This is a poignant story on how a NY Times reporter got sucked into the financial crisis. I am glad he shared the story with the world.
http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html
Published: May 14, 2009
If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.
But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.
As for me, I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love. It was August 2004, just as the mortgage party was getting really good. I was 48 years old and eager to start a new chapter in my life with Patricia Barreiro, who was then my fiancée.
Patty was brainy, regal, sexy, fiery and eclectic. She was one of my closest friends when we were both students at an American high school in Argentina. Back then, we would talk together about politics and books at a coffee shop every day after school. We were not romantic in those days and went our separate ways after high school. But each of us would go through bruising two-decade-long marriages, and we felt that sweet spark of remembrance and renewal upon meeting again in middle age.
After a one-year bicoastal courtship, Patty was about to move from her home in Los Angeles to Washington. We would need a home with enough space for her two youngest children, as well as for my own teenage boys on the weekends. I had assumed we would start by renting a house or an apartment, but it quickly became clear that it was almost easier to borrow a half-million dollars and buy something.
Patty discovered a small but stately brick home in a leafy, kid-filled neighborhood in Silver Spring, Md. We sent in an offer of $460,000 and one day later got our answer: the sellers accepted. I felt both amazed and exhilarated, convinced that the stars had aligned for us. I loved the house as soon as I saw it. It was one block from a school and a park. My boys would be within a 15-minute drive, and it would be easy for them to come over and stay whenever they wanted.
The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane.
But this was unlike any other time in history. My real estate agent gave me the number of Bob Andrews, a loan officer at American Home Mortgage Corporation. Bob wasn’t related to me, and I had never heard of his company. “Bob can be very helpful,” my agent explained. “He specializes in unusual situations.”
Bob returned my call right away. “How big a mortgage do you think you’ll need?” he asked.
“My situation is a little complicated,” I warned. I told him about my child support and alimony payments and said I was banking on Patty to earn enough money to keep us afloat. Bob cut me off. “I specialize in challenges,” he said confidently.
As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were “Alt-A” customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.
I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me.
Bob called back the next morning. “Your credit scores are almost perfect,” he said happily. “Based on your income, you can qualify for a mortgage of about $500,000.”
What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.
“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”
You had to admire this muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. What mattered more than anything, Bob explained, was a person’s credit record. History seemed to show that the most important predictor of whether people defaulted on their mortgages was their “FICO” score (named after the Fair Isaac Corporation, which developed the main rating system). If you always paid your debts on time before, the theory went, you would probably keep paying on time in the future.
Bob’s original plan was to write two mortgages, one for 80 percent of the purchase price and a piggyback loan for 10 percent. I would kick in the final 10 percent, cashing out a chunk of New York Times stock — my last. If I had been a normal borrower, the whole deal would have sailed through at a low interest rate. My $120,000 base salary and my assets were easy to document. But given my actual income after alimony and child support, I couldn’t possibly have qualified for a standard mortgage. Bob’s plan was to write a “stated-income loan,” or “liar’s loan,” so that I wouldn’t have to give the game away by producing paychecks or tax returns.
Unfortunately, Bob’s plan hit a snag a few days later. “Ed, the underwriters say that your name is on another mortgage,” he told me. “That means you’re carrying too much debt.”
The mortgage was on my old house, which I had turned over to my ex-wife. As part of our separation agreement, she accepted full legal responsibility for making the payments. But the separation agreement also spelled out exactly how much I had to pay each month to my ex-wife. If we showed it to the underwriters, they would reject me.
Bob didn’t get flustered. If Plan A didn’t work, he would simply move down another step on the ladder of credibility. Instead of “stating” my income without documenting it, I would take out a “no ratio” mortgage and not state my income at all. For the price of a slightly higher interest rate, American Home would verify my assets, but that was it. Because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money.
Despite the obvious red flag of applying for a Don’t Ask, Don’t Tell loan, I wasn’t paying that much for the money. The rate on my primary mortgage of $333,700 was a remarkably low 5.625 percent for the first five years, though my monthly payments would probably jump substantially after the fifth year. On top of that, I was paying a much higher rate of 8.5 percent on my “piggyback” loan for $80,300. Even so, I would be paying slightly more than $2,500 a month for the first five years. It would get expensive eventually, but I could worry about that later.
“Don’t worry,” Bob reassured me, saying what almost everybody else in real estate was saying at that moment. “The value of your house will be higher in five years. You’ll be able to refinance.”
As I walked out of the settlement office with my loan papers, I couldn’t shake the sense of having just done something bad . . . but also kind of cool. I had just come up with almost a half-million dollars, and I had barely lifted a finger. It had been so easy and fast. Almost fun. I couldn’t help feeling like a high roller, a sophisticated player who could lay his hands on big money at a moment’s notice. Despite my nagging anxiety about the gamble that Patty and I were taking, I had whipped through the pile of loan documents in less than 45 minutes.
***
The icy slap of reality hit me two weeks after New Year’s Day in January 2005. We had been living in our new house for five months. I walked out of The Times’s Washington bureau, several blocks from the White House, and crossed Farragut Square to my bank. I had a bad feeling about what the A.T.M. would reveal about my balance, but I was shocked when I looked at the receipt: $196. We were broke.
My stomach churning, I reached Patty on her cellphone as she was running errands. “We are out of money,” I snapped, skipping over any warm-up chat.
“What do you mean, we’re out of money?” she asked in bewilderment.
“I mean, I just checked my bank account, and we are out of money,” I repeated, my voice rising in panic. “We can’t buy anything!”
My next paycheck would come in about a day or so, but that was entirely reserved for the February mortgage payment. We didn’t have enough cash to cover more than a week’s worth of groceries and gasoline. For the last few months we were living off the cash left over after I sold my Times stock and we bought the house. But now it was gone.
“How the hell could we have run through so much money so quickly?” I asked her accusingly.
Patty wasn’t sharing my shock. “I don’t know what’s going on,” she responded. “Let’s talk about it when you get home.”
Patty had spent much of the two previous decades as a stay-at-home mother in Los Angeles. Her last full-time job, as an editor at a political research company, was back in the early 1980s. Not surprisingly, Patty’s re-entry into the job market was bumpy. When Saks Fifth Avenue offered her a full-time job selling high-end clothing on commission — something she knew about and loved — she grabbed it. But with her take-home income averaging only about $2,400 a month, we didn’t make enough to cover our bills because my take-home pay was going straight to the mortgage. We were spending way more than we were earning.
In the euphoria of moving in together, we both succumbed to magical thinking about ourselves, as well as about money. My fantasy was that Patty would become an ambitious go-getter. “This can really be an exciting new chapter of your life,” I kept telling her. Patty had a very different dream. “I feel as if I am finally at home,” she exclaimed as soon as we moved into the house. She could settle down and do the things she had always been best at: making a new home, nurturing her children and loving me. One way or another, she figured, we would earn enough money to make good on our glorious gamble.
