If that is US $15K over ten years you really haven't been dealing with highly priced lawyers.

How much tax have they saved you for that outlay?

Well, it's a big chunk for me. I'm not some big corporation that has to pay legions of lawyers to do its dirty work and fend off the dirty work of others, nor some murder trying to get off. About 8K or so of that was for the original work, which drew up the papers and set everything up. The other half was for reviews and updates as laws changed over the years.

How much will that save? Well let's just say it ought to save at least an order of magnitude the fees paid. Actually it depends on which year they die. The estate tax is "repealed" in 2010. But in 2011, the repeal is repealed and it kicks back to what it was before the estate tax cuts. Unless Congress extends or revises it.

In 2011, the estate tax rate will be about 55% of the amount about the exclusions. Now it's about 45%, I think.

-Richard

The Farm Bureau also couldn't come up with a single example of this happening. And they lobby very vigorously against the estate tax. Anecdotes from people who "know somebody" isn't evidence to me on this or any other subject, sorry.

Let's be clear what you mean here. You mean they couldn't find an example of someone required to completely liquidate a farm or ranch. Having to sell pieces of it, or borrow money to cover the tax, or sell other assets don't count so long as the farm was completely liquidated, right? And thus there's not the slightest hardship at all, then?

A quick Google turns up this FL Farm Bureau press release on the estate tax:

http://www.floridafarmbureau.org/new...es/11142007_01

One example was someone forced to pay half a million in estate taxes. They didn't have to sell the farm, but that was a terrific hardship.

The trouble is land. We've been in the middle of a ridiculous real estate bubble that has drive the book value way up. And an estate is assesed based on the book value. Me, I don't give a flying frap what some bean counting idiot says my land is worth. I don't intend to sell it, and could care less how many little green pieces of paper Helicopter blows out his rear end someone says it is worth. For those reasons, I want that book value to be as LOW as possible.

Most people look at me like I'm nuts when I say that, but I think many of 'em are now at least seeing where I'm coming from on that view.

-Richard

Yes, let's be crystal clear. Here's the statement upon which I commented:

"This is why, for example, you sometimes hear of cases in which one such owner dies and then his/her inheritors have no choice but to sell the land in order to pay the inheritance tax, "

And I said that's a myth. It is. There are many reasons heirs sell the land - the two main ones being lack of interest in farming and capital gains tax advantages to selling immediately. The estate tax isn't a big factor.

How much was the estate worth? I'm guessing it was pretty substantial.

All taxes are a hardship. Sorry, but I don't see anything special about this one.

No worries then. Your wish is coming true.

"Ten principles for a Black Swan-proof world" By Nassim Nicholas Taleb at the FT

__________________
"A witty saying proves nothing" Voltaire.
"All your bias are belong to us" Ara Pacis.

If you're interested in reading this article without registering (I hate having to register to read things...), go to Google news, and enter the article title.

__________________
Conserve energy. Commute with the Hamiltonian.

Thanks for the tip, Grey.

__________________
"A witty saying proves nothing" Voltaire.
"All your bias are belong to us" Ara Pacis.

It's an interesting discussion. I've been reading up on the author of the idea of "Black Swans" (things that happen that were completely unexpected). His thesis is basically that we're not really that good at predicting things, and we'd be less likely to be hit hard by the inevitable unexpected catastrophes if we stopped trying to believe that we can predict things. Instead, we should assume that our models are unreliable, and that surprising, unpredictable things are unavoidable, and make sure whatever systems we put in place are ready for that.

Parenthetically, it sounds like he's made a fair amount of money in options trading by taking a Socratic approach. That is, deciding that nobody really know anything about options trading, but he's the only one who knows that he doesn't know. Everybody else thinks that they can predict what will happen. So he just trades naively, and loses a little bit of money all the time while everyone else makes a little bit of money off the trades, because they're able to predict the market fairly well, and he's not trying to. Until something big and unexpected happens, and then everyone else loses a lot of money, and he makes money. You have to have pretty deep pockets to start with, and a lot of boldness to be able to use that kind of investment strategy, though.

__________________
Conserve energy. Commute with the Hamiltonian.

What's the alternative, work until the day I die?

