Economic stimulus/tax rebates

[waltky]

The skinny on the tax rebates...

Rebates: What you need to know
February 8 2008: The lowdown on Washington's new tax rebates: Who qualifies and how much will you get? What do you have to do? And most importantly: When will you see a check?

Lawmakers have given their final seal of approval to a $170 billion plan intended to spark the slowing economy. The plan's centerpiece: tax rebates. But questions remain about how the program will work, and officials at the Treasury Department and IRS are scurrying to work out the details. In the meantime, here are some answers based on currently available government information and experts' analysis.

Do I qualify for a rebate and how much can I expect?

One-time rebates will be sent to at least 117 million low- and middle-income households, 20 million senior citizens living off of Social Security, and 250,000 disabled veterans. To be eligible for a full rebate, single tax filers must have 2007 adjusted gross income (AGI) below $75,000 and joint filers must have AGI below $150,000.

Adjusted gross income is not your annual salary. It's equal to gross income minus "above the line deductions," which are reported on page 1 of the 1040 tax form. Above-the-line deductions include deductible IRA contributions, alimony paid and, for the self-employed, some portion of money spent on health insurance or Social Security.

MORE

[waltky]

Conditions of rebate...

Wanna tax rebate? You gotta file first
February 13 2008: Taxpayers who file their 2007 tax returns on time will get their rebates sooner than those who seek extensions. Direct deposit will speed things along.

It remains to be seen if the economic stimulus package signed into law by President Bush on Wednesday really jumpstarts the economy. But it's likely to light a fire under tax filers who like to dawdle. That's because filing your 2007 tax return is a prerequisite to getting your stimulus rebate check. The IRS on Wednesday said it will begin mailing out rebates in May.

People who have already filed their 2007 tax returns and reported at least $3,000 in qualifying income don't need to do anything else. The IRS will assess their rebate eligibility and send a check to those who qualify. Qualifying income for the purposes of the rebate includes wages and salaries, Social Security benefits and certain veterans' and retired railroad workers benefits. The IRS also said Wednesday that it plans to send tax filers two notices: one to explain the stimulus payment program and a second one to confirm the amount of your rebate.

Acting IRS Commissioner Linda Stiff said in a press briefing that the second notice is likely to arrive 7 to 10 days before you receive your payment if you opt to have a check sent by mail. If, however, you opt for electronic direct deposit on your 2007 tax return, she said, the second notice may arrive simultaneously with your payment. As with refunds, direct depositing your rebate is the fastest way to get your payment, reducing the time it takes by at least a week.

The IRS also noted that rebate checks will be sent separately from any 2007 refund you may have coming to you. Some people who are eligible for a rebate may not receive one, at least not in full. If you owe back taxes or have other non-tax federal liabilities such as past-due child support or federal student loans, the IRS will apply at least part of your rebate to those liabilities.

MORE

[waltky]

Rebate checks might prove skeptics wrong...

The stimulus strategy
18 Feb. `08 - Economists may be skeptical, but rebate checks just might help out

When President Bush signed into law last week a fiscal stimulus package of income-tax rebates and business tax breaks, it was the first good news for American consumers in a while. The plan will give many families a $1,200 windfall, and it comes with a message Americans always like to hear: We can spend our way to prosperity. Turning those checks into new televisions and T-bones, the argument goes, will keep recession away. This is a familiar and popular idea—politicians on both sides of the aisle praised the plan—but it once seemed like heresy.

In 1932, with America suffering through the Great Depression, Franklin Roosevelt, the Democratic candidate for President, attacked President Herbert Hoover for spending too much trying to fight the downturn. Hoover, he charged, was recklessly running up the deficit and driving the country toward “the poorhouse.” The Democratic platform that year called for “an immediate and drastic” cut in government spending and a balanced budget. Not for long, though. Soon after Roosevelt was elected, the nation’s colossal unemployment rate and stagnant economy had him casting around for other solutions, including government-financed employment and public-works programs.

