Economics of Growth: More Revenue and Less Non-Revenue Producing Expenses = Profit

The following article was written last year; however, it is applicable now. In my opinion, Jerry Reiss has a brilliant mind and a complete grasp of economics.

JERRY REISS, A.S.A.
ENROLLED ACTUARY
230 N. Orange Avenue, Ste 1112
Orlando, FL 33801
Phone: 321) 251-8205
Fax: (407) 871-7774
jerryreissasa@aol.com
Vol. 10 No. 3
July 21, 2010
Re: Defining the future Family Law Practice
By JERRY REISS, A.S.A.

Dear Family Law Attorney:

With Alimony Guidelines now a reality and our economy in shambles it may be a good idea to visit how we arrived here. With this information we can determine what we can do to protect our incomes in the future; and, in the process, maybe redefine the role of the family law practitioner. Our fathers may have learned an important lesson from the great depression. As it was so long ago and we didn’t suffer then, perhaps we too easily believed the promise made that it could never happen again. But history usually repeats itself because lessons learned are soon forgotten. We want to believe that everyone can win and that a rising tide lifts everyone; but we tend to forget that many people drown afterwards.

I remember reflecting the night that Barack Obama won the presidency that while it was a major feat, that by winning, he accepted an impossible job for an impossible time and that he would lack the support he needed to fix things. The fix would take a long time to work and many who voted for him expected a much quicker fix than was possible. While others who did not would oppose the painful solution because they had not yet been the victim of the inevitable downward slide. FDR had more support because he took over after the damage had been maximized. And even though the country blamed George Bush for the problems in 2008, he was not the sole person to blame.

While cutting taxes can spur a sluggish economy, it works only when the fundamentals of our economy are strong and it just needs a little push. When they are frail such as now cutting taxes actually makes things worse. It removes the funding needed in order to provide a big push. It also removes the ability to prop up the decaying bottom before everything falls through. Our economy works from the bottom up much like the food chain works. When the people who lost their jobs run out of money the people who had jobs from the goods and services they bought will lose those jobs also. When the bottom collapses we either support the bottom or everyone else falls through. Furthermore, every firebug knows that it takes an accelerant to get a healthy fire going quickly. Yet that great fire can also burn down a city like Chicago if it is not managed properly.To put things into perspective the accelerant here is spending money. In order to stimulate the economy the country must accumulate more debt. It is just that simple and avoiding doing this because of fears of inflation will cause us to sink further into depression. It is the only way to support that bottom. Once employment recovers and enough jobs are created to replace the ones lost only then paying off the debt is the number one concern. An increasing tax base is generated by creating more jobs. As such it also creates more revenues. This is when government needs to accelerate paying down the debt by cutting expenses.

The Columbia Encyclopedia defines and distinguished depression from recession as follows:

Depression, in economics, period of economic crisis in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, numerous bankruptcies, and a high level of unemployment. A less severe crisis is usually known as a recession, a more common occurance generally thought to be a normal part of the business cycle; it is traditionally defined as two consecutive quarterly declines in the gross national product. Recessions mark a downward swing in the curve of the business cycle and are caused by a disequilibrium between the quantity of goods produced and the consumers' ability to purchase. If a recession continues long enough, it can turn into a depression. Neither term has ever been distinctly defined by a set of criteria, however, so it is difficult to say at what point the two merge, but some statistics regarded by economists as indicative of a depression include a 10% decrease in per-capita gross domestic product and consumption and 10% unemployment that persists for at least 24 months. A short period in which fear takes hold of companies and investors is more properly called a panic and does not necessarily occur in every depression, but lack of confidence in business is always present in an economic downturn.

