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Here are some important tax developments that you can expect for 2010 and 2011:

The death tax: When it comes to the death tax, probably nothing could less likely be predicted or planned for. By far the death tax can easily become ones largest expense provided an individual’s gross estate is at least $3.5 million. The 2009 death tax exclusion, however, will be set to unlimited in 2010, which is another way of saying that the death tax will be repealed.

Sunset of the death tax is a holdover from the now infamous Bush administration tax policy, which many argue benefits only the wealthy. However, given that the same law requires the death tax to be reinstated in 2011 at pre-2004 exclusion rates of only $1 million, this can hardly be seen as benefiting the decedent’s estate or the beneficiaries. Aside from the tax burden, which alone is responsible for raising more than $800 billion annually in tax revenues, often beneficiaries are forced to liquidate illiquid estate assets to free up cash in order to pay the death tax. If these assets are held in real estate, then this could pose a serious problem if current real estate market trends continue on the downside for the foreseeable future.

One can logically expect continued volatility in the way the death tax is applied. The Obama administration has already tinkered with in the Fiscal Year 2010 Budget Proposal in which a footnote to the proposal assumes that Congress will cancel the repeal and make the death tax permanent. Probably the best advice anyone could be offered is to plan for all possible contingencies regardless of the size of the estate. Preparing a living trust has probably never been more important than now given the uncertainties of the death tax. A spousal residuary trust should be carefully considered as well. Seeking trust and estate advice can often result in peace of mind.

Alternative minimum tax: The exemption levels drop to $45,000 for married filing jointly from $70,950 in 2009. It drops to $33,750 for singles and heads of household from $46,700, and from $35,475 to $22,500 for married couples filing separately. This translates into millions of additional taxpayers, who are expected to be subject to the AMT. The best advice would be to pay careful attention to the level of your income as well as the tax preference items, which are added back for alternative minimum tax purposes. Make sure that you don’t fall into the AMT for 2009, or else you might wind up owing additional taxes which you had not planned for. Important items to consider in planning for the AMT would be whether you exercised incentive stock options or paid a lot of state taxes. However, so far interest from private activity bonds is still exempt from the AMT through 2010.

Sales tax deduction for new vehicles: In 2010, the ability to deduct sales tax on new vehicle purchases will no longer be available. New car buyers have until the end of 2009 in which to take a deduction for the sales taxes by adding it to your standard deduction. The period of 2-16-09 to 12-31-09 is covered under the law. If you are single and your adjusted gross income is over $125,000, the deduction is phased out. It is phased out at $250,000 of AGI for marrieds. Sales taxes on the purchase price up to $49,500 qualifies for the deduction. Beginning in 2010, you can still deduct sales taxes on a new car purchase provided that you itemize deductions and do not deduct state income taxes.

Other things to consider: Unless there are any changes coming from Congress, in 2011 both the individual tax rates and the capital gains tax rates are supposed to go back to the rates which were in effect prior to 2001. This means that the top individual income tax rate will go back to 39.6%, and the capital gains tax rate is set to return to 20%, up from 15%, and in addition dividends will be taxed at the highest ordinary tax rate. Also, the Section 179 expense deduction gets cut way down from $250,000 where it presently stands to only $25,000 in 2011. One positive development is that the domestic production activities deduction increases in 2010 to 9% of qualified business net income. Also, the first-time homebuyer credit expires on November 30, 2009. As long as you take the credit in 2009 and you do not sell your house within three years of buying it, then you will not have to repay the credit.

October 25th, 2009 | Category: CPA Stuff | Leave a comment

From: The Daily Capitalist

This article is dedicated to those who have had serious market and financial losses.

Why would we listen to the same people who got us into this mess on how to get us out of it?

Our natural tendency is to listen to successful people on any financial subject. They must know something that we don’t or they wouldn’t be rich. And, we feel, Rich=Smart.

Should we listen to them?

I’ve given this question a lot of thought in the past year. I’ve always been a bit of an ideologue–well not just a “bit.” I believe ideas mean something in that you’ve got to have some basis or theory through which the world makes sense to you.

To determine what’s right or wrong most of us fall back on our own judgment in areas we understand. Or think we understand. When we don’t really understand something, we listen to those whom we think do understand. In the financial world we listen to Buffet,and Paulson, and Kramer, and the like, and generally, any one we know who’s made a ton of money.

