Personal Responsibility: Part II Housing Crisis

As much as either political party wants you to believe it was: (a) The greedy banks and wall street hedge fund managers that took advantage of the poor (b) the stupidity of those who signed mortgage papers with up to 125% financing and the government backing of those loans (Guess you can't pick which one is which!).  The fact of the matter is that there were many factors which added up to make the housing mess we are in.  In a way, we all went along for the ride, enjoying every moment -- until the roof fell in.

Sometimes there is irresponsibility on both sides of the mortgage table.  Here is my list as to why the collapse of 2008 occurred:

1. The banks had no business lending 100% of the value of a house -- None.  That gives no room for error in a down housing market.  That was stupid, greedy, and downright immoral.  No downpayment?  Seriously?
2. Borrowers had no business borrowing 100% of the value of a house -- None.  That gives no room for error from their standpoint.  That was stupid, irresponsible, and walking away when the house went down in value was immoral.  You signed a contract and you should live up to it.  No downpayment?  Seriously?  When you have no skin in the game, all they do is walk away.  They put in nothing.  They have nothing to lose.
3. The banks, real estate agents, and appraisers colluded to create a fake housing price "premium".  To push these 100%'ers through and get their closing costs too, they had to "fudge" things a bit, didn't they?  How do you buy an asset worth say $100,000 and pay the bank and realtors $5,000 in closing costs?  Simple you price the asset at $105,000 and get an appraiser to rubber stamp it.  Who hires the appraiser?  The banks do.  Sure, the borrow does technically, but the banks nudge them in the right direction and says well "If it doesn't appraise for $XXX we can't do the deal."  The appraiser realizes this.  He also wants to be paid on the next closing (The bank would fire him if he doesn't).  So... $100,000 asset for $105,000?  Sure.  <Stamp>.  An appraisal should be totally independent and hired exclusively by the buyer -- for their eyes only.  The bank should not be allowed to see it until afterward. No numbers should be disclosed beforehand.
4. The government should have never implied the backing of the majority of these loans through Freddie and Fannie.  Thank you Mr. Clinton.  Even when confronted about the solvency of F&F in the early 2000's, Congressmen (Frank and Dodd to be specific) said this wasn't a problem.  Not a problem?  16% of the mortgage industry completely tanking is evidently not a problem.  The government, yes, is a big player here.  Without this implied backing, the banks would not have been able to be so greedy.  See No. 1 above.  Stepping up and cutting bad loans through tighter regulations a few years in would have avoided a lot of this, but they wanted the votes.  This was a way to buy them and punt the issue down the road.
5. Bundled mortgage backed securities.  This means of wrapping a bundle of subprime mortgages together and sold as a package allowed the banks to get rid of nearly all risk.  This also enabled the banks to rack up huge closing fees and record profits with little risk.  They sold these out immediately and never looked back.  The mortgage firms who bought didn't allow enough buffer for a down market.  Once these bundles started to go sour and underwater they were like dominoes.  Lehman Brothers and AIG got pummeled, and we the taxpayer bailed out the irresponsible again.

So what did the government do?  Why they came up with TARP and Obama's Mortgage Plan.  Two pieces of legislation aimed to help whom?  Well, of course, the most irresponsible people in the whole mess -- banks, insurance companies, wall street, and borrowers. 

The people who got hurt the most are the people who have made their payments all along.  In 2000, I built a house worth about $145,000.  Ten years later, my house is probably worth $140,000.  Most homeowners are like me. 

My solution would have been much simpler.  Let those that were irresponsible fail and be bought by others who were responsible.  Anyone who had paid their mortgages faithfully would have gotten $5,000 given to the banks and credited against their mortgage.  Then once all this cash flowed into the bank (remember this wasn't free as they reduced their solid mortgages by $5,000 each -- think of it as taking the money out of the bank's own savings accounts which to them are loans) you hand them these 100% mortgages that were underwater and say:  Deal with these and reduce their rates to a fixed reasonable amount (more than those that are responsible, but up to a cap (8%?) so the banks have to suffer, and the borrowers get some help but do not get away scott free).  $5,000 x 85% of 44 million mortgages equals less than what we spent on TARP and Obama's mortgage relief plan by several billion dollars.  Those who were responsible got rewarded.  Those who weren't get to deal with their own irresponsible behavior.

Next we'll look at Obama's Mortgage plan and how it works.  As you might guess, it also rewards irresponsibility.  Here's a link to get familiar with it.



http://www.wisebread.com/details-of-obamas-mortgage-plan-released-will-you-benefit

Personal Responsibility Part I: Pell Grants

The U.S. government continues to support irresponsible behavior.  I find the blatant disregard for those that are responsible, do the necessary sacrifices, and plan to be appalling.  I shall outline factually how the government continues -- unabated and with no remorse whatsoever -- to support irresponsibility.  This, above all else, is what creates in me a high level of angst against our government.  But here I am, with my tiny little blog, attempting to make some sense of the how, what, and more importantly the why of the current operations of our governmental systems.

The first area I want to highlight is the financial aid area for higher education.  The starting point for every discussion on this topic has to be with the FAFSA (Free Application for Federal Student Aid) form.  Stemming from that magnificent piece of bureaucratic Mecca is the Pell Grant.  You can read all about the Pell grant here: http://pellgranteligibility.net/  The Pell Grant is based upon a simple formula:  Financial Need = Cost of Attending College - Estimated Family Contribution.

