September 2011 Archives

Constitutional Abuses

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Either we have Constitutionally protected rights, or we don't... this week's news looks like we don't.

Police assaulting citizens exercising their First Amendment rights of Assembly and Speech.

The due-process-free assassination of U.S. citizens is now reality -

And the American Government putting to death one of it's own citizens without due process.

I personally was quite upset at the Bush administration for the warrant-less wire-tapping of American citizens - now, President Obama has his opportunity to trample the Constitution and does so.

Yes, I know, particularly the Anwar Al-Awlaki situation, are complex matters that involve balancing public security vs. individual rights, but there has to be a better way. As Americans we often talk about the "cost" of our Freedoms in referencing military service, but if we truly want to have some of those freedoms, one of the costs that we may have to bear is increased risk at home due to less "effective" methods of defending our country.

To illustrate this, Iran released some American hikers it had imprisoned for crossing into Iranian territory. Here's a paragraph from the article describing their release:

When they complained about conditions in Tehran's Evin Prison, Bauer said, their jailers would "immediately remind us of comparable conditions at Guantanamo Bay. They would remind us of CIA prisons in other parts of the world."

When we fail to interact with the rest of the world in a way that is consistent with our values, we lose the expectation of receiving those values in return. Chicken or egg, this is one of the outgrowths of the war on terror.

President Obama introduced a Jobs bill last night before a joint session of congress. There were some solid proposals included, but I want to extend an analysis from last year's decision to cut payroll taxes for workers. (President Obama's secret plan to Privatize Social Security - Extra credit points available for the first reader to identify the reference.)

In December, I pointed out that workers would need to save their 2% tax cuts under the principle that you don't get something for nothing. In many ways, economics can be a zero sum game, and if the government gives you a 2% tax cut, that will reduce their ability to provide you with benefits by at least 2%... so no matter which pocket the government says is absorbing the 2% tax cut, all the pockets are connected and the tax revenue is simply not going into the government, making it much more difficult for it to come out.

Recall, prior to these proposed changes, workers paid 6.2% of their income into Social Security, and employers matched that with another 6.2%. Now, the President would like to give workers another 1.1% off their Social Security contributions (down to 3.1%) - but he also wants to cut employers' contribution to 3.1%. As I pointed out last year, the cuts took the already underfunded Social Security contributions down from 100% to 84%, this latest "stimulus" will take contributions down to 50%.

What does this mean for the responsible wage earner? Well, it's a challenge. You see, the first 2% cut was simply a matter of the responsible wage earner deciding to save the 2% - it was essentially a privatization opportunity for workers. Take 2% of your pay, save it on your own, and hope that your savings out-earn the Social Security trust fund. But this year's cut poses a bigger problem for workers:

If this provision passes, your retirement contributions are being cut 4.2%, but you'll only be getting 1.1% of that in your pocket. Your employer will be allowed to pocket the other 3.1%! The responsible wage earner, who wants to continue saving toward their retirement target will now have to find another 3.1% of their income to stay the course - It's as if the President just decided he would like to hand out a 3.1% pay cut to all wage earners, and instead give that money to employers.

As a responsible wage earner - and someone who knows a bit more about personal finance than the average bear - I'm fine receiving up to my entire 6.2% personal contribution in a payroll tax cut. I'll save the money, but I protest allowing my employers to shortchange my Social Security contributions while allowing them to pocket the money. This is a step backwards in the current effort to close the income distribution gap, and workers across the country should insist that employers continue to fully fund their share of Social Security contributions.

Housing woes

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Housing continues to fall. Here's the latest property transaction in my building. BlockShopper

Running the numbers, this unit traded at 39 cents on the dollar from the peak transaction. My condo is, unfortunately, a very close analogy to this unit.

I'm assuming the transaction was a cash transaction as banks have been reticent to underwrite new loans in our building due to the Fannie Mae/Freddie Mac 80% Owner Occupancy rule. I happen to know that rent on that unit is probably $900/mo, and the assessment for the unit comes in around $350/mo. Taxes are probably $900/year but should be lower given the recent sales price.

So, if you assumed that you could rent the unit 75% of the time, you'd be looking at $8,100 of rental income, offset by $5,100 of ongoing expenses - or a $3,000 pre-tax profit on a $65,000 investment (4.6%). Continuous rental (12 months instead of 9 months/year) would increase your pre-tax profit to $5,700/year or 8.77%. This is in the first year, before the effect of principal appreciation or rent increases is taken into account. Wow!