But, if they are so smart how come they have been so wrong? And I mean, really wrong. So wrong that we are in the most serious financial crisis since the Great Depression.

I don’t mean to demean the above-named gentlemen because they have been very, very successful and deserve accolades for that. But, even Berkshire is down 31%.

I think we should pause and think about how we got in this mess. More specifically: how we let ourselves be convinced that our financial leaders, public and private, were right when we now clearly see that they were very wrong.

Maybe they were just lucky

I‘ve been working on a list of all the hedge funds and investment banks who have gone broke, are about to go broke, have lost a ton of money for their clients, or the investment stars who have been fired for some of the foregoing acts. It’s a very long list. (See The Problems, below.) And I just started looking. What you see are some of the headlines I’ve pulled out of Dow Jones Financial News Online’s daily e-mail from just the last 6 weeks or so.

Let us take for granted that these are all very bright men, they have vast knowledge of the financial markets, have operated honestly and in good faith, and at some point made a lot of money for their investors and clients.

Now we find that they’ve jumped off the bridge attached to a rope that’s tied around our necks.

Why do we listen to them? Are they right about economics when they are successful and wrong when they are not?

Could it be that they were just lucky–in an up market?

I’ve decided that there are only good ideas, bad ideas, and luck. And really, it’s mostly luck.

Nasim Taleb in his books Black Swan and Fooled by Randomness has addressed this issue brilliantly. He tackles the question of “how do we know what we know” through social science discoveries that relate to this question. It is a branch of science and philosophy called epistemology. He shows that there are behavioral and statistical reasons why we all make the same mistakes. That is, the nature of the human mind and personality makes us prone to make the same mistakes over and over.

His basic premise is that financial experts underestimate risk. As such they are caught by surprise when some significant unforeseen event occurs. Such events can be good or bad, but it is the bad ones that can kill you. The surprise is that these kinds of events, he refers to them as Black Swans, occur unpredictably but regularly.

The bad Black Swans have been killing the experts for years. Yet they refuse to recognize their errors. I urge you to read Taleb’s books. They are profound, challenging, and eye-opening.

Taleb’s conclusion is that the success of most traders in hedge funds and investment banks are mostly the result of luck. Their investment philosophy just happened to coincide with the market at a given time.

He points out that if you take the investment results of the universe of investment advisers and plot them on a graph they look like a random sampling of data. Which means, based on statistics, that the investment results achieved would have occurred randomly in the investment world: a very few investors will be very successful, some will bust, and most fit in somewhere around the middle (returns somewhere around the S&P 500).

There are a few investors who have been successful over the years, but not many. But, he claims, it’s very difficult to tell under the tools of statistical analysis if it’s luck or skill. I personally would like to think it’s skill.

Why listen to guys who were just lucky?

If Taleb is correct, we should be suspicious of lucky people who offer financial advice. And, be especially suspicious of their economic advice.

I like to follow the quarterly list of economists’ predictions in the Wall Street Journal. At the end of each quarter they compare their predictions. You seldom see any economist get it right more than once. They are guessing. An educated guess to be sure, but still they are guessing and they all tend to guess in the same way.

Then there are the hedge and investment fund managers. Most managers stick to one of several known strategies, generally the ones they see other people doing. Rarely do they stick their necks out and do something different. There’s comfort in being wrong if everyone is wrong. But occasionally they get it right and pull out enough money to last forever and I congratulate them for that. But does that meant they are qualified to give economic or financial advice if they’re just lucky?

It’s my opinion that most of these people are blinded by their own success. Especially those that have pulled large amounts of personal wealth out of the system. There is a tendency of these people to universalize their own experience. That is, they believe the lessons they learned should be applied to the world as a whole and we would all be much better off. Or, if they happen to have an economic philosophy, they will attribute that to their success, and therefore, their brand of economic philosophy should be applied universally.

Maybe they confuse their good luck with success. Maybe their philosophy had nothing to do with their success.

These people are now pushing a lot of advice on our government leaders, but … Why should we listen to them? Many of these experts are the ones who lead us off the deep end.

Who got it right and why?