__________________
I may have many faults, but being wrong ain't one of them. -- Jimmy Hoffa

Re the G-20 meeting that just concluded:Could this be as significant as suggested here?

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Yeah, there's been a buzz around about that "avoiding the black swan" article. It's a good one.

If anyone is interested in my tooth problems, I just back from the endodontist who got through doing one heck of a root canal. It was a royal b-word and took him over 2 hours. First of all, it wasn't the tooth I thought it was, but one adjacent to it. The one I suspected because it was the one that hurt and became loose had already had a root canal. I remembered one in that area, but figured it was another because that one was hurting. Well, turns out is fairly common for an adjacent abscesses to "refer" pain to such a dead, root canaled tooth. Signals get crossed somehow.

The looseness was just the swelling pushing it up, and it already tightened back up fairly well anyway.

At any rate, it was a massive infection and had spread out all over the place. It had been festering for some time probably and just flared up last Friday.

My dentist does root canals, but this one was going to be such a pain he sent me to an endodontist. The roots were at odd angles and all "entertwined", and he wasn't really sure which one of the surrounding teeth was really the problem. And that was a job for an endo.

And boy was it a job. It took a crap-load of anesthetic, which is expected with all that infection -- tissue is all inflamed and sensitized. When he first drilled into the pulp chamber, puss shot out of the hole under pressure. And I mean it shot it out, not oozed. Messy. And then he got started.

Seemed like every 15 minutes it would start hurting again, and he would have to to stop and reshoot. He maxed out (any more and you start getting systemic effects -- and the last wad did sort of make me feel funny) near the end, and it was either stop and come back later, or grin and bear the last little bit. I said go ahead and finish. It wasn't fun. Well, it wasn't as bad as the pain last Friday and Saturday, but it was still pretty bad.

Besides more anesthetic every 15 minutes, he had to take X-rays at about that frequency as well. The canals were at odd angles and all curved and twisted, with one even branching in two at the bottom. So he had to go a little bit, then stop and check make sure he was still on track.

And he did it all through a tiny little hole in the back of the crown. He used this microscope contraption on a swinging arm. That takes practice and patience I'm sure.

And then after it was over, he had to open the gum area with a scapel to drain the remainder of the puss. Another nasty mess oozing out under pressure.

Now the pain pills are kicking in pretty good and I think I'll go crash for a while....

-Richard

Richard,
Take care of that tooth! I keep imagining Tom Hanks in "Castaway", yeooowwww. This is what pain killers were made for. Get some rest so it will heal faster. Hope it feels better soon.

__________________
"A little learning is a dangerous thing; drink deep, or taste not the Pierian spring: there shallow draughts intoxicate the brain, and drinking largely sobers us again."

Alexander Pope, 1709

Amen, brother! Once it heals, I ought to be good to go...for a while at least.

I suppose you've all heard by now they going to use the TARP to bail out life insurance companies. Why do they need bailing out? Because they pulled the same stunts everyone else did, investing in risky crap and making all sorts of rose colored predictions and promises.

Treasury has delayed the announcement of the fabled "stress test", and won't provide too many details of how said tests worked:

http://www.reuters.com/article/marke...0090407?rpc=33

A rumor is that all the big banks are going to pass, surprise, surprise. Crisis over, don't worry. And don't worry about our methodology to determine everything is okay, either. Hey, it's not rumor any more, the NY Times is now confirming it:

http://www.nytimes.com/2009/04/09/bu...bank.html?_r=1

They're doing fine, but many will still need more bailouts.....

And finally Helicopter has released the minutes of the last FOMC meeting (these are always delayed a couple of weeks). This is a ~250KB download:

http://www.federalreserve.gov/newsev...es20090318.pdf


Read that to see their latest thinking. While it's very a MEGLO type of read at first, when you learn how to interpret subdued "Fed speak" it's very interesting.

They are worried about their "credibility on long term price stability". That means they acknowledge their actions can be seen as recklessly inflationary, and lead the market to later conclude they are not serious about keeping inflation low.

Their GDP projections were revised downward (no surprise, there). Before they expected a turn around in the second half of this year. Now they project a flat, lower GDP during the second half, turning up again only in
2010.

All their indicators continued to go south.