We had very different ideas about money. Patty spent little on herself, but she refused to scrimp on top-quality produce, Starbucks coffee, bottled juices, fresh cheeses and clothing for the children and for me. She regularly bought me new shirts and ties to replace the frayed and drab ones in my closet. She thought it wasn’t worth agonizing over nickels and dimes. I was almost exactly the opposite. My answer to any money squeeze was to stop spending. I would skip lunch at work to save $7. If I arrived at the Metro just before the end of rush hour, I would wait for five minutes to save 50 cents on the fare.
We were both building up grudges. “You can’t keep second-guessing me,” she told me angrily. “It’s small-minded and petty, and it’s not very attractive.” I was beginning to wonder whether she had any clue about how money worked. We were lurching from paycheck to paycheck, one big home repair away from disaster.
Meanwhile, neither of us was paying attention to how easy our bank had made it to build up debt. The key was the overdraft protection — more accurately described as “bounced-check loans.” Every time I overdrew my checking account by even a few dollars, the bank would tap my MasterCard for $100, helpfully deposit the cash in my account and charge me $10 for the privilege.
Patty and I were now unwittingly tapping into our credit line at a terrifying pace: $5 overdrawn because of school supplies for Patty’s daughter Emily — $100 from the MasterCard. Fifteen bucks over because of gasoline? Another $100 from the MasterCard. Groceries for $305? No problem! Uncle MasterCard would front us $400.
Our debt spiraled up faster than I had ever dreamed possible. Chase Bank had cold-called me to offer a “platinum” card with no interest charges for the first six months. I took them up on it and shifted $3,000 in debt from my old card onto the new Chase card. But instead of paying down the balance before the interest charges began, I let it balloon to $6,000. Chase had sent us blank checks that we could use to either pay bills or give ourselves cash advances. I dismissed them as a cheap trick to lure dimwits into borrowing more money. In March, I grabbed one of the checks and used it to pay down $1,000 on my more expensive credit card.
***
I felt like a crack addict calling up my dealer. It was April 2006, and I had just reached Bob Andrews, our once and future mortgage broker, on his cellphone.
I was surprised at how glad I was to hear his voice. In his own way, Bob knew more about my messy life than almost anybody else. He never seemed judgmental or condescending. Instead, he seemed to think that money trouble and failed marriages were natural parts of life, even for good people with decent jobs. I felt relieved to have the chance to unload my problems and ask for his advice.
“Bob, we’re dying over here,” I wailed. “I can’t even explain how it happened, but we’ve got these unbelievable credit-card bills, and the minimum payments add up to almost $1,100 a month. There’s no way we can keep that up.”
I had months and months of credit-card bills spread across the dining-room table, and I quickly confessed the full horror of what they contained. We were approaching $50,000 in credit-card debt alone, and it was amazing how fast and how deeply we had dug ourselves in. It was even more amazing how long we had avoided the screaming evidence of a train wreck in the making.
Patty had suddenly got the break that seemed to solve our problems. In November 2005, she was hired as a full-time editor at a nonprofit organization with a salary of $60,000 a year. The problem, I told Bob, was that things were so bad that even Patty’s new job wouldn’t be enough to rescue us. Chase was now charging us 13.99 percent on our platinum card, and the rate on our SunTrust card was up to 27 percent.
Between humongous loan balances and high rates, we had hung ourselves with the rope they gave us. In the previous December alone, we charged $2,845 on the Chase card for Christmas gifts, food, gasoline, clothing and other expenses. The charges included almost $350 for groceries, $700 in clothes from J. Crew, $179 at GapKids and $700 for airplane tickets for two of Patty’s children to visit their father in Los Angeles. Our balance climbed from $14,118 to $17,135, and in January 2006 we maxed out at our $19,000 credit limit. And there were other expenses on other cards: $1,200 in dental work for Patty’s son Ben; $1,600 to rent a beach house the previous year for us and all the children. Granted, the beach house was an embarrassing mistake. But given that Patty had landed a solid job, it seemed like an indulgence we could work off later.
I felt foolish, ashamed and angry as I confessed to Bob. Why had I been trying to live a lifestyle that I couldn’t afford? Why had I tried to keep up the image of a conventional suburban family man, when nothing about my situation was conventional? How could I have glossed over the fact that we had been spending about $3,000 more than we were earning, month after month after month? How could a person who wrote about economics for a living fall into the kind of credit-card trap that consumer groups had warned about for years?
“My inclination is to just raid my 401(k) account to pay off the cards,” I told Bob. “I know we’d be paying huge taxes and penalties for withdrawing money before retirement, but it’s not as bad as paying all that interest to the banks.”
“No!” Bob interrupted fiercely. “You don’t want to do that. You’ll be paying a basic tax rate of 28 percent, and they’ll hit you with another 10 percent penalty. You’d be giving up 40 percent in taxes. There’s got to be a better way.”
I gave Bob permission to pull a credit report on us, and by the next day, he had come up with a scheme that was either wickedly smart or proof that the big-money people had gone mad. Or both.
“What we’re going to do is a two-step plan,” he announced. “The bad news is that your credit scores are down, so we can’t just do a simple refinance. But the good news is that you’ve owned your house for a year and a half, and it’s gone up in value. So you can borrow against the equity. So in the first step of the plan, we’re going to get you a really ugly mortgage that is big enough to pay off all your credit cards.”
“O.K., I’m with you so far,” I said uncertainly.
“Now, because this mortgage is really ugly, your monthly payments will jump to about $3,700. But don’t worry about it, because you’re only going to stay in it for about three months. Once we pay off your credit cards, your credit scores will go up and we can get you a cheaper loan.”
The way Bob figured it, my monthly payment would be down to about $3,200 by the fall. The new mortgage would be nearly $700 more than my current mortgage because it would include all my credit-card debt, but it would be at least $500 a month less than the combined total of what I was paying on everything right then. And mortgage interest, unlike interest on credit-card debt, is entirely tax-deductible.
The whole plan worked exactly as Bob had predicted. Within a few weeks, an appraiser valued our house at $505,000, almost 10 percent above the original purchase price two years earlier. On June 12, Patty and I signed a new mortgage for $472,000 with Fremont Investment and Loan in Santa Monica, Calif.
Fremont gave us a classic subprime loan. Our monthly payment jumped to $3,700 from $2,500. If we kept the mortgage for two years, the interest rate would jump as high as 11.5 percent, and the monthly payments would ratchet up to as high as $4,500.
The paperwork was so confusing that I was never exactly sure who was paying what. I hazily understood that I was paying most of the fees, one way or another, but I couldn’t figure out how, and I couldn’t see any better alternatives. After it was all over, I figured we had paid about $5,800 in fees to Bob’s mortgage company and the settlement company, on top of the sales commission that came out in higher interest rates every month. But Patty and I paid off our credit cards, and my credit scores jumped. In October 2006, Bob refinanced us once again, and our payments dropped just as he had predicted.