Why don’t we listen to those who got it right? And I’m not talking about those who called the market right and made a killing (John Paulson, George Soros, or James Simons). Why should we believe they weren’t just lucky or that they know anything about economics? Soros is one of the best at making money since he’s hit it big twice now, but his economic and political philosophy are dead wrong.

Who in the world warned us about the bubble and predicted serious consequences?

In my opinion, it was and is the free market economists. These are either Monetarists (Milton Friedman) or Austrians ((Ludwig von Mises and Friedrich von Hayek).

The Austrian School of economics (it’s founders and followers were mostly Austrian) are the guys who discovered the cause of business cycles and how to treat them. They analyzed recessions and depressions and determined how and why they were caused.

Ah, “obscure economists,” you might say. Well, leading Austrian economist Friedrich von Hayek did receive a Nobel in economics, but yes, the tide of Keynesianism swept many opponents into the minority after WWII.

But, the free market guys have been right. Correct in predicting bubbles, correct in predicting the busts, correct in predicting the effects of socialism or Keynesian policy, and correct in extolling the benefits of capitalism. Please go to The Ludwig von Mises Institute for further information.

Why don’t we listen to them?

I am amazed at the many commentators and economists who believe in the blessings of government interventionism when the results are often the opposite of what they intended. These prominent people who are now in power are advocating many of the same things today that were tried and failed during the Depression. In fact these programs they advocate actually helped cause the Depression. These thinkers are unaware of the negative consequences of their policies.

Forget economic theory for a moment and just look at the facts. Boom and bust is caused by central banks, or going back in history, the sovereign. In some way, throughout history, the people in charge of the monetary system, by flooding the economy with cheap money, create a boom. Rarely does it end well. This cycle was no different.

I recommend Amity Schlaes new book, The Forgotten Man, a new history of the Great Depression, or Murray Rothbard’s The Great Depression, perhaps one of the best economic histories ever written. If you don’t agree that the circumstances are very similar to today, then only time will tell if you’re right. Do you want to take that chance?

Here are some things we all should be thinking about

We are at a crossroad right now, not unlike the one that Hoover and FDR faced during the early 1930s. I believe that the actions taken by our leaders now have momentous consequences for us all. If they get it wrong, we could face another Great Depression or at least years of stagnation and inflation.

I can tell you, our leaders aren’t listening to the free market economists, leastwise the Austrians.

Here are some questions you should ask yourself:

Do Mr. Bernanke and the Fed know what they’re doing? Bernanke’s a very smart guy (1590 on the SAT; Harvard; Ph.D at MIT). He was a student of the Great Depression. He lauded Milton Friedman on the latter’s 90th birthday by saying, don’t worry, “we won’t do it [Great Depression] again.” Like Friedman, he doesn’t seem to get the true relationship between inflation to interest rates: it’s more than just pumping the economy with money.He’s an econometrician, like Greenspan. He thinks he can tinker with the money supply and make all the bad things go away. Greenspan inflated our way out of the Long Term Capital Management collapse, the Asian currency collapse, and the Dot.com collapse. Which led us to the current problem. It’s funny that we had so many bubble cycles with Greenspan. Why do we think Bernanke will be right this time?

Do Mr. Hank Paulson and the people at Treasury know what they are doing? On Wednesday, November 12, 2008 they all but admitted they didn’t know what they were doing and dropped their plan to buy bad bank assets and instead invest capital into banks. This didn’t give anyone any confidence and the stock market plummeted.It is simply beyond the Treasury’s or the Fed’s ability to “solve” the problem. The problems are in the trillions of dollars and I believe Paulson and his people are just beginning to figure this out. Now securitized auto and credit card loans are in trouble. Commercial property values are dropping. Credit default swaps, potentially a $46 trillion problem, loom out there.True the recession will be nasty, but the sooner they let the market reallocate resources from the incompetent to the competent, the quicker we’ll recover. This is the opposite of what they are doing. Are they paving the way for something worse?