A depression develops when overproduction, decreased demand, or a combination of both factors forces curtailment of production, dismissal of employees, and wage cuts. Unemployment and lowered wages further decrease purchasing power, causing the crisis to spread and become more acute. Recovery is generally slow, the return of business confidence being dependent on the development of new markets, exhaustion of the existing stock of goods, or, in some cases, remedial action by governments. Depressions and recessions today tend to become worldwide in scope because of the international nature of trade and credit.
It is plain to see from the above that a depression more accurately defines the period that we are in. Unemployment is way over ten percent when you count everyone who cannot find work and those working in replacement jobs earning a fraction of their original pay. We do not get to reclassify unemployment simply by refusing to count people who exhausted their unemployment benefits or who stopped looking. Prices have been falling and many people’s wages have been falling, as well! This economy didn’t get broken during just the Bush 8 years. This country took a dangerous turn when it embraced supply side economics in its oversight policies and has continued down that dangerous path even with democratic presidents in office. The most important single fact demonstrating this wrong turn is that in 2008 the top 4% of people living in this country had achieved a percentage of this total county’s wealth only once achieved before and that only happened immediately before the stock market crash in 1929. The top 4% does not run the economic engine but the 96% below do. If the people at the top did they would deplete their wealth very rapidly and would remain at the top a very short time. Cutting taxes for the wealthy will no more stimulate the economy during a depression than taxing the poor will. It will only put more money in the pockets of the wealthy and cause the imbalance to get worse. That is why Obama campaigned on cutting taxes for the bottom 96% and increasing taxes on the top 4%.

This imbalance reached a critical level in 1929 with margin-buying. The super wealthy always manipulated the stock Market. They easily do this with the sheer volume of stock they buy. But selling off that stock once the price achieved a certain level would not produce the windfall, because the selling of that much stock would make the stock price fall just as rapidly as it rose. This problem (for the super wealthy) inherent in the supply and demand curve was solved with the introduction of margin-buying. Margin- buying allowed the middle class to buy ten times the amount of stock it otherwise could with only 10% down. The enormous amount of buying it facilitated skewed the demand to exceed the supply, resulting in stock prices rising even further as the super rich cashed in their enormous profits. Before Margin-buying was introduced to the middle class very few ventured into the marketplace. The middle class was marketed the concept then that they too could make money like the rich do because a rising tide lifts everyone. But for the rising tide theory to work the rise must be measured, occur slowly over time, and be based upon reasons that will keep the tide from rapidly receding. Otherwise, massive drowning will and does occur.

Eight years of tax cuts for the super wealthy was a dangerous precedent especially accompanied by the lack of oversight on Wall Street. Enron and other companies ran wild during the Clinton years. The near collapse of the LTCM Hedge fund in 1998 should have caused legislative or regulatory restraint, not encouragement, by lowering taxes and allowing the derivatives market to run wild. Hedge funds, as well as the entire driving principle behind ENRON, and the widespread use of derivatives stimulated buying in the market with absolutely nothing to back up real value as the stock price rose. When money is made this way how is that any different from when the rich made a windfall before the 1929 crash? Blaming the 2008 crash on the law enabling the poor to buy houses they could ill-afford is both insincere and downright dishonest.

The same problems that caused the near collapse of the LTCM Hedge fund, the misconduct of ENRON and the influence that the 595 trillion dollar derivatives industry had on the 2008 market crash was the very incentives that bankers had in looking the other way and loaning money to people who could not afford housing. The poor did not cause the depression. That is preposterous. It was the greedy investors who expected to make a windfall from flipping houses. It was also the bankers who underwrote mortgages for them. They sold these mortgages as investments and then seduced potential investors to buy the notes by insuring them with unfunded derivatives. These are the people who caused the bubble to form in the first place. The creation of the bubble wasn’t whether the poor could afford the housing, but the manipulation of the market that the super rich always use to seduce others into unwarranted buying. After all, the super rich have problems that you and I could never image and doesn’t this problem make you cry for them: Having acquired that much wealth where, and from whom do they find more?

The bankers failed to disclose risks to whomever sought their loans because, by so doing, it would have interfered with their posturing the bank’s investments in the market. The amount of money the banks and bankers made was obscene and it was all permanently lost when the bubble burst, which was inevitable. But the bonuses paid to the officers responsible for the bubble was not. The stock market crashed because the derivatives that backed these mortgages became worthless once the bubble burst. Yet the houses build for the poor, while unoccupied, represent real wealth that was not permanently lost and will be absorbed back into the economy once the housing market recovers. It is a neat trick how the rich always blame the people less fortunate for their misconduct and then how many middle class people actually believe that nonsense.