***
We were still loaded with debt, but we weren’t paying 27 percent interest rates on our credit cards. Patty was earning a solid salary, and I was earning extra money working overtime at The Times. If we were careful, we could meet our monthly expenses, chip away at our debt and even go out to dinner once in a while.
Our brief interlude of optimism and peace ended on Oct. 10, 2006, when Patty lost her job. “Don’t worry,” she said bravely. “This will not be like the first time I was looking for a job. I’ve learned so much since then, and I am going to find another job quickly.” In the meantime, she said, she could collect unemployment for six months. She would also cash out her retirement account, which had about $7,000 in it.
By any measure, the loss of Patty’s job was a financial catastrophe. We hadn’t yet gone more than 30 days delinquent on the mortgage, thanks, in part, to $15,000 I had borrowed shamefacedly from my mother after Patty stopped working. But we were behind on everything else. Bill collectors were calling six days a week, starting promptly at 8 a.m. “Telemarketers,” I would mumble when my son Matthew asked why we got so many robocalls from 800 numbers. Our stately little house looked increasingly trashy: peeling paint and broken screens on the front windows, crumbling concrete on the front stoop, a lawn that was mostly crabgrass. The furniture that Patty salvaged from her first marriage was falling apart. The cotton slipcovers on the sofa and armchair were in shreds. The frosted-crystal shade on a beloved Italian floor lamp was cracked. The dog had gnawed the leg on her Biedermeier chair.
The panic attack hit me around 2 a.m. on Patty’s birthday. It was Oct. 17, 2007, and I was lying in bed obsessing over bills that couldn’t be postponed and the money we didn’t have to pay them. Like many of my predawn fear cascades, this one had its start with a specific unpaid bill: $240 in traffic tickets — $140 for speeding, $50 each for expired tags and inspection. The fines would double if we didn’t pay them in less than a week. The tickets had uncorked the bottle on all the other “must pays”: the $400 electric bill with the cutoff date printed in red; the $220 cable/telephone/Internet bill for the past two months; the MasterCard and American Express bills — at least one of which had to be brought current or I wouldn’t even be able to travel for work. And of course, there was the $3,271 mortgage payment.
My panic circuitry was in fine form, connecting small debts to big ones, short-term problems to the bottomless abyss, private calamity to public shame. Once Patty was asleep and I was alone in the dark, the bottled-up fear reached the surface. I tossed from side to side, trying to figure out at least a triage plan for our bills. I was too fidgety to lie still in bed, but I was in no mood to actually sit down with the bills themselves. I climbed out of bed for a moment, then jumped back in. I couldn’t decide if I would rather feel confined or all alone.
Patty woke up, irritated by all my movement and my occasional moans of despair. “What’s the matter?” she asked.
“I can’t sleep,” I answered. “I’m panicking about money, because I don’t know how we’re going to pay all the bills that need to be paid right now.” I wanted her to take me in her arms and reassure me that everything would be O.K. But that wasn’t happening.
“There’s nothing you can do about it right now,” she answered sleepily.
“If this keeps on, we’re going to lose the house,” I persisted, sounding less panicked than petulant. If Patty wouldn’t give me comfort, then I wanted her to suffer alongside me. “I don’t know how we’re going to make it. We can’t go on like this.”
Patty had begged me to grant her a birthday reprieve from my nagging and kvetching over money issues. What I saw as an uncontrollable moment of panic, she saw as another deliberate attempt to browbeat her.
“I can’t believe you are doing this to me on my birthday,” she hissed in fury. “All I asked for was one day of peace — one day when you weren’t beating me over the head. And here it is, not even daylight yet, and you’re waking me up to berate me about money.”
“Son of a bitch, what did I do to you?” I asked, punching my pillow in the dark. “Do you think I enjoy having a panic attack? I can’t help what I’m feeling. I’m just scared out of my mind.”
“That’s it!” Patty snapped, getting out of bed and pulling on her robe. “I’m not going to listen to any more of this. I’m going to sleep downstairs.”
In the morning, she let me have it.
“You lied to me,” she told me as I got coffee. “You said that what I saw on the outside was pretty much what you were. But you’re completely different. If I had known what you were really like, I would never have come out here.”
Patty and I were hurtling toward bottom. We had been under so much strain for so long that we were often at each other’s throats, jeopardizing the love that brought us together in the first place. In November, four years after buying the house, we finally crossed our personal Rubicon and fell 30 days behind on our mortgage.
“The last thing Chase wants is to foreclose on your home,” JPMorgan Chase wrote us. It assured us that it wanted to “help” and was willing to evaluate us for a number of “alternatives.” If we didn’t “resolve” our payment delinquency, it politely warned, “you will lose your home.”
***
I took a certain pride that I outlasted two of my three mortgage lenders. American Home, my original lender, collapsed overnight when the financial markets first froze up in August 2007. Fremont, my second lender, was forced out of the mortgage business by federal regulators. That left me with JPMorgan Chase, one of the few big banks smart enough to sell off most of the subprime loans it financed. It still serviced my loan, but it wasn’t on the hook if I defaulted.
By the time that Patty and I fell behind, the rest of the world was falling apart so fast that Chase barely had time for us. Bear Stearns and Lehman Brothers were gone. American International Group, one of the world’s biggest insurance conglomerates, received the biggest taxpayer-financed bailout in history. Citigroup was a zombie bank. All of them were brought down by the same mortgage madness that infected me.
When I first called Chase in October, a representative named Sarah said I didn’t qualify for a loan modification because I wasn’t yet 90 days past due. The only “loan modification” she could offer me was a “repayment plan” under which I paid $400 more per month for six months until I was current again.
“It sounds as if I would be better off waiting to fall 90 days behind,” I said. “I think I’ll wait for that.”
It took a while, but Patty and I found we could get past blaming each other. We had seen each other’s worst sides, but we were still together, and that helped us to get closer. We started listening to each other. Patty began to find her way in the work world, and I was learning that I didn’t have all the answers. And we saw how our children were thriving. My three sons transferred to schools in our neighborhood and made scores of friends. Emily, Patty’s daughter, was a sparkling 10-year-old who loved her home and her school as well as all her brothers. Even if we lost the house, we had gained in other ways.
I called Chase back in January, when I was 90 days past due. Another representative told me that I would automatically be evaluated for a loan modification.
“You should just wait until you hear from one of our negotiators,” he told me politely.
Another two months passed without anyone calling, so I tried again in late March.
“I’m sorry, but our analysts have been backed up,” yet another Chase rep told me, even more politely than the previous one. She said each analyst had about 500 distressed borrowers to deal with, and it had been taking about five weeks for customers to get a direct response. The delays seemed to be getting longer.
I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall.
Edmund L. Andrews is an economics reporter for The Times and the author of “Busted: Life Inside the Great Mortgage Meltdown,” which will be published next month by W.W. Norton and from which this article is adapted.