Do Mr. Obama and his economic advisers know what they are doing?I hope so. His advisers are NY Fed president Timothy Geithner (not an economist), former Clinton advisers Larry Summers, Robert Rubin, and Robert Reich (not an economist), former Fed chairman Paul Volker, and U of Chicago Business School professor Austin Goolsbee.They are all remaining quiet until Obama is sworn in. Most of them are all Harvard or MIT trained economists. I would guess that these advisers will offer no different solutions than what we are seeing now, with the exception that we would see more fiscal stimulus. Ask yourself: would taking money (taxation) out of your pocket (i.e., the economy) and letting the government decide where it should be spent make sense in an economy starved for credit? Would bridge repair employ the hundreds of thousands of unemployed mortgage and real estate brokers, bankers, and financial workers?

Do the financial leaders who got us into this mess know what they are doing?The ones that caused the problem seem to be the ones asking for government cash to bail them out. I would say that their self-interest cancels out their objectivity.

October 7th, 2009 | Category: CPA Stuff | Leave a comment

October 6th, 2009 | Category: CPA Stuff | Leave a comment

By Tom Fowler
Houston Chronicle
October 3, 2009

Gazprom Marketing & Trading USA, the U.S. arm of the world’s largest natural gas producer — which is majority owned by the Russian government — is ramping up operations in Houston in a big way.

The company has signed deals for more than 350 million cubic feet per day of physical supply at several locations around the U.S. and is set to import Russian liquefied natural gas into the country.

“We’re entering a business that’s very liquid, where the margins are small, so you have to come in with a position with some size,” said John Hattenberger, president of Gazprom Marketing & Trading USA. “For us it’s like joining a race starting at 50 miles per hour instead of a dead stop.”

Gazprom accounted for 17 percent of the world’s output of natural gas last year. It was created in 1989 when the Soviet Union’s Ministry of Gas Industry was turned into a corporation. It was later privatized and issued publicly traded stock on the London Stock Exchange and other exchanges, but the Russian government holds a controlling stake.

Gazprom’s U.S. business was formed in 2006 and the Houston office opened a year later.

The company has been carefully developing its strategy, Hattenberger said, but simply put, the plan is to give the world’s largest gas producer an outlet in the world’s largest market.

The Houston office has been hiring staff over the past year and eventually will employ about 100, Hattenberger said. The office will include the U.S. home for the company’s carbon emissions trading business.

Gazprom has been ready since May to bring cargoes of LNG — natural gas super-chilled into a liquid so it can be transported via ocean-going tanker — from the Sakhalin project off Russia’s eastern coast to the U.S. via an LNG terminal in Mexico. But U.S. prices have been too low, Hattenberger said, so the shipments have gone to more profitable markets.

Prices down

Gazprom’s timing isn’t ideal, said Amy Myers Jaffe, a fellow in energy studies at Rice University’s Baker Institute.

The company likely thought it would be selling into a premium market, with the highest prices per million British thermal units of gas. That may have been true in summer of 2008, when prices topped $14.

But prices are down because of the economic downturn and a surge in U.S. production, prompted mostly by new technology for producing natural gas locked in shale formations. Natural gas closed at $4.72 on Friday.

“We’re not at peak gas. We’re not even close,” Jaffe said. “Natural gas is still a young market, and we’ve still not tapped into a lot of tremendous resources.”

But the U.S. natural gas market is still the largest, so it makes sense for Gazprom to stick it out despite the lower prices. The company could also use LNG sales to U.S. markets as a way to keep prices up in other markets, as the Saudis do with oil, Jaffe said.

A little discomfort?

Gazprom’s direct stake in U.S. energy markets might make some uncomfortable because Russian and U.S. foreign policies are often at odds despite the end of the Cold War.

Russia was quick to use energy supplies as a foreign policy tool in the past, including curtailing natural gas shipments to European neighbors over political conflicts.

But Hattenberger said the Kremlin hasn’t set up shop on Louisiana Avenue to manage his company’s day-to-day business based on Russian national policy. A little more than 49 percent of the company is held by other investors.

“So we have to represent the interests of all our shareholders and make decisions based on economic and commercial considerations,” Hattenberg said.

Commercial reasons

Jaffe says its clear the Russians came to North America for commercial reasons, and post-9/11 they positioned themselves as a reliable alternative to Middle East suppliers.

But the company is never far from the Kremlin.

“There is a tremendous amount of personal, political interaction between the company and the government,” Jaffe said.