-Richard

Sarong,

Almost missed your post here. This international regulatory structure will be significant (if it comes to pass and is not just a bunch of talk). Now, whether it surrenders sovereignty depends on how it's implemented. If it's done whereby our own legal framework just agrees to follow the international body's rules, it won't be so bad. IOW, if each government is the one sets the rules and does the enforcement and could say no at any time, then I'm okay with it.

However, if it amounts to giving that international entity the actual power to make the laws and enforce it, then I'm opposed to it. That would be surrendering sovereignty.

-Richard

One of the problems with this approach is the current concept of a budget. The government doesn't have coffers in the old sense of the word. Unlike kings that kept gold stored up for a rainy day or war, today's governemnt budgets are expected to spend the revenue or refund it ASAP. This has lead to a "use it or lose it" mindset in government offices where they need to waste money in order to secure that amount of need in case they need it in the future. I think it might be more advantageous to allow government to hold money over several years for emergency or supplemental funding. Then they could reduce the mindset of wastefulness for budget projections because there will be a ready surplus for new programs.

No, I suspect it means that instead of storing money in your mattress or a bank, you would spend that money on resources and physical assets. This could be as simple as stocking up on non-perishable food like a survivalist might and using that in retirement or it could be more complex, like purchasing commodities that you might sell later for equal or higher price, such as diamonds. Or maybe it's advocating the idea of family taking care of their elders, which might be difficult if you don't have enough children to take care of you in a multi-generational home.

__________________
"What you think you thought you saw you did not see." Agent J, MiB - Manhatten Bureau

I was listening to a podcast of "DemocracyNow" from March 24 and someone made an interesting point. Chicago Lawyer Thomas Geoghegan wrote an article in Harper's Magazine called “Infinite Debt: How Unlimited Interest Rates Destroyed the Economy”, and talks about how the current economic mess isn't due to the overturning of Great Depressions laws like Glass-Steagle but is due to the overturning of a much older law, a law that we've had in one form or another for thousands of years, as far back as the Code of Hammurabi: a law against usury.

He argues that the banks used to be limited to maximum interest rates of 8-9% but that ended in 1978 with the SCOTUS decision in Marquette National Bank v. First of Omaha Service Corp. It is the repeal of a Lincoln Era law that allowed banks to charge exhorbitant rates and that these high rates made it more "logically" sound to loan money on riskier debt because they would make their money in the interest instead of repayment of the principle. Thus, the banks were no longer interested in good moral character but wanted people who would not pay it off and be endlessly in debt with them. This caused the economy to become addicted to high rates of return

However, these high rates of return in the financial markets "stole" capital from investment in manufacturing enterprises, with its lower rates of return... and the result is what we have now. I'm not quite sure I understand how he connects the dots, but somehow the flight of capital from manufacturing and its workers lowers wages, increases outsourcing, reducine employment, and makes it difficult for workers to survive, forcing them to rely less on savings and more upon borrowings. He also says that shell games with subsidiary companies allows a large company to purchase a good company, strip it of profit, run it into the ground, and then bankrupt the company and reorganize allowing it to shed it's financial obligations to workers by abrogating contracts for pensions and other financial obligations it had had to them. Not only that, some companies started up their own banks (like GM and GMAC) and following the other banks, got themselves into trouble that way as well.

This is what I gleaned from the podcast. Unfortunately, I can't read the article since it is subscription only here, but the video and transcript from DemocracyNow! is here.

__________________
"What you think you thought you saw you did not see." Agent J, MiB - Manhatten Bureau

Ah, thanks---good points!
Glad to hear the ordeal is over, stay healthy.

__________________
*

That sounds an excellent article about
exhorbitant interest rates leading to extreme
financial activities. It helps explain the
deluge of junk mail in the ninties wanting me
to take up credit cards. By the usual suspects!
Forms already printed with my name and address!
They tried shorter more simple forms after a
few years. And there were news stories about
intercepted forms being used by crooks!

Interesting news item today about a fake
"lottery win" scam being uncovered by a
police raid on an industrial estate. They
found many cheques not yet cashed from
victims. Which makes me very sad. Why do
many send money when it might just as well
be deducted from the winnings? I think there
may well be some fear somewhere, they have
my name and address...must co-operate!

