Geldpress

There is no doubt that Obama is magnitudes more qualified than McCain to run this country.  But the low McCain bar is not good enough to throw undying support toward Obama.  Obama got elected on the premise of change, and part of that change was supposed to be FISCAL DISCIPLINE.  Fiscal discipline is specifically listed as one of the top issues on the Obama 2008 campaign website.

Barack Obama will restore fiscal discipline to Washington:

Everyone knows fiscal discipline is tough, especially in the midst of a deep recession and financial crisis.  But a $900 billion economic stimulus plan, 100% of which will be got from additional borrowing, in no way qualifies as fiscal discipline.   Bush was a fiscal disaster during his 8 year term as president.  He managed to nearly double the national debt from $5.7 trillion when he took office to about $10.6 trillion when he left.  During his last year in office, he ran a true budget deficit of over $1 trillion.

What is the projection of the 2009 deficit during Obama’s first year in office? – From the Budget and Economic Outlook report for 2009-2019,

CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP. Enactment of an economic stimulus package would add to that deficit.

Read that last sentence carefully.  Obama’s $900 billion planned stimulus is not included in the projected $1.2 trillion deficit. What else is not included in the deficit projections?  From the same report,

The legislation that created the TARP requires that the federal budget display the costs of purchasing or insuring troubled assets using procedures similar to those specified in the Federal Credit Reform Act but adjusting for market risk (in a manner not reflected in that law). In particular, the federal budget should not record the gross cash disbursement for the purchase of a troubled asset (or cash receipt for its eventual sale) but instead should reflect an estimate of the government’s net cost for the purchase. Broadly speaking, the net cost is the purchase cost minus the present value—calculated using an appropriate discount factor that reflects the riskiness of the asset—of any estimated future earnings from holding the asset and the proceeds from the eventual sale of the asset.

Geldpress Comment: In a nutshell, the government intends to use the same “mark to model” scams provisions that enabled Frannie Mae, Freddie Mac, Lehman Brothers, Bear Stearns, Citibank, Washington Mutual, and dozens others to cheat the taxpayers out of of $8.5 trillion dollars and counting.  And the true true deficit numbers from Obama’s first year in office may not be known for years, well after those insolvent financial institutions finally come clean and admit that the “assets” are WORTHLESS!  If these assetts had value, than their would be a legitimate market value posted to them.  It’s not that “mark to market” does not work.  Mark to market is the best tool for determining fair value for an asset.  The CBO just doesn’t like the answer that “mark to market” is telling them.  So the CBO decided to do exactly the opposite of what they are forcing financial firms to do.  They embrace “mark to model” (better known as mark to myth) to soften the blow to the federal budget projections, and kick the fiscal disaster can down the road a few more years.

Sooner or later this country will be required to institute a sound money policy, including transparency, and real balanced budgets.  As it stands, this country has not had a real balanced budget for over 50 years.  Economics 101 tells us that government deficits normal and allowed to soften the blow from recessions or even deep financial disasters. But the same economics book tells us that governments must work to pay down the bills during the boom years.  This has not happened since 1957, the last time the United States had a true balanced budget, and a true decrease in the national debt.

Where will it end?  What are your projections for the national debt in 2012?

California is swimming in RED INK and is going broke.  With the debt markets still frozen, the state can not issue new bonds fast enough to cover its spending obligations.  It’s been rumored for months that California would start issuing IOU’s  to pay state workers, contractors, and perhaps even private citizens tax returns.

The IOU’s have not been issued yet, but according to marinij, at least $57 million in payments have already been halted to cover Marin projects.

With California rapidly approaching the point where it will have to start issuing IOU’s to vendors, payment has been halted to more than 75 projects in Marin totaling more than $57 million…Novato schools Superintendent Jan La Torre-Derby said she is waiting for $22 million in reimbursements from the state for improvements completed recently to facilities throughout the district. The district is also doing without another $1.5 million already allocated for three new projects: a biotechnology lab at San Marin High School, an industrial technology and design lab at Novato High School and a television broadcast studio at Novato High…

Last week, the state Legislative Analyst’s Office, which acts as a budget watchdog, warned that the state government will run out of cash sometime in February if nothing is done about California’s expected $42 billion budget deficit.

If that happens, Derby said, normal operating funding from the state would become unavailable to meet the Novato district’s $4 million monthly payroll.

