Can we talk?

Suppose you had a company but it wasn’t doing as well as you had hoped, so you hired an intelligent well spoken new CEO to run it for you.  He didn’t have a great resume but he was eager, had a lot of ideas, and showed some promise so you give him the job.

So, after three years, you come back to evaluate how he is doing.  What you find is that the company not only hasn’t shown a profit but has been running in red so badly that the company debt has ballooned from 10.626 to 15.467. The workforce went from 7.8% unemployed to 8.3%, supply prices (especially fuel) have doubled, the pension plan is broke, and the value of the business properties have continued to drop significantly.

So, you sit him down to talk about what is going on.  First he tells you that his predecessor is to blame for it all and he needs more time to fix it.  How much time?  About four years.  So in four years the company will be profitable? Well, no he says, but he thinks he can cut the losses in half especially if we raise the prices on our best customers because he doesn’t believe they are paying enough.  Where do you think the debt will be at the end of this four year period?  He says it might be double what it is now.  Really?  Is that necessary?  He says absolutely but not to worry, it is manageable.  What about cutting costs?  He says that really isn’t necessary.

So you suggest that things are not exactly where you expected they would be and ask him to explain what he has been doing.  His answer?  He gave a lot of money away in the form of employee incentives and implemented an expensive new health care plan.   Really?  With everything we have talked about, that was the top priority.  Absolutely he says.

Now, regardless of where you are in the wide political spectrum, just ask yourself:  Would you allow this individual to keep running your company?

 

The housing crisis .. years later…

It simply amazes me that years after the housing crisis reared its ugly head that not one of the thousands of people in Washington seems to have a clue what to do about it.  Here are some of the ideas I would have implemented day one.

1) If you are currently owe more than your house is worth and you try to re-finance simply to get a lower rate, the bank will tell you that you don’t qualify for a new loan and won’t do it.  Does that make any sense at all?   Our government has been giving the banks billions of dollars and keeping rates artificially low and this is the result.  Here’s a thought: Why not make it a stipulation that if they took the government dollars they MUST reset the borrower’s interest rates if they go down?  Imagine that.. mortgage payments going down simply by virtue of taking advantage of an interest rate the government set.

2) This is a little more complicated but raise the top individual tax rates and ease off on the passive loss rules.  Basically, those are the rules the prevent wealthy people from writing off real estate losses.  You see, in the past, wealthy investors were able to shelter income with real estate losses.  Thus, they invested heavily into real estate.   Do you see where I am going with this?   If you raise the tax rates but give them a break on real estate, where might they put those investment dollars?   This would create demand in the real estate markets and stop the downward spiral of prices.

3) Make loan modification substantive.  If someone is behind on their mortgage payment AND they owe more on the property than it is worth, rework the 30 year mortgage to 50 or 60 years to make the mortgage payment affordable and get them back on their feet so that they can remain in their home.  Forget all the ludicrous red tape and make those the only qualifications.   This isn’t a giveaway, they are still on the hook for the mortgage but now they can afford it.  If I were doing it, I would also make these mortgages transferable to a new buyer.  Do you suppose their might be demand in the market for a property with a very low interest rate and mortgage payment?  Hmmm I wonder.

One has but to wonder…

If one is to believe the polls, Mr. Obama is enjoying a lift in popularity.  Having just proposed a budget with yet another trillion in deficit spending along with tax increases, and no real budget cuts, I can only shake my head in wonder.

The economy is still not moving, unemployment remains high, the housing crisis remains, commodity prices are climbing (inflation) and real wages are being eroded.

I’m sure he is a nice enough guy but at what point do we hold the nation’s CEO’s feet to the fire and start demanding results?   How long do people realistically think we can keep this up.  If Mr Obama is elected for another four years and his pattern holds true, he will leave office with this nation 26 trillion in debt.  You think Greece has problems?  Apparently, you haven’t seen anything yet.

 

 

Ah! Those commercials…

Well, it is that time of year when everyone is inundated with commercials from the various tax preparation services.  Being unregulated, these guys make all kinds of claims without every having to explain or back them up.

My favorite this year is the “if you are audited, we will represent you” claim.  What they don’t say is that they are going to charge a fee for this (about $40 last I checked).   If I had charged my client’s such a fee last year, I would have brought in a lot of additional revenue and would have had to provide the service exactly one time.  So what they guys are doing is playing the audit lottery and, once again, taking advantage of people.

Whether it is refund loans, exorbitant fees for simple returns, or the mere fact that the person preparing your return has had about six weeks of training, I still find it amazing that anyone continues to use these services.

 

 

 

Welcome to the my Blog!

Hi Everyone…

I will use this blog to post not only relevant tax updates but also my thoughts on the current economy, political environment, and even current events.  I hope to update this at least weekly so be certain to stop by and share you thoughts with me.

-Stu