Hopefully the New World Order will have
mechanisms to stop all this. Sovereignty
notwithstanding

Its a problem when major trading countries
form a club and you are not in it! Now it is
the World!

I'm pretty much for usery laws, wells limits on interest rates, but let's be clear what it means. It means those with poor credit won't be able to get it. I'm fine with that -- that's what I want. However, make sure you understand that appreciate the consequences. It means "the poor" won't be able to buy things and that will lead to cries of discrimination and so forth.

Interest rates increase with risk. The higher the risk, the more interest much be charged to break even against the odds of default. Interest is the price for a certain risk level. Interest rates limits are thus price controls on the price of money. And you know what happens with price controls. There will be zero supply of loans for those above a certain risk level.

Again, I'm fine with that, but I want you all to appreciate that.

The risk-interest relation can be boiled down fairly simply. Suppose the probability for default is 'p'. If you loan out 'F' amount of money, on average you will get only (1 - p)*F back. Thus the present discount ratio is just that, (1 - p). Say p is 10% over the life of the loan. We'll only recover 90 cents on the dollar. So if someone needs A amount of money today, we must have:

A = (1 - p)*F --> F = A/(1 - p).

Again, if p = 10%, that means we must set F to 1.11. Our big 'R' (rate over the life of the loan) is therefore 11%. So we have:

(1 + R) = 1/(1- p)

R = = 1/(1 - p) - 1 = p/(1 - p)

Thus if p is small, R is approximately equal to p, as we saw in the above example. If p is large, though, R increases without limit. If p is 50%, R = 1, 100% interest.

Above, R and p are over the full term of the loan. One can adjust that
to whatever rate and compounding scheme one desires (again, me I just prefer e^rt). We can also convert 'p' to a similiar rate, chance of default per unit time. Let (1 - p) be a power (1 - p')^n, where p' is the probability of default per period. You can then equate little 'r' and p; I guess I should've used big P to agree with r and R.

Anyway r(p) here is the risk premium, the interest we much charge just to recover the principle. Any additional profit must add to the total interest rate.

-Richard

The problem I see with that calculation, Richard (which sure looks completely correct) is that it doesn't take reality into consideration. Which is what I assume the idiots savants running the economic show didn't do either. The bugaboo is the risk estimate (p, the probability of default). Aside from someone loaning a person money with a repayment schedule in excess of their total income, p isn't a constant, but a function evolving over time. In other words, p really has to be a probability of default worked out over the life of the loan, much harder than a point-of-sale p.

I had one of those root jobbies when I was younger. Wisdom tooth broke off during extraction and it had to be drilled out. Enough novocaine to float an aircraft carrier, I was numb from the top of my head to my shoulder.

__________________
If they can get you asking the wrong questions, they don't have to worry about the answers.

Oh yes, all of that is true. My point was to show how interest rates must scale with risk, and why risky borrowers require high interest rates.

As I wrote it above, p was to be taken as the total over the life of the loan. To keep it simple, say the loan is for n years, and I'll switch to big 'P' as the total probability of default over those n years. We'd thus, have something like this:

1 - P = (1 - p)^n, where little 'p' is now the probability of default per year [which could be some (1 - p1)*(1 - p2)*...(1 - pn) ]. And indeed we could go continuous and rewrite that as some integral of a variable p(t) function of time.

And yes indeed determining an accurate P or p, or p(t) is the big problem. That's what blew up those MBS calculations, the infamous "formula that blew up Wall Street". That was some mess to try to determine p for the class of mortage borrowers, which turned out to be wrong.

A tried and true set of conservative mortage rules that doesn't try any razzle dazzle is something like this:

1) 20% downpayment minimum = 80% maximum loan to value
2) Mortage payment no greater than 28% of income.
3) Total debt service no greater than 38% of income.

You leave the fancy p(t) calculations to the high roller investement banker types, and do not contaminate the bedbrock banking/credit system with this gambling, using very conservative rules like these for the bread and butter banking system.

-Richard

Helicopter watch:

http://www.federalreserve.gov/releas...urrent/h41.pdf

http://www.federalreserve.gov/releas...current/h3.pdf

RBC is slowly increasing. The monetary base, after falling a bit from the high back Jan., is now back up to an all time high of $1.72T. RBC was higher then, and the difference here Treasury has let the "sanitizing" supplemental financing account dwindle and more of M0 is in the banks.