Saturday, May 16, 2009
Monday, April 20, 2009
CA tax tracker
Here is a link from the California State Controller's office tracking tax collection:
http://www.sco.ca.gov/taxtracker.html
http://www.sco.ca.gov/taxtracker.html
Untangling our taxes
Here is a Los Angeles Times editorial from April 17, 2009:
http://list.calcpa.org/t/26453/12397877/12853/0/
Obama's vow to simplify the rules will be stymied by a thicket of credits, deductions and exclusions.
April 17, 2009
On Tax Day, the most beguiling promise an American president can make to the millions of people rushing to complete their Internal Revenue Service forms is to pursue a simpler tax code. So it wasn't surprising to hear President Obama make that pledge Wednesday, a little more than four years after President Bush announced a similar plan to study tax simplification. But coming up with a less-convoluted way to finance the federal government is the easy part, relatively speaking. As Bush discovered when his task force came up with an actual plan, the hard part is persuading anyone to give up the subsidies that make the code so complex.
Obama's gesture came as "Tea Party" protesters held rallies across the country to complain that the administration's fiscal plans will force taxpayers up and down the economic ladder to part with more of their earnings. In response, the president touted the tax cuts already adopted for students, businesses and taxpayers making less than $250,000 a year. He also announced that his Economic Recovery Board, led by former Federal Reserve Chairman Paul Volcker, will "do a thorough review of how to simplify our tax code.” The board's report is due by the end of the year.
The president failed to point out, though, that the tax cuts he promoted are part of the problem Volcker was asked to solve. Taxpayers face a thicket of potential deductions, credits and exclusions because Congress and the White House use the tax code instead of direct subsidies to promote certain types of behavior. For example, to boost sales of cars and homes, this year Congress added a temporary deduction for automobile sales taxes and expanded the credit for first-time home buyers. Over the years, lawmakers piled on layer after layer of benefits for social aims, along with a dizzying array of incentives for businesses and investors. Meanwhile, they played a cat-and-mouse game with tax accountants, tweaking the code to deter the gimmicks that shifted income into less-taxed categories.
The credits, deductions and other subsidies all have devoted constituencies now, which makes it difficult for Washington to eliminate them unless it also cuts tax rates dramatically, as it did in 1986. Unfortunately, Obama has tied the hands of Volcker's group by declaring that no one earning less than $250,000 will pay "a dime" more in taxes. It's hard enough to find a way to reform the tax code that keeps revenues roughly even with where they are today, but it's well-nigh impossible to avoid creating some winners and losers in each bracket -- with the losers sure to throw more tea parties. Although we welcome Obama's push for a simpler tax code, we wish he were giving it a better chance to succeed.
http://list.calcpa.org/t/26453/12397877/12853/0/
Obama's vow to simplify the rules will be stymied by a thicket of credits, deductions and exclusions.
April 17, 2009
On Tax Day, the most beguiling promise an American president can make to the millions of people rushing to complete their Internal Revenue Service forms is to pursue a simpler tax code. So it wasn't surprising to hear President Obama make that pledge Wednesday, a little more than four years after President Bush announced a similar plan to study tax simplification. But coming up with a less-convoluted way to finance the federal government is the easy part, relatively speaking. As Bush discovered when his task force came up with an actual plan, the hard part is persuading anyone to give up the subsidies that make the code so complex.
Obama's gesture came as "Tea Party" protesters held rallies across the country to complain that the administration's fiscal plans will force taxpayers up and down the economic ladder to part with more of their earnings. In response, the president touted the tax cuts already adopted for students, businesses and taxpayers making less than $250,000 a year. He also announced that his Economic Recovery Board, led by former Federal Reserve Chairman Paul Volcker, will "do a thorough review of how to simplify our tax code.” The board's report is due by the end of the year.
The president failed to point out, though, that the tax cuts he promoted are part of the problem Volcker was asked to solve. Taxpayers face a thicket of potential deductions, credits and exclusions because Congress and the White House use the tax code instead of direct subsidies to promote certain types of behavior. For example, to boost sales of cars and homes, this year Congress added a temporary deduction for automobile sales taxes and expanded the credit for first-time home buyers. Over the years, lawmakers piled on layer after layer of benefits for social aims, along with a dizzying array of incentives for businesses and investors. Meanwhile, they played a cat-and-mouse game with tax accountants, tweaking the code to deter the gimmicks that shifted income into less-taxed categories.
The credits, deductions and other subsidies all have devoted constituencies now, which makes it difficult for Washington to eliminate them unless it also cuts tax rates dramatically, as it did in 1986. Unfortunately, Obama has tied the hands of Volcker's group by declaring that no one earning less than $250,000 will pay "a dime" more in taxes. It's hard enough to find a way to reform the tax code that keeps revenues roughly even with where they are today, but it's well-nigh impossible to avoid creating some winners and losers in each bracket -- with the losers sure to throw more tea parties. Although we welcome Obama's push for a simpler tax code, we wish he were giving it a better chance to succeed.
Sunday, April 19, 2009
Taxes: Have You Paid Your Fair Share?
http://www.cbsnews.com/stories/2009/04/17/60minutes/rooney/main4952140.shtml
Andy Rooney Has A Solution For Dealing With Tax Cheaters
I guess we've all paid - or avoided paying - our taxes by now and it feels good to have it over with. It didn't hurt much, did it? I made more money last year than I made the year before, but of course my taxes were higher too - the most I ever paid.
To tell you the truth, I have a feeling I paid more than my share of taxes. I guess everyone feels that way.
I have an idea how the IRS could get more money out of the tax cheaters and it wouldn't cost the government a nickel: they would make tax records open to all of us. The figures would be available to anyone who wanted to look them up. This would be a good way to get everyone to pay what they owe. I'd be willing to do it if everyone else did it.
Some people wouldn't dream of cheating anywhere else but they don't worry about cheating on their tax returns if they think they could get away with it.
I've always thought that Uncle Sam goes about trying to get us to pay our taxes the wrong way.
The IRS never appeals to us as patriotic Americans. I think what everyone pays should be public information. Americans would be happier to pay their income tax if they thought that everyone was paying what they were supposed to pay.
Maybe people would be proud of what they pay instead of hiding their income.
I don't know why our tax returns are secret, anyway. What we earn isn't usually much of a secret to anyone who knows us or to anyone who wants to find out what we make.
About 45 percent of what the federal government gets comes from individual income taxes.
Forbes magazine did a piece that said that rich people hide more of their income than poor people hide. Well, of course they have more to hide but generally speaking I think Americans are willing to pay their income taxes. They just want to be damn sure they paid their share - not their share and part of someone else's.
Written by Andy Rooney
© MMIX, CBS Interactive Inc. All Rights Reserved.
Andy Rooney Has A Solution For Dealing With Tax Cheaters
I guess we've all paid - or avoided paying - our taxes by now and it feels good to have it over with. It didn't hurt much, did it? I made more money last year than I made the year before, but of course my taxes were higher too - the most I ever paid.
To tell you the truth, I have a feeling I paid more than my share of taxes. I guess everyone feels that way.
