US FlagApril 15, 2008 Edition


FINANCIAL REFORMS NOW - Federal Reserve Chairman Ben Bernanke says, "We do not have the luxury of waiting for markets to stabilize before we think about the future.”  The ongoing market turmoil is complicating his and other overseers’ efforts to stabilize the global financial system and restore market confidence.  Click here for more.  

VOLCKER BLASTS BERNANKE - Former Federal Reserve Chairman Paul A. Volcker says current Chairman Ben S. Bernanke has pushed the central bank to "the very edge" of its legal authority with the bailout for Bear Stearns. "Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank."  Mr. Volcker feels that existing government agencies created to support the mortgage market, such as Fannie Mae and Freddie Mac, should do more to end the current crisis.

WHO, ME?: GREENSPAN DEFENDS POLICIES – At his retirement, former Federal Reserve Chairman Alan Greenspan was called "the greatest central banker who ever lived." Three short years later, many are saying that Greenspan's monetary policy decisions during his 18 years as chairman of the Fed have resulted in the current financial turmoil. Greenspan is now seeking to set the record straight, not for the sake of his reputation, he says, but in order to avoid future crises.  Click here for more on Mr. Greenspan’s reasoning that investors are to blame for the current crisis.  

FOR YOUR READING PLEASURE – Depending on your level of interest in the subprime mess and our current economic situation, you may wish to review one or more of the following articles:
FED LOANS TO INVESTMENT BANKS – Expect investment banks to follow Lehman Brothers lead on borrowing from the Federal Reserve. Lehman moved $2.8 billion in risky, difficult-to-sell debt into a new investment vehicle and then used that vehicle as collateral to get cash loans from the Fed.

$245 BILLION AND COUNTING – Bank and securities firm write-downs and credit losses since the beginning of 2007 have topped $245 billion in assets.  Washington Mutual, the largest U.S. savings and loan, leads the pack with $3.5 billion due to expected losses on home loans.

SPEAKING OF $3.5 BILLION – That is the reported 2007 income for hedge-fund manager John Paulson...yes, billion!

AID TO HOMEOWNERS – While the Senate has passed a modest plan to offer relief to homeowners facing foreclosure, the House is attempting to structure a much more ambitious program.  Read about the hurdles they face in a NYT article.  


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FLOOD EXCLUSIONS UPHELD – Louisiana’s Supreme Court has upheld P&C policy flood exclusions in Katrina-related lawsuits claiming that insurers should pay for damages caused by levee and floodwall failures caused by Corps of Engineers negligence.  The court held that flood exclusions apply, whether the flooding was natural or man-made.

NAIFA AND OFC – NAIFA’s board of trustees has voted in favor of conditional support of optional federal charter legislation that would allow life insurers to select between state and federal regulation.  The support is based on the requirement that agents have the option to remain licensed and regulated at the state level.  Assuming NAIFA’s governing body acts on the trustees’ recommendation, all major life insurance industry trade groups will be backing the OFC concept.

METLIFE BUYS REVERSE MORTGAGE SPECIALIST – MetLife is buying EverBank Reverse Mortgage and make the unit part of its own MetLife Bank.  The acquisition will help MetLife Bank grow its own reverse mortgage department. 

PHOENIX LAUNCHES LIFE SETTLEMENTS - Phoenix Life has started buying life insurance policies from owners. To the best of our knowledge, this is the first life insurer to do so, since many life insurers believe life settlements can hurt the industry by throwing off lapse rate projections. Phoenix says, and we agree, that the life insurance industry should recognize settlements can be good for consumers. 

G-7 MEET – The Group of Seven (the finance chiefs of the leading industrial nations) met and disagreed on how to address the global financial crisis. However, they did agree to urge the private sector to ramp up efforts to ease international financial turmoil.

MERRILL LOOKS TO DEVELOPING COUNTRIES – After being battered by turmoil in Western markets, Merrill Lynch is looking for growth opportunities in “fast-developing economies.” 

THIRD PARTY RESEARCH - Merrill Lynch, Goldman Sachs and UBS are moving toward offering greater access to third-party research on equity investments for buy-side clients. 