At about the same time, the intellectual foundation for fiscal-stimulus plans was being laid out by John Maynard Keynes. Keynes argued that when fear made consumers and businessmen excessively cautious in their investing and spending, government could temporarily step in. Tax cuts or government-generated demand in the form of public spending could keep the country’s factories and service centers humming until the “animal spirits” of consumers and businessmen rebounded. Keynes’s ideas were only halfheartedly tried during the New Deal.

More Rebate checks might prove skeptics wrong - The New Yorker - MSNBC.com

[waltky]

Figure around back-to-school time...

Retailers hungry for a piece of rebate pie
Fri Feb 29, 2008 - More than $150 billion will land in shoppers' hands later this year in the form of tax rebate checks and businesses hoping to boost lagging sales are devising plans to make sure they get some of those dollars.

Spend, not save, will be the message and companies from Wal-Mart Stores Inc. to JetBlue Airways Corp will court consumers with extra cash in their pockets with promotions and special marketing campaigns. While some companies will focus on the fun of "free" money, others will highlight bargains to stretch out that check.

J.C. Penney Co Inc Chief Executive Myron Ullman told Reuters the message to female shoppers will be: "We have what she wants." The checks will hit mailboxes during the summer when Penney has a surge in back-to-school marketing, Ullman said, adding: "We believe she'll get more for that rebate check with us than she will with anybody else."

Wal-Mart, the world's largest retailer, expects a "rapid response" after consumers receive their money. "I would like to think that, as in the past, we have gotten at or more than our fair share of our checks," Wal-Mart Chief Financial Officer Thomas Schoewe told Reuters.

More Retailers hungry for a piece of rebate pie | Special Coverage | Reuters

See also:

Credit crunch fuels investor thirst for art, wine
Sat Mar 1, 2008 - Rollercoaster markets may have cooled investor appetites for shares or property, but interest in offbeat investments is booming as a growing number of art and wine funds compete to combine passion with high returns.

Downturns typically mean a slowdown in investments that are seen as discretionary, but industry watchers say the credit crunch has left the appeal of so-called "investments of passion" -- art, wine and collectibles -- largely untarnished. Instead, they say, it brought home the need for investors to take on uncorrelated assets to offset the ups and downs of the mainstream equity and credit markets.

Investing in a Picasso, a case of Chateau d'Yquem or a Bordeaux from the sought-after 1961 vintage is nothing new: wealthy enthusiasts have been filling their cellars and covering their dining-room walls for centuries. But the specialized asset managers that have emerged in the past decade have brought sophisticated financial techniques to the pursuit, widening interest to include large institutional investors who are attracted by rising prices, and returns that can reach or exceed 20 to 40 percent a year.

In 2007, for example, the FTSE blue-chip index rose by less than 4 percent. The main index on Liv-ex, an independent trading and settlement platform for the fine wine trade, ended the year up just over 40 percent -- and with excitement still bubbling around the 2005 Bordeaux vintage, now being shipped. "More and more people are looking at wine as an asset class, discovering it is uncorrelated to bonds and equities, that there are fund managers out there to help them capture those gains," said Andrew della Casa, a director at the Wine Investment Fund, one of the sector's largest players with 35 million pounds ($69 million) of funds under management.

More Credit crunch fuels investor thirst for art, wine | Special Coverage | Reuters

[waltky]

Tax rebate letter costs $42 million...

Dear Taxpayer: This letter cost you $42 million
Fri., March. 7, 2008 WASHINGTON - IRS spending money to inform households rebate checks will soon arrive

At a cost of nearly $42 million, the IRS wants you to know: Your check is almost in the mail. The Internal Revenue Service is spending the money on letters to alert taxpayers to expect rebate checks as part of the economic stimulus plan. The notices are going out this month to an estimated 130 million households who filed returns for the 2006 tax year, at a cost $41.8 million, IRS spokesman John Lipold confirmed. That works out to about 32 cents to print, process and mail each letter. It doesn't include the tab for another round of mailings planned for those who didn't file tax returns last year but may still qualify for a rebate.

Democrats accused the Bush administration of wasting time and postage. "There are countless better uses for $42 million than a self-congratulatory mailer that gives the president a pat on the back for an idea that wasn't even his," Sen. Charles Schumer said Friday, arguing the IRS could more effectively spend the money to catch tax cheats. Keith Hennessey, director of the president's National Economic Council, said the letters are being sent to explain how the tax rebates will work.

