We were afraid something like this might happen, if this legislation is passed the next step will probably be something even more onerous. As you know congress has heard testimony about rolling retirement plans into Social Security. Although we don’t know that that will happen but what the Senate is doing could be a first step in that direction. We know that most of you cannot get out of your 401k without losing your job. So you don’t have much choice. Those who have 401k’s that are self directed, because they left or were forced from their employer they might consider paying the taxes and penalty if applicable. This is not a good development.]
Proposal aims to curb raids on 401(k)s
By Sarah O’Connor in Washington
Published: October 28 2009 20:02 | Last updated: October 28 2009 20:02
US lawmakers were set to propose a new law on Wednesday that would discourage people from raiding their retirement savings early to see them through tough financial times or to splash out on expensive items.
The robustness of the US retirement system has come under close scrutiny since the financial crisis crushed the value of many so-called “defined contribution” pension plans such as 401(k)s, which invested in the markets. Legislators have already proposed bills trying to improve transparency, particularly over fees and conflicts of interest.
Herb Kohl, chairman of the Senate special committee on ageing, was on Wednesday set to go one step further and propose a law that would discourage people from dipping into their 401(k)s before they retire, which can seriously reduce the pot of money they have to live off in old age.
Some 15 per cent of Americans between the ages of 15 and 60 raid their 401(k) retirement savings plans, either by taking a “hardship withdrawal”, borrowing money from it or simply cashing it out when they leave their employer. Some fear that more people will be driven to do this as unemployment mounts and people struggle to pay bills and other expenses, though the Government Accountability Office has found no evidence of this.
“Americans’ retirement savings have taken a huge hit due to the recession,” said Mr. Kohl last month after the GAO released a report into so-called “leakage” from plans. “Despite the financial hardships many are facing, people need to resist raiding their 401(k) because it can be a really bad deal for them over the long-run.”
Taking money from 401(k)s can incur a 10 per cent tax penalty as well as fees and the loss of compound interest the account would otherwise have accrued. The GAO study found that a low-earning 35-year-old who took a $5,000 hardship withdrawal would forgo 12 per cent in retirement savings.
Mr. Kohl’s bill, which has yet to be introduced, was expected to ban products such as “401(k) debit cards” – a niche item that allows people to dip frequently into their savings.
It would also increase the interest rate that people have to pay on so-called 401(k) loans – when they effectively borrow money from themselves and are required to pay it back with interest. The bill would cut the number of loans people can take at one time, and eliminate a provision that stops people contributing to their 401(k) for six months after taking a hardship withdrawal, which the GAO found was ultimately damaging rather than helpful.
The Senate ageing committee is also investigating “target date funds” which have become the most popular default option for people automatically enrolled into 401(k)s. These plans are intended to shift from riskier investments such as stocks into safer ones such as bonds as the saver ages.
But the financial crisis exposed a big disparity in such funds: 2010 target funds had anything from 21 to 79 per cent of their investments in stocks, for example, meaning some were badly hit when Wall Street tanked last year.
US Airways will eliminate another 1,000 jobs by the middle of next year as it cuts more flights and closes flight crew bases in three cities.
The Tempe-based airline said today it is restructuring its operations to focus almost solely on its major hubs in Phoenix, Philadelphia and Charlotte, plus Washington, D.C., and its US Airways Shuttle on the East Coast.
The airline plans to eliminate nearly 30 more flights from its once-large Las Vegas hub, eliminate service to Colorado Springs and suspend service to five European cities from Philadelphia.
Current number is 308 and the names of the cosponsors are available at the above link. Congressman Moran (D) of Arlington County/City of Alexandria and Congressman Connolly (D) of Fairfax County/Prince William County have yet to sign on.
Current number is 30. VA Senator Webb (D) is cosponsoring the bill, but VA Senator Mark Warner (D) has yet to sign on.
It also canceled plans to start flying between Philadelphia and China until the economy improves.
The job eliminations mark US Airways' third major layoff in the past year. Last fall, it cut 2,600 positions across the country, and it recently eliminated 600 airport customer service jobs. The airline also asked for voluntary flight attendant furloughs earlier this year. It currently has more than 32,000 employees.
The latest round of job cuts includes 600 airport customer-service and ramp-service jobs, 200 pilot jobs and 150 flight attendant positions. It is closing flight crew bases in Boston, New York and Las Vegas.
Key lawmakers unveiled a bill Tuesday aiming to crack down on wealthy tax dodgers hiding money overseas.
The bill would impose new reporting requirements on foreign financial institutions doing business in the U.S., and on American advisers who help U.S. residents make investments overseas. Foreign firms that don't comply would be hit with a 30 percent withholding tax on income from their U.S. assets.