I don't have much problem with the parents' calculation of the "Estimated Family Contribution", but the dependent's calculation is horrible.  I'll recap that in the next paragraph.  The parents' calculation is simple.  You make over about 25,000 and roughly 22% above that amount will be held against you.  On the asset side of the equation, any amount over $41,300 is held against you at a rate of 12%.  Not many people in this income range will have assets (excluding any home equity -- even if that happens to be $1,000,000 btw) over $41,300.  Plus, at some point the Pell Grant does have to phase out.   


For all of you parents out there that support your child working their way through college and hope to obtain a pell grant, the government punishes you at (in essence) a 50% tax for anything the child earns above about $3,200.  Now, I ask -- What kind of incentive is that?  Be lazy and you'll get a ton more.  Additionally, putting assets in the child's name is equally terrible.  Instruct your children to be savers and they're punished at a 20% clip.  No buffer.  Message from our government -- "Sorry that you've tried to be responsible and save.  Go pound salt.  We aren't helping you."

In summary, if you have liquid assets of any type funnel all of those into retirement accounts (Roth's being the best vehicle for that -- I'll blog on that later) or paying down your house's mortgage.  If you have hard assets, such as a business, vehicles, etc. you have a buffer of $41,300 without any penalty.  Beyond that you get hurt at 12% over that number.  Putting any assets in the child's name is foolish.  There is no buffer.  They hold anything against them immediately at a 20% clip.  Additionally, if they earn any more than about $3,200 they really hammer you in the EFC calculation at nearly a 50% rate.

Understanding how the government operates in environments such as in the financial aid arena is unfortunately going to become part of your and your child's education in the real world.  Better start cracking the books.

The Value of Education

Not everyone is destined for college.  That's a fact.  But education is not necessarily only for those who are.  As a parent, impressing upon your child the value of education is one of the most important responsibilities that you can create.  This fact is true not only for college degrees, but for any one.  If your child "hates school", you must find a way to change that attitude.  School is a valuable resource, even if it is just to obtain a high school diploma.  It makes a difference.

According to the USAA Educational Foundation, the monetary value in obtaining just your high school diploma is paramount to financial success.  On average a high school drop out earns $7,000 less per year than one who completes high school (1).  Additionally, if a child continues on to at least a Bachelor's degree they garner on average of $21,800 more per year (1).  While $7,000 is not eye popping, the fact remains -- education means more income.  More income means a better standard of living.  A better standard of living means a happier family.  Of course, the phrase "money can't buy happiness" is true, but money can make the daily chores of everyday life much less difficult.

If your child is college bound, the best approach you can have is as a guide.  They are almost adults, and as such they must start making their own decisions.  Show them what you've done through the years when confronted with a tough decision financially.  Show them the pros and cons and above all, let them choose.  It really is their life.

My daughter is 17.  She's visited numerous campuses and looked at many of the attributes of each.  She's even made a spreadsheet comparing them.  (My wife says that she is her father's daughter.)  What a wonderful concept -- weighing her options.  All young people need to weigh their options.  Making decisions blindly is foolish to say the least, and financially it can destroy you.  Making one or two bad financial decisions early in life can be punitive.  Being in contact with your child during these early years of adulthood, may be the most trying of times as a parent.  Guide them.  Be their advocate.  Show them the consequences of their endeavors.   As I noted in an earlier post, debt can cause a lot of grief.  Letting interest work for them rather than against them is a piece of parental advice that can not be understated.

Patience and knowledge combined is a powerful combination.  Let them know that.  Hopefully, they choose wisely.




(1)  http://www.usaaedfoundation.org/financial/fc01.asp

Debt Management

There's an old Shakespearean adage that says: "Neither a borrower, nor a lender be."  Good advice indeed, especially on the borrowing side of the equation.  Debt can destroy even the most financially savvy.  It can be so addicting.  The sheer sexiness of driving that new car, having the big LED 55" TV, and buy that new comfy bed is, well, intoxicating.  But the reality of it is, it puts a humongous burden on you.  You would be leagues better off if you saved and bought the product outright -- but that takes discipline.  That's something that most Americans just simply do not have.

From our personal lives (our diet, nonexistent exercise regime, and penchant for watching TV), we find we don't have self resolve.  We currently rank 9th in the world for obesity with a stunning 74% with a BMI over 30 (1).  It's no wonder we carry that same blauzie faire attitude over into other parts of our lives.  Additionally in the past thirty years, with the advent of the credit card, we see our attitudes have changed to the standard banking practice in the late 1970's and early 1980's of a 20% down payment on houses, and paying mostly in cash to the "I want it now because I deserve it." phenomenon.

You may want to give up.  I understand that sentiment.  I see people struggle with finances year in and year out.  But you have to have a plan if you want to break the cycle.  Cut up the cards - except your lowest rate one.  Then take that card and put it in a glass filled with water.  Put that in the freezer.  This stops the urge to do online shopping.  If you need it, you'll have wait a little for it to thaw. 

Sit down with a spreadsheet and map out a repayment plan.  It took you years to get into this fix.  It will take several years to get out.  You must be disciplined and stick to your plan.  If not, you will end right back up where you are now, or worse.  Banks are businesses.  They plan to make a profit -- off of you!