"Any time you do something as a government tens of millions of times, there is ample room for people to get confused. And so if you're going to have tens of millions of taxpayers getting checks, you want to get the information out so that you have as few people as possible confused about what's happening, they understand what's coming, and it reduces the number of incoming requests that IRS and Treasury have to figure out how to deal with it," said Hennessey.

More Dear Taxpayer: This letter cost you $42 million - Tax Tactics - MSNBC.com

[waltky]

Rising gas prices take a big bite outta the rebate...

Gas bills ate your rebate
March 15, 2008: Rising pump prices means a big chunk of your check could end up stimulating an economy far from America's.

OK, so maybe not all your tax rebate, but a big chunk of it. Rising gasoline prices means that up to a third of your stimulus rebate check - designed to boost the U.S. economy through spending at stores, restaurants and other businesses - could be spent buying gasoline, most of which is imported from abroad. "The rebate goes into the tank, and then finds its way into economies far from our own," said Jared Bernstein, a senior economist at the Economic Policy Institute, a liberal think tank.

In a move to avoid a recession, the federal government is sending over $100 billion in checks to most taxpayers across the nation. The checks should arrive as early as May. Middle income individuals with no dependents should get about $600. A middle income family of four will get about $1670, according to the Treasury Department. Gas prices are projected to jump 40 cents a gallon on average this year according to the U.S. Energy Information Administration. In 2007, the average driver consumed 578 gallons of gas per vehicle, according to the Federal Highway Administration.

So if gasoline consumption holds steady, it could cost $231 more to fuel a car in 2008. For a middle income single person, that represents over a third of their rebate money. For the average American family with two cars, that's $462 of additional spending on gas - over a quarter of their rebate. If EIA's projections are wrong, actual spending on gas could be much higher. The agency low balled its 2007 estimates by 30 cents a gallon. "Energy prices may eventually swamp most or all of the stimulus package," said Robert Brusca, chief economist at Fact and Opinion Economics, a Manhattan consultancy.

The stimulus package is designed to immediately boost consumer spending - which accounts for over two thirds of the country's economy - until longer term fixes like lower interest rates have time to kick in. If consumers instead spend the money on imported items such as gas - two thirds of the nation's oil is imported, mostly from Canada, Saudi Arabia and Mexico - then the shot-in-the-arm for the U.S. economy is muted. "There are various ways to spend your rebate dollars," said Bernstein. 'If you spend them the wrong way, they end up stimulating someone else's economy." He said things like haircuts, domestic vacations, and going out to eat would be more helpful in warding off a recession than buying imported items - be it gasoline or a pair of jeans.

Source

[waltky]

Fearless W lettin' Paulson do the steerin'...

Paulson: Govt. Will Aid Economy
Sunday, Mar. 16, 2008 (Washington) — The Bush administration will "do what its takes" to stabilize chaotic markets and minimize the economic damage, Treasury Secretary Henry Paulson said Sunday after a tumultuous week capped by the government rescue of a teetering investment bank.

All eyes now are on Wall Street as leading financial advisers prepared for a Monday meeting with President Bush and the Federal Reserve weighs another deep interest rate cut Tuesday to stem even more deterioration. Paulson, in a series of news show appearances, defended the Federal Reserve's extraordinary step Friday to provide emergency financing to one of Wall Street's most venerable firms, Bear Stearns Cos. The central bank's intervention was "the right decision," he said.

The treasury chief sidestepped questions about what would have happened if the Fed had not ridden to the rescue, whether other firms are on shaky ground and the possibility of additional bailouts similar to Bear Stearns'. At the same time, however, Paulson sought to send a calming message that the administration is on top of the turbulent situation. "The government is prepared to do what it takes to maintain the stability of our financial system," he said. "That's our priority."

Bush planned to meet on Monday with his advisory panel on financial markets, whose members include Paulson and Fed Chairman Ben Bernanke. The panel on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into the first recession since 2001. Consultations about the Bear Stearns situation continued through the weekend and involved the Treasury Department, the Fed, financial institutions and others. "I've been very involved, you know, been on the phone for a couple days right now helping to work through this," Paulson said. He offered no details.

