Bailout Bill vs. Rescue Economy American People (REAP) Law
Charlie Rose – Al Hunt & Floyd Norris
Bush Implores Congress to Act to Rescue Markets
Financial meltdown timeline
“Remember this: Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.”
~ 2 Corinthians 9:6
Forget about Treasury Secretary Paulson’s bailout bill that Congress voted down on Monday.
The Treasury does not need to purchase from financial institutions assets whose current value is temporarily depressed due to the decline in real estate prices. There are alternative courses of action to get liquidity or capital to financial institutions whose capital structure is impaired. Either loan money or invest funds in the financial institutions for up to five years. Let the financial institutions keep and sell the assets themselves when real estate prices recover. Then have the financial institutions repay the loan or buy back the preferred stock. There is no need for the Federal Government to purchase these assets. I know it, the American people know, and so does the Treasury Secretary and the President.
What will the American people support to rescue the economy?
1. Increase the Federal Deposit Insurance Corporation (FDIC) from $100,000 to $250,000.
2. Increase the Securities Investor Protection Corporation insured ceiling from $500,000 to $1,000,000 per customer and increase the maximum of $100,000 for cash claims to $250,000.
3. Decrease the capital gains tax from 15% to 0%.
4. Repeal the mark to market accounting rules.
5. Allow financial institutions facing severe liquidity problems to borrow funds from the Federal Reserve for up to five years at an interest rate equal to prime plus three percent to encourage early repayment of the loan.
The greed, arrogance and stupidity (GAS) of the American elites in Washington and Wall Street needs to stop.
The American people no longer trust the American elites of both political parties and have lost confidence in their ability to either tell the truth or understand what urgently needs to be done.
Background Articles and Videos
FDIC Insurance Explained
FDIC Insurance Fund Under Strain
FDIC
Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created by the Glass-Steagall Act of 1933. It provides deposit insurance which guarantees the safety of checking and savings deposits in member banks, currently up to $100,000 per depositor per bank. The vast number of bank failures in the Great Depression spurred the United States Congress to create an institution to guarantee deposits held by commercial banks, inspired by the Commonwealth of Massachusetts and its Depositors Insurance Fund (DIF).
The FDIC insures accounts at different banks separately. For example, a person with accounts at two separate banks (not merely branches of the same bank) can keep $100,000 in each account and be insured for the total of $200,000. Also, accounts in different ownerships (such as beneficial ownership, trusts, and joint accounts) are considered separately for the $100,000 insurance limit. The Federal Deposit Insurance Reform Act of 2005 raised the amount of insurance for an Individual Retirement Account to $250,000. …”
“…Insurance requirements
To receive this benefit, member banks must follow certain liquidity and reserve requirements. Banks are classified in five groups according to their risk-based capital ratio:
- Well capitalized: 10% or higher
- Adequately capitalized: 8% or higher
- Undercapitalized: less than 8%
- Significantly undercapitalized: less than 6%
- Critically undercapitalized: less than 2%
When a bank becomes undercapitalized the FDIC issues a warning to the bank. When the number drops below 6% the FDIC can change management and force the bank to take other corrective action. When the bank becomes critically undercapitalized the FDIC declares the bank insolvent and can take over management of the bank. …”
http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation
Securities Investor Protection Corporation
“The Securities Investor Protection Corporation (SIPC) is a federally mandated non-profit corporation in the United States that protects securities investors from harm if a broker/dealer defaults. Investors are not insured for any potential loss while invested in the market.
SIPC was created by the 1970 Securities Investor Protection Act, et seq, but it is not a government agency; rather, it is a membership corporation funded by its members.
SIPC serves two primary roles in the event that a broker-dealer fails. First, SIPC acts to organize the distribution of customer cash and securities to investors. Second, to the extent a customer’s cash and/or securities are unavailable, SIPC provides insurance coverage up to $500,000 of the customer’s net equity balance including up to $100,000 in cash. …”
http://en.wikipedia.org/wiki/Securities_Investor_Protection_Corporation
Clark SIPC Explained
Securities Investor Protection Corporation
Capital gains tax
“…A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.
For equities, an example of a popular and liquid asset, each national or state legislation, have a large array of fiscal obligations that must be respected regarding capital gains. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market. However, these fiscal obligations may vary from jurisdiction to jurisdiction because, among other reasons, it could be assumed that taxation is already incorporated into the stock price through the different taxes companies pay to the state, or that tax free stock market operations are useful to boost economic growth.
http://en.wikipedia.org/wiki/Capital_gains_tax
Capital gains tax in the United States
“In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. Capital gains are generally taxed at a preferential rate in comparison to ordinary income. This is intended to provide incentives for investors to make capital investments and to fund entrepreneurial activity. The amount an investor is taxed depends on both his or her tax bracket, and the amount of time the investment was held before being sold. Short-term capital gains are taxed at the investor’s ordinary income tax rate, and are defined as investments held for a year or less before being sold. Long-term capital gains, which apply to assets held for more than one year, are taxed at a lower rate than short-term gains. In 2003, this rate was reduced to 15%, and to 5% for individuals in the lowest two income tax brackets. These reduced tax rates were passed with a sunset provision and are effective through 2011; if they are not extended before that time, they will expire and revert to the rates in effect before 2003, which were generally 20%.