So, look at your current balances.  Stop spending and get a plan.  Set up automatic minimum payments on all  credit cards and see where you are cash flow wise.  If you are just meeting the payments, you need more income.  Easier said than done, I know.  But there is no other options, unexpected events will occur and that will knock you off your plan.  Do it.  Take responsibility.

If you have some extra, don't pay down any cards until you have a savings buffer.  Set up a savings account and put that extra in there until you have about $1,000.  This is critical.  Remember, unexpected things are going to occur and you have to have cash for that.  Charging to your high rate credit cards is off the table.  This may take up to a year to save this amount.  You must remove temptation.  Have a parent or someone that you trust, who is also financially sound?  Make them a co-signer on the savings account and any withdraws must have dual signatures.  This prevents the impulse buy.

Now that a buffer is established, start pounding away at that highest rate card.  Put all your extra money against it each month.  If you have a smaller balance with a very similar rate (within one percentage point), pay that one down first.   Once that one is paid, push that payment against the highest rate. 

It's not easy.  I would never say that it is.  But not trying, should not be an option.





(1)  http://www.forbes.com/2007/02/07/worlds-fattest-countries-forbeslife-cx_ls_0208worldfat_2.html 

Customer Service

Why don't people care about customer service anymore?  It's like the whole concept has disappeared from our society.  When someone goes out of their way to fix problems and remove obstacles, you would think that would stand out.  We have become so "now" oriented that when an issue does finally get resolved, we just say "It's about time!" instead of taking a step back, reviewing the situation, and realizing how much effort that may have taken.  We should instead be saying "Thank you."  Without the thank you, we support the idea that service is unimportant.

In the modern era, relationships have simply disappeared.  They have devolved into emails, texting, chatrooms, message boards, and "Press One" telephone menus.  Have we forgotten the basic concepts of discussion and interaction?  These impersonal interactions take their toll.  Businesses that install these computerized contracts, often wonder where their customers go.  Solving problems takes a personal touch, effort, and a sense of pride.  Without those attributes in employees, business will suffer, blood pressures will rise, and customers will flock to other avenues.

When I have a problem with a company, I attempt to understand the restraints and barriers involved.  Sometimes it truly is a system that does not allow the employee the flexibility to solve the problem immediately.  One such example is at the retail checkout.  I'm sure everyone has experienced the utter dread of being behind someone and a product does not scan properly.  We all know what is next.  They flip on the blinking light, call customer service, and wait.  You would think the store would realize what kind of impression that leaves, and allow the cashier enough leeway to solve the problem -- a manager code, a special key to ring it under, or just simply allowing an override.

Customer service is important.  We all should realize it more than we do.  The next time a problem arises with Business X, take notice of how they handle the resolution.  I beg of you to throw some accolades their way.  We are all human, not some mechanical robot.

An Inconvenient Convenience Button

Now I know this won't apply to all of you, but one of my pet peeves in life deals with one tiny button.  I'm speaking of the "Auto" power window button on the driver's side of almost every vehicle currently manufactured.  What in the name of Lucifer is the purpose of this stupid button?  I mean, have we gotten that lazy that we can't hold down a little button to put down the window in a car?  Seriously?

That Auto-button has been the bane of many situations.  Image traveling down the road on a nice bright sunny day.  The big puffy clouds are sliding through the sky and the environment in your little space gets a bit warm.  Now understand, this may be a fifty degree day and putting the window all the way down might get a bit chilly.  So, you reach over and tap the button wanting it down just a crack.  But no, the thing goes all the way down.  So, you try to put it back up and the thing starts Auto all the way up.  So, you either wait and let it go all the way up, or try to time the thing to get it to be just a crack down.  Of course that never works, so it goes all the way up anyway.

Then, once it goes up you start all over again.  Tap... Buzz... Nooooooo!  Not again.  Your blood pressure skyrockets, you veer off the midline to avoid an oncoming car, and then try to get this button to just let the window down a crack!  Finally, you get it to go down just a crack.  You're panting.  You try to enjoy the feeling of fresh air rushing in.  The sun comes out from behind that cloud.  The cab begins to warm.  In that auspicious moment, I stare down at that button wanting to put it down the window a couple more inches.

A Roth IRA? 'No' for 85% of Americans

Taking the murkiness away from an IRA (Individual Retirement Arrangement)

An IRA is simply an account, similar to savings or checking, but with one big advantage – when the money earns interest or dividends it is not taxed on your current tax returns. Additionally, this money is intended for your retirement, so you generally can not withdraw it until you reach the age of 59 ½. If you do withdraw it early, you will have to pay tax and penalty on whatever you withdraw. Federal tax rates currently range from 10% to 35%. In the environment we find ourselves, those rates are likely to edge higher. Whatever your marginal rate (the tax rate which you would pay on your next dollar of income) you will add a 10% penalty onto it. Also, don’t forget those state and local taxes. At minimum you’ll pay the penalty.

A simple analogy for the lay person:

Are you sitting at a desk? Well if you aren’t go sit at one. Is there a pencil holder on it? For this purpose, I’m going to assume that there is.

Take all the pencils, pens, markers, scissors, and whatever else out of it and just leave the cup. Take a good look at that cup. That cup – a container – is an IRA. It just holds something else instead of pens, pencils, markers, etc. – in this case investments. Take your pens and pencils and start dropping them into that cup. Your first pen could be a certificate of deposit (CD) that most any bank offers. The next pen could be a savings bond. The next pencil could be P&G stock. The next one could be a GE corporate bond. The next could be a mutual fund that invests only in domestic growth stocks. It is not the cup that is the investment. The cup is just a holder – an account – that holds the investment vehicle.

