The government bailouts have started as the markets freeze up

Parent Cafe
101

<p>The more I study investments, the more I wonder the type of government we really have. Is it a democracy, a plutocracy, or a pathocracy?</p>

<p>I think our taxes here are heavier than your. Much of it is going to benefit the old. In short, some seniors here are getting something like 8x what they have contributed in taxes. The luckiest ones are those who retired in the early 1970s. Since the programs came into existence in 1967, they have only contributed for a very few years and will be collecting for life.</p>

<p>There is nothing wrong with welfare for poor seniors. Welfare for rich seniors, however, are hard to take. Unfortunately, there is this wealth transfer from those who need the money to those who do not. A few years ago, an actuary showed how two married life-long criminals, coming out of prison at age 65, will have more disposable income than a young couple with a mortgage and 2 kids, earning 50K a year.</p>

<p>If this is not sick, then I don’t know what is.</p>

102

<p>“That is true but when companies make bad decisions it costs their investors and if the make really bad decisions they go out of business. When the government makes bad decisions it just sends its goon squads out to take more money from its citizens.”</p>

<p>Well, how else do you expect the corporate socialists to “support themselves”?</p>

103

<p><a href=“Business News - Chicago Tribune”>Business News - Chicago Tribune;

<p>Don Williams doesn’t know it, but he might be helping to bail out Wall Street.</p>

<p>Williams, a 64-year-old retired firefighter, lives off a pension and a handful of stock and bond mutual funds.</p>

<p>“If the financial markets were to collapse,” he said at home in Genoa, Nev., “I have so much tied into it that it would have a strong effect on my standard of living.”</p>

<p>Millions of Americans feel it when the market swoons, and the Federal Reserve no doubt had them in mind when it slashed a key short-term interest rate Friday to calm the volatility in the stock market.</p>

<p>To some observers, the Fed’s unusual action was a sop to the investment bankers, securities traders and hedge-fund managers who fanned the subprime mortgage boom and other excesses of the easy-money era.</p>

<p>They, and to a certain extent the homeowners who tapped into the frenzy to spend beyond their means, are taking the blame for the market mess and, in the eyes of some, should take the hit.</p>

<p>“They have to pay a price for the risks they have taken,” said Stanley Nabi, chief strategist at New York-based Silvercrest Asset Management. “They’re paying it now.”</p>

<p>But because of Williams and other innocent bystanders across the country, the financial industry might be shielded from more severe fallout than what it is grappling with. Whatever pain Wall Street feels inevitably spreads to Main Street, and regulators and policymakers want to prevent that.</p>

<p>In fact, the lowering of the discount rate, which banks pay to borrow money from the central bank, raised expectations that the Fed soon could cut its primary interest rate, the federal funds rate. Wall Street has pined for such a move as a way to lubricate the economy – potentially a boon for masses of Americans, big investors and small – and alleviate the credit crunch that has stricken the fixed-income market.</p>

<p>But is it the right thing to do?</p>

<p>There is a running debate about the wisdom of the central bank giving Wall Street the financial equivalent of a get-out-of-jail-free card, allowing the industry to curtail losses from its risky bets on subprime loans and leveraged corporate buyouts.</p>

<p>That, according to critics, would reward Wall Street for bad behavior. Shouldn’t a hedge fund holding too many subprime bonds be allowed to fail, and an investment bank stuck with unwanted bonds from a leveraged buyout take a hit to earnings?</p>

<p>“The Fed is protecting these guys on the theory that they’re protecting the economy,” said Richard Bove, an analyst at Punk, Ziegel & Co.</p>

104

<p>We are normalizing. The discount rate cut and the expectation of further Fed funds rate cuts has helped stabalize the markets.</p>

<p>The stock market has rallied. Commodity prices are going back to where they were. Foreign currencies are going back to where they were before the panic started.</p>

<p>The commercial paper market, some corporate bonds, and especially asset based bonds haven’t recovered, but how could they? Nobody knows what these assets are worth and what assets are being used as collateral in these bonds.</p>

<p>As for housing, interest rates on jumbo loans are still higher than they were a month ago. Qualifying for a mortgage has gotten tougher, as it should. Some mortgage companies have gone out of business.</p>