To be clear, the problems in California did not spring up as a result of the 2008 financial crisis.  These problems were a direct result stemming from decades of fiscal recklessness.  During the DOT COM boom, California had ample opportunity to get their books in order from the unplanned windfall in corporate taxes.  Instead, they extrapolated the additional tax incomes out to infinity and made unreasonable projections on future growth.  The unrealistic growth expectations never materialized, but the spending was already in place and to difficult to reverse.  And the end result is that California, like many states in the union, are lining up directly behind banks, brokerages and automakers to BEG for BAILOUTS.

Also from Geldpress:

• California’s Exploding Debt Problem
• Washington state debt history – does Dino Rossi understand it?
• The United States Has Not Had A Balanced Budget Since 1957!
• CNN Continues To Report On Budgets It Does Not Understand

Let’s face it, the United States tax code is complex and difficult to understand, especially for investment income.  And in the case of 2008 for many people, the investment capital loss accounting provisions and tax reporting are crucial to understand, if you don’t to sit through an audit.

There are several IRS publications meant to help investors and traders understand tax reporting:

• Publication 550 - Investment Income and Expenses.   Covers investment income such as dividends, interest income, preferred dividends, S corporations and investment clubs.  It also discusses investment expenses but it is unfortunately not very clear on how or when they apply.  And it covers the basics of capital gains and capital losses, short sales, wash sales and options.
• Publication 17 – Your Federal Income Taxes.  A higher level view of income taxes in general, but it does include limited information on interest income, dividends and corporate distributions.
• Schedule D Form – IRS form to report investment gains and losses.
• Schedule D Form Instructions – accompanying instruction sheet.

For trading certain types of futures contracts, options on futures, or forex currency market trading, then it is crucial to understand section 1256 of the IRS code.   Depending on who you ask, there may be certain tax advantages to trading such vehicles.   Rather than having to list every single buy and sell order in your taxes as in the case with stocks, certain futures, commodities and forex transactions may be taxed in a simple 60/40 long term vs short term split.  Traders in such markets will receive a 1099 from their brokers and in theory it should be a quick 5 minute job to enter teh 60/40 split onto the tax forms.

• Form 6781, and Instructions – Gains and Losses from Section 1256 Contracts and Straddles.

Even with the above handy IRS links to useful forms and publications, it can still be overwhelming to understand the rules.  For a single and much more simple in depth resource on trader taxes, I recommend the following book.  It goes into great detail related to every topic on trader taxes.  But it also provides insight into the often misunderstood “IRS Trader Status”, and the steps involved to achieving this mark.  If you really want to be a “professional trader” from the IRS point of view, then buy this book.  If you just want a better and more understandable resource for understanding your own taxes, then buy this book.  Even if you intend to hand over your taxes to an accountant, it is still a wise choice to buy this book for your own understanding.  In my experience, tax accountants CAN AND DO make mistakes, especially when accounting for the complexities of capital gains and losses.  BUY THIS BOOK.

The Tax Guide for Traders by Robert Green

Also check out:

• Free tax help from the IRS – IRS is your friend
• Poker – If The Cards Don’t Get You, The IRS Will!

Here’s a great Wall street Journal article worth reading: Atlas Shrugged – from fiction to fact in 52 years.  Keep in mind that Alan Greenspan personally met and befriended Ayn Rand, author of Atlas Shrugged.  He loved and admired her so much that he drove policies which helped set the stage for what may become the worst financial crisis the world has ever seen.  Excerpt from the article below:

The current economic strategy is right out of “Atlas Shrugged”: The more incompetent you are in business, the more handouts the politicians will bestow on you. That’s the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies — while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to “calm the markets,” another trillion of national wealth is subsequently lost. Yet, as “Atlas” grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate “windfalls.”

Here are two great videos from two people who understand the financial crisis more than (almost) anyone in congress.

The first is Peter Schiff predicting imminent doom in America.  He is dead right about the reasons we got into this financial crisis, and the need for the painful solution of letting the economy work – and FAIL – without intervention.  But I disagree with him on his dollar collapse thesis.  Currencies do not trade on their own merits, but rather in comparison to other currencies.  The U.S. dollar and the American economy are in serious trouble.  But in comparison to the euro, the greenback is  still king.  American banks may have made easy $500,000 home loans to anyone with a heartbeat.  But Europe was making multi-million dollar loans to every emerging market economy without concern for their creditworthiness.  In many cases, those emerging markets are waiting in line for IMF loans and debt forgiveness.  Here is the video:

Jim Rogers has a 5 part video series on the cause of our financial collapse, and predictions on what industry will come out ahead.  He is particularly harsh on the insanity of the bailouts of “29 year old Mazerati drivers” living off good bonuses derived from stupid decisions.  I really like part 3 (below) where he talks about the future of farming and agriculture.

