FSO E-NEWS WEEKLY

June 15, 2009 Edition

DOW ERASES 2009 LOSSES - The Dow gained 28 points, or 0.3% on Friday, ending above its 2008 close of 8,776.39. The markets bottomed on March 9 and have rallied for the past three months, with the Dow gaining just over 34%, the S&P gaining 40% and the Nasdaq up 47% as of Friday's close. All may not continue rosy, however, what with continuing unemployment, anemic consumer spending and rising oil prices.

GOVERNMENT PAY PLAN – Kenneth R. Feinberg is now the "Pay Czar," with authority to determine compensation for executives at seven companies receiving TARP assistance. However, the proposal generally maintains the status quo for all other publicly traded firms and the details have put some executives at ease. "Our people kind of thought it was a nonevent. There's nothing in there that's radical. It's not like the horrible and unethical action from Congress where they were putting artificial caps on pay or trying to steal back bonuses. I don't think there are worries about it on Wall Street." If you are interested, SIFMA has created a set of compensation guidelines located at www.sifma.org.

TAXPAYER RETURNS – Taxpayers invested $45 billion to rescue Citibank and, are you ready for this, the investment has reaped a 7.5% return. We the people haven't fared as well with our Bank of America investment, for which we've received about a 2.5% return but, hey, it's a positive return. Wish we could say the same for AIG. The Fed suffered almost $9 billion in paper losses, or 19%, on the risky securities it took over from AIG in the first quarter. The Fed plans to hold the investments, primary residential mortgage-backed bonds, in the hope they will ultimately be worth their face value.

TARP REPAYMENTS - Ten banks have received approval to repay money they received from the TARP program. The repayments could amount to about $68 billion in bailout funds returned to taxpayers. The banks include JPMorgan Chase, Goldman Sachs, American Express, Bank of New York Mellon, State Street, Capital One, BB&T, U.S. Bancorp, Morgan Stanley and Northern Trust.

FED TRANSPARENCY, "CLOUDY BUT CLEARING" – No specific names as yet, but the Federal Reserve is beginning to disclose more information on some of its lending programs. The latest report lists the collateral the Fed has accepted for loans to 378 financial institutions for a total of $448 billion.

PLAN B IF STIMULUS FAILS – Below is one expert's ideas if stimulus efforts fail. In fact, based on job reports, he argues that "The Stimulus" has already failed.

Free trade. Immediately approve free trade deals pending with Colombia, Panama and South Korea. This would give U.S. firms billions in new orders and create thousands of new jobs -- right away.
Tort reform. Rampant lawsuits cost this country an estimated $600 billion to $800 billion a year, or about 5% of GDP a year. Trimming this back even a little bit would yield big results.
Regulatory reform. The Cato Institute estimates that U.S. consumers and businesses pay $1 trillion or more for our regulations. Even modest deregulation could potentially yield hundreds of billions in benefits.
Tax cuts. Current budget plans already see a nearly $1 trillion tax hike over the next decade to help pay for ambitious spending plans. Other tax hikes -- a cap-and-trade tax, a health care tax and a European-style value-added tax of 10% -- loom as very real possibilities. These will sink the economy. Cut taxes across the board instead, sit back and watch the economy grow.

FINANCIAL MARKET OVERSIGHT - Look for President Obama to release the details of his administration's proposed overhaul of financial market regulation on June 17. Look for these proposed changes...granting the Federal Reserve increased power in the oversight and management of the largest financial companies and creating a new regulatory body to oversee consumer-oriented financial products. Click here for more background.

PERSPECTIVE - Here's an interesting opinion piece from Edward Glaeser, a Harvard economics professor. Titled, A Failure of Regulation, Not Capitalism, the piece discusses the related roles and responsibilities of capitalists (markets) and regulators. It's interesting reading!

NATIONAL HEALTH PLAN – At last we are getting a look at the two primary proposals for changes to the health care system in the form of a 700-plus page bill in the Senate and an outline of the version in the House that presents essentially the same blueprint for change. After initial review, here is the opinion of a Fortune Magazine writer: "The crucial question about Obama's agenda has always been whether it really will slow the disastrous rise in health-care spending, or actually increase it while hiding the real costs of the new system. On analyzing the bills, the conclusion is inescapable: Obama promises Americans what appears to be a bargain by heavily subsidizing their premiums. But the only way to pay for what's really outrageously expensive coverage will be huge tax increases, especially on the same middle class that's being wooed as the chief beneficiary of reform. The plans contain four proposals that will substantially weaken the ability of the market, already limited by burdensome regulation, to restrain medical spending.