What’s so special about the cup then? Why all the hoopla about an IRA? Again that is a simple answer. As long as the investments (those pens, pencils, markers, etc.) stay in the cup, taxes are not assessed on them, nor any income that they throw off. Now take out a pair of scissors. The scissors represent taxes. (I usually get a few giggles on this. Go ahead… I know you want to. Take the scissors and circle the cup. Just waiting for those innocent pens and pencils to emerge.) The tax “shark” can not get inside the cup. But what it can do is take a chunk out of anything taken out, or withdrawn. So, when you take your fingers and lift one out of the cup, the shark will take its bite. Of course, this is a financial discussion and it’s never that easy. Typically speaking, this analogy is only for a Traditional IRA and other taxable buckets (which I’ll describe later), but elements do apply to a Roth IRA as well.


What are investments?

What are investments? That’s pretty simple. Investments are things (I use the word vehicles) you put your money into where you expect to gain income. Does that mean gambling is an investment? Absolutely not. You do not expect to gain income from gambling. The odds are stacked against you. Investing is more of an educated judgment. The expected result of all investments is positive, not negative like in gambling. Can some forms of investing be considered gambling? I would have to say yes, but those are typically frowned upon by regulatory agencies, and as such are either banned or highly scrutinized.

Common forms of investments are: Certificates of Deposit (CD’s), stocks, bonds, real estate, art work, coins, commodities – such as wheat, gold, cattle, etc. As you can see, the variations are nearly endless. But keep in mind that all investments contain risk. The lower the risk taken typically shows up in the form of a lower yield. For instance, a savings account is considered a very safe investment. The bank’s financial status initially backs the account and if that isn’t sufficient the federal government backs it as well through FDIC insurance. However, the yield is often paltry to “buy” that safety. Yields currently are under .5%. We will discuss this risk vs. reward later.


Two types of IRAs:

Traditional IRA. Generally, a traditional IRA creates a deduction on your tax return for whatever you put into the account. For instance, if you put $1,000 into a traditional this will be deducted on your tax return and increase your Federal and State refunds. However, some people are not able to contribute to a traditional IRA. They must have earned income, less than age 70 ½, and stay under the annual limitation. Further, even though someone does meet these rules, some can not take the deduction.

Roth IRA. In contrast, a Roth IRA works a bit differently. A Roth IRA is never deducted on your tax return. Sometimes you can garner a tax credit, but that will be discussed later. Think about this: What that means is you are putting after tax dollars into this tax advantaged account. That’s important to understand. The original contribution money inside a Roth has already been taxed. So, why would anyone want to do that? That answer is simple: Any earnings (once a five year waiting period is met) from interest, dividends, or capital gains is never taxed. This can become huge money over 30 to 50 years, and it’ll be tax free upon withdraw.


Discussion of IRAs:

When perusing the mountain of information in the marketplace which outlines IRA’s you will get basically what I have written above. I have just put it in simple language and took off the hype. IRA’s are difficult to get your facts straight. There are many rules to them, especially in the tax area. No less important however is the determination as to who and when each type of IRA is a fit. While not a lot of the hype is centered on fit, this understanding is the most important decision that any individual can make. They talk a good game, but they’d rather cookie cutter the discussion and push you mostly toward a Roth. I will make this statement now: A Roth is a bad idea for about 85% of all Americans. Shocked? You should be if you have read all the brochures and looked at the graphs. You would think a Roth is the investment and retirement savior. It isn’t.

I’m not only an investment adviser, I am a tax adviser as well. I understand that the common Joe does not have hundreds of thousands saved up for retirement (or anything else for that matter). At best most of them are skimping by on their paychecks and putting 5-10% away. They are hopelessly stuck in the 15% tax bracket or below. In retirement, they are going to rely upon a combination of three things: Social Security, Investment income (interest/dividends), and Pensions/Annuities/IRAs/401ks and the like.

This section will use my own lay-person term to describe a certain concept. That term is a “bucket”. I use this term as it’s easy to visualize. Everyone knows what a bucket looks like. There are two types of buckets – taxable and tax-free. The tax free-bucket is limited to Roth IRAs and some single-purpose accounts. Almost all of the rest are taxable buckets.

A taxable bucket is one in which you put pre-tax dollars into (in other words you get an immediate tax benefit on your current tax return), the earnings grow without being taxed currently, and when you reach into the bucket and grab cash out those withdraws are taxed at that time. Sometimes, they are even penalized should you not meet an exception to that penalty.

A non-taxable bucket is one which you put after tax dollars into, the earnings grow tax-free, and when you ultimately reach into the bucket and grab cash out those withdraws are not taxed. In short, as long as you meet a five year rule the earnings in a non-taxable bucket will never be taxed.

Taxable buckets – Traditional IRA’s, 401k plans, 403b plans, money purchase plans, profit sharing plans, SEP’s, SIMPLE plans, 457 plans, and many others. We have a long list under the taxable bucket definition. Remember: You get a tax benefit up front on all of these. There are elections you can make to not receive the tax benefit, but that’s beyond the scope of this discussion.