The investors of Wall Street made a ton of money before the stock crashed. They accumulated it during a time of massive tax cuts. The manipulators of the market kept the money they made while the institutions they made it with faced bankruptcy. The middle class who sold their houses, for the most part, either rolled it over into new houses or they spent it. Either way, they had nothing to show after the bubble burst. The rich who owned businesses pocketed the money made from the middle class house sales because it was mostly spent on goods and services they provided. Once more, manipulation of the market shifted more wealth from the middle class to the super wealthy, thereby causing the 1929 imbalance to once more emerge.
Armed with this knowledge what can the family law attorney do? Younger attorneys would be well advised to learn the law on cap and trade industries because new sources for energy are the likely new market discussed in the encyclopedic definition of recovery from a depression (furnished above). If you are too old, like me, then you need to explore what services you will offer. And if you historically earned in the top 1% of the family law profession you can probably get by without any of my suggestions.

The first thing that I would ask you look at is whether you make a living by helping people improve their lives or do you make a living in the destruction of them? Divorce is inevitable so we are not to blame for that. But people’s lives change drastically with divorce and have you helped them with those changes? If so, how do you help?

Helping people after the divorce, distinguished from through the divorce, makes us far more important to the client and it preserves the relationship afterwards. Divorce attorneys tend to see themselves in the more limited role of practicing family law instead of being the family lawyer. The second is a natural for you because you helped decide what assets they retain, which ones are sold and which ones are used to create an income. Many clients will need tax help and help with managing those assets later. Management is far more comprehensive than giving them investment advice, which is better suited for the specialist. Everyone will retire someday and have to make decisions on beneficiary elections, which benefits to elect and entitlement. Much of this has a legal overflow. There may be a problem that their health carrier refused to pay an expense[1]. Often the company employing them will offer a schedule of options to elect on health coverage as their employment continues. Routine problems over employment arise which you can take care of and when it gets more complicated you should be in the position of referring the matter over to an employment attorney, not leave them to their own resources.
Legal issues will develop with those assets later and many of those issues can be handled by us. There will be minor family legal problems that you, who know so much about the client, would be better suited to handle. A child might have a legal scuffle in the future or there may be a contract that someone needs your help with. While the more complicated estates and wills should be handled by an estate attorney[2], many who need help do not get any because they are left to their own devices. If you worked more in these capacities clients would seek you out more when they are thinking about remarrying. You could be advising your richer clients about concepts like protecting themselves with tbe “Tenants By their Entireties” property, with cash and stock portfolios and when warranted[3], send them to specialist attorneys who could help them with those needs. As Florida is a state with strong tbe protections, many middle class persons would benefit by this help. I’m sure this area is overlooked because the tbe protection ends with divorce. But many clients will remarry. By handling many more matters you increase your sphere of influence, handle the simpler matters that would likely fall through the cracks and help other clients identify needs and then refer out the business. And let’s face it: it provides you with many more income opportunities.
I would like to create a dialogue on these ideas so that together we can expand the topic of conversation.
Jerry Reiss

COPYRIGHT 2010 JERRY REISS, A.S.A. ALL RIGHTS RESERVED. This may not reproduced in whole or in part without the expressed written permission of the author.
t Jerry Reiss d/b/a Jerry Reiss, ASA, Enrolled Actuary
[1] I provided TPA services for retirement and welfare benefit plans from 1974 – 2001 and forensic services from 1993 through the current date. Best Lawyers® Recommended.
[2] I offer a variety of estate planning support services discussed at my website www.jerryreiss.com.
[3] I offer many valuation services, including help with Craft crammed down values discussed at my website: www.jerryreiss.com.