It looks like they're going to buy long end T's at a rate of about $20B per week.

Now, Uncle. There is a massive amount of new debt issues that hit today, nearly $150B face value (and I suspect a massive redemption as well), but we'll have to wait 'til tomorrow for the report. As of yesterday, total public debt stood at $11.15T, which is an increase of $1.12T for the fiscal year. Public float stands at $6.87T, and that increase stands at $1.06T

-Richard

Flash: Moody's upgrades Somali pirates to AAARRRRRRRRRRR.


-Richard

Me too. Part of Geoghegan's (pronounced gay-gan) argument, if I understand correctly, is that the flight of capital from manufacturers, with their lower rate of return on investment, means that manufacturers cut wages in order to compete with capital running to the better returns from the financial sector. Thus, I think the point is that by capping interest it makes manufacturing more lucrative and more capital returns to that sector and the companies can afford to pay decent wages and the poor end up being not so poor.

He says that, historically, the economy has been balanced between three groups: manufacturers, labor, and finance. Howeover, with the unions being busted and the restrictions lifted from finance, the economy is bound to become unbalanced. Finance sticks it to the manufacturers and they stick it to the workers (who eventually stick it to the financiers by defaulting on loans).

However, I'm not sure that usury laws would keep the poor poor. It would restrict their access to credit, but that would have the net benefit of increasing their discretionary spending over the long term. Since they would not be constantly ravaged by interest on lines of credit, their total spending power at point of sale, once they have cash in hand, would be increased. The only real issue is that they would need to delay purchases until enough savings had accrued.

Geoghegan also refers to a setup in Germany, I think, where the government runs a special bank for high-risk loans, such as to the poor. I know some people would fuss over that. But what's the difference between the government loaning money to the poor directly and taking a hit on random defaults and the goverment paying bailout money to a bank that makes similar loans?

__________________
"What you think you thought you saw you did not see." Agent J, MiB - Manhatten Bureau

It would have been nice these past years if
so called high risk customers received refunds
after successfully paying back loans at
excessive rates. Or is that a dumb idea?

So, the deal from the lender's perspective then is: if the loan turns out badly, you suffer the loss. If the loan turns out well, you must return the profit.

How much money would you lend out under such an arrangement?

Default is always a possibility, so that's not a change. The rebate idea might make sense if they profit is split in some fashion instead of wholly returned. That idea seems to turn a portion of the interest into a form of collateral, which is released to the borrower after the loan is paid-off. It might be a way to force borrowers to save by doing it for them, but I'd rather just have caps on interest rates instead.

__________________
"What you think you thought you saw you did not see." Agent J, MiB - Manhatten Bureau

You see the idea is that the higher interest payments from those who do pay make up for those who don't pay. It's a statistical, averages type of thing. Let's say the default rate, P = 10%. As per above, R must be 11%. If we make a single loan of $100, we've got a 90% chance of making $111 back and a 10% of losing it *all*, $0 back.

However, if we split that $100 over 100 borrowers, on average, we'll get exactly $100 back. Of those 100, 10 will default and we'll get nothing. Of the 90, we get 1.11*90 = $100 back.

Yes, those 90 paid 11% interest, but that made up for the other 10 deadbeats who skipped out. If we give the 90 a refund back, we *lose* money. We only break even with the 11%.

If we wish to make a profit, we've got to increase the interest above the "risk premium" of 11%.


-Richard

The monthly Treasury report is out, covering March:

http://www.fms.treas.gov/mts/mts0309.pdf

Of note is tax receipts were down 28% year on year for March, continuing the downward spiral.

They list the deficit for the fiscal year as a little less than $1T, but you'll see the public float of the debt increased more than a trillion -- remember I posted about it a few weeks ago when it went over that milestone.

Uncle's accounting gets tricky. Some of that is they're not counting what's left in the supplemental financing account (done to sanitize some of Helicopter's printing), however there are various supplemental appropriations that don't count in the budget for the fiscal year as well. Even in normal years, the unified budget deficit and the actual increase in the public float component of the debt rarely agree.

The latter is what is important.

-Richard