<p>Those loans to private equity companies for buyouts, we’ll see how that plays out.</p>

105

<p>

Barrons, I am focused. The problem you’re having is that I’m not falling for the red herring you’ve dragged across the track of the discussion. You selected one of the few even potentially progressive taxes in America, fed it with the most skewed (and unrealistic) data possible, and declared that conclusions should be drawn from that data and everything else should be ignored.</p>

<p>BZZZZZZT! Wrong. The fact is that while the various other taxes (other than FICA) vary from jurisdiction to jurisdiction, the overall answer is knowable and known: taxes are regressive. Poor and middle class people on the whole pay a higher percentage of their income in taxes (and government “fees”) of all kinds than do the wealthy - in every state of the Union. That’s simply a fact. Plucking one unrealistic example of one type of tax out of the air doesn’t change that.</p>

<p>Concentrating on “focusing” on what isn’t even the issue is only a way of avoiding addressing reality.</p>

106

<p>You are the only one in this thread who wants to keep throwing in all state and local taxes and fees into what was a fairly clean discussion of the federal income tax system.</p>

107

<p>Barrons, the real estate industry has so many tax breaks you have to be a mathematical genius to count them up. Why does this industry need so many subsidies to make it?</p>

<p>I’m not picking on you. You’re a smart guy. I like your posts. But come on. Why does the real estate industry need so many breaks to prosper?</p>

<p>Let’s not pretend we have free markets, and that we treat all wage income the same as capital income, and that we don’t bail out industries when they get into trouble. Let’s not pretend that the tax example you used is the real world. I don’t know 1 person that makes $200,000 that has a tax return like that. I don’t think there is one.</p>

<p>What bothers me and why I started this thread is the intellectual dishonesty. At the first sign of trouble, the people that are always pushing free markets, are begging for a bailout. Actually, they don’t wait for the first sign of trouble. They are always begging for something. </p>

<p>You have Bill Gross, and Larry Kudlow, and the guy who runs Countrywide Credit, and thousands of other guys just begging for government intervention. All because of the goodness of their hearts and society. Not for their own selves.</p>

<p>Yeah. Right.</p>

108

<p>Real Family Incomes havd been rising steadily. Despite the news that incomes are down from 2000. Did you ever stop too wonder–why 2000?? They like to use it because it was the year before the Dot Bust when incomes were at the all-time high. They fell sharply the next year and are building back. If we take a longer view you see a steady growth with a few hiccups in recessions–like 2001.</p>

<p>Table F-7 Type of Family, All Races
by Median and Mean Income: 1947 to 2005</p>

<p>(Families as of March of the following year. Income in current
and 2005 CPI-U-RS adjusted dollars 28/)</p>

<hr>

<pre><code> Median income Mean income
</code></pre>

<p>Type of ____________________ ____________________
family Number Current 2005 Current 2005
and year (thous.) dollars dollars dollars dollars</p>