Economists increasingly believe the spreading fallout from a severe credit crisis has pushed the country into recession. The situation has led to record-high home foreclosures, forced financial companies to take multibillion losses from bad mortgage-linked investments and rocked Wall Street. "No one is debating the fact that this economy has slowed way down," Paulson said. "We feel it, we know it, the American people know it."

MORE

See also:

Treasury's Paulson says U.S. economy resilient
Sun Mar 16, `08 WASHINGTON - Treasury Secretary Henry Paulson on Sunday repeated comments that a strong dollar was in the U.S. interest and expressed confidence that financial markets would recover from their current turmoil.

In an interview with "Fox News Sunday" Paulson said U.S. markets were "resilient" and that he felt the $152 billion economic stimulus plan would help lift the economy. Paulson said the Bush administration continued to believe that "long-term economic strength is going to be reflected in the dollar."

Paulson also said the Federal Reserve made the right decision on Friday to come to the rescue of Bear Stearns, the fifth largest investment bank. Paulson said it was important to minimize market disruptions and enhance confidence in the U.S. economy.

"I've got great confidence in our financial institutions," Paulson said. "Our markets are resilient." He added that he had confidence U.S economy would work it way through the current crises that began with a sharp downturn in the U.S. housing market leading to a full-blown credit crisis.

Source

[waltky]

Even though its too little too late for this go-round, still some changes need to be made...

End of Wall Street as we know it
March 17, 2008: Financial firms have relied on a highly flawed business model for years. The time has come to fix it.

Until the recent tempest, Wall Street firms looked like just about the world's best businesses. Year after year, they posted sumptuous returns on equity, ever-rising share prices, and if you believed their claims, a new breed of CEOs who'd mastered the art and science of risk management. True, it was hard to decipher exactly how they made all that money. But make it they did. The standards that rule most businesses** - avoiding excessive leverage, reining in rampant pay and the massive dilution that goes with it** - didn't apply to Wall Street. So what if investors didn't understand all those arcane instruments and sophisticated hedging strategies? Wall Street was the black box on the Hudson that worked its own brand of magic.

Today, the magic is fading fast. It's time to step back and analyze how financial firms actually operate. The truth is that they've been relying on a highly-flawed business model for years. Put simply, Wall Street firms used towering leverage to make tons of money in a long-running bull market that blatantly underpriced risk. At the same time, they handed a huge chunk of the gains to employees in the form of excessive pay.

Now that run is over, and the price of risk is rising dramatically. That's driving down value of everything from junk bonds to mortgaged backed securities. Wall Street's addiction to leverage is cutting the wrong way. The Bear Stearns meltdown is a primer in the Wall Street curse: When portfolios are built on a mountain of debt, a firm's entire equity base can vanish overnight. The same curse is now taking its toll at Lehman, Morgan Stanley, and Goldman Sachs . So let's look at where Wall Street went wrong, and what it can do to redeem itself. Be warned. Redemption won't be easy. The three big weaknesses of Wall Street are deeply embedded in its culture.

MORE

See also:

Why the Fed can't put out the fire
March 17, 2008: Even many of those who believe Fed must make another big rate cut Tuesday concede it can't do much to calm troubled markets.

With Wall Street hit by a crisis of confidence, many are hoping the nation's central bank can save the day. The Federal Reserve's main weapon: Cutting interest rates, and most economists expect a big slash of three-quarters of a percentage point on Tuesday. But even those economists in favor of such a move concede it will do little to calm investor fears. "It doesn't address the fundamental problems, which is that financial markets are just scared," said David Wyss, Standard & Poor's chief economist. "The Fed is trying, but they don't have a magic wand to wave and make everyone confident again."

In the past week, investors have come to expect even more aggressive action from the Fed. The sudden collapse of investment bank Bear Stearns sparked fears that other Wall Street banks could be at risk. Shares of Lehman Brothers plunged more than 25% in morning trading on Monday. Concerns that another institution could collapse is one reason that the Fed will probably deliver another big rate cut.