"First, they will impose rich, standard packages of benefits, with low deductibles, for all Americans. Those policies, typically containing everything from in-vitro fertilization to mental health benefits, are usually far more expensive than anything most people would pay for with their own money.
"Second, the plans would impose on a federal level the doctrine of community rating, in which all customers have to be offered the same rates, regardless of their health risks. Community rating forces young people to pay far more than their actual cost, a main reason for today's 46 million uninsured, while it subsidizes older patients.
"Third, Obama would ban consumers from buying private insurance across state lines, perpetuating the price differences in today's fragmented market, instead of allowing all Americans to shop anywhere for the best deals.
"Fourth, both plans propose what's known as a "public option," or a Medicare-style plan that would compete with the private offerings. The previous three proposals would make the private plans extremely expensive. With the same subsidies, the Medicare-style plan could put them out of business."

SINGLE-PAYER TAKES SPOTLIGHT – The National Underwriter has a brief article regarding the pros and cons of a singe-payer (read, government) plan for health insurance at www.lifeandhealthinsurancenews.com. We thought we would start our own pro and con list and ask you to send in your own pros and cons. (Note: We will not list power and government control as a con...that is a given.)

PROS:

Insuring everyone equally is a nice thing to do.
Health care is currently 17% of GDP and is expected to reach 20% by 2015. That is too high.
Health care costs have outstripped inflation for years and there is no end in sight.
It is working great in other countries.
It is better for me personally.

CONS:

Insuring everyone equally is a nice thing to do. So is providing everyone with life insurance, disability income, LTC, their own home and a big screen TV.
Government spending for 2009 will be 45.30% of GDP. (See http://www.usgovernmentspending.com/us_20th_century_chart.html) Can "free enterprise" exist at 62%?
Can we handle the unemployment? Check out http://www.bls.gov/oco/cg/cgs035.htm. Sure some will get "government jobs," but what about claims, charitable, sales and advertising related positions? With just one plan, why have underwriters...even actuaries?
Medicaid, VA, Medicare, Social Security, U.S. Postal Service, Fannie Mae, Freddy Mac and Amtrack.
It isn't working in other countries.
It is better for me personally.

PAYING FOR UNIVERSAL HEALTH COVERAGE - Here's a snippet from a NYT editorial on far and away and biggest stumbling block to health care reform...how to pay for it. "Congress is unlikely to be able to pay for universal coverage unless it takes the unpopular step of limiting the tax exclusion for the value of the health insurance provided by an employer. It is the nation's costliest tax subsidy, and some experts believe it encourages overuse of medical services." Click here to read the entire editorial.

INSURER TARP UPDATE - Hartford Financial Services Group has announced that it will take as much as $3.4 billion in TARP money. Of the six large insurers approved last month to participate in TARP, Hartford is the only one to accept taxpayer funds. Lincoln National has not yet announced its plans, while Allstate, Ameriprise, Principal and Prudential have declined bailout funds.

LIFE SETTLEMENT TURMOIL - The $6.4 billion life settlement industry is a little "unsettled." J. G. Wentworth, one of the largest U.S. life settlement firms, has filed for bankruptcy protection after the credit markets froze and it could no longer borrow to buy additional policies. Further, InvestmentNews predicts more closures as a result of tightening credit. To make matters worse, people are living longer and the more people live beyond their expected mortality, the more it costs life settlement investors. Expect the industry to come under attack from insurances companies, regulators and others.

DOW IS OUT - While the Dow Jones Industrial Average has finally gotten around to dumping two broken-down stocks, replacing Citigroup and GM with Travelers and Cisco Systems, many believe the Dow is hopelessly archaic. When it was created in 1896, its chief selling point was that it could be quickly calculated using only pencil and paper. It consists of 30 large companies, weighted on the basis of their stock prices. Competing indices track hundreds of companies instantaneously and the MSCI U.S. Broad Market index includes nearly all publicly traded domestic stocks.

INSURERS LOOK TO INTERNATIONAL EXPANSION – According to an Accenture survey of more than 100 life insurers and P&C companies, nearly two-thirds plan on international expansion during the next 12 months. Over three-fourths said current economic conditions will provide more opportunities to expand out of their home market in the next three years.

POLICE BLOTTER - Ex-Countrywide CEO Angelo Mozilo and two other company executives have been charged with civil fraud. The SEC is accusing them of illegal insider trading. The SEC has also charged James Putnam and a colleague, Simone Fevola, with taking $1.24 million each in kickbacks related to unregistered investment pools that their firm (Wealth Management LLC) managed. Mr. Putnam previously held executive positions at the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

COUPLES DON'T TALK ABOUT MONEY – Fidelity reports that most husbands and wives are doing little to talk about or manage retirement finances. This is not good, but The Virtual Sales Assistant can help! Check out these Life Guides available for your clients:

ROLE OF THE AGENT – It is very easy to forget the value of a good agent in the health insurance arena, but here is what NAIFA and AHIA have to say:
http://www.ahia.net/advocacy/documents/RoleOfTheAgent.pdf

CONFLICTED INVESTMENT ADVICE PROHIBITION - The House Education and Labor Committee is expected to vote on the Conflicted Investment Advice Prohibition Act of 2009. The bill would mean only independent investment advisors (those whose compensation is not affected by the counsel they provide) to directly advise participants in 401(k) plans and could prevent brokers and other advisors from providing investment advice to 401(k) participants.