October 3rd, 2009 | Category: CPA Stuff | Leave a comment

September 17th, 2009 | Category: CPA Stuff | Leave a comment

Gold surged to the highest price since March 2008 and a record close as the dollar extended its longest slide in six months, boosting demand for the metal as a hedge against inflation. Silver reached a 13-month high.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, has dropped for six consecutive sessions, the longest slump since March, to an 11-month low. Before declining today, crude-oil prices, used by some investors as a gauge of future inflation, jumped 61 percent this year. Gold, which tends to gain when the dollar weakens, has climbed 14 percent in 2009.

“The dollar is going down because of inflation fears” and that pushes gold up, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois, and a bullion trader for more than three decades. “There is too much money and everything is going up. It’s not about supply and demand, it’s not about common sense.”

Gold futures for December delivery rose $9.60, or 1 percent, to $1,006.40 an ounce on the New York Mercantile Exchange’s Comex division, the highest closing price on record and the first above $1,000 since February. The advance brought this week’s gain to 1 percent. Gold has climbed for four straight weeks.

Earlier, the metal touched $1,013.70, the highest price for a most-active contract since March 17, 2008. On that date, gold reached a record $1,033.90 in New York.

“The continued weakness in the dollar gave the bulls incentive to push this higher,” Miguel Perez-Santalla, a Heraeus Precious Metals Management sales vice president in New York, said by e-mail. “It made new highs but once the dollar went back below 1.46 euros, it lost $4. All eyes are on the dollar at this moment for some guidance.”

Dollar Slump

The dollar index, which fell 2.1 percent in the previous five sessions, dropped 5.5 percent this year through yesterday. The index includes euros, yen, U.K. pounds, Canadian dollars, Swiss francs and Swedish krona.

Gold’s gains today were “strictly a dollar-inverse play,” said Jon Nadler, a Kitco Inc. senior analyst in Montreal. While the market is “overbought,” he said “speculators keep pushing.”

In London, bullion for immediate delivery rose $8, or 0.8 percent, to $1,004.60 an ounce at 7 p.m. local time. The spot price is up 14 percent for the year.

Gold’s gains may continue, “given concerns over rising inflation and our expectations for the dollar to weaken further,” Suki Cooper, an analyst at Barclays Capital in London, wrote in a report today.

Demand for gold through exchange-traded funds will rise to 700 metric tons this year, from 322 tons last year, Barclays said in the report. Gold assets in ETF Securities Ltd.’s exchange-traded commodities rose to a record, reaching almost 8.2 million ounces yesterday from 8.1 million on Sept. 9, the company said on its Web site today.

Silver Gains

In another Comex market, silver futures for December delivery rose 3 cents, or 0.2 percent, to $16.70 an ounce in New York. Earlier, the price reached $17.015, the highest for a most-active contract since Aug. 5, 2008.

Manufacturing demand for silver, including electronics and other industrial applications as well as jewelry and silverware, will rise 0.2 percent next year, the first increase in three years, according to Barclays.

“Silver has benefited from positive investment demand and a potential recovery in industrial demand” on signs of economic growth, Barclays said in today’s report.

Stockpiles of the metal in warehouses monitored by Comex dropped 16 percent in the past year while gold inventories increased 6.8 percent.

Among other precious metals, palladium futures for December delivery climbed $1.05, or 0.4 percent, to $294.50 an ounce on the Nymex. Platinum for October delivery gained $31, or 2.4 percent, to $1,320.70 an ounce in New York.

September 12th, 2009 | Category: CPA Stuff | Leave a comment

By Byron York
Washington Examiner
September 2, 2009

There’s been a lot of discussion about the new and powerful federal agencies that would be created by the passage of a national health care bill. The Health Choices Administration, the Health Benefits Advisory Committee, the Health Insurance Exchange — there are dozens in all.

But if the plan envisioned by President Barack Obama and Congressional Democrats is enacted, the primary federal bureaucracy responsible for implementing and enforcing national health care will be an old and familiar one: the Internal Revenue Service. Under the Democrats’ health care proposals, the already powerful — and already feared — IRS would wield even more power and extend its reach even farther into the lives of ordinary Americans, and the presidentially-appointed head of the new health care bureaucracy would have access to confidential IRS information about millions of individual taxpayers.

In short, health care reform, as currently envisioned by Democratic leaders, would be built on the foundation of an expanded and more intrusive IRS.