But Rich Yamarone, director of economic research at Argus Research and a critic of the Fed's rate cuts, argues the Fed is feeding current market fears with emergency moves like Sunday night's decision to make loans directly to Wall Street firms instead of just banks. "Anytime you act on a Sunday night during '60 Minutes,' if you don't think that will engender fear, I don't know what does," said Yamarone. He added that the Fed should not be trying to prevent failures by Wall Street firms. "It was almost naive to think this wasn't going to happen to someone," he said. "You don't have a credit crisis of this magnitude and have every player sidestep calamity."

Issue # 1: America's money

[waltky]

Luck of the draw...

Stimulus payment mailing schedule based on Social Security numbers
17 Mar.`08 -- The exact date you receive a stimulus check will depend largely on the last two digits of your Social Security number.

More than 130 million stimulus payments will be sent out starting May 2, on a staggered schedule based on the last two digits of taxpayers' Social Security numbers, the Internal Revenue Service said Monday. On jointly filed returns, the mailing schedule will be based on the first Social Security number listed, the IRS said. For taxpayers who file by April 15 and get their tax refund deposited directly into a bank or other financial account, the IRS will send stimulus payments from May 2 through May 16. For taxpayers who file by April 15 but don't choose direct deposit, the IRS will mail checks from May 16 through July 11 (see detailed schedule below).

Procrastinators, take note: For stimulus payments to be part of this delivery schedule, the IRS said tax returns must be "processed" by April 15 -- not "filed." That implies that a later timetable may apply to taxpayers who mail their return on or close to April 15, leaving little time for the return to be processed by that date. If you expect a tax refund and choose to direct-deposit it into two or three separate accounts, the IRS will send your stimulus check in the mail. (To have your refund sent to more than one account requires you fill out Form 8888. See this IRS page for more information.)

If you owe taxes and are sending a payment to the IRS with your return, you can still have your stimulus payment deposited directly into a bank or other account, the IRS said. Simply fill out the appropriate section on your return related to direct deposit, detailing your account information. See this IRS page for FAQs on stimulus payments. If you do owe taxes, be sure to fill out your return and send payment as usual. That is, don't try deducting your expected stimulus payment from your tax bill. If you don't pay your tax bill by April 15, you likely will owe interest and penalties, said Anthony Burke, an IRS spokesman. However, if you have a past-due federal or state income tax bill or some other type of past-due federal debt such as student loans or child support, your stimulus payment likely will be reduced by what you owe.

Mailing schedule

See also:

Direct deposit users to get stimulus checks first
Mon., March. 17, 2008 WASHINGTON - IRS encouraging taxpayers to sign up when filing their 2007 returns

If you want to be the first on your block to get your $600 economic stimulus payment, the IRS has a tip: Sign up to get your 2007 tax refund via direct deposit. Among those receiving rebate checks, people with Social Security numbers whose last two digits are low — say, 06 — will get their checks first, the agency announced Monday.

Taxpayers who receive their refunds — or make payments — through direct deposit will begin receiving payments by May 2, with all such deposits expected to be made within two weeks. Then, starting by May 16, the rest of the 130 million stimulus payments will start going out as checks sent through the mail. Stimulus checks will be sent out in the order of the last two digits of the Social Security number used on a tax return. For joint filers, the first Social Security number listed will determine the timing of the couple's rebate check.

The IRS said the last of the rebate checks should be mailed by July 11. The economic stimulus bill enacted last month provided for $600 checks for most individuals and $1,200 for couples filing jointly, with a $300 per-child credit added on. The stimulus payments will start phasing out for individuals with adjusted gross incomes higher than $75,000 and couples making more than $150,000.

Lower-income workers, Social Security recipients and veterans who making too little to pay income taxes would receive $300 checks as well, as long as they have at least $3,000 in income from various sources in 2007. But those who owe back taxes or have certain other debts such as delinquent child support payments and student loans will have their rebates garnished.

More Direct deposit users to get stimulus checks first - Tax Tactics - MSNBC.com

[waltky]

Rate cut helps dollar...

Fed cuts rates by 3/4 of a point
March 18, 2008: Central bank lowers key rate to lower borrowing costs for consumers, businesses, as it risks lower dollar in effort to ward off recession.