The reduced 15% tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, was extended through 2010 as a result of the Tax Reconciliation Act signed into law by President George W. Bush on May 17, 2006. As a result:
- In 2008, 2009, and 2010, the tax rate on eligible dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets.
- After 2010, dividends will be taxed at the taxpayer’s ordinary income tax rate, regardless of his or her tax bracket.
- After 2010, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).
- After 2010, the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated.
Technically, a “cost basis” is used, rather than the simple purchase price, to determine the taxable amount of the gain. The cost basis is the original purchase price, adjusted for various things including additional improvements or investments, taxes paid on dividends, certain fees, and depreciation.
The United States is unlike other countries in that its citizens are subject to U.S. tax on their worldwide income no matter where in the world they reside. U.S. citizens therefore find it difficult to take advantage of personal tax havens. Although there are some offshore bank accounts that advertise as tax havens, U.S. law requires reporting of income from those accounts and failure to do so constitutes tax evasion. …”
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States
Capital Gains Tax
Mark to Market
“In accounting and finance, mark to market is the act of assigning a value to a position held in a financial instrument based on the current market price for the instrument or similar instruments. For example, the final value of a futures contract that expires in 9 months will not be known until it expires. If it is marked to market, for accounting purposes it is assigned the value that it would fetch in the open market currently. …”
“Simple example
Example: If an investor owns 100 shares of a stock purchased for $40 per share, and that stock now trades at $60, the “mark-to-market” value of the shares is equal to (100 shares × $60), or $6,000, whereas the book value might (depending on the accounting principles used) only equal $4,000.
Similarly, if the stock falls to $30, the mark-to-market value is $3,000 and the investor has lost $1,000 of the original investment. If the stock was purchased on margin, this might trigger a margin call and the investor would have to come up with an amount sufficient to meet the margin requirements for his account.”
“…Emergency Economic Stabilization Act of 2008
Section 132 of the proposed Emergency Economic Stabilization Act of 2008, titled “Authority to Suspend Mark-to-Market Accounting” restates the Securities and Exchange Commission’s authority to suspend the application of FAS 157 if the SEC determines that it is in the public interest and protects investors.
Section 133 of the proposed Act, titled “Study on Mark-to-Market Accounting,” requires the SEC, in consultation with the Federal Reserve Board and the Department of the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.[4] …”
http://en.wikipedia.org/wiki/Mark_to_market
SEC gives banks more leeway on mark-to-market
“U.S. securities regulators on Tuesday gave the financial industry a reprieve from marking hard-to-value assets down to fire sale prices, throwing a lifeline to an industry beset by strained credit markets and the latest round of bank failures.
The U.S. stock market added to gains on the news, in hopes that regulators’ new interpretation of fair value, or mark-to-market, accounting rules, will slow or reverse the heavy flow of mortgage-related losses on banks’ balance sheets.
In the new guidance, first reported by Reuters, the U.S. Securities and Exchange Commission reminded financial services firms that they don’t need to use fire sale prices when evaluating their hard to price assets.
“This is a significant first step and adds stability, confidence, and liquidity within the capital markets,” said Steve Bartlett, president and chief executive of The Financial Services Roundtable. “By clarifying how to treat assets in an uncertain market, the SEC is continuing to provide transparency to investors and helping institutions to provide credit in periods of market stress.” …”
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080930&id=9211897
Special Report Mark To Market
http://www.youtube.com/watch?v=GL5s1Q7OxlY
Subprime Crisis: The Role of Off Balance Sheet Entities
Subprime: The Role of Off Balance Sheet Entitities Part 2
Subprime: Is Mark to Market Accounting Marking Things Worse
Newt Gingrich Bailout Proposal – Part 1
Newt Gingrich Bailout Proposal – Part 2
Heritage’s JD Foster Explains the Credit Crisis
Three Things to Know About Fannie Mae and Freddie Mac
1) Federal action is needed to restore confidence.
2) The companies are creations of big-government policies.
3) Breaking up the companies is long-term fix.
Wall Streets Day of Reckoning: Turmoil in the Global Market
Wall Street’s Day of Reckoning: The Fannie & Freddie Bailout
Richard Herring on What’s Next for Investment Banks
Franklin Allen on Lessons from the Subprime Crisis
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Subprime crisis explanation by The Long Johns
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