ANNUITY CONSUMER GUIDE - A new Annuities Consumer Guide has been released by the Insurance Marketplace Standards Association (IMSA). The Guide, available in both English and Spanish, is available at www.IMSAethics.org.

FINRA SUITABILITY - On the subject of annuities, FINRA is requesting comments on Regulatory Notice 09-25 which, if adopted, may expand suitability guidelines to all recommendations of investment products, services and strategies, whether or not they include securities. This could bring fixed annuities under FINRA's purview.

TERM RATES GOING UP - The WSJ reported recently that term life insurance rates, after years of falling, are now reversing course and starting to go up. It may be time for clients to re-evaluate their life insurance needs and lock in the proper amount.

RETIREMENT OUTLOOK - Ernst & Young has produced its 2008 Retirement Vulnerability Study, which indicates that consistent stock market declines in the last six months of 2008 significantly affected the retirement outlook for middle-class Americans. Kind of a "no brainer!"

RETIREMENT DOLLARS DECLINE – According to the Investment Company Institute, at the end of 2008, Americans had an average of $14 trillion invested in retirement assets...22% less than the year before.

RETIREMENT DOLLARS DECLINE DEUCE - The market is working its way back, but the recession has returned Americans' personal wealth to 2004 levels and wiped out a staggering $1.3 trillion as home values shrank and investments withered. According to Moody's and others, the dramatic evaporation of wealth will probably make Americans thriftier down the road.

"CLUNKER CAR" TAX BREAK – Trade in your old gas guzzler and get as much as $4,500 in the form of a voucher. This will mean that the nearly 45% of Americans not paying taxes will get cash. It should help new auto sales and increase government money available to stimulate the economy.

MEDICAL COSTS AND PERSONAL BANKRUPTCY - Harvard researchers say 62% of all personal bankruptcies in the U.S. in 2007 were caused by health problems — and 78% of those filers had insurance. Read the entire article at www.businessweek.com.

LIFE APPS DOWN AGAIN – MIB reports life insurers had 3% fewer requests for individual coverage in May than they received in May 2008...but about 11% more for applicants ages 60 and older.

FORECLOSURES DOWN – According to RealtyTrac, foreclosure filings fell 6% in May from the previous month. However, while the number is up 18% from last year, it's also the smallest annual gain since June 2006.

RETAIL SALES UP – Aided by higher demand for cars and gas, retail sales in May rose by the largest amount in four months. Department store sales remained weak at 0.5%...the largest jump since the 1.7% gain in January.

CHARITABLE GIVING DOWN - According to Giving USA, in 2008, charitable giving experienced its first decline since 1987. Charitable donations fell to an estimated $307.6 billion last year, a 2% drop in current dollars and 5.7% when adjusted for inflation. Individual gifts made up 75% of the year's total, foundation grants made up 13%, charitable bequests 7% and corporate giving 5%.

REVERSE MORTGAGES HOT - Inside Mortgage Finance reports that in March and April, the number of reverse mortgages backed by the government jumped nearly 20% from the same period last year. By contrast, the number of new home-equity loans, which similarly allow homeowners to tap the equity in their homes, fell around 70% in the first quarter from the prior-year period. The maximum home value that seniors can borrow against was raised to $625,500 from $417,000 in February. John Dugan, who heads the Office of the Comptroller of the Currency, says that regulators are "crafting guidelines to ensure that robust consumer protections are in place for reverse mortgages." The concern is not with the majority of reverse mortgages that are insured by the FHA and pose limited credit risk. Instead, the so-called proprietary products offered by banks hold the potential to become the "next subprime mortgage product to experience rapid growth while taking advantage of a vulnerable segment of the population."

TAX BREAK FOR ANNUITY CONVERSION - Under the Retirement Security Needs Lifetime Pay Act, households that convert after-tax dollars into lifetime annuities would not have to pay tax on up to 50% of the first $20,000 in taxable annuity payouts they receive annually. Individuals who convert pre-tax retirement account savings to annuities would not have to pay tax on 25% of the first $20,000 of annuity payments they receive each year.

WOMEN WORRY MORE ABOUT MONEY – According to Financial Finesse, women worry more about money management and are more likely to ask for help with money problems than their male counterparts. However, 53% of women say they have a handle on their cash flow and spend less than they make each month, while 71% of men claim to do so. (Emphasis on "claim"). Also 36% of women and 61% of men say they pay off their credit cards in full on a regular basis.