The Federal Reserve slashed a key interest rate by three-quarters of a percentage point Tuesday, in the central bank's continued effort to restore confidence in the economy and battered financial markets. Although some experts cautioned that such a big cut may lead to more inflation, stocks soared as Wall Street cheered the news. One economist said the cut was what investors needed to see since it showed the Fed is still worried about both a recession and inflation.

"I think it's the right step, a measured step and ultimately it has to be viewed as a compromise," said Bernard Baumohl, head of the Economic Outlook Group, a Princeton, N.J., research firm. The Fed cut its federal funds rate, an overnight bank lending rate, to 2.25%. It is the sixth cut in the past six months and comes at a time when the Fed is trying to keep the economy from slipping into recession - although many think it has already entered one.

Interest rate cuts are usually viewed as beneficial for the economy since they typically lead to more lending. The federal funds rate affects how much consumers pay on credit cards and home equity lines of credit, as well as the rate paid by many businesses on loans tied to banks' prime rate. But some experts think lower rates won't solve the credit crunch paralyzing Wall Street. The Fed cited a weakening labor market and a slowdown in spending by consumers, as well as a continued crisis in financial markets and tight availability of credit to justify the cut. U.S. employers have cut 85,000 jobs so far this year, according to the Labor Department, the most in four years.

'Compromise' on the growth-inflation debate

See also:

Dollar rebounds after Fed rate cut
March 18, 2008: Greenback takes break from recent retreat after central bank cuts key interest rate by three quarters of a percentage point.

The U.S. dollar moved higher against several major currencies Tuesday after the Federal Reserve cut interest rates by three quarters of a percentage point - a less aggressive move than some investors were hoping for. The 15-nation euro traded at $1.5715, down from $1.5731 late Monday. But prior to the Fed's decision to cut interest rates, the euro was trading $1.5792. The dollar also moved higher against the British pound but eased further against the yen.

The greenback has moved sharply lower in recent weeks against a number of foreign currencies on expectations that the Fed will keep cutting interest rates to keep the U.S. economy from entering a recession. But Tuesday's decision to lower the federal funds rate by three quarters of a percentage point was a disappointment for some investors who were hoping the central bank would act more aggressively by cutting rates by a full percentage point.

A rate cut puts pressure on the dollar since it makes dollar-denominated investments less attractive to outside investors. In its accompanying statement, the Fed acknowledged that inflation is a growing concern, but it left the door open to more rate cuts which would further pressure the greenback. "I don't think this [cut] changes the outlook for significantly lower rates from here," said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc. "Any rebound we might get in the dollar is going to be pretty limited."

At its January meeting, the central bank lowered the federal funds rate by half a percentage point. That followed an emergency three-quarters of a percentage point cut just a week earlier. Although a weak dollar also typically drives domestic and overseas demand for U.S. goods, it also poses an inflationary risk to the economy by pushing up the price of commodities such as oil and gold.

Source

[waltky]

That may be all of the prime rate cuts...

The Fed may be done - Get over it
March 19, 2008: Yes, the central bank delivered another big rate cut. But it may also be getting ready to stop cutting rates so it can fight inflation and the weak dollar.

For the first time since the credit markets began to unravel last summer, the Federal Reserve didn't buckle to Wall Street's demands. It looks like Fed chair Ben Bernanke may be growing into this job. In the wake of the near collapse of Bear Stearns in the past few days, many were calling for the central bank to slash interest rates by at least a full percentage point on Tuesday.

Instead, the Fed lowered two key short-term rates by three-quarters of a percentage point. But a lot of investors wanted a full point. The fact that the Fed resisted the urge to make a historically large rate cut is a good sign. Bernanke and the rest of the Fed's policy makers need to be as concerned with keeping inflation in check as preventing a recession - or minimizing the length and severity of a recession if we're already in one.

And even though more rate cuts may finally help get the economy back on track by encouraging banks to lend again, the rate cuts also wreak havoc on the dollar, causing spikes in the prices of oil, gold and other commodities. With that in mind, one market strategist said the Fed seemed to be sending a statement to investors. It won't let the dollar continue its free fall and will try to put an end to the run-up in commodity prices, a surge that many believe has been fueled by hedge funds and other speculative investors.