I have an idea how the IRS could get more money out of the tax cheaters and it wouldn't cost the government a nickel: they would make tax records open to all of us. The figures would be available to anyone who wanted to look them up. This would be a good way to get everyone to pay what they owe. I'd be willing to do it if everyone else did it.
Some people wouldn't dream of cheating anywhere else but they don't worry about cheating on their tax returns if they think they could get away with it.
I've always thought that Uncle Sam goes about trying to get us to pay our taxes the wrong way.
The IRS never appeals to us as patriotic Americans. I think what everyone pays should be public information. Americans would be happier to pay their income tax if they thought that everyone was paying what they were supposed to pay.
Maybe people would be proud of what they pay instead of hiding their income.
I don't know why our tax returns are secret, anyway. What we earn isn't usually much of a secret to anyone who knows us or to anyone who wants to find out what we make.
About 45 percent of what the federal government gets comes from individual income taxes.
Forbes magazine did a piece that said that rich people hide more of their income than poor people hide. Well, of course they have more to hide but generally speaking I think Americans are willing to pay their income taxes. They just want to be damn sure they paid their share - not their share and part of someone else's.
Written by Andy Rooney
© MMIX, CBS Interactive Inc. All Rights Reserved.
Thursday, April 9, 2009
Lousy Dell & HP Policies
http://www.windowssecrets.com/2009/04/09/01-Dell-and-HP-balk-at-replacing-bad-Nvidia-chip
Dell and HP balk at replacing bad Nvidia chip
Michael Lasky By Michael Lasky
An old urban myth claims that the microprocessors used in PCs and other consumer electronics are designed to fail within days or weeks of their warranty expiration.
For tens of thousands of people who bought Dell and HP notebooks whose motherboards fried — often a few weeks after their warranty expired — there's nothing mythical about it.
The cause of the machines' fried motherboards is an overheating Nvidia graphics chip. The failure rate is so huge that Nvidia had to take a $196 million charge against earnings in the second quarter of its 2008 fiscal year in anticipation of the reimbursements that would result from the faulty GPU (more info).
What's particularly scandalous, though, is how HP and Dell first handled the deluge of complaints from customers with notebooks that failed after their warranties expired. The companies either charged the customers (victims?) for repairs or refused service because the systems were past the warranty period.
Even worse, HP and Dell continued to sell notebooks with the same Nvidia chip long after the companies were aware of the problem. (Ultimately, Nvidia released a new version of the GPU that didn't cause overheating.)
Unwary consumers who purchased the affected notebooks — no doubt based in part on the heady reputations of the vendors — were left in the lurch when their PCs failed, which usually occurred after 18 months or so. The purchasers had no recourse except to yell and scream at clueless tech-support reps.
When the heat from consumer complaints became as hot as the faulty Nvidia chip, HP and Dell relented and published a list of defective model numbers on their Web sites. Dell extended the standard one-year warranty to two years for the systems they identified as having the problem. HP offered a 24-month warranty extension for the specific issue.
However, instead of issuing a recall — as you would expect in such a clear case of a defective part — the vendors instead merely offered a BIOS upgrade. The "patch" for the affected notebooks made their fans run continuously in an attempt to lower the GPU-induced heat, which was cooking the motherboards onto which the chips were soldered.
This "fix" merely extended the time before the motherboards finally burned out while simultaneously devouring the machines' battery life — sort of like putting a Band-Aid on a coronary. Of course, notebook purchasers became further inflamed by the power drain on their systems due to the constantly running fan.
(Unlike Dell and HP, Apple quickly acknowledged the presence of the defective Nvidia chip in some MacBook Pro notebooks and offered repairs or replacements to its customers.)
How to get vendors to respond to your gripes
There ought to be a PC lemon law, like the lemon laws enacted in many states that protect purchasers of defective automobiles. Those laws came about because legions of consumers complained after they got stuck with cars — new and used — that were clunkers. Until such protections are available, you can take the following steps to get redress for your grievances:
* Post a description of your gripe on consumer-complaint blogs. People who bought the defective HP and Dell notebooks would have been out of luck if it hadn't been for the rising power of Internet communities and blogs — ironically, some of which were on the vendor's very own sites. These grass-roots efforts demonstrate that consumers are not powerless when they own a lemon PC, even in the absence of a lemon law to back them up.
As the number of postings about the problem on gripe sites rose, HP and Dell could no longer hide from their customers. For example, the site HP Lies was created specifically for consumers to fight back against what the site calls "HP's cover-up of the Nvidia defect." A massive number of people who had bought now-dead HP notebooks that fried due to the overheated Nvidia chip not only spewed their venom at the company but also offered legal and logistical advice to others who shared their misfortune.
Surprisingly, many burned customers discovered the HP Lies site through links on HP's own Business Support Forum. Likewise, news of Dell's offer of a limited warranty enhancement with a list of affected units was reported at Dell's Direct2Dell user-community blog as a response to the thermonuclear anger expressed by unhappy customers at the site.
* Take it to court. Many customers went the legal route and filed lawsuits that were consolidated into a class-action complaint against Nvidia, Dell, and HP last September. While less effective in getting a full reimbursement or replacement, lawsuits serve as a wake-up call to corporations and produce corresponding action to mollify the plaintiffs.
* Skip low-level tech support and go directly to the top. If you have a PC problem that's been proven to result from a defect, ask to speak to a high-level tech-support representative, who will be more empowered to address your complaint — and likely more knowledgeable about the issue as well.
Be persistent, but keep your cool (which may be more than your PC is doing). Advice at the HP Lies site suggests going the corporate route and obtaining a case manager to get free repairs or a replacement, which standard tech support might not provide.
* Buy an extended-service warranty. HP and Dell customers who had extended warranties got no-charge repairs and/or replacements for their Nvidia-murdered systems. Because cheaper components are used in most of today's low-cost computers, chances are those components will fail sooner than in the past. Extended warranties generally offer no- or low-hassle tech support and repairs for up to three years beyond the standard warranty.
PCs may be unreliable and vendors unresponsive to customer complaints, so it pays to know your options.
Dell and HP balk at replacing bad Nvidia chip
Michael Lasky By Michael Lasky
An old urban myth claims that the microprocessors used in PCs and other consumer electronics are designed to fail within days or weeks of their warranty expiration.
For tens of thousands of people who bought Dell and HP notebooks whose motherboards fried — often a few weeks after their warranty expired — there's nothing mythical about it.
The cause of the machines' fried motherboards is an overheating Nvidia graphics chip. The failure rate is so huge that Nvidia had to take a $196 million charge against earnings in the second quarter of its 2008 fiscal year in anticipation of the reimbursements that would result from the faulty GPU (more info).
What's particularly scandalous, though, is how HP and Dell first handled the deluge of complaints from customers with notebooks that failed after their warranties expired. The companies either charged the customers (victims?) for repairs or refused service because the systems were past the warranty period.
Even worse, HP and Dell continued to sell notebooks with the same Nvidia chip long after the companies were aware of the problem. (Ultimately, Nvidia released a new version of the GPU that didn't cause overheating.)