Non-taxable buckets – Roth IRA’s, 529 Plans (for education only), health savings accounts (for medical only), and medical reimbursement plans (for medical only). Only a Roth is not limited by the type of expenditure a withdraw can be used.

Why do 85% of Americans not want to set up a Roth IRA?

This answer lies not in the definition of an IRA, nor in the type of investment that you choose. It lies in the tax area.

I would urge you to get out your tax return at this point. Yep, that thing that’s likely stuffed in the back of a drawer somewhere, or scattered, torn, and mangled at the bottom of your in box lying next to the denied request from the bank at your latest attempts at refinancing.

Once that’s in front of you, I want you to look at a few lines. First, is what is called the standard deduction (about line 40) . This is a tax free amount that the government gives you. Your first ‘X’ number of dollars are not taxed. These amounts vary based upon your filing status. We’ll concentrate on married ($11,400) and single ($5,700). In addition, you receive $3,650 for each exemption (about line 42). Again, this is a tax free amount that the government gives you per person claimed. So, we get to add another $7,300 for a married couple onto the standard deduction and $3,650 for single. Further, once age 65 is reached the government gives an additional $1,100 for married, and $1,400 for single. Finally, if you own a home the real estate taxes get added, up to $1,000 for married and $500 for single. Add these together and you get $21,900 for married ($11,400 + 1,100 + 1,100 + 3,650 + 3,650 + 1,000) and $11,250 for single.

Now the question becomes: How much would it take withdrawing only the earnings from a taxable bucket to equal these amounts? Earnings must assume a particular rate and is dependent upon the investment you choose. At 6% you’d have to accumulate $365,000 ($365,000 x 6% = $21,900 or $187,500 for single). The smaller the rate assumed the more you must accumulate. At 3% the amount would be double for instance. Quite a daunting number for the vast majority of people. But that’s not all because as anyone knows who is paying attention in tax law, ALL of these numbers for standard deduction, exemptions, additional amounts for age and real estate taxes rise over time. So in twenty years, they most likely will be double what they are right now. In conclusion, it makes no sense to push money into a Roth IRA when you can have the best of both worlds. Take the tax deduction up front and draw money out in retirement tax free if you are disciplined enough to draw the money out over the rest of your lifetime and keep within the framework of the tax law.

Imagine if you receive $32,000 jointly from social security and draw $20,000 from a taxable bucket. A total of $52,000 and you pay no tax. It can happen. All you need is planning.



By Bryan Scholl
Tax and Investment Adviser

Bachelor’s degree at Miami University (Oxford) in Finance
Twenty-six year tax professional
Eleven year registered investment representative
Series 6 and 63 licensed
 

 

Reprinted from:  http://www.writing.com/main/view_item/item_id/1698655-A-Roth-IRA-No-for-85-of-Americans

Dogs

Those four-legged creatures that roam around our livingrooms, backyards, and hearts.  You almost have to love them.  Every one of them have their own personality.  Our current dog, Shade, is a demanding mid-sized mixed Lab that loves to play bite, go for walks, and generally drive my wife nuts.  He's a sweet dog who gives out greetings and admiration every time any one of us walk through the door.  He's there.  I think that's why humans like them so much.  At the end of a long and frustrating day, when you walk through that front door, they know.  A happy tail-wagging bundle of fur is coming their way.  They are always genuinely glad to see you.

The problems with Shade is that he gets too excited, jumps up on people (always in the vein of greeting them), loves to lick, chew, and above all else -- play bite.  Shade would play wrestle with my son all day long.  They run around the house giggling and growling and having a great old time.  No matter how many times my wife tells them to stop:  They can't seem to help but to keep going.  It's fun.

My wife is home a lot and as such, Shade expects her to entertain him.  Never mind that my wife has things to do.  She's part of the "pack" and that should be enough.  He whines and nudges her.  If that doesn't work, he goes into cat mode.  Tossing bottle caps, balls, and toys into the air and pouncing on them when they tumbled and bounced around.  It's very amusing.


I've had dogs around me for most of my life.  They've come in many different sizes.  Had personality quirks that can drive you crazy or create a bond that endures.  I wouldn't have it any other way.

Elections and Election Advertising

How stupid do they think we are?  Obviously, pretty stupid.  The sad thing is they are probably right.  Our attention spans are about three nanoseconds long, and I think they're getting shorter.  Let's go through the plethora of ways that politicians try to persuade us to vote for them.

• Election signs.  Out there by the thousands, they are simply there to plaster names into the public's brain.  Of all the forms of political nonsensical ads, these have to be the worst.  The signs go deep down to the very core of what is wrong with our elections.  It's all about name recognition and association with party.  Issues?  Nope.  Stances?  Nope.  Just a nice gal/guy?  Nope.  Not even that.  Just blatant lowest common denominator of mundane stupidity.  Vote for Smith.  He's a Democrat/Republican.  We should be insulted, if it didn't work so well.
• TV ads.  You might get a little stance on an issue here or there, but by-in-large these are attack ads mixed with some guy dressed in jeans (probably the first pair he's worn in his life!) looking at a group of bobbleheads, mouthing some inane utterances, while smiling and trying to look judicious.  In reality, the people standing around are likely part of his election team.  TV ads also have the distinction of splice tactics.  They continuously take things out of context and have some ominous voice-over with scary music in the background.  "This guy kills babies.  That's right babies!!!  We must ask, Mr. Voter, could puppies be far behind?"  I extract very little useful information from these things.  Please, if you can't research go against the most negative ads out there.  Unless the candidate's name is Jeffrey Dahmer, please vote against them.
• Websites.  This is where I do my research.  I actually (gulp) match the person's experience and accomplishments to the job they are taking.  While I don't always glean the most useful information from the actual candidate's websites (I try to find more independent ones), at least they have useful stuff there and a list of accomplishments.  I actually recommend going to their sites and reading an issue that they might be involved in and make an informed choice.  Unfortunately for every informed voter, there's about six that read the roadside election signs.  "Yup!  He's a Republikkkan.  I'll vote fer 'im."  Sorry.  That's the best Goofy impression I can do.
• Emails.  Of all the propoganda machines, this form of political advertising takes the proverbial cake.  I've have never read such nonsense and skewed information than from these.  Mr. X is the greatest candidate ever, or Mr. Y is a communist sympathizer and wants to put nuclear weapons in all daycares.  Countless times I've debunked whatever garbage these spew at the fact checking websites.  At least you get somewhat of a truth-o-meter reading.

