Fiscal Cliff - Who Is Cliff Anyway?

The much discussed fiscal cliff about which will fall over (or not based on Congress) is probably misunderstood more than any other jargonistic word in politics today. What is it? Please read further.

About a year ago, or so it seems, Congress and the President couldn't agree on the issue of the national debt - should it be allowed to increase again. Actually, not even the House of Representatives and the Senate could agree (Thank you Tea Party!). A deal was made that allowed the Debt Ceiling to increase by $1-2Trillion. Had it not increased, so goes the theory, we would have defaulted on international and domestic debt. (I guess Bain Capital would have bought the Country for 5 cents on the dollar).

The agreement was simple: "Everyone" agreed to reduce the debt by $1Trillion by a mix of spending cuts and increased revenues (called Taxes). Whether any of the parties would have actually done what they promised is still unknown. IN EXCHANGE for the "put the decision off until after the election" scenario, each "side" accepted the concept that if nothing is done, then Sequestration would come into play - putting everything on hold but with HUGE penalties.

This basically means that budget cuts and revenues generation (taxes) would be forced into being. No turning back. Congress passed the law and the President signed it. $500Billion would come out of spending (defense and social services programs including medicaid etc) and $500Billion would be recovered by eliminating tax breaks in place since G.W. Bush was President, and one or two dealing with payroll taxes that this administration got passed. NO ONE THOUGHT IT WOULD HAPPEN. It was to scare a solution into concurrence by all sides. The cuts would be so drastic and the effect on taxpayers so big in increased payments that a deal would be worked out well before the election or right after. Probably one Political Party thought is would win control of both Houses and maybe the Presidency as well.

We have 16 working days before the end of the year when we fall over the cliff (Congressional calendar of course - I count about 47 which allows for Christmas and Thanksgiving but...). What does it really mean? RECESSION. The cut in federal spending and the increase in taxes which will cut personal and business spending will kick us back to 2009. Unemployment over 9% again - maybe as high as 11%, businesses closing due to no one being able to buy much at all.

The irony - the utter insanity - we would start stimulus packages all over again. It might take a year but that's it and then we'd be back in the same boat. Problem: If we defaulted, our cost of borrowing from other countries (China) would skyrocket. When we "borrow" we SELL TREASURY BONDS. Right now the interest rate we pay on bonds is under 2% for the most common time period - 10 years. We might have to pay 5%-7%. That would keep us in the hole for the rest of the boomer generation's lifetime.

Why do we do this to ourselves? Some would say that "We have THE answer": Cut Spending on the "welfare state" stuff. Well, there is no ONE ANSWER. That idea is just ideology/belief that has nothing more holding it up than does the other main group who say "Don't Cut" but tax the wealthy and eliminate duplication and waste in government.

THE FISCAL CLIFF IS THE U.S. CUTTING BUDGETS WHETHER PROGRAMS ARE NEEDED OR NOT AND RAISING TAXES BY LETTING TAX BREAKS EXPIRE. NO MORE, NO LESS
Author's Copyright by Richard I Isacoff, Esq. November 2012
rii@isacofflaw.com
http://www.isacofflaw.com

No Money To File Bankruptcy!

Bankruptcy is rising but filings are falling! Why? Simple answer: People do not have money to file for protection under the Bankruptcy Code. That may sound/read like an "Of course they cannot afford bankruptcy, they don't have any money!" Unfortunately, this is a new phenomenon.

Until recently, people would call regularly to ask for a free consultation to discuss financial problems which could result in a Bankruptcy case. Generally, we are able to work out payment arrangements with almost anyone. ALMOST is the operative word. If the person has no money and no job, and no way to pay us, even on a $25 per week basis, there is little that we can do as an office.

Understand that every lawyer does a certain amount of INTENTIONAL pro-bono work, and I do not know of an attorney who would turn away a truly troubled indigent person who just lost the house, car, wife/husband etc. That stated, none of us in Private Practice can do everything for nothing - work for free all of the time!
Because of the downturn and especially the lack of employment people aren't even calling because they feel that they cannot afford the cost of getting "peace of mind". My view of the problem is slightly different. We have accepted payments every week for a year from clients, all the while giving them as much protection as we could from creditors. Most lawyers will do that for people really in need.

Some ground rules apply:

1. Don't come in with your partner and state that you cannot afford our fees because you can't cut back on smoking 2 packs a day each. At $9/pk, that's $36/day or more than $1,000 per month.

2. While I encourage people to come in, I do not expect them to ask me to help them with a bankruptcy THEY are going to file.

3. Some folks will have to file Bankruptcy but do not want to give up they "toys" - the snowmobile, PWC, 4-wheeler, or cut back on the $200 per month cable or satellite bill because of all of the special sports channels and events, or drop the $200/mo cell service and on and on...

