Personal Finance 
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Should You Manage Your Money Like President Obama?

Not too long ago, President Obama and the First Lady disclosed their financial assets publicly. Their balance sheet showed no liabilities — the First Family is debt-free. Additionally, the financial disclosure includes money made on book royalties, as well as information about where the Obamas are investing some of their cash. When you look at the numbers, provided by CBS Moneywatch, it becomes evident that you can learn a few things from the Obamas.

Some things that Obamas are doing, like investing in a low-cost index fund, make sense. Other items the Obama family are doing, though, like parking a large chunk of capital in a bank account that yields very little interest, aren’t the best ways to maximize your money. After reading about what President Obama is doing with his money, I’ve come up with a few lessons that I can learn.

(Click to continue reading…)


 Taxes 
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Make Work Pay Stimulus Tax Credit

PaycheckI’ve been getting a lot of emails about what people are calling a 2009 stimulus check, passed by Congress and signed by President Obama last month. People are confused, wondering what the stimulus check is, if it’s a tax credit, who is eligible, etc. It’s a little confusing but I think I can put it all to rest.

(Click to continue reading…)


 Government 
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$8,000 First Time Homebuyer’s Credit

Are you sitting down? Do you have a pen and paper handy? Looks like the $15,000 tax credit to buy a new home has been scrapped, saving $35 billion from the stimulus package, and replaced with an extension to the $7,500 and an increase of that credit to $8,000. The $7,500 first time homebuyer tax credit was set to expire July 1st, this $8,000 provision would extend that. CNNMoney is reporting that the credit is available for those who buy a home between Jan. 1, 2009 and Dec. 1, 2009 (source).

The cost of the extension and modest increase is pegged at around $2-3 billion. Another key provision? The repayment requirement will be nixed. That means the $7,500 15-year loan at 0% interest will now become $8,000 cash money in your pocket. I believe existing borrowers would have that loan forgiven.

Home buyers who hoped for a $15,000 tax credit to buy a new home, as promised by the Senate, will be disappointed. A proposed $35 billion credit to support home sales was jettisoned in favor of a more modest $2 billion to $3 billion provision.

The proposal would eliminate the repayment requirement in an existing tax credit for first-time home buyers, and raise the credit to $8,000 from $7,500. Congressional aides cautioned Wednesday that the credit’s size was still subject to negotiation.

Congress Strikes $789 Billion Stimulus Deal [Wall Street Journal]


 Government 
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$15,000 Homebuyer Tax Break

Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.

Holy schmoly… the Senate just voted and included a $15,000 tax break to homebuyers!

It was an addition that Senate Republicans wanted in order to leave “their mark” on the economic stimulus package President Obama has called the American Recovery and Reinvestment Plan. At an estimated cost of $19 billion, the $15,000 tax credit is very much like the $7,500 tax credit given to first time homebuyers. It will be a tax credit of 10% of the value of new or existing homes, up to a $15,000 limit and everyone would be eligible, not just first-time homebuyers (defined in the previous bill as someone who hadn’t owned a home in the last three years).

From a reader:

Check out the potential big changes to this credit…increased amount to $15,00, a proposed no repayment/recapture, plus a new 5% down payment requirement. Downside is it’s not really retroactive but meant for purchases after December 31st, 2008.

Original Rules:
IRS.gov

Proposed Amendment introduced today into the economic stimulus package (two pages of Congressional record when the amendment was introduced in the Senate, February 4th, 2009):
http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_record&page=S1493&position=all
http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_record&page=S1494&position=all

Absolutely stunning… you almost have to buy a house now.


 Government 
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American Recovery & Reinvestment Plan Details

The Committee on Appropriations released an executive summary on the details of the American Recovery & Reinvestment Plan, the formal name for President Obama’s stimulus package, and it’s thirteen pages long with a decent level of detail. First I’ll list the high level overview then point out some of the things that might affect you. If you’re curious about a stimulus check, it’s not in there.

(Click to continue reading…)


 Government 
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Obama’s American Recovery and Reinvestment Plan: Economic Recovery Plan Details

1/15: The Committee on Appropriations just released the an executive summery of the details of the American Recovery and Reinvestment Plan.

Obama offered some more details on the economic recovery plan he plans to put forward to Congress after the inauguration in his weekly radio address today, a program he called the American Recovery and Reinvestment Plan.

Some of the salient details were that he wanted to plan to create three million new jobs, up from 2.5 million, and to :

  • double renewable energy production and make public buildings more energy efficient;
  • rebuild crumbling roads, bridges and schools; computerize the health care system; modernize classrooms, labs and libraries;
  • and provide tax breaks to American workers.

His advisers have estimated that the cost of the plan could be anywhere from $675 billion to $775 billion, while others expect it to be closer to $1 trillion. With how the government has been printing money lately, an extra $1 trillion, especially invested into programs that will help Americans stay employed and improve our infrastructure (rather than prop up banks and their epic failures), is better than the alternative. The question remains, will there be more pork stuffed in there or will this truly be a focused bill? We will have to see.

You can watch the address yourself (four minutes long):

Full transcript available here.


 Personal Finance 
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Winners of the 2008 Recession & Credit Crisis

One of the things I’ve learned during this credit crisis is that despite all the stock market losses, despite all the foreclosures, and despite all the doom and gloom… someone had to have benefited from the carnage that has been the last year. In listening to one of the most well know This American Life stories, The Giant Pool of Money, and how these mortgage lenders were making bank ($75k a month!) doing liar loans, I knew I could find a few more winners in the ugliness that was (and still is).