<hr>

<p>ALL FAMILIES
2005 77,418 $56,194 $56,194 $73,304 $73,304
2004 35/ 76,866 54,061 55,869 70,389 72,743
2003 76,232 52,680 55,905 68,563 72,760
2002 75,616 51,680 56,100 66,970 72,698
2001 74,340 51,407 56,691 66,863 73,736
2000 30/ 73,778 50,732 57,508 65,773 74,558
1999 29/ 73,206 48,831 57,201 62,567 73,291
1998 71,551 46,737 55,900 59,589 71,271
1997 70,884 44,568 54,056 56,902 69,016
1996 70,241 42,300 52,400 53,676 66,493
1995 25/ 69,597 40,611 51,659 51,353 65,323
1994 24/ 69,313 38,782 50,530 49,340 64,287
1993 23/ 68,506 36,959 49,169 47,221 62,821
1992 22/ 68,216 36,573 49,869 44,221 60,298
1991 67,173 35,939 50,233 43,237 60,434
1990 66,322 35,353 51,202 42,652 61,773
1989 66,090 34,213 52,015 41,506 63,102
1988 65,837 32,191 51,042 38,608 61,217
1987 21/ 65,204 30,970 50,895 36,884 60,613
1986 64,491 29,458 50,059 34,924 59,348
1985 20/ 63,558 27,735 47,992 32,944 57,005
1984 19/ 62,706 26,433 47,264 31,052 55,523
1983 61,997 24,580 45,704 28,638 53,249
1982 61,393 23,433 45,381 27,391 53,047
1981 61,019 22,388 45,923 25,838 53,000
1980 60,309 21,023 47,173 23,974 53,795
1979 18/ 59,550 19,587 48,804 22,316 55,604
1978 57,804 17,640 48,083 20,091 54,764
1977 57,215 16,009 45,514 18,264 51,925
1976 17/ 56,710 14,958 45,240 16,870 51,023
1975 16/ 56,245 13,719 43,873 15,546 49,716
1974 16/ 55,698 12,902 44,678 14,711 50,942
1973 55,053 12,051 45,865 13,622 51,844
1972 14/ 54,373 11,116 44,954 12,625 51,057
1971 13/ 53,296 10,285 42,874 11,583 48,285
1970 52,227 9,867 42,958 11,106 48,353
1969 51,586 9,433 43,047 10,577 48,267
1968 50,823 8,632 41,107 9,670 46,050
1967 12/ 50,111 7,933 39,292 8,801 43,591
1966 11/ 49,214 7,532 38,444 8,395 42,849
1965 10/ 48,509 6,957 36,492 7,704 40,410
1964 47,956 6,569 35,039 7,336 39,130
1963 47,540 6,249 33,775 6,998 37,824
1962 9/ 47,059 5,956 32,626 6,670 36,537
1961 8/ 46,418 5,735 31,721 6,471 35,792
1960 45,539 5,620 31,390 6,227 34,781
1959 45,111 5,417 30,801 5,976 33,980
1958 44,232 5,087 29,099 5,565 31,834
1957 43,696 4,966 29,231 5,443 32,038
1956 43,497 4,780 29,037 5,341 32,445
1955 42,889 4,418 27,246 4,962 30,601
1954 41,951 4,167 25,587 4,684 28,762
1953 41,202 4,242 26,275 4,706 29,148
1952 7/ 40,832 3,890 24,253 4,457 27,788
1951 40,578 3,709 23,590 4,194 26,675
1950 39,929 3,319 22,792 3,815 26,198</p>

109

<p>Barrons, what you say may be true, but from 1980 on most of the income growth in this country has gone to the top 5% of the income earners. I’d rather use 1980 or 1981 because that is when we made a big shift from demand economics to supply-side economics.</p>

<p>Here is a chart of a couple of Pimco’s products, muni bond funds. You will see similar charts for many if not most of their products. Bill Gross is the primary owner of Pimco.</p>

<p><a href=“PML Interactive Stock Chart | PIMCO Municipal Income Fund II Stock - Yahoo Finance”>PML Interactive Stock Chart | PIMCO Municipal Income Fund II Stock - Yahoo Finance;

<p>Look at where the stock prices were at the time right before the discount rate cut. Remember that the next time you hear Bill Gross talk.</p>

110

<p>Outside of the mortgage deduction for homeowners and the home sale rollover there really are not many special breaks for RE that are not allowed in all assets. You can depreciate any income producing property and they have stretched the time out to nearly 30 years for most property types which is as long as any assets. And unless your primary business is real estate you can’t deduct any losses over a failry modest income level so that break is gone for most investors.</p>

<p>There are a few special breaks for low income and historic properties for obvious reasons. So the big one left is the home mortgage deduction and the home sale tax exemption. This is the great middleclass tax advantage and you won’t get rid of it in our lifetimes. They are capped at levels that keep it from helping the really rich.</p>

111

<p>Well, since 1980 real median family income is up over 19%. Not great and not bad. Real average family income was up 36%. So the stories about the average or median family being way worse off are just not true.</p>

<p>Yes, the really rich are getting really richer. As long as they do it legally and ethically it’s OK with me. I try to worry about me and my family. If some Wall Street guy thinks he can borrow $1Billion and turn it into $2 Billion because he is so smart have at it. Over time it will not work because too many will jump in and outbid him. Or he can go broke as we are seeing today. I’m all for making sure he is broke and then helping the negatively impacted.</p>