Filing for Bankruptcy is to give someone(s) in debt a "FRESH START". It is written that way in the Code and is discussed in cases and in Court. No one expects someone looking for that second chance to sell their soul, but to cut back on smoking, or drop a few cable channels, or give up the "bike" would seem a fair trade. The reality is that in a bankruptcy, where no unsecured creditor is getting paid back anything, you are not allowed to keep the snowmobile and the bike and the...

If you have a house, we can help you find the funds to pay your mortgage by eliminating unsecured debt. You can keep almost all of your personal property, except for things like the PWC for which you are paying $300/month for the next 36 months etc. But clothing, regular furniture, tools, in most cases automobiles (not 4 or 5), RETIREMENT plans including IRAs, and if you are renting or have no equity in your house a reasonable amount of cash/money in the bank. Depending on the situation, maybe even $10,000.

If you have the $10,000 but your debt is $70,000 you cannot pay everyone back if you have $35,000 in income and a child. But, you can either pay a small portion back, and you can pay the legal fees to file the Bankruptcy. It could be a Chapter 7 (no payback) or a Chapter 13 (payback of what you have left as disposable income each month). Or, if you wish, you can give the Trustee the $10,000, less attorneys fees, and have the Trustee distribute what is left to creditors on a pro-rata basis. It is not required, but if you feel that you should pay back what you can afford, the Trustee will certainly oblige. Just be aware that it isn't necessary in most cases.

ADVICE: If you are in debt to a point where you know you cannot make any meaningful payments, call a Bankruptcy attorney. Payment plans can be worked-out, and the initial consultation to find out about YOUR RIGHTS is always "NO COST" here.

Author's Copyright by Richard I. Isacoff, Esq., October, 2011

rii@isacofflaw.com
http://www.isacofflaw.com

We Have Been Sent To The Minors

I work in the private practice of law dealing daily with the economic realities of average people who have average problems and with those who have extraordinary financial problems. Having had the responsibility for the investment of as much as $145M, I continue to pay attention to the financial markets on a daily basis. This posting is to try to explain what has happened in the lowering of the credit rating of the Country's "sovereign" debt (meaning money the Country itself has borrowed - think Treasury Bonds) from AAA to AA+. Just like in baseball, we have been sent down to the minors.

By now, the entire world, knows that the United States has lost some of its credit-worthiness. Standard and Poors, known better by "S&P", in its role as a debt rating agency (a company that determines what debt is safe for investment and what is risky and how risky). The fact that the other two major raters have not taken any action "against" the U.S.'s risk seems to be of no importance.

In the world of investments PERCEPTION IS REALITY. That's true in many areas of life but especially in this one

The downgrade was apparently caused not by economic factors but rather the dithering of the Congress in deciding to do anything about the debt-ceiling and deficit reduction. With the complete polarization of the 2 ½ parties currently "in charge", little was done to address the systemic problem of our growing debt and its root causes.

It's easy to state that the Obama administration did or didn't do this or that, or that Bush allowed deregulation to go too far (think SEC and securitization). But, in reality should that have affected the credit worthiness "rating" of the sovereign debt of the U.S.? Probably NOT.

The Congress, through a myriad of laws and regulations wanted/tried to rein-in the Rating Agencies and hold them accountable for the financial meltdown. Remember it was these same agencies that rated Mortgage Backed Securities as AAA paper. That they were/are paid by the "investment banks" who did the securities to sell bonds to make $$billions has escaped the review of the markets now in panic over our AA+ rating. Rather than this being an assault on the problem with our deficits and trade imbalance, it seems more like S&P trying to exert enough pressure to get Congress here, and Parliaments in the EU to back off assigning liability to Credit Rating Agencies.

S&P was the only agency to downgrade. S&P was the agency most involved in giving the "seal of approval" to the MBS and CMBS bonds. S&P stands to be the biggest target if liability is established for the incorrect/negligent/disregard for underwriting standards rating of those bonds. It's worth repeating that the securities firms securitizing the loans and selling them for huge profits paid the rating agencies large fees to rate the bonds.

Michael Shemi wrote an excellent column in the August 4, 2011 edition of American Banker's blog "BANK THINK" ( http://tinyurl.com/3s4tn7n ) where he discusses the moves to lessen the restraints and assignment of liability to and on the credit rating agencies. As he put it "Lastly, the continuing crises surrounding sovereign debts and national deficits from Greece to Portugal to the United States are affording rating agencies another opportunity to boost their own importance. By threatening the imminent downgrade of the ratings for these countries, the rating agencies keep their names in the news and constantly rattle the chains of issuers, regulators, and investors."