MOODY’S MOVE – A Wall Street Journal article claims that Moody's used to keep its distance from bankers and clients as a way to avoid conflicts of interest. However, when the housing boom started, the firm started to focus on market share and its own profit. Now Moody's and other major rating firms are being scrutinized for their role in the ongoing financial crisis.

CREDIT RATING AGENCIES CONFLICTS - The SEC plans to release new rules for credit rating agencies to address potential conflicts of interest in the next few months. “Close the barn door...the cows are out!”

INTERNATIONAL RECESSION? - The International Monetary Fund (IMF) is forecasting a "mild recession" for the U.S. in 2008 and says there is a 25% chance that the global economy may also slide into recession.

CHINA INVESTMENT CORPORATION – The president of China Investment Corp. (CIC), says that China's sovereign-wealth fund would increase transparency, but a certain lack of disclosure was necessary. "With that much money on hand, if you tell people what you're going to do next...[everything] you buy becomes very expensive." Further, the CIC claims the $200 billion fund would not attempt to influence the management of the companies in which it invests.
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HAPPY TAX FILING DAY: THE COMING TAX BOMB - By historical standards, federal revenues relative to Gross Domestic Product (GDP), at 18.8% last year, are high. In the past 25 years, this level was only exceeded during the five years from 1996 to 2000. Still, we stand on the verge of a very large tax increase, one that will occur unless the next Congress and president agree to rescind it. Letting the Bush tax cuts expire will drive the personal income tax burden to its highest point relative to GDP in history. This would be the largest increase in personal income taxes since World War II. It would be more than twice as large as President Lyndon Johnson's surcharge to finance the war in Vietnam and the war on poverty. It would be more than twice the combined personal income tax increases under Presidents George H. W. Bush and Bill Clinton. The increase would push total federal government revenues relative to GDP to 20%.  AARP has a good opinion piece that sums up the tough tax situation the next president will face.  Read it here. 

DROPPING SERIES 6 – According to a recent LIMRA study, almost one in three independent producers surveyed have dropped their Series 6 license over the past two years.  Reason:  the burdens of compliance regulations.  According to Robert Kerzner, LIMRA president and CEO, “Producers are overwhelmed by the compliance function, yet all of the complexity is not giving clients a better understanding of the products they are buying and we are continuing to lose qualified producers.”  To that we say amen!

KEEP MEDICARE FAIR – Apparently Congress is considering raising Medicare Part B premiums again and AARP has launched a website (KeepMedicareFair.org) to encourage its members to sign a petition “to tell Congress that raising Medicare premiums even higher to cover skyrocketing health care costs is just not fair.”  Our problem with the petition website is that AARP doesn’t explain just who is supposed to pay for “skyrocketing health care costs,” including those of seniors.  One answer may be the subsidy paid to Medicare Advantage private insurers...check out the article at www.aarp.org.  

RETIREMENT VIDEO – The Employee Benefits Security Administration is making a new video available...”Choosing a Retirement Solution for Your Small Business.”  Click here for the video, as well as a companion pamphlet.  
 
MOST TAX REFUNDS WILL GO TO DEBTS - According to an AP-AOL poll, 35% of Americans say they are using their tax refund money to pay utility, credit card or other bills...up from 27% last year. Another 33% say they plan on saving or investing the money. Neither approach will do much to boost the economy.

ECONOMIC STIMULUS PAYMENTS – If you need information on the economic stimulus program, the IRS has created an area on its website devoted to the topic.  Resources available include a calculator, payment schedule and a variety of other information.  

REFUND ANTICIPATION LOANS UP - Millions of taxpayers are expected to borrow against all or part of their expected refunds using a Refund Anticipation Loan. The amount of the actual refund is transferred to the bank or lender. Some think the charges for these short term and very secure loans approach usury.

LACK OF ADVISOR SUCCESSION PLANNING - According to a new study by Tiburon Strategic Advisors, more than half of fee-only financial advisors and independent reps are over the age of 50, facing retirement in the next 10 to 15 years. However, only 45% of fee-only advisors and 29% of independent reps have succession plans in place.

SQUEEZED – It’s probably not surprising to learn that the so-called sandwich generation, people who care for both children and older relatives, are having a hard time saving for their own retirement.  More information on the survey is available at www.thehartford.com.  

CONFIDENT OR CLUELESS? – Judge for yourself as you review a summary of Wachovia’s fourth annual Retirement Survey report.  