Unwary consumers who purchased the affected notebooks — no doubt based in part on the heady reputations of the vendors — were left in the lurch when their PCs failed, which usually occurred after 18 months or so. The purchasers had no recourse except to yell and scream at clueless tech-support reps.
When the heat from consumer complaints became as hot as the faulty Nvidia chip, HP and Dell relented and published a list of defective model numbers on their Web sites. Dell extended the standard one-year warranty to two years for the systems they identified as having the problem. HP offered a 24-month warranty extension for the specific issue.
However, instead of issuing a recall — as you would expect in such a clear case of a defective part — the vendors instead merely offered a BIOS upgrade. The "patch" for the affected notebooks made their fans run continuously in an attempt to lower the GPU-induced heat, which was cooking the motherboards onto which the chips were soldered.
This "fix" merely extended the time before the motherboards finally burned out while simultaneously devouring the machines' battery life — sort of like putting a Band-Aid on a coronary. Of course, notebook purchasers became further inflamed by the power drain on their systems due to the constantly running fan.
(Unlike Dell and HP, Apple quickly acknowledged the presence of the defective Nvidia chip in some MacBook Pro notebooks and offered repairs or replacements to its customers.)
How to get vendors to respond to your gripes
There ought to be a PC lemon law, like the lemon laws enacted in many states that protect purchasers of defective automobiles. Those laws came about because legions of consumers complained after they got stuck with cars — new and used — that were clunkers. Until such protections are available, you can take the following steps to get redress for your grievances:
* Post a description of your gripe on consumer-complaint blogs. People who bought the defective HP and Dell notebooks would have been out of luck if it hadn't been for the rising power of Internet communities and blogs — ironically, some of which were on the vendor's very own sites. These grass-roots efforts demonstrate that consumers are not powerless when they own a lemon PC, even in the absence of a lemon law to back them up.
As the number of postings about the problem on gripe sites rose, HP and Dell could no longer hide from their customers. For example, the site HP Lies was created specifically for consumers to fight back against what the site calls "HP's cover-up of the Nvidia defect." A massive number of people who had bought now-dead HP notebooks that fried due to the overheated Nvidia chip not only spewed their venom at the company but also offered legal and logistical advice to others who shared their misfortune.
Surprisingly, many burned customers discovered the HP Lies site through links on HP's own Business Support Forum. Likewise, news of Dell's offer of a limited warranty enhancement with a list of affected units was reported at Dell's Direct2Dell user-community blog as a response to the thermonuclear anger expressed by unhappy customers at the site.
* Take it to court. Many customers went the legal route and filed lawsuits that were consolidated into a class-action complaint against Nvidia, Dell, and HP last September. While less effective in getting a full reimbursement or replacement, lawsuits serve as a wake-up call to corporations and produce corresponding action to mollify the plaintiffs.
* Skip low-level tech support and go directly to the top. If you have a PC problem that's been proven to result from a defect, ask to speak to a high-level tech-support representative, who will be more empowered to address your complaint — and likely more knowledgeable about the issue as well.
Be persistent, but keep your cool (which may be more than your PC is doing). Advice at the HP Lies site suggests going the corporate route and obtaining a case manager to get free repairs or a replacement, which standard tech support might not provide.
* Buy an extended-service warranty. HP and Dell customers who had extended warranties got no-charge repairs and/or replacements for their Nvidia-murdered systems. Because cheaper components are used in most of today's low-cost computers, chances are those components will fail sooner than in the past. Extended warranties generally offer no- or low-hassle tech support and repairs for up to three years beyond the standard warranty.
PCs may be unreliable and vendors unresponsive to customer complaints, so it pays to know your options.
Wednesday, April 8, 2009
Filing Extensions
http://www.webcpa.com/article.cfm?ARTICLEID=31256
Washington, D.C. (April 8, 2009)
By WebCPA staff
This year, the Internal Revenue Service is offering a new way to file an extension request for free.
This year, anyone, regardless of income, can e-file their extensions at no cost from a home computer using IRS’s traditional FreeFile or the new FreeFile Fillable Forms introduced this season. E-filing a request for an extension using either form of FreeFile is safe and secure, the IRS said, and taxpayers will receive a confirmation to keep with their records. However, as always, the extension requests need to be filed by April 15.
The IRS expects to receive 1.9 million extension requests electronically this year. A total of almost 10 million extension requests are expected during 2009 compared with 9.5 million extensions received during 2008.
The extension gives taxpayers until Oct. 15 to file their tax returns. An extension does not give the taxpayer an extension of time to pay. Those who owe taxes can make a payment when they file the extension either by mailing a check or by several electronic payment methods, such as electronic funds withdrawals from bank accounts and credit card payments. Taxpayers can get an automatic six-month extension of time to file their tax returns by filing Form 4868, "Automatic Extension of Time to File."
Taxpayers can e-file the extension from a home computer or through a tax professional who uses e-file.
Some taxpayers can wait until after April 15 to file a return, pay any taxes due and make IRA contributions for 2008. As a general rule, those eligible get the extra time without having to ask for it. Eligible taxpayers include members of the military serving in Iraq, Afghanistan or other combat zone localities. Normally, the postponement is until at least 180 days after the service member leaves the combat zone.
Victims of severe flooding in Minnesota and North Dakota have an extra 30 days, until May 15, to file their 2008 individual tax returns and pay any taxes due (see IRS Grants Relief to Flood Victims). Similarly, victims of severe storms and tornadoes in three Oklahoma counties have until May 11 to file and pay.
NOTE: For taxpayers who are California residents, if they owe state tax, they need to file a Form 3519, Payment for Automatic Extension for Individuals and pay the tax due by April 15th.
Washington, D.C. (April 8, 2009)
By WebCPA staff
This year, the Internal Revenue Service is offering a new way to file an extension request for free.
This year, anyone, regardless of income, can e-file their extensions at no cost from a home computer using IRS’s traditional FreeFile or the new FreeFile Fillable Forms introduced this season. E-filing a request for an extension using either form of FreeFile is safe and secure, the IRS said, and taxpayers will receive a confirmation to keep with their records. However, as always, the extension requests need to be filed by April 15.
The IRS expects to receive 1.9 million extension requests electronically this year. A total of almost 10 million extension requests are expected during 2009 compared with 9.5 million extensions received during 2008.
The extension gives taxpayers until Oct. 15 to file their tax returns. An extension does not give the taxpayer an extension of time to pay. Those who owe taxes can make a payment when they file the extension either by mailing a check or by several electronic payment methods, such as electronic funds withdrawals from bank accounts and credit card payments. Taxpayers can get an automatic six-month extension of time to file their tax returns by filing Form 4868, "Automatic Extension of Time to File."
Taxpayers can e-file the extension from a home computer or through a tax professional who uses e-file.
