than $130 billion to keep the real estate market afloat. However, the two toxic companies are starting to hemorrhage less money, according to ABC. During the last quarter of 2010, the period from October to December, Fannie Mae posted a loss of only $2.1 billion and Freddie Mac posted a loss of only $1.7 billion. In the same period of 2009, Fannie posted a $16.3 billion loss and Freddie posted a $7.8 billion loss. However, Fannie and Freddie have both requested additional loans, with Fannie asking for a further $2.6 billion and Freddie seeking another $500 million.

Plans to wind down the mortgage giants

For decades, Fannie Mae and Freddie Mac have played a crucial role in the real estate industry. The two companies purchase mortgages and resell them as investments in order to free up capital for loan lenders to lend more mortgages. However, the government is serious about drastically reducing Fannie and Freddie’s involvement in the mortgage market, including possibly phasing them out altogether. Treasury Secretary Timothy Geithner has admonished Congress to have a serious plan ready before trying to vote on anything, according to USA Today. Geithner cautioned House Republicans eager to cut the programs that doing so could have an adverse effect on the real estate market, including possibly destabilizing the housing finance industry entirely. Geithner has recommended a gradual program as the best course.

Darkest before dawn

Fannie and Freddie are both expected to endure further damage in coming months. Though Fannie and Freddie own roughly 50 percent of all mortgages in the United States, and 90 percent of all mortgages originated in the past few years, there is a growing backlog of foreclosures that cannot be completed until foreclosure reforms related to the “robo-signing” scandal are resolved. Whatever reforms take place regarding Fannie and Freddie, Treasury Secretary Geithner expects housing prices to rise a little bit over the next few years, according to Reuters. He also recommended that given housing conditions over the past few years, home buyers put larger amounts of cash down to ensure greater stability.

Sources

ABC

USA Today

Reuters

Big business wants financial reform - with some caveats. (Photo Credit: CC BY-ND/Adam Benforado/The Situationist)

On July 21, 2011, the Consumer Financial Protection Bureau is scheduled to officially begin living up to its mandate as the United States’ regulatory body for consumer finance companies. The impending change recently prompted business groups to send the Obama administration a “wish list” letter that expresses what they think the CFPB should do first, reports CNN Money. While focusing on bank regulation is considered a top priority, the notion of the CFPB proposing new financial reform before confirming a director is unpopular.

Confirm a CFPB director now, says big business

Harvard University professor and Obama administration adviser Elizabeth Warren originally conceived the idea for the Consumer Financial Protection Bureau, and she has been considered the most likely candidate to direct the bureau. However, Warren’s strong stance for the consumer and against the machinations of Wall Street make her an uncertain choice for confirmation, according to Sen. Christopher Dodd (D-Conn.), a co-founder of the Dodd-Frank Wall Street Reform Act. This has delayed the confirmation process, but it has not kept Warren from the difficult work of staffing the agency and meeting with bank executives, lobbyists, chambers of commerce, consumer groups and high-profile investors.

“They were wary, but polite, and quite surprised,” Warren said Monday of the meetings. “Some were sure I’d walk in with blood dripping from my fangs.”

What big business wants

In order to avoid burdensome or regulatory duplication, business groups are clamoring for the CFPB to approach banking and finance regulation with laser-like precision. Jess Sharp, director of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness, told CNN that Dodd-Frank is too ambiguous as it stands. The Consumer Financial Protection Bureau must do more.

“Targeted regulation to weed out bad actors is good for consumers, but there’s huge and ambiguous authority granted under Dodd-Frank,” Sharp said. “That can lead to huge regulatory burdens for Main Street businesses.”

Specifically, Dodd-Frank would empower the CFPB to supervise consumer finance companies that aren’t traditional banks, like short term loan companies. However, in the letter to the Obama administration, business groups frown upon such an idea.

“Deferring an expansion of supervision and examination requirements would allow businesses to devote resources to job creation rather than save them to cover what might well be unnecessary regulatory compliance costs,” the letter reads.

Praise for credit card companies

While the U.S. mortgage industry still needs repair, Warren praised the credit card industry for taking proactive measures to improve its relationship with consumers, writes Credit Card Studio. Further CFPB regulation may not be necessary.

“The data we have assembled indicates that much of the industry has gone further than the law requires in curbing repricing and over-limit fees,” Warren said. “Leaders in the industry deserve credit for moving in the right direction.”

Sources

AdvisorOne

CNN Money

Credit Card Studio

The CFPB: Arresting the development of a new financial meltdown

The US Embassy in Libya has been evacuated, and sanctions are pending against Libya and Moammar Gadhafi. Image from Wikimedia Commons.

The U.S. embassy in Libya has been closed as violence in the Libyan capital is increasing. The regime of Moammar Gadhafi is quickly losing control despite stringent and deadly efforts to quell the uprising of Libyans against Gadhafi’s four-decade rule. Sanctions against Libya are likely to be enacted soon.

Tripoli plunging into chaos as Gadhafi regime tightens grip

The regime of longtime Libyan dictator Moammar Gadhafi is fast losing control of the nation, and the capital city of Tripoli is becoming the battleground for control of the North African country. Crowds of protesters have been fired upon, but have remained resilient in the face of mortal danger from African mercenaries and members of the Libyan army still loyal to Gadhafi. As a result of the escalating instability in the Libyan capital, the U.S. State Department has suspended American Embassy operations, and moved most embassy personnel out of Tripoli with a chartered ferry, according to Reuters. The embassy is still open, but most workers have been evacuated except for some staff.

Sanctions against Libya pending

The White House has affirmed that economic sanctions will be levied against Libya, in response to the brutal tactics used by Moammar Gadhafi in addressing the unrest in the country he has ruled for more than four decades. Military cooperation between the U.S. military and the Libyan military has already been cut off, and the nature of forthcoming sanctions against Libya will be determined after a meeting between President Obama and United Nations Secretary-General Ban Ki-moon, according to CNN. Obama has previously been criticized for taking too soft a stance on the situation in Libya.

International leaders call for Gadhafi to resign

A growing chorus of international leaders and figureheads are calling for Colonel Gadhafi to resign, according to the New York Times. Nicolas Sarkozy, President of France, called on Gadhafi to resign, and British Prime Minister David Cameron admonished Gadhafi that “the world will hold you to account.” Gadhafi has vowed to “die a martyr” and has refused to leave while alive.

Sources

Reuters

CNN

New York Times