MORE

[waltky]

Takin' from the taxpayers to save the haves' butts

Their Bear Stearns, your money
March 21, 2008: The press release said JPMorgan Chase bought the troubled investment bank. Taxpayers should know otherwise.

Congratulations. You just bought Bear Stearns. You, me and all taxpayers. We're not getting any ownership, of course, no share of the investment firm that at the beginning of the month had a stock market value of $10.5 billion. That prize goes to JPMorgan Chase, spending a symbolic $2 a share of its own stock, which on March 16, the day of the deal, amounted to a measly $236 million. Even if Bear Stearns shareholders succeed in pressuring JPMorgan to raise its price slightly by a few dollars, for the giant bank it's just pocket change.

U.S. taxpayers are assuming the real cost of JPMorgan's buy: up to $30 billion to cover losses from Bear Stearns' lousy, risky investments in mortgage-backed securities and even more exotic investment paper that had plunged in value. In similar fashion, U.S. taxpayers have suddenly become financiers of last resort for investment banks, thanks to the Federal Reserve generously opening up its discount lending window to securities firms to the tune of $200 billion.

That's on top of another $200 billion the central bank is offering to lend securities firms in return for their out-of-favor investments in mortgage-backed securities and corporate debt. The Fed is trying to ensure no other investment firms suffer a Bear Stearns-style "run on the bank" in which trading partners collectively demand cash. "It's like having a big brother stand behind you in the schoolyard," said Ray Stone of bond research firm Stone & McCarthy. "You're not going to get beat up."

MORE

[waltky]

Savin' for a rainy day...

Rebate checks won't get spent
Last Updated: March 24, 2008: Majority of Americans say they plan to put their tax rebate checks in the bank or use it to pay off debt, according to a recent poll.

Tax rebates are the centerpiece of the government's plan to stimulate the economy, but many Americans are planning to put the money in the bank or use it to pay off debt, according to a survey released Monday. A CNN/Opinion Research Corp. poll found that 41% of respondents plan to use their rebates to pay off bills, and 32% will put the money in savings. Just 21% of those polled intend to spend the money, while 3% said they will donate the extra money to charity.

The rebate checks are part of a $170 billion economic stimulus package passed by Congress last month that also includes tax rebates for small businesses, as well as payments to disabled veterans and some senior citizens.

The package will pay $600 to most individual taxpayers who earn less than $75,000, and $1,200 for married taxpayers filing joint returns who together earn less than $150,000. There is also a $300-per-child tax credit. Overall, the rebates will put $120 billion in the hands of individuals, with the aim to get them spending in order to boost the faltering U.S. economy.

Follow the money

See also:

Don't trust the Wall St rally
March 24, 2008: Divining future profitability of the nation's financial firms tells us stock market valuations are still too high.

Up until now, all eyes have been on the losses that are hitting the financial sector from the acronym soup of new instruments such as CDOs and SIVs. Everyone is scared, and rightly so, of the MUB (Monster Under the Bed) that might be lurking in supposedly safe havens. Still, financial stocks staged a big rally on the last trading day before the weekend, and again Monday, due to the belief that the worst is past, and that the government will step in to save the Street should that MUB pop out from under the bed.

But even once the current crisis is past, there's another issue facing the financial sector: Will it look like it used to? "I think it is important to step back and ask some broader questions about our financial system," wrote Ben Inker, the chief investment officer for quantitative equities in global developed markets at money management firm GMO, in a recent paper. "What it does, how big it should be; and what its sustainable level of profitability might be."

These questions are obviously important for financial services firms. At its recent peak stock price in December 2006, Citigroup, for instance, sold for $53.34, or over 2 times its reported book value (and over 4 times if you exclude goodwill and intangibles) and almost 13 times its reported 2006 earnings. Do those numbers represent a baseline to which we'll return when this crisis has passed, or are they anomalies?

MORE

[waltky]

'Mortgage Rescue' Scams on the Rise...