112

<p>I don’t know. I see the property tax deduction, the $500,000 tax free capital gain exclusion on homes, tax deferred exchanges and capital gains tax rates (You are right. Other asset classes also get this break).</p>

113

<p>It is very difficult to know if those real rate of increases are good. </p>

<p>In order to know if those real rate of returns are good, you have to compare them. How much is the real income increase for those in the top 5% of income in the last 25 years? How does the increase of incomes in the 25 years prior to 1980 compare? How were those increases generated? More wives working?</p>

<p>If the top 5% of the income achieved an increase of 100% in real income compared to the middle class achieving 19%, why are we giving tax breaks to those 5%? Do we have a lot of extra money flowing all over the place. Are we running large surpluses? Why do they need it? Their incomes have already gone up 5 times the average family.</p>

<p>(I’m guessing about the 100%. I think it’s close. I’m too lazy to check;).)</p>

114

<p>Well, in 1967 Joe Namath made around $125,000/yr. Today he would make around $15 Million plus endorsements and maybe $40 Million total. The top people in all fields are earning vast amounts. How does this impact me? Not very much. The price of NFL games is too high for me so I don’t go and I rarely watch them either because I hate the showboating. Same for most movies with $20 million stars.</p>

115

<p>The price of NFL games is too high for me too.</p>

<p>I agree. No big loss.</p>

116

<p>Despite the current glitch, I think encouraging individual home ownership has been one of the things that has made the US great and strong. It allows the average person to build some wealth (in most areas most of the time), helps keep cities stable, and gives everyone a stake in the local economy. I’d rather see higher taxes on the higher income folks and corporations than get rid of it.</p>

117

<p>It will take time but residential real estate will recover. People like owning real estate. It’s part of their core.</p>

<p>In San Francisco, which as we both know is very expensive, there are hardly any homes for sale. As of today, there isn’t even a glitch in SF.</p>

<p><a href=“http://promo.realestate.yahoo.com/best_cities_for_singles.html[/url]”>http://promo.realestate.yahoo.com/best_cities_for_singles.html&lt;/a&gt;&lt;/p&gt;

118

<p>Barrons, it’s absolutely true that median family income is up. It’s up because the wealthy have gotten a lot richer, and the merely affluent have seen some income growth - and they’re included in the average. But here’s the link to the official IRS statistics for income from 1986 to 2004: <a href=“http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html[/url]”>http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html&lt;/a&gt;
What you’ll see when you look at the inflation adjusted (constant dollars) figures is this: in 1986, the income of the person at the 50th percentile was $15,786. In 2004 the income of the individual at the 50th percentile was—$15,945. No change. On the other hand, the inflation-adjusted income at the 99th percentile went from $108,411 in 1986 to $173,663 in 2004 - a 60% increase in real income. The lower you drop below the top 1% the less income increase you saw - at the 95th percentile the income went from $56,913 to $72,555 - a 27% increase; at the 90th percentile the income gain was from $44,391 to $52,468, an 18% increase. At the 75th percentile income nudged up from $29,418 to $31,785 - just 8% real growth in 18 years. As noted above, at the 50th percentile there was no real income growth at all. They don’t report numbers below the 50th percentile. (Note: the numbers look funny because of the “constant dollar” adjustment. Current dollar figures are almost twice the adjusted numbers.)</p>

<p>So, yeah, average family income is up. It’s just that the only reason it’s up is because affluent and very wealthy families are included in the average. The income of “average” families isn’t up at all.</p>

119

<p>Most people consider the median income to fairly represent the typical income as it takes out the relatively few at the high end. The wealthy have very little impact on the median as only a few hundered thousand out of many many millions are in that group. My numbers were real CPI adjusted median and I know the difference between median and mean.</p>

<p><a href=“http://www.census.gov/hhes/www/income/histinc/f07ar.html[/url]”>http://www.census.gov/hhes/www/income/histinc/f07ar.html&lt;/a&gt;&lt;/p&gt;

120

<p>Maybe those who despise or envy those more wealthy than themselves should spend less effort whining and trying to penalize the wealthy and more effort to just improve their own wealth. If they’re happy with the wealth they have, they shouldn’t whine.</p>