Read the rest of this entry »

It’s pretty clear from the latest Bloomberg article who Hank Paulson is really working for, and it’s not the taxpayers!

Henry Paulson may be the most powerful manager of money in the world and he still couldn’t do for taxpayers with the $700 billion bailout of American banks what Warren Buffett did for his shareholders in investing in Goldman Sachs Group Inc.

Rather than “couldn’t”, I find it more fitting to use “WOULDN’T”.  And why would he?  Let’s not forget that those beggars at Goldman Sachs are his former colleagues.  Paulson and the current Goldman boys are in this taxpayer heist together.

The Treasury secretary has made 174 purchases of banks’ preferred shares that include certificates to buy stock at a later date. He invested $10 billion in Goldman Sachs in October, twice as much as Buffett did the month before, yet gained warrants worth ONE-FOURTH as much as the billionaire. The Goldman Sachs terms were repeated in most of the other bank bailouts…

The government has received warrants valued at $13.8 billion in the 25 biggest capital injections from TARP, according to Bloomberg data. Under the terms Buffett negotiated for his $5 billion stake in Goldman Sachs, the TARP certificates would have been worth $130.8 billion.

Warren Buffet is driving hard bargains that it would be hard for any government to match exactly.  But these terms are absolutely PATHETIC, and as long as Paulson is in charge, you can expect more of the same.  Paulson is paying 1000% more than Warren Buffet is for the exact same financial warrants!

Further…

The government will forgo almost $48 billion over the next five years in preferred stock dividend payments from the 25 biggest TARP infusions, as compared with Buffett, according to the terms of the deals

Way to go Paulson!  You get my vote for the most corrupt “public servant” of the century.

Dylan Ratigan of CNBC’s Fast Money has been calling for clawbacks of financial CEO pay for months, and today he got closer than ever.  For years, nearly every financial institution in the country has been paying out billions of dollars in executive bonus compensation to their CEO’s and other executives.  Those bonus payments were based on record profits and record performances during the “boom” years.  It’s now widely known that those record  “profits” were completely fraudulent, based solely on “mark to myth” accounting methods.   Yet the bonuses were real, and now nearly every financial institution in the country has either already collapsed, or is hanging on by the thread from taxpayer donations.

Clawback provisions are extremely controversial, but in the case of the on going financial collapse, they have more support than ever.  The idea is for the government to demand that executives in charge of Citibank, JP Morgan, Washington Mutual, Bear Sterns, Lehman Brothers, etc. over the last 5 or more years must forfeit a portion of the total compensation they received over the years.  When asked about the potential for clawback provisions, Senator Schumer stated “I think there’s a real thirst to deal with this issue.. and the people who made high salaries should pay a price.“  Probed further, he mentioned that he and other senators were “looking into it”.

It’s not clear whether Schumer will make any progress in getting clawbacks enacted to recover a portion of the largest financial theft ever carried out by CEO’s everywhere.  But if he does not, there is still some hope that companies may voluntarily change their pay practices to encourage more realistic longer term goals.  Up until recently, financial CEO’s were encouraged to steal additional compensation based on falsifying short term asset valuations.  There are now signs that once comatose boards of directors will revise bonus structures to more meaningful longer term financial goals spanning multiple years.  Going forward, a $10 billion quarterly profit in one quarter will not count towards executive bonus payments unless that company is still solvent, and not begging for taxpayer money years later.

Other stories related to SLIGHTLY more realistic executive compensation:

• Clawback Provisions Soar
• Executive pay reviewed at Barclays, UBS and Goldman
• UBS Adpots New Exec Pay Model

Just a few weeks ago, I outlined how the $700 billion advertised price tag of the bailout was only a drop in the bucket.  In actuality, the Fed has used over $3.2 trillion of taxpayer money to bailout incompetent financial institutions.  But even the $3.2 trillion figure doesn’t explain it all.

To date, the Fed has spent only half of the advertised $700 billion bailout fund.  But it is absolutely certain that the other half, $375 billion, will be spent soon after Obama takes office, if not sooner.    The reason it has not been spent yet is because there are 23 other underreported bailout programs to tap into totaling $8.5 trillion!   $3.2 trillion has been pissed away to executive bonuses wasted spent so far.  That number will increase quickly to $3.5 trillion after Obama takes office. And it is virtually certain that 100% of the approved $8.5 trillion bailout will be wasted away spent before this financial crisis is over.