Under the various proposals now on the table, the IRS would become the main agency for determining who has an “acceptable” health insurance plan; for finding and punishing those who don’t have such a plan; for subsidizing individual health insurance costs through the issuance of a tax credits; and for enforcing the rules on those who attempt to opt out, abuse, or game the system. A substantial portion of H.R. 3200, the House health care bill, is devoted to amending the Internal Revenue Code of 1986 in order to give the IRS the authority to perform these new duties.

The Democrats’ plan would require all Americans to have “acceptable” insurance coverage (the legislation includes long and complex definitions of “acceptable”) and would designate the IRS as the agency charged with enforcing that requirement. On your yearly 1040 tax return, you would be required to attest that you have “acceptable” coverage. Of course, you might be lying, or simply confused about whether or not you are covered, so the IRS would need a way to check your claim for accuracy. Under current plans, insurers would be required to submit to the IRS something like the 1099 form in which taxpayers report outside income. The IRS would then check the information it receives from the insurers against what you have submitted on your tax form.

If it all matches up, you’re fine. If it doesn’t, you will hear from the IRS. And if you don’t have “acceptable” coverage, you will be subject to substantial fines — fines that will be administered by the IRS.

Under some versions of health reform now circulating on Capitol Hill, the IRS would also be intimately involved in how you pay for insurance. Everyone would be required to buy coverage. The millions of Americans who can’t afford it would receive a subsidy to pay for it. Under the version of the plan currently under negotiation in the Senate Finance Committee, that subsidy would come through the IRS in the form of a refundable tax credit. Under the House plan, the subsidy would come directly from the Health Choices Administration.

In either scenario, the IRS would be the key to making the system work. Before you could receive any subsidy, whether through the IRS or not, the Health Choices Administration would have to determine whether you are eligible for it. To do so, the bills under consideration would give the Health Choices Commissioner the authority to demand sensitive, confidential information from the IRS about individual taxpayers. The IRS would have to provide it.

Under current law, it is a felony for a government official to release taxpayer information in all but the most limited of circumstances. One such exception is for law enforcement; the IRS is allowed to give taxpayer information to prosecutors in criminal cases. The information can also, in some instances, be released to the Social Security Administration and the Veterans’ Administration for the determination of benefits. The health care bills would change the Internal Revenue Code to permit the IRS to give similar information to the vast, new health care bureaucracy.

That means the personal tax information of millions of Americans would enter the system whether they want it to or not. “There’s a mandate to buy insurance,” says one Republican House aide. “You have to buy it. You have millions of people who can’t buy it without a subsidy, so they will have no choice but to accept the subsidy in order to buy insurance, and then the Health Choices Commissioner will have access to their tax records.”

“How many hands would this information go through?” asks a GOP source in the Senate. “What are the quality controls? This increases the risk of misusing this information.”

Some versions of the bill even permit the release of confidential taxpayer information for decidedly less pressing reasons. In H.R. 3200, the IRS would be required to provide taxpayer information to the Social Security Administration for the purpose of helping Social Security officials find qualifying seniors who can then be encouraged to enroll in the prescription drug program. “There is no precedent for using taxpayer information for the purpose of identifying people to go out and advertise to them,” says the House expert.

So far, there has been little substantive public debate about the integral role of the IRS in nearly every aspect of the various national health care proposals. But people who are closely involved with the process are deeply concerned about what they view as a massive, and in some senses unprecedented, expansion of the Internal Revenue Service.
First, they wonder whether the IRS can handle the new demands. “There is a sense at the IRS that their purpose is to collect revenue and not to implement all sorts of other programs,” says a second Senate GOP aide. “Also, the IRS isn’t necessarily great at doing what it does already. How is it going to determine whether 300 million people have health insurance?”

Second, they are concerned about anticipated abuse of the system. “You’re going to have lots of fraud,” says the House source. “People claiming lots of affordability credits or refundable tax credits. The IRS is not going to have the resources and expertise to police this stuff.”

Finally, there is a third concern, more fundamental than questions of whether the IRS can handle the job: Should the IRS be involved in health care enforcement in the first place? As seen in the town halls across the country in August, many Americans are concerned about the coercive nature of the proposed national health care system. Handing the IRS the power to monitor every American’s place in the system worries them even more.