The bill which would raise an estimated $8.5 billion over the next 10 years, was introduced by the top Democrats on the tax-writing committees in the House and Senate.
"This bill offers foreign banks a simple choice - if you wish to access our capital markets, you have to report on U.S. account holders," said Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee. The bill was also sponsored by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, among others. President Barack Obama praised the bill, which is similar to legislation he proposed this year.
Lawmakers have been working for years on proposals to stop tax cheats from hiding assets overseas. Sen. Carl Levin, D-Mich., who has worked on the issue, estimated the U.S. loses $100 billion a year in tax revenue because of international tax cheats.
Treasury Secretary Timothy Geithner said the bill adds to the administration's strategy of negotiating new agreements with other countries to share more financial information about U.S. account holders.
IRS Commissioner Doug Shulman said, "These efforts will give the IRS significant new tools to continue our expansion of international tax enforcement and make it even more difficult for U.S. citizens to avoid paying taxes by unlawfully hiding money overseas."
The Internal Revenue Service has been beefing up offices that track overseas investments, and Shulman recently announced that more than 7,500 people had come forward under an amnesty program that promised no jail time and reduced penalties for international tax cheats who turned themselves in.
Shulman is also setting up an IRS office to target wealthy tax cheats who use complex investment arrangements to hide money from the federal government. The Global High Wealth Industry group will focus on tax cheats with incomes or assets exceeding $10 million, Shulman said.
American International Group Inc.’s draw on a Federal Reserve credit line surged for a fourth week to the highest since May after the insurer paid down a commercial paper facility and propped up its airplane unit.
AIG owes $44.8 billion on the line, about $3.6 billion more than last week, according to Federal Reserve data released today. The increase in the Fed line stemmed from paying down the U.S. commercial paper facility as those borrowings matured, said Mark Herr, an AIG spokesman, in a telephone interview. AIG made $1.1 billion in payments to the Fed line this week, Herr said.
“This is a rebalancing of our various government borrowings, rather than a true increase in government debt,” Herr said. “While the Fed balance has increased, there’s been a corresponding decrease in the borrowings under the” commercial paper program.
AIG, bailed out in September 2008 with a package that has ballooned to $182.3 billion, also tapped the Fed line for $2 billion this month to prop up its International Lease Finance Corp. unit after a bank loan facility expired, the plane leasing subsidiary said in a filing Oct. 19.
The Federal Reserve's latest weekly money supply report Thursday shows seasonally adjusted M1 rose by $12 billion to $1.680 trillion, while M2 rose $26.4 billion to $8.358 trillion.
Manufacturing activity in the Federal Reserve Bank of Kansas City's district "moderated" in October.
The bank's production index for October versus a month ago moved to 6 from 16 in September. A year ago October, it stood at -40, from -46 in September 2008. On a monthly comparison, the October shipments index hit 1 from 12 in September, while on a year ago basis it was -40, from -43.
The October new orders index on a monthly basis was 11 versus 10 the prior month, while on a year ago basis it stood at -37 from -43.
Hiring weakened, with the monthly employment index at 0 in October, from 1 the month before, while on a year ago basis it was -47, from -56.
Inflation was mixed, with the October prices paid index at 18, from 15, while the prices received index was steady at -4.
The number of U.S. workers filing new claims for jobless benefits fell slightly last week, the U.S. Labor Department said in its weekly report Thursday.
Total claims lasting more than one week, meanwhile, also decreased.
Initial claims for jobless benefits declined by 1,000 to 530,000 in the week ended Oct. 24. The previous week's level was unrevised at 531,000.
The U.S. economy expanded in the third quarter for the first time in more than a year thanks to a bounce back in consumer spending, but a weak labor market is expected to keep the recovery subdued.
Gross domestic product rose by a higher-than-expected seasonally adjusted 3.5% annual rate July through September, the Commerce Department said Thursday in its first estimate of third-quarter GDP.
Our sources tell us that the reason that Ken Lewis quit as CEO of Bank of America was because the Federal Reserve is dumping as much of the toxic waste as they can from other major banks into Bank of America and they are going to allow BoA to go bankrupt in 2010. There are 40 zombie banks in just Chicago alone. And, no one will take them over because they are so bad off with toxic waste. Corum that went under recently, and was bought by M&B had the Fed take all the toxic assets and M&B took the good stuff.
New orders for manufactured goods rose 1% in September, the second increase in three months. August orders had fallen 2.6% and ytd September orders fell 24.1%. Shipments grew 08% and they have been up three of the last four months.
New home sales fell 3.6% in September, the first drop since March. The median sales price rose to $204,800 from $199,900, while the average sale price rose to $282,600 from $256,500.