Elections have devolved into political muckrakery that pales in substance or even resembles the diplomacy seen from the days of the whistle stop political speeches of yesteryear.  At least you could go see a candidate and understand his stand on issue Z.  Now, you'll be lucky to find solid information on issue Z, and any straightforward answers.

Once the election is over and the votes have been counted, recounted, and all chads are left to dangle, hang, or become pregnant there should be a three day free-for-all in destroying political signs and billboards.  Get out the shotgun and relieve some stress.  Have a bonfire around the billboard.  Roast marshmallows.  Have a rip the wins/losers' signs in half on the steps to the courthouse.  Then, have the winner sweep up with a broom.  After all, he will then be a public servant.  It's the least they could do.

Women

I'm no expert.  I'm not sure anyone is.  If you've ever seen Back to the Future, there is one line in there that makes me chuckle more than any other.  I believe it's in Part II where Doc Brown is talking to Marty about his own future.  After achieving what most would be consider one of the pinnacles of science: Time travel, Doc goes on to this quote:  "Better that I devote myself to studying the other great mystery of the universe.... women."

I think most guys can relate to this sentiment.  Regardless of what relationships you've had the one thing we guys can not for the life of us figure out is what women want.  I believe the answer lies somewhere in between the extremes of simple attention and worship.  Although from woman to woman, I, along with 98% of the male population are clueless.  Here's a suggestion for all the women out there:  Make it obvious.  We can do the obvious.  If you expect us to read your mind, please shoot us. I've worked in an office dominated by women and here's what I have learned from personal experience.  Woman are caddy.  They do and say things to warrant attention mostly from other women.  If they can undermine another woman that they dislike, they will.  They won't think twice about it.  This may seem harsh as I'm sure there are exceptions, but this as a general rule stands.  If you think that is bad, and they turn their attentions toward us poor shlubs watch out.  The descriptor turns from caddy to down right vindictive.  I'll cite an example.  I was the sole man working with eleven women.  After a while, I just became like a door knob.  I was there, but it's just "Bryan".  The things I heard would make even the most manly man curl into a fetal position.  Here is the scenario.  One of the women had broken up with a long standing boyfriend.  The other girls trying to cheer her up decide that the best medicine would be to dress in their most slutty outfits and go to the boyfriend's favorite bar and wiggle and giggle everything in front of this poor sap to (and yes this is a verbatim quote) "show him what he was missing."  These woman were far from ugly.  But to even think something like this up as a means to get back at the ex, is well vindictive. That said women can be the most caring, sensitive, well-meaning, loving, kind and absolute awesome people on the planet.  If they care about you, they will go out of their way to nurture you and make you feel like the most important person on the planet.  Add this to the paragraph above and you have the second greatest mystery on the planet. There's really only two things men want from women.  The first of course is sex.  Men love sex.  We crave it.  We desire it.  We think about it at least half of our waking hours.  If you ask, we will deny this, but we are lying to you.  We do think about it -- yes, that often.  The second is that we want women to at least pretend that we are in charge.  Follow our leads and smooth out the bumps along the way.  Whatever decisions we (that would be man and woman) make, the man always feels that the success or failure of that decision -- even if it was made jointly -- falls directly back on our shoulders.  This is similar to the feeling that women get when company stops by and the house is a mess.  The woman always feels like it's a reflection on her, not her husband, not her kids, not the dog, her.   Give us these two things and we'll put up with mood swings, chewing out, arguments, bad hair days, and even the occasional slap for being "insensitive". Please ladies, give us obvious.

Barrack Obama

I'm not sure one name can elicit so much emotion as our current President.  Some love him.  Some hate him.  I've said this multiple times -- we may be looking at the two worst Presidents we've ever had in our nation's history.  George W. Bush and Barrack Obama have put a wrecking ball through the financial strength of this nation.  We've seen it on both sides now.  Whether it be the Republicans with Bush or the Democrats with Obama, they can't seem to control themselves and they make exceptionally poor decisions when given the level of power each of these guys were handed.

I put this onus especially with Obama.  He was given the most power ever held -- a filibuster-proof Senate and an overwhelming majority in the House.  Regardless of the situation he came in to, that's a lot of power.  Personally, I think he made just about the opposite decision I think I would have made.  The only feathers in his cap from my opinion is:

• The Lilly Ledbetter law and the 
• Setting up of the BP $20 billion restitution fund.   