Some taxpayers can wait until after April 15 to file a return, pay any taxes due and make IRA contributions for 2008. As a general rule, those eligible get the extra time without having to ask for it. Eligible taxpayers include members of the military serving in Iraq, Afghanistan or other combat zone localities. Normally, the postponement is until at least 180 days after the service member leaves the combat zone.
Victims of severe flooding in Minnesota and North Dakota have an extra 30 days, until May 15, to file their 2008 individual tax returns and pay any taxes due (see IRS Grants Relief to Flood Victims). Similarly, victims of severe storms and tornadoes in three Oklahoma counties have until May 11 to file and pay.
NOTE: For taxpayers who are California residents, if they owe state tax, they need to file a Form 3519, Payment for Automatic Extension for Individuals and pay the tax due by April 15th.
Tuesday, April 7, 2009
Tax Guidance on Ponzi Schemes
FTB, IRS Guidance for Theft Loss Deductions from Ponzi Schemes
The IRS recently issued Revenue Ruling 2009-9 and Revenue Procedure 2009-20 providing guidance to taxpayers who are victims of losses from Ponzi-type investment schemes. The new guidelines could help victims recoup some losses by seeking reimbursement of up to five years of past tax payments.
At the state level, the FTB said it will follow the IRS lead, and in general, where California law is in substantial conformity with the Internal Revenue Code, federal regs, rulings and procedures are applicable for California purposes.
The IRS recently issued Revenue Ruling 2009-9 and Revenue Procedure 2009-20 providing guidance to taxpayers who are victims of losses from Ponzi-type investment schemes. The new guidelines could help victims recoup some losses by seeking reimbursement of up to five years of past tax payments.
At the state level, the FTB said it will follow the IRS lead, and in general, where California law is in substantial conformity with the Internal Revenue Code, federal regs, rulings and procedures are applicable for California purposes.
California Conformity
The California Franchise Tax Board has released this Summary of Federal Income Tax Changes 2008 that explains new federal laws (with effective dates), the corresponding California law, if any, and an explanation of any changes made in response to the new federal law. The summary also includes the California revenue impact of conformity to federal changes.
http://www.ftb.ca.gov/law/legis/08FedTax.pdf
http://www.ftb.ca.gov/law/legis/08FedTax.pdf
Friday, April 3, 2009
FASB Compromises on Fair Value
This is a very sad day for the accounting profession, allowing politics to influence accounting standards.
http://www.webcpa.com/article.cfm?ARTICLEID=31223
Norwalk, Conn. (April 2, 2009)
By Michael Cohn
Under pressure from Congress to act quickly, the Financial Accounting Standards Board voted to approve substantial changes to fair value accounting.
While two of the votes on the proposed FASB Staff Positions were unanimous on the five-member board, another vote on the controversial issue of other-than-temporary impairments was opposed by two of the members, Thomas Linsmeier and Marc Siegel, who had originally voted against issuing the proposed standards a few weeks ago.
The votes came after the board received over 600 comments within just two weeks (see FASB Issues Fair Value Proposals), including many urging the board to resist pressure from Congress and the banks. “The vast majority of the preparer letters opposed this,” said Leslie Seidman.
FASB Chairman Robert Herz (pictured) was pressed by angry members of a House Financial Services Subcommittee to come up with the modifications within three weeks or face another hearing, or congressionally mandated changes to accounting standards (see Congress Presses FASB to Revise Mark-to-Market).
During the FASB board meeting, he referred to his testimony before Congress alongside SEC acting chief accountant James Kroeker as the “lovefest for Bob Herz.” He added, “One of the unfortunate things in this FSP is that we have to take this responsibility on, rather than have the regulators do it.”
Despite the rushed schedule, the board members insisted later at a press conference that they had conducted a thorough due diligence process and read through many of the comment letters they had received. One critical comment letter in particular, from the CFA Institute, had weighed heavily on at least one of the board members. They also said that they met with investor groups, including hedge funds and pension funds, as well as financial institutions.
Among the changes voted on in the proposed standards will be requirements for companies to add more disclosures to clarify the new value of the impaired assets. The disclosures will also be more frequent, coming in the quarterly financial statements, rather than only in the annual statements.
Timing was also a critical issue, as the board was under pressure to allow banks to include the changes in the quarterly statements that will be due out soon. The FASB staff recommended that all three proposed standards apply to interim and annual periods ending after June 15, 2009, but allow for early adoption for periods ending after March 15, 2009. The board agreed, and plans to issue the final FSPs by April 10, as many banks are expected to issue their quarterly statements around April 17.
“There is the impression that we’re bowing to political pressure,” said one of the board members, Lawrence Smith, who described how staff members had been working late hours to draft the FSPs and pore over the comments. “We are independent standard-setters, but how can we ignore what’s going on around us? People are recognizing that the markets seem to be in turmoil.”
Here is a link to a New York Times article on the same subject:
http://www.nytimes.com/2009/04/03/business/03fasb.html?th&emc=th
UPDATE: The following article illustrates the impact of the rule change.
http://www.webcpa.com/article.cfm?ARTICLEID=31351
Goldman, Citi Accused of Accounting Tricks
New York (April 21, 2009)
By WebCPA staff
Goldman Sachs and Citigroup reported better than expected financial results last week, but critics are complaining that the two banks bended accounting rules to boost their earnings.
Financial institutions won a major victory earlier this month when the Financial Accounting Standards Board voted to loosen the rules for fair value and mark-to-market accounting in time for them to use the revised standards in their quarterly financial statements. But Goldman and Citi also took advantage of earlier rules that allowed them to prop up the bottom line and perhaps repay their government bailout funds a little earlier.
Goldman reported a first-quarter profit of $1.81 billion last Monday, even as it announced a new $5 billion stock offering. However, the bank was able to avoid including $2.7 billion worth of “fair value losses” on commercial real estate loans and other illiquid assets that it wrote down in December within the first-quarter results it reported. The firm was moving from a fiscal year ending in November to a fiscal year beginning in January as part of its decision in September to become a bank-holding company instead of an investment bank.
In the case of Citigroup, which reported its first-quarter results Friday, the revisions to the fair value measurement standard allowed the bank to report a $1.6 billion profit instead of a $900 million loss, as well as swing from a $6.8 billion loss to a $3.8 billion gain in trading profits. Citi was able to book just a portion of the loss on the value of some of its impaired assets, as opposed to the full loss, thanks to the new rules, giving it an extra $413 million in after-tax profits.
A credit value adjustment on its debt also enabled the bank to add $2.5 billion in unrealized gain to its net income. Although Citi’s debt declined in the bond market, the bank was able to book a one-time gain approximately equal to the decline, on the theory that it could buy back its own debt at a discount on the open market, even though it has not actually bought back its own debt.
http://www.webcpa.com/article.cfm?ARTICLEID=31223
Norwalk, Conn. (April 2, 2009)
By Michael Cohn
Under pressure from Congress to act quickly, the Financial Accounting Standards Board voted to approve substantial changes to fair value accounting.