Rather than reinvent the wheel, I will refer you to the Bloomberg chart below that outlines the total cost of the bailout.  But just a few notes on how and why we will likely hit the $8.5 trillion mark:

• Commercial paper program – These are the “loans” made to destitute financial institutions, who in turn use the absolute worthless, shittiest mortgage loans they have as “collateral”.  There are slim chances of the government getting paid back.  And there are even slimmer chances that the government will get more than 5 cents on the dollar for the worthless assets posed as “collateral”.  Only $271 billion has been wasted so far, but give it some time, and the $1.8 trillion mark will be hit, and likely raised!
• Money market guarantees – $540 billion approved to guarantee the money markets, which in my opinion, are very likely to fail.
• Loan guarantees – $1.4 trillion posted by the Fed to guarantee bank to bank lending.  Now the banks have no fears about transacting with other insolvent banks because they will turn to the government to guarantee their losses.  And those losses WILL occur as the rate of bank failures does not seem to be slowing.  You can expect the full amount of that $1.4 trillion guarantee to be spent.

The Troubled Asset Relief Program (TARP) may have only approved $700 billion of taxpayer funds to kick start the economy, but the total of taxpayer funded bailouts is $3.5 trillion and growing!

The breakdown goes as follows:

• $700 billion in approved TARP funds
• $300 billion for Hope Now (new mortgage workout deals)
• $110 billion in AIG loans that it may never pay back
• $200 billion for Fannie Mae and Freddie Mac
• $140 billion in new tax breaks for banks.  See the Washingtonpost article for details.
• $2 trillion in emergency Fed loans (so far!)

On top of that nearly $3.5 trillion, there are also significant and unquantifiable taxpayer incurred costs for government funded FDIC insured account bailouts, the Bear Sterns rescue guarantees, the government money market guarantees, and likely many more line items on the way.  And let’s not forget that the government is now on the hook for all the bad debt obligations for Fannie and Freddie, aka Phony and Fraudy!

And to top it all off, president elect Obama-san is now calling for a new $850 billion unfunded (new debt funded) stimulus plan.  And the 2009 budget deficit may even hit a whopping $2 trillion.

Congratulations, Obama-san.  You are on track to accomplish the impossible by making Bush’s near doubling of the national debt look insignificant!

Barrack Obama was “accidentally” referred to as Barrack Osama on some 300 absentee ballots mailed out in early October to voters in Rensselaer County near New York.  That was a mistake that some say was an intentional racial crack to his Muslim background.

Now that Obama has been elected, the latest ethnic remarks are referring to him as Japanese.  The Wall Street Journal referred to the president elect as Obama-san, not for his dna or facial features, but for his insistence on following through with every policy mistake Japan made during its own real estate collapse a decade ago.

In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa’s Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a “lifestyle superpower.” The country embarked on a great Keynesian experiment:

August 1992: 10.7 trillion yen ($85 billion). Japan passed its largest-ever stimulus package to that time, with 8.6 trillion yen earmarked for public works, 1.2 trillion to expand loan quotas for small- and medium-sized businesses and 900 billion for the Japan Development Bank. The package passed in December, but investment kept falling and unemployment rose. By the end of the year, Japan’s debt-to-GDP ratio was 68.6%.

The Wall Street Journal goes on to summarize Japan’s fiscal recklessness and exploding government debt from 1992 through 1999.  Despite clear evidence of Japan’s failed policies, Obama is insistent on abandoning his earlier call for fiscal discipline, and now embraces reckless deficit spending that far eclipses even Japan’s attempts.

The WSJ article breaks down Japan’s failed stimulus programs as follows:

• 1993 – 13.2 trillion yen and 6.2 trillion yen stimulus, and debt to gdp 74.7%
• 1994 – 15.3 trillion yen stimulus, and debt to GDP ratio of 80.2%
• 1995 – 14.2 trillion yen stimulus, and debt to GDP ratio of 87.6%
• 1998 – 16.7 trillion yen and 23.9 trillion stimulus, and debt to GDP ratio of 114.3%
• 1999 – 18.0 trillion yen, and debt to GDP ratio of 128.3%

According to Bloomberg, the Japanese total government debt to GDP ratio is expected to hit 180% this year.

So I ask you, Mr. Obama-san, do you really want to be Japanese?!?!?!

Also see:

• Obama Flip Flops On Fiscal Discipline And National Debt