'Mortgage Rescue' Scams Hit Close to Home
March 24, 2008 - Authorities Report a Spike in Scams Targeting Homeowners Facing Foreclosure

As the mortgage crisis continues to unfold, the FBI says incidents of suspicious financial activity banks reported to the bureau has skyrocketed, jumping from 28,000 cases in 2005 to 48,000 last year. Among the factors fueling this two-year, 71 percent increase is a spike in scams targeting citizens facing foreclosure, one of which is known as the "home foreclosure rescue scam." It's a familiar story, according to state and federal authorities, as well as homeowners interviewed by ABC News. In the scheme, predatory con artists promise financially strapped homeowners a lifeline, but it's a ruse. Sometimes they charge a fee and then disappear. And sometimes they push homeowners over the cliff into financial ruin.

Pamela Fowler, 49, found herself in such a position after she bought her dream home in Richmond, Va. "The house was perfect," Fowler said, describing the four-bedroom brick house she shared with her daughter. It had ample space for her arts and crafts projects, a huge lot in a great location and "really good neighbors." "I thought that was where we would spend the rest of our lives," she said. But after a foot injury forced Fowler to leave her job with the State Police for three months, the Navy veteran and single mom was in financial crisis, sliding toward foreclosure.

With bills piling up, Fowler tried to refinance her home. Her bank said no. Then a mortgage firm offered what appeared to be a way out. "These people came to me as my guardian angels to save me and I listened to them because I was desperate at that point in time," she said. "When you reach a point to where you can't see the light at the end of the tunnel, you think these people are gonna be your light." But the people from the mortgage firm were no angels. Fowler says they told her they would buy the house and let her live in it for a year — rent free — until she could rebuild her credit and buy it back. She says she signed off on their paperwork, but instead of honoring their agreement with Fowler, she says they sold the house to another party and Fowler was forced out.

After the property was sold, Fowler says the mortgage company kept all the equity out of the home. As part of the FBI investigation into the scheme, a Virginia woman, Anna Essex Thorne, pleaded guilty to conspiracy to commit wire fraud in connection with the mortgage documents she executed to buy the home. Fowler's entire life savings, which was tied up in her home, is gone. She moved to North Carolina, where she lives in a mobile home. Fowler hopes to someday see the restitution money the defendant in the case is supposed to pay her as part of the plea agreement. "I worked hard my whole life. I came from poverty and I had achieved the American Dream, and I feel they ripped it away from me," she said, tears welling up in her eyes. "I mean they took my future, my daughter's future … all that work, and now I feel like such a failure. I feel my whole life has been a failure."

More ABC News: 'Mortgage Rescue' Scams on the Rise

[waltky]

Where's all the money for this gonna come from??...

The next bailout: Homeowners
March 26, 2008: Federal government help for Bear Stearns and other Wall Street firms increases the chance that assistance for those facing foreclosure will be approved.

The federal government is keeping Bear Stearns out of bankruptcy. Are you next? Momentum for federal assistance to struggling homeowners, a non-starter with the Republican administration and many members of Congress only a few months ago, has picked up steam in Washington.

The tipping point came March 16, when the Federal Reserve agreed to back up to $30 billion in Bear Stearns losses as part of JPMorgan Chase's fire sale purchase of Bear Stearns. (The Fed cut its guarantee by $1 billion earlier this week when JPMorgan boosted its offer for Bear.) "I think there's a growing populist feeling that if you're going to bail out Bear Stearns you better bail out individuals," said Greg Valliere, political economist with the Stanford Group, a Washington think tank.

And some consumers clearly are in an uproar about the bailout. According to a Reuters report, about 60 protesters entered the lobby of Bear Stearns's New York headquarters Wednesday and made a fuss about how consumers needed more help from the government than Wall Street investment banks. The Bear Stearns deal isn't the Fed's only direct exposure to the problems in the financial markets either.

The Fed also announced earlier this month that it would make billions in loans directly to Wall Street firms at the Fed's so-called discount rate, a right previously reserved for commercial banks. In addition, the Fed has said it will now accept troubled mortgage-backed securities as collateral on up to $200 billion in loans to Wall Street. But some economists think the Fed's moves are only the beginning. Mark Zandi, chief economist with Moody's Economy.com., said he thinks the Fed is telling the presidential administration that more needs to be done to fix the mortgage mess.

Using FHA to help borrowers