Moderate to neutral items include:

• Financial reform (although there is plenty in here to be concerned with -- higher interest rates being the worst and Freddie and Fannie being ignored)
• Nuclear treaty with Russia (I think anyone who became President would have done this)

Poorly thought out or just plain bad:

• The stimulus.  I'm sure I'll have dissenters here.  The stimulus was billed to be something to pull the economy up.  But in my opinion it didn't do its job.  You can not just give money away and expect it to stimulate the economy.  We do this all the time and it doesn't work.  It's called welfare, food stamps, etc.  A give away without stimulus strings attached -- does nothing.  Investing in "infrastructure" also does little if it doesn't have a rate of return which creates ongoing jobs.  An example might be to build a nuclear plant.  This creates jobs and gets us off foreign oil.  We instead put this into "shovel ready" construction which only served to speed up what was already planned.  Were we really having trouble going from point A to point B in this country?  This added to the debt enormously for very little in return.  In the long term, this will crush our financial system if interest rates soar.
• Hate crimes.  I'm of the opinion that a crime is a crime.  Whatever your motivation for killing, raping, etc.  It certainly isn't love, and one heinous crime should not be punished more or less than another heinous crime.
•  "Saving GM".  This had to be the biggest overreach ever by a President.  The government owning 60% of a private company?  Plus, it went into bankruptcy anyway.  This company is doomed for failure or to be bought out.  It's an albatross waiting to die.  Let it.
• Mismanagement of TARP (which Obama voted for).  Allowing bonuses.
• Bipartisanship.  An extremely polarizing figure that speech after speech shows just how partisan he can be.  He and the leaders of the Senate and House shut the other party completely out of writing the bills, debating the bills, and only gets lip service to their ideas.  This may be the most disappointing aspect of his administration (similar to Bush).  He says one thing and does another.

Items that have improved lately:

• Small business stimulus.  This is the real engine for jobs, not big corporations.  Give them the funds and investing power they need, but attach strings as to how they must use it:  Hiring, investing in equipment, etc.
• Some stirrings that the Republicans may accept the Bush tax cuts without the top % getting extended.  Wow.  Perhaps some compromise.  Our elected officials.

I'll likely revisit this blog posting, but for now... time for bed.

Our Taxation System

Simply put: Our tax system is broken.  We need a new one.  A system which is simple and straight-forward, allows for success, is fair to everyone, gives incentives to be responsible, and collects enough tax revenue for government services without giving a carte blanche blank check to our representatives.  Don' think there is such a system?  Hopefully, I can convince you otherwise.

Welcome to the three tiered tax system.  What are these three tiers, and why do we want them?  I'll explain that in a moment.  First though, I want to ask a question:  What percentage of the income earned in the United States is unreported, and therefore, untaxed?  I'd insert fancy Jeopardy themed music here, but hey I told you I was a simplistic sort and like function over form.  The answer is estimated to be about 25%.  That's one out of every four dollars that people are cheating the current system on.  As a matter of fact, many of these cheaters bilk the system for more:  unemployment, welfare, low-income tax credits, food stamps, assistance with loans, etc.  They actually are drainers of government services and they should not be doing it.  It hurts us all.  The honor system that our taxation system is based upon is (sadly) DOA.  I could tell you many stories of these types, which would shock you.  You and I are paying for it -- irresponsibility.  I hate it.

The first tier is a sales tax of 20%.  Now, before you faint, please consider that this takes the place of the FICA payroll taxes of 15.3% and for 90% of America the income tax as well.  So, we're not talking a lot of difference in the amount that the normal average American pays.  Some of the more savvy among you might say that hey, that 15.3% is half paid by the employer.  That's true.  But any economist will tell you that when an employer hires someone that they will figure that payroll tax in and reduce the wage accordingly.  It's a cost of doing business as an employer and while it may seem like the employer is paying that other half, it truly is just part and parcel of the labor contract.  In an economic sense, the employee is paying it.  It even goes on the record of the employee.  Go ahead and look at your social security record.  It is there.

The only exclusions would be groceries (food items only) and real estate.

• Advantages:  This taxes all income evenly.  It doesn't matter if it's interest, wages, dividends, capital gains, or under the table.  You buy something, you pay the tax  if you're an illegal alien or a wall street executive.  The more you make the more you spend and consume.  Therefore, the more tax you pay.  If you want to invest and save, you aren't taxed at all unless you enter into the top 10%.  Then it's only 20%.  We all have to buy things.

The second tier is an income tax of 20% on the top 10% of earners, and 25% above $1,000,000.  The top 10% cutoff is at $100,000 for married couples and $50,000 for singles.  This catches all the millionaires that would rather sit on their savings, instead of spend it.  If you are a conservative, I'm sure this tier rubs you the wrong way.  Most will say "Hey, why not a flat tax?  That's fair."  My response is, no it isn't.  The richest people use more services to protect their assets.  If you look at just installing a flat tax, it wouldn't work.  The rate would be very high to get the revenue we do now.  We have to have a balance.  The rich pay more now, but then again, they also own an astounding amount of the assets in this country with the top 40% owning over 95% of the assets.  Who has the ability to pay?  The balance comes in that if the richest of the rich don't want to do anything (invest), they don't have to.  They'll pay 25% and that will be that.  Eventually that money will be subject to the 20% sales tax when it is spent.  This is comparable to the amount they pay now.  We aren't reinventing the wheel.  We're just putting on a different brand and one that taxes all income -- under the table or not.