While two of the votes on the proposed FASB Staff Positions were unanimous on the five-member board, another vote on the controversial issue of other-than-temporary impairments was opposed by two of the members, Thomas Linsmeier and Marc Siegel, who had originally voted against issuing the proposed standards a few weeks ago.
The votes came after the board received over 600 comments within just two weeks (see FASB Issues Fair Value Proposals), including many urging the board to resist pressure from Congress and the banks. “The vast majority of the preparer letters opposed this,” said Leslie Seidman.
FASB Chairman Robert Herz (pictured) was pressed by angry members of a House Financial Services Subcommittee to come up with the modifications within three weeks or face another hearing, or congressionally mandated changes to accounting standards (see Congress Presses FASB to Revise Mark-to-Market).
During the FASB board meeting, he referred to his testimony before Congress alongside SEC acting chief accountant James Kroeker as the “lovefest for Bob Herz.” He added, “One of the unfortunate things in this FSP is that we have to take this responsibility on, rather than have the regulators do it.”
Despite the rushed schedule, the board members insisted later at a press conference that they had conducted a thorough due diligence process and read through many of the comment letters they had received. One critical comment letter in particular, from the CFA Institute, had weighed heavily on at least one of the board members. They also said that they met with investor groups, including hedge funds and pension funds, as well as financial institutions.
Among the changes voted on in the proposed standards will be requirements for companies to add more disclosures to clarify the new value of the impaired assets. The disclosures will also be more frequent, coming in the quarterly financial statements, rather than only in the annual statements.
Timing was also a critical issue, as the board was under pressure to allow banks to include the changes in the quarterly statements that will be due out soon. The FASB staff recommended that all three proposed standards apply to interim and annual periods ending after June 15, 2009, but allow for early adoption for periods ending after March 15, 2009. The board agreed, and plans to issue the final FSPs by April 10, as many banks are expected to issue their quarterly statements around April 17.
“There is the impression that we’re bowing to political pressure,” said one of the board members, Lawrence Smith, who described how staff members had been working late hours to draft the FSPs and pore over the comments. “We are independent standard-setters, but how can we ignore what’s going on around us? People are recognizing that the markets seem to be in turmoil.”
Here is a link to a New York Times article on the same subject:
http://www.nytimes.com/2009/04/03/business/03fasb.html?th&emc=th
UPDATE: The following article illustrates the impact of the rule change.
http://www.webcpa.com/article.cfm?ARTICLEID=31351
Goldman, Citi Accused of Accounting Tricks
New York (April 21, 2009)
By WebCPA staff
Goldman Sachs and Citigroup reported better than expected financial results last week, but critics are complaining that the two banks bended accounting rules to boost their earnings.
Financial institutions won a major victory earlier this month when the Financial Accounting Standards Board voted to loosen the rules for fair value and mark-to-market accounting in time for them to use the revised standards in their quarterly financial statements. But Goldman and Citi also took advantage of earlier rules that allowed them to prop up the bottom line and perhaps repay their government bailout funds a little earlier.
Goldman reported a first-quarter profit of $1.81 billion last Monday, even as it announced a new $5 billion stock offering. However, the bank was able to avoid including $2.7 billion worth of “fair value losses” on commercial real estate loans and other illiquid assets that it wrote down in December within the first-quarter results it reported. The firm was moving from a fiscal year ending in November to a fiscal year beginning in January as part of its decision in September to become a bank-holding company instead of an investment bank.
In the case of Citigroup, which reported its first-quarter results Friday, the revisions to the fair value measurement standard allowed the bank to report a $1.6 billion profit instead of a $900 million loss, as well as swing from a $6.8 billion loss to a $3.8 billion gain in trading profits. Citi was able to book just a portion of the loss on the value of some of its impaired assets, as opposed to the full loss, thanks to the new rules, giving it an extra $413 million in after-tax profits.
A credit value adjustment on its debt also enabled the bank to add $2.5 billion in unrealized gain to its net income. Although Citi’s debt declined in the bond market, the bank was able to book a one-time gain approximately equal to the decline, on the theory that it could buy back its own debt at a discount on the open market, even though it has not actually bought back its own debt.
Wednesday, April 1, 2009
HHS Nominee Pays $7,040 in Back Taxes
http://www.webcpa.com/article.cfm?ARTICLEID=31208
Washington, D.C. (April 1, 2009)
By WebCPA staff
Secretary of Health and Human Services nominee Kathleen Sebelius became the latest prospective Cabinet member to run afoul of the Tax Code after she admitted to recently paying $7,040 in back taxes and $878 in interest.
Sebelius said the errors were unintentional and were discovered by an accountant who went through her tax returns after she was nominated for the job. The CPA reviewed her 2005, 2006 and 2007 tax returns and corrected the errors by filing amended returns.
The Kansas governor is the second HHS Secretary nominee who has been forced to admit to tax problems. Former Senate Majority Leader Tom Daschle withdrew from consideration after he admitted to owing $140,000 in back taxes and interest (see Daschle Bows Out After Tax Problems).
Sebelius’s errors included three charitable deductions for which she lacked documentation, and a deduction for mortgage interest on a home that she and her husband had already sold. "We continued paying off the loan, including interest we mistakenly believe continued to be deductible mortgage interest," she explained in a letter to the Senate. Sebelius also lacked sufficient documentation for some business expenses.
Senate Finance Committee Chairman Max Baucus, D-Mont., who will preside over Sebelius’s confirmation hearing on Thursday, expressed his support for the nominee. “Congress is going to need a strong partner at the Department of Health and Human Services to achieve comprehensive health reform this year, and we have that partner in Governor Sebelius,” he said in a statement.
Washington, D.C. (April 1, 2009)
By WebCPA staff
Secretary of Health and Human Services nominee Kathleen Sebelius became the latest prospective Cabinet member to run afoul of the Tax Code after she admitted to recently paying $7,040 in back taxes and $878 in interest.
Sebelius said the errors were unintentional and were discovered by an accountant who went through her tax returns after she was nominated for the job. The CPA reviewed her 2005, 2006 and 2007 tax returns and corrected the errors by filing amended returns.
The Kansas governor is the second HHS Secretary nominee who has been forced to admit to tax problems. Former Senate Majority Leader Tom Daschle withdrew from consideration after he admitted to owing $140,000 in back taxes and interest (see Daschle Bows Out After Tax Problems).
Sebelius’s errors included three charitable deductions for which she lacked documentation, and a deduction for mortgage interest on a home that she and her husband had already sold. "We continued paying off the loan, including interest we mistakenly believe continued to be deductible mortgage interest," she explained in a letter to the Senate. Sebelius also lacked sufficient documentation for some business expenses.
Senate Finance Committee Chairman Max Baucus, D-Mont., who will preside over Sebelius’s confirmation hearing on Thursday, expressed his support for the nominee. “Congress is going to need a strong partner at the Department of Health and Human Services to achieve comprehensive health reform this year, and we have that partner in Governor Sebelius,” he said in a statement.
Subscribe to:
Posts (Atom)