The MBA Purchase Applications Index fell 5.2% and the total market index fell 12.3%. The two prior weeks were off 7.6% and 13.7%. The refi index fell 16.2% versus 16.8%. The 3-year fixed-rate mortgage rose 3 bps to 5.04% and the 15’s rose 2 bps to 4.53%.
In the third quarter mortgage dollars loaned was a negative $51 billion. The government showed a negative 272 and they expect a negative 151 for the fourth quarter. The bottom line is that mortgage dollars are going delinquent faster than mortgage dollars are being created. What you have seen in the mortgage market over the past several months is transitory. The housing market conditions are still terrible. Soon ARMs will be resetting for ALT-A and pick-and-pay option ARMs and in one year the new government subprimes will begin to hit again.
We are now seeing Treasury auctions every two weeks. Fannie, Freddie, Ginnie and FHA all will need trillions more to continue operations.
Commercial real estate loans from 2003 to 2006 are now coming due as property values decline and refinancing is nowhere to be found. Reality for banks is just around the corner. We see a perfect storm. Banks are already crippled so it won’t take much to push them over the edge. In the middle of this is, the Treasury and the Fed, they are in a box and they cannot get out.
The fall of commercial real estate will start the next credit crisis or global financial crisis. US and European banks are going to get killed. This will finally prove over the next two to three years that America and Europe are bankrupt. In the coming period the world will finally cut off America’s credit. They will stop buying Treasuries and Agencies. The wicked circle of Fed monetization will get bigger and bigger and inflation will grow larger and larger. The stock and bond markets will collapse as a result. As this unfolds it will finally become obvious to all that the elitists have buried us. American debt is un-payable and what has been going on for 38 years has been suicidal. Remember, there are no markets anymore, just interventions.
What goes around comes around. Most of the major banks in the US and Europe are bankrupt. Worldwide banks are interconnected and that means banks that have not leveraged and gotten themselves into trouble could well be sucked into the vortex of destruction the world is facing. Tier 1 capital of every bank worldwide has been destroyed. They are still leveraged 40 times assets. 100% of their capital has been destroyed. Now that both residential and commercial real estate are in a total state of collapse they are in the process of being thoroughly bankrupt.
Many states are bankrupt as well to be followed by more. Any bailout will come at the price of hyperinflation. Tax receipts, both federal and state, continue to fall like a stone. As we get deeper into the depression the drop will accelerate and more and more services will be curtailed. As we said long ago, the only way to save the system is to purge it immediately and finally get it over with. Virtually everything could be shut down at the state levels, including schools and healthcare to name just a few.
We will be looking for help from HR1207 and SB604 to audit and investigate the Fed. There are Senate Bills that rip the heart out of anything meaningful.
We are looking at a seminal time in history and if we do not get a bill to audit the Fed and get rid of incumbents in Congress, we are simply screwed. Then only revolution is the only option.
The stock market continues its bear market rally, up 50% to 60% dependent upon which index you follow. CNBC discusses how long it will take to retrace the Dow 14,168, as sane analysts try to decide when the market will again fall and how deeply. Needless to say, our president and his party claim credit for creating the higher market via stimulus. They would have us believe that the housing crisis is over along with the credit crisis and those terrible events are behind us. Contrary to what Washington believes the real reason the market is up is that the Treasury and the Fed have lent banks, brokerage firms and insurance companies more than $12 trillion – that is why.
We do not see any U or W recovery. We see hyperinflation followed by decline and flat lining for some years to come. This, of course, is not the fashionable viewpoint. Then again, we picked the tops in the market in the second week of April 2000, started recommending gold and silver shares in June of 2000, picked the top two years ago at 14,100 and the recent bottom at 6,600. We are still long gold and silver assets and have open and closed short positions that have made phenomenal gains, but then again what could we possibly know? Only members of the Council on Foreign Relations, Trilateral commission and Bilderberger Group know what is going on. We have no inside information on these matters, we just back into predictions and solutions. We have no members of the Illuminati secretly telling us what is going on. Just be patient, a 25% to 50% correction in GDP will come and unemployment will eventually easily reach 35%. This is going to make the Great Depression look like a picnic. Then again, what conceivably could we know? We are not among the anointed.
Over the past two years the Fed has established, as we suspected and reported on rules, that permit banks to pledge any security as collateral. This is known as the (PDCF), “Primary Dealer Credit Facility. This had to be done. If it wasn’t the repo system would have collapsed, because many banks, brokerage houses and insurance companies were bankrupt. These 21 dealers can buy anything they want and those purchases have been funded by the US taxpayers. In essence the Fed was really the buyer. Talk about moral hazard.