SPLIT DOLLAR RULING – The IRS announced earlier this month that parties to a split-dollar arrangement can change the arrangement without fear of violating the so-called “material change” rules so long as they don’t change the underlying life insurance policy.

ESTATE TAX UPDATE – Kiplinger reports that action on estate tax reform isn’t likely until 2009.  Congress is, however, looking at a couple of different alternatives.  The first, which is a long shot, would replace the estate tax with an inheritance tax, meaning that tax would be levied on bequests instead of the estate itself.  The second alternative would keep the existing estate tax system, probably with a higher exemption, but add a provision that would simplify estate tax planning between spouses by allowing any unused exemption to pass to the surviving spouse and be available for use when he/she dies.

RETIREMENT CONFIDENCE DOWN - The 18th annual Retirement Confidence Survey by the Employee Benefits Research Institute, shows that Americans’ confidence in reaching an affordable retirement has reached its lowest levels since the survey started. Confidence about being able to afford their retirement lifestyles dropped to 18%, down from 27% last year. For those already retired, the survey says that their confidence dropped from 41% in 2007 to 29%.

THRIVENT ADDS REPS - Thrivent Financial for Lutherans plans to add 800 new financial representatives to its current roster of 2,660 by the end of the year. That follows last year’s addition of 780 reps and it will push the Minneapolis-based fraternal’s sales force to more than 2,750 by year end. Major reason: To keep up with the soon-to-be-retired baby-boomers. 

CALCULATING RETIREMENT NEEDS - The Employee Benefit Research Institute reveals that by simply doing a retirement-needs calculation, 44% of workers will save more. However, only 47% of workers say they have tried to calculate how much money they will need to retire comfortably. If you haven’t seen the retirement analysis and presentations in The Virtual Assistant, we suggest you go to http://vsa.fsonline.com and take advantage of the 30-day free look to review the three VSA retirement needs calculators: Single Person, Single Income Couple and Dual Income Couple.

OLD IS GETTING OLDER – Anne Morrow Lindbergh is reported to have called age 60 “the youth of old age,” and it looks like life underwriters agreed.  In a 2000 Society of Actuaries survey, a majority of underwriters classified people ages 60 to 65 as the “older age group.”  In a more recent survey, 60% of underwriters now consider old age starting at ages 70 and up.

VULTURES COMING OUT – “Vulture investors” are looking to profit from the economic downturn by buying mortgages on the brink of foreclosure, bank loans of cash-short businesses, and companies headed toward bankruptcy.

T-BILLS – The Treasury Department has lowered the multiple for purchasing Treasury bills from $1,000 to $100, giving small investors a better opportunity to purchase these safe securities.  Check out Treasury Direct for information on the various Treasury securities available for individual investors.  

ECONOMY CHANGES RETIREMENT PLANS - As the falling real estate and stock markets erode their savings, many aging Americans are delaying retirement. Many Americans are watching the large gains from homes and stocks drop and are opting to keep their most valuable asset...their ability to earn an income...at work for them. Some experts say that, in order to find a time when property and market values dropped in tandem and to this degree, you have to go back to the Great Depression.

LARGE CASE LIFE MARKET – According to LIMRA, life policies sold with face amounts of at least $1 million, the top 3% of policies, produced 38% of the premium, or about $7 billion. FYI, the six top writers in the large-case market are, in alphabetical order, ING, John Hancock, Lincoln, Pacific Life, Phoenix and Sun Life.

AALU PAC – The Association for Advanced Life Underwriting (AALU), which has shared a political action committee with NAIFA in the past, is now creating its own independent PAC in order to “better facilitate its political advocacy.”

EMPLOYEES WANT ADVICE – A MetLife survey says the workplace is where 52% of working Americans now receive the majority of their financial and retirement products...up from 46% last year. Further, nearly half of all employees want their employers to provide retirement advice. One disconnect in the survey...72% of employees say retirement benefits are an important factor in loyalty, whereas only 41% of employers say the same. The complete survey is available at whymetlife.com.

LTC MARKET RESULTS – LIMRA reports that the number of Americans buying new individual long term care insurance policies fell 1% in 2007, to 290,000, but premium revenue from those sales increased 3%.  Further, the total number of LTC insurance policies in force increased about 2% to 4.6 million.