Of note is the matter of the probable divestiture of S&P by McGraw-Hill which owns it - "spin-off" because of S&P's enormous profitability. It needs publicity. It needs a crisis to show its importance and absolute need.

The U.S. economy has problems but also the capacity to overcome those issues if Congress can stop the "Texas steel cage death fight" over ideology". It's almost as if each political party and each faction thereof wants credit for causing the next recession. The rating agencies need to be held accountable - but so does Congress; and so do WE the people. We desparately need a coherent plan to reduce the deficit over the next decade by $4trillion and then another $10trillion in the decade following. Budget cuts? Social Security cuts? NO!! Tax reform - so rich folks pay a share commensurate with their annual income. Raise the age for Social Security benefits starting in "X" years - maybe from 62 (early)and 65/6 (regular-full) to 63 and 67/8 respectively.

If the WORLD saw us with a plan to eliminate the deficit totally in 20 years with a big push in the first 10, all would be well again.

Author's Copyright by Richard Isacoff, Esq, August 2011

rii@isacofflaw.com
http://www.isacofflaw.com

The Debt Ceiling: What Is It (and why do we care)?

As Congress argues over what to argue about, they are avoiding dealing with THE major financial issue that needs to be resolved now - not in 15 or 20 years. The Federal Debt ceiling, the total amount of money the Country is allowed to borrow as authorized by Congress. Currently it is $14.3 TRILLION and analysts predict that we have until July, at the latest, before we are MAXED OUT.

I use the term "Maxed Out" because it is a concept with which most consumers have dealt. Well, perhaps not with that much money, but the financial reality is the same: No More Available Credit. In consumer circles it happens when your no longer have any available credit on any credit card to make payments on the other credit cards. In Nations' budgets, at least where there is a body that manages finances, countries sell bonds - here, most commonly Treasury Bonds.

Buyers of these bonds are promised, by the Government, a certain rate of interest and payments at certain dates. Well, where the issuing country has more debt that cash coming in (taxes, tariffs, fees, leases, sales of rights to drill/mine/grab oil etc), that country has to sell more bonds to pay the interest owed on the earlier ones which were issued. Striking similarity to the credit card example above; borrowing to pay interest on borrowing.

Here is the difficult part - Congress has to approve additional borrowing - borrowing beyond that which they approved in the last round of borrowing authorizations. If we do not borrow more and cannot pay the interest when it becomes due and we default/fail to pay, the world economy will go into a tailspin. We have been the single country that the world turns to for stability - yes, even after the 2008 meltdown. If we default, the 2008 to present recession will seem like the "good old days" (why were any old days good?).

The issue before Congress, which the Federal Reserve and Treasury have to explain to them, is that we need to borrow more - a lot more; and, the lack of a decision on this matter is already starting to enter the "markets". There is no question that $14.3 Trillion is an overwhelming figure but when measured against the potential growth in our economy and growth of the country, it becomes manageable over time if we avoid spending too much more than we earn. Just like any household budget.

Unfortunately, one party wants to show the other that it stands for "deficit reduction" and will slash spending to fix the problem fast. The other party wants to fix it slower and not slash as much for fear of stopping the "recovery" and growth of the economy. Too many budget cuts and reductions in spending will leave the country with a more dismal future with regards to medical insurance, education, roads, etc. AND MIGHT STOP ECONOMIC GROWTH. Not beginning to balance the budget and to lessen the borrowing will put the country in a hole from which Alice (the Wonderland/Looking Glass Alice) couldn't get out.

We might wish to believe that Congress will compromise in time and everything will be fine, just as before. Maybe but maybe not. Members of both Houses are so locked into the mindset that compromise means the "other guy" won and that we must stand true to our core beliefs (pullease), that they might wait too long. Not to the point where we default, but to the brink where other countries and industry thinks we might actually default THIS TIME.

Jobs -gone. Savings - gone. Inflation or deflation - huge. Depression - there won't be enough business left to employ anyone. Gold (why I do not grasp) - to Jupiter We won't be able to borrow - sell bonds. There will be no lending going on in this country (or most others). Companies will just close their doors. No one will be able to buy anything not made here because our dollar won't be worth anything anywhere.

Why do we play the game? To get re-elected? Or to fix a problem, that took 40 years to create, in 12 months? To be sure that whoever is running a failed country is of the correct ideology? Well - you get the idea!!

Author's Copyright by Richard I. Isacoff, Esq., April, 2011

rii@isacofflaw.com
http://www.isacofflaw.com
Twitter: @riisacoff

Better Now Or A Year Ago?