Backers of the Democratic bills are betting that the handouts involved — giving people money to buy health insurance — will outweigh concerns about privacy and coercive government. Perhaps. But before Congress makes any decision on national health care, voters should know just what it will involve.

September 3rd, 2009 | Category: CPA Stuff | Comments (2)

By Marcy Gordon
Associated Press
August 29, 2009

Despite signs of an improving economy, the nation’s banks are still struggling — in fact, the pace of bank failures has accelerated.

What would it take to turn the banking sector around? And what can people do to protect their savings in the meantime?

Here are some questions and answers about the wave of U.S. bank failures, as the latest quarterly snapshot of the industry painted a grim picture.

Q: How bad is this wave of failures?

A: A cascade of collapses began last year as the financial crisis struck.

Eighty-four banks have fallen so far this year as tumbling home prices and spiking unemployment pushed loan defaults upward. That’s the largest number in a year since the early 1990s, at the apex of the savings and loan crisis. It compares with 25 bank failures last year and three in 2007.

The failures have sapped billions from the federal deposit insurance fund, which guarantees account holders’ money when banks go under. The fund stood at $10.4 billion in the second quarter, its lowest point since 1992.

The biggest failure this year: Colonial Bank, a heavy regional lender in real estate development based in Montgomery, Ala., which became the sixth-largest bank failure in U.S. history on Aug. 14. The Federal Deposit Insurance Corp. seized Colonial and sold its $20 billion in deposits, 346 branches in five states and about $22 billion of its assets to BB&T Corp.

Some analysts believe another 100 to 300 banks could fail before the crisis runs its course, largely because of souring loans for commercial real estate. The number of institutions on the FDIC’s internal “problem list” — those rated by examiners as having very low capital cushions against risk and other deficiencies — jumped to 416 at the end of June from 305 in the first quarter, the agency reported Thursday.

Q: What’s behind this?

A: Banks around the country have run into trouble on their loans for construction and development, the fastest-growing category of troubled loans for U.S. banks, especially in overbuilt areas. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans.

Lots of banks have heavy concentrations of these loans in their lending portfolios, and some small banks are considered by regulators to be particularly vulnerable. Delinquent loan payments and defaults by commercial and residential developers have surged to the highest levels since the early 1990s, during the S&L crisis.

At the same time, some recent failures have been smaller banks brought down by garden-variety loans that have soured during the recession. Regulators say they’re concerned about growing delinquencies on prime, conventional home loans.

Q: So even though the economy is starting to recover, banks are still struggling?

A: The condition of the banking industry is what economists call a lagging indicator: It falls behind the state of the economy because the problems take longer to percolate through banks, as opposed to other signposts such as consumer spending, gross domestic product or permits for building construction.

That means the pain will continue to weigh on the banking sector while the economy rebounds.

FDIC Chairman Sheila Bair offered a reminder on Thursday: “Banking industry performance is, as always, a lagging indicator.”

Q: What will it take to turn the banking industry around?

A: Not much other than time, experts say.

“The only thing you could do is … to ignore the losses that are already there,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington. That would be a terrible mistake, she said, noting that regulators’ blind eye in the 1980s prolonged the S&L crisis.

“The best thing for the banking industry is just to take it on the chin and move on,” she said.

Q: What about me? What can I do to protect my money in the bank?

A: Accounts are insured by the FDIC up to $250,000 per depositor per bank. Joint accounts are insured up to that amount for each co-owner of the account; individual retirement accounts, or IRAs, held in banks are also insured.

If you have multiple individual accounts at one bank, it’s important to structure them carefully so they don’t exceed the limits. The FDIC has a calculator on its Web site called the electronic deposit insurance estimator, or EDIE, that can help determine how much money in deposit accounts, if any, exceeds the insurance limits. You can find it here: http://tinyurl.com/lt3aok.

For any money in a failed bank’s deposit accounts that exceeds the insured limits, you become essentially a creditor of the bank. You would eventually recover some of your money, but the amount can range from 40 cents on the dollar up to the full amount. Recovery of the money could take months.

August 30th, 2009 | Category: CPA Stuff | Leave a comment

August 23rd, 2009 | Category: CPA Stuff | Leave a comment