So who won?

CEOs & Investment Firm Bonuses

Morgan Stanley CEO: John Mack
Everyone who got a bonus in the housing boom did so on what essentially were lax rules. The rules were changed so home values could be inflated, people got rich off bonuses for financial wizardry, and those that pulled out of the system are the real winners. Morgan Stanley, now dead, gave CEO John Mack $40M in stock and options for 2006, the largest bonus awarded to a Wall Street CEO. Not to be outdone, Lehman Brothers, also now dead, gave its CEO, Richard Fuld, a $41M bonus in shares and a $18.8B bonus pool for the entire staff. While many of them don’t have jobs anymore, how many million do you really need before you retire?

In all fairness, there was a measure of clawbacking going on – such as WaMu cutting their CEO’s 2007 pay package by 66% to around $5.25M (oh the horror!) amidst rumors of its own demise.

Small Indiscriminant Mortgage Lenders

Golden West Financial Corp
Let’s say you know a guy down the street who absolutely loves apples. He’ll pay you fifty cents for any apple you have regardless of the condition. He’ll pay you fifty cents for an apple other people would only pay you a quarter. You also know this other guy who will sell you all the rotten apples from his orchard for a nickel a piece. What are you going to do? You’re going to get as many garbage nickel apples as you can so you can sell it to the sucker willing to pay fifty cents.

Freddie Mac and Fannie Mae were those suckers and companies like Golden West Financial Corp. were those sellers. In fact, Golden West Financial Corp. did so well, Wachovia acquired them for $25.5 billion (you know someone made out on that deal)… then collapsed this year under mounting mortgage losses. Wachovia is now owned by Wells Fargo. (Check out this This American Life story about the housing crisis, it’s an hour long audio but well worth listening)

Net Home Sellers

Home Foreclosure SIgn
Anyone who sold a home during the boom and didn’t buy a new one was a winner. Home prices were ridiculous, everyone knew we were in a bubble, and some people cashed out either because of prudence or life changes. Retirees were downsizing, trading in a single family home for a smaller, more manageable condo or apartment. People moved. Whatever the reason, if you sold your house in the boom and didn’t get yourself into a new one, you were a winner and kudos to you. You won’t find anyone bitter and upset over your good fortune.

Stock Brokers

Stock Market Ticker
Brokers make money when the stock market is up, when the stock market is down, and when the stock market is sideways. In fact, the more people talk about the stock market, the more brokers make. Brokers love activity, whether it’s stories about the market breaking 13,000 or the market breaking 8,000 – brokers win when people trade. The biggest winners are probably the discount brokers catering to the cost conscious individual investor like Zecco, TradeKing, and E*Trade. They’re the house, they win when there’s action.

President-Elect Barack Obama & Democrats

President Elect Barack Obama
Barack Obama probably would’ve won the 2008 Presidential election even if the credit crisis hadn’t reared its viciously ugly head, though it was certainly very poor timing. President Bush’s approval rating was abysmal, political sentiment had already swung towards the Democrats after the mid-term elections, but the margins were probably helped by the timing of the collapse. John McCain stating that the “fundamentals of our economy are strong” didn’t hurt the Democrat’s chances either.

There are certainly other winners but those were the first five that came to mind.

(Photo: Barack Obama by bethcanphoto)


 Government 
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Obama’s 21st Century New Deal: An Economic Stimulus

Between 1933 and 1936, President Franklin D. Roosevelt initiated a series of economic programs and policies that would be termed the New Deal. It was intended to give relief to the unemployed, reform business and financial practices, and help the struggling economy fight through the woes of the Great Depression. While many of the programs and regulations were unwound in subsequent years, many of its programs are still in place today such as the Federal Deposit Insurance Corporation, the Federal Housing Administration, the Tennessee Valley Authority, the Social Security System, and the SEcurities and Exchange Commission.

On December 6th, 2008, President-elect Barack Obama unveiled, in his weekly address, his version of the 21st Century New Deal, designed to achieve similar goals, most notably to bring the United States out of the recession it currently faces. He seeks to achieve this aim by investing billions of dollars into improving the transportation infrastructure in this nation, roads and bridges, that has been severely underfunded (as evidenced by the studies following the tragic collapse of I-35W in Minnesota, killing 13 and injuring 145). Today, President-elect Obama outlined the principles of his plan (5 minutes) to create 2.5 million jobs.

Here were the major points of his program:

  • Improve energy efficiency of public buildings, by upgrading those buildings with new HVAC systems and energy efficient lightbulbs.
  • Extend funding to improve the infrastructure of the federal highway system (“single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s”), with a deadline for allocation so that states move quickly to use what is allocated. This is intended to create a great many jobs.
  • Modernize and upgrade school buildings from both an energy efficiency perspective, like public buildings, as well as outfit them with new computers.
  • Extend the reach of broadband internet access, improve the United States’ rank of 15th in the world in broadband adoption.
  • Interconnect hospital medical records through the internet by modernizing the health care system.

The address lacks details and numbers because it’s impossible to give details and numbers until January 20th. What you will hear is him explaining the major points of his plan, none of which include a stimulus check to families. I’d argue though that the stimulus checks did nothing to improve our situation and a family facing job loss would much rather have the option of working on an infrastructure plan than cashing a $300 check.

Breaking: Obama unveils 21st Century New Deal [Politico]


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