Now that all of the drama of the Goldman Sachs vs Congress (actually Sen. Carl Levin) is over, what did it all mean. More importantly, WHO CARES? (well, I actually do but it's my job to care).

The reality is that regardless of who caused the financial crisis most of us just want to know when it will end and how will we survive until it does. Will knowing what a "Synthetic Derivative" help? NO, and it's not something you add to your cars oil or take out of it for that matter! If the crisis is over, if we have turned the corner on the recession, if the economy is improving, why is the unemployment rate still at record or near record levels, after adjusting for those who have fallen off of the rolls because benefits ran out, and deducting the Census workers?

The answer is easy, well at least explainable, or at a minimum, less confusing than Synthetic Derivatives. The term "Recession" is a technical economic word that rarely intersects everyday life. It deals with the number of consecutive calendar quarters that the "gross domestic product' declines. And when most TV types discuss the economy getting better they are really talking about the stock market, which a world unto itself.

For real people - are you better or worse off financially than you were 1 year ago? That's far from scientific and can be misleading, but it isn't a bad way to gauge the problem.

Foreclosures are still way up. April's figures showed fewer foreclosure sales but more actual cases where the lender has actually taken possession of the properties it foreclosed against months ago. And, the number of borrowers in default is not leveling yet. And the modification programs are still not really working. And people have so little left from their paychecks that they cannot afford to file bankruptcy using a lawyer, or even a document preparer (which is worse than filing themselves anyway).

In my office, we are taking payments for months from clients who want the expertise of a lawyer but can only pay $50 or $100 per month. The extra part-time job is gone; the overtime hours aren't available. Money is tight.

HOWEVER, at this point it doesn't appear that "the economy" will get any worse. This may not help every individual but it is an indication that we may have bottomed. How long we stay down is any one's guess.

Synthetic Derivatives? Think of a fantasy sports league based on a fantasy sports league, based on a real sports league! - (Next time I will try to explain in fewer than 5000 words)

Author's Copyright by Richard I. Isacoff, Esq, May 2010
rii@isacofflaw.com
http://www.isacofflaw.com/

Recession: What To Do While It's Here

The Recession is showing signs of lessening. The Recession will continue into 2010. The recovery from the Recession will be the steep upward move that the economy went down, like a "V". The recovery will be longer because it won't be a "V" but a "U". Doesn't anyone know - The President; the head of the Treasury; the Chairman of the Federal Reserve; your brother's wife's third cousin who delivers the Wall Street Journal?

What should you do if you have debt problems, or have a mortgage that has adjusted up in rate and cannot afford the new payments or have a credit card or two that has increased your rate from 6.99% to 15.99% (you were 1 day late and paid the $39 late fee) but Lawrence Bossidy, former CEO of Honeywell, says he has no concern about people who make a contract and won't stick by their agreement?

Here are some suggestions that might help you out of the money bind:

1. Ignore the headlines - no one knows when the Recession will end or how fast the recovery will be. Rather than panicing and then fainting, read the whole article - more than one. Try to get a balanced perspective on whatever the front page big bold type means by checking at least several sources.

2. If you listen to a business channel(s) compare and contrast several opinions and several channels

3. Prepare a realistic monthly budget for you and your family. Determine how much income you have left (if any) after regular monthly expenses - without and with debt service.

4. How much of a reserve do you have for emergencies, like a temporary job loss. You should have at least 3 months and really at least 6 months

5. If your mortgage is an Adjustable or Variable Rate Mortgage ("ARM"), can you afford the payment if the rate goes up the maximum permitted when the rate changes? If not, you should start trying to contact your lender. Most of the Federal Programs that are in place are NOT for delinquent borrowers, but are for those who might fall behind unless . . .

6. Credit Cards: Pay down as many as possible. If that is not realistic, pay $25 more than the minimum payment on each. Be sure to ail your payment at least 7 days before it is due. It is critical that you are not 1 day late. You rate will skyrocket and you will have the privilege of paying $39 as a reminder

7. Credit Cards: Don't keep moving balances to get a lower rate. If you have a very high rate card, move that balance as a transfer to a new card AND CLOSE THE OLD ONE. Again, do not be 1 day late in your payment or you will be back into double digit rates.

Do not wait for the GOVERNMENT to help. The Senate has all but killed the chance that the House-passed amendment to the Bankruptcy Law, which would allow Bankruptcy (Federal) Judges to modify home mortgages, will ever become law. This was due to intensive lobbying by the banking and finance industry. The same fate awaits the Consumer Credit Card reforms the House just passed by more than 4 to 1 ( see the next post for details on both)

Author's Copyright by Richard I. Isacoff, Esq, May 2009

http://www.isacofflaw.com/
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