• Advantages:  The rich don't pay any more than they do now.  It keeps the tax revenue stream from the top, and those with the ability to pay it.  90% of us will not pay a dime in income tax.  If you do enter into this area, you should think of this as a duty.

The third tier is a rebate on the first $30,000 of income ($15,000 for singles).  20% x $30,000 equals $6,000.  Everyone will get this rebate when they file a tax return.  No more squabbling over things.  You earned it.  You report it.  You get it.  If I make $10,000 I only get $2,000 as a rebate -- An incentive to work harder.  If I make $65,000 and I'm married I would owe no income tax, get my full $6,000 rebate, and only pay the sales tax when I spend my money.  I'd get my entire gross paycheck.  I wouldn't owe the IRS a dime.  It would all be automatic.

Advantages:  Everyone has this exemption.  Image your refund being set at $6,000 per year.  Those people below $30,000 would pay nothing.  This mirrors what happens now.  Only if you're single do you pay much tax in this income range.  This stops the sales tax from being regressive too.  The poor pay very little now, and they will continue to do so under this system.  The only ones that will are illegals and those who do not file due to illegal activities.  That's the price they pay.


Now, you might ask:  What's so great about this system?  Why is it better?  Well, I'd hope with a little thought that answer would be obvious.  The biggest advantage is that we tax the untaxed 25% of income.  What is this mysterious unreported income?  It comes in many different forms:  Tips for waitresses, roofers, drug dealers, prostitution, illegals aliens, and every under the table enterprise you can name.  Considering these are costing us, not only in lost tax revenue, but in the extra government services (wear and tear on roads, police, border security, and increased welfare programs) that we have to shell out because of them.


Other advantages: 

• People want to get married under this system.  There's an incentive to do so.  Keep families together.  They get an extra $3,000 rebate for one wage earner families.  They get an extra $50,000 tax pocket. 
• People will want to report their income.  Why?  If they get up to, or over $30,000 they get the full rebate.  If you fall between $30,000 and $100,000 you will want to show your income too.  Why?  For loan purposes and credit ratings.
• Under that tax system you won't quibble about a $600 deduction for 90% of us.  The IRS won't care.  They'll be handing out checks.  Only the top 10% need care and the maximum impact there is no different than they have now.  Plus, the income tax code could be radically simpler.
• Deadbeat parents will pay up.  Have a deadbeat mom or dad?  Good.  Those people working or earning anything will have that reported to the IRS and their tax return will automatically be filed and the $3,000/$6,000 will go to that debt.  Instead of driving those into the cash underground, they will have their incomes reported by employers just like W2 forms are now.  There's no incentive for the employer not to do so.  They would have little or no payroll taxes to pay.  A win-win situation.
• Credit scores will go higher.  Interest rates offered will be lower.  Why?  Again, people will want to report their incomes.  They get a rebate.  When banks see higher income (when before it went unreported), loans become easier.  Credit is easier to obtain.  Interest paid lessens.
• The strain on government services will decline.  Medicaid, SCHIPS, low-income tax credits, all will see a relief.  People want to report income to get the rebate which will drive those out of the poverty area where they shouldn't have been in the first place.
• States income tax revenue will increase, and help people locally.  State programs are more important at the local level.  States run pension plans, medicaid, unemployment, mental health programs, police, etc.  Illegal immigrants in particular strain these services the most.  Under this system, they pay the most.

In summary, install this system.  The downsides are very few.  In addition to the tiers, the penalties for not collecting the sales tax would be severe.  Businesses would have to be registered, collect the tax, and would be audited on average every eight years.  The penalties would be stiff including shutting down the business for one year.  What business would take that chance?  The system stands on its own merits.  I hope you agree.

Initial Thoughts

My first blog posting.  I can't say that I've ever really aspired to be a blogger, but I've heard it's quite therapeutic.  I will attempt to keep things light, amusing, and factual.  This will, of course, devolve into my own ramblings and opinion, but like heads -- everyone has one.

First, a bit about me.  I am married with two kids.  My life revolves around family and business, in that order.  I tend to take a conservative approach to many things, but on specific issues I can have liberal leanings.  I tag myself as a conservative independent, especially in the areas of finances and responsibility.

Further, I am a securities representative and a income taxation expert.  Those two are a wonderful combination as I peg my occupation as being an "Adviser to the Average Joe".  Not only do I understand the investments that people enter into, but I also understand the tax ramifications of such a maneuver.  Reading my articles and thoughts, it will become clear that I take a simple, factual, common sense approach to things.  I rarely go for the exotic, or bizarre, but as stated earlier -- I do have my opinions and many times I am "dug in" to those as I've seen those succeed.

Second, I aspire to be a writer.  I don't have a straight forward plan for this, but I do have some thought processes and enough moxie to make that happen.  The odds are surely not in my favor for such an expedition.  Instead of looking at the bottom line of writing:  making money, I prefer to enjoy the journey, learn, and take pride in what I do.  Money making comes in way down the list.

Third, I have fresh new ideas.  I hope you do read some of them.  I will explain, in detail, my systems and the why I believe they will work and point out what I believe to be the weaknesses in them.  No system is perfect, but lets face it.  Just about any system is better than the one we have here in the U.S.

Thanks for reading.