Student Debt and a Push for Fairness

Student Debt and a Push for Fairness
By RON LIEBER
Published: June 4, 2010
at http://bankruptcy.lawyers.com/consumer-bankruptcy/Student-Loans-In-Bankruptcy.html

If you run up big credit card bills buying a new home theater system and can’t pay it off after a few years, bankruptcy judges can get rid of the debt. They may even erase loans from a casino. But if you borrow money to get an education and can’t afford the loan payments after a few years of underemployment, that’s another matter entirely. It’s nearly impossible to get rid of the debt in bankruptcy court, even if it’s a private loan from for-profit lenders like Citibank or the student loan specialist Sallie Mae.

This part of the bankruptcy law is little known outside education circles, but ever since it went into effect in 2005, it’s inspired shock and often rage among young adults who got in over their heads. Today, they find themselves in the same category as people who can’t discharge child support payments or criminal fines.

Now, even Sallie Mae, tired of being a punching bag for consumer advocates and hoping to avoid changes that would hurt its business too severely, has agreed that the law needs alteration. Bills in the Senate and House of Representatives would make the rules for private loans less strict, now that Congress has finished the job of getting banks out of the business of originating federal student loans.

With this latest initiative, however, lawmakers face a question that’s less about banking than it is about social policy or political calculation. At a time when voters are furious at their neighbors for getting themselves into mortgage trouble, do legislators really want to change the bankruptcy laws so that even more people can walk away from their debts?

There are two main types of student loans. Under the proposed changes, borrowers would remain on the hook for federal loans, like Stafford and Perkins loans, as they have been for many years. To most people, this seems fair because the federal government (and ultimately taxpayers) stand behind these loans. There are also many payment plans and even forgiveness programs for some borrowers.

In 2005, however, Congress made the bankruptcy rules the same for the second kind of debt, private loans underwritten by profit-making banks. These have no government guarantees and come with fewer repayment options. Undergraduates can also borrow much more than they can with federal loans, making trouble more likely.

Destitute borrowers can still discharge student loan debt if they experience “undue hardship.” But that condition is nearly impossible to prove, absent a severe disability.

Meanwhile, the volume of private loans, which are most popular among students attending profit-making schools, has grown rapidly in the last two decades as students have tried to close the gap between the rising price of tuition and what they can afford. In the 2007-8 school year, the latest period for which good data is available, about one third of all recipients of bachelor’s degrees had used a private loan at some point before they graduated, according to College Board research.

Tightening credit caused total private loan volume to fall by about half to roughly $11 billion in the 2008-9 school year, according to the College Board. Tim Ranzetta, founder of Student Lending Analytics, figures it fell an additional 24 percent this last academic year, though his estimate doesn’t include some state-based nonprofit lenders.

There is no strong evidence that young adults would line up at bankruptcy court in the event of a change. That gives Democrats and university groups hope that Congress could succeed in making the laws less strict.

In Congressional hearings on the efforts to change the rule, last year and then in April, no lender was present to make the case for the status quo. Instead, it fell to lawyers and financiers who work for them. They made the following points.

Bankruptcys Would Rise: At the April hearing, John Hupalo, managing director for student loans at Samuel A. Ramirez and Company, made the most obvious case against any change. “With no assets to lose, an education in hand, why not discharge the loan without ever making a payment to the lender?” he said.

Once you set aside this questionable presumption of mendacity among the young, there are actually plenty of practical reasons why not. “People don’t like to go through bankruptcy,” said Representative Steve Cohen, Democrat of Tennessee, who introduced the House bill that would change the rules. “It’s not like going to get a milkshake.”

Andy Winchell, a bankruptcy lawyer in Summit, N.J., likens student loan debt to tattoos: They’re easy to get, people tend to get them when they’re young, and they’re awfully hard to get rid of.

And he would remind clients of a couple of things. First, you generally can’t make another bankruptcy filing and discharge more debt for many years. So if you, in essence, cry wolf with a filing to erase your student loans, you’ll be in a real bind if you then face crushing medical debt two years later.

Then there’s the damage to your credit report. While it doesn’t remain there forever, the blemish can have an enormous impact on young people trying to establish themselves with an employer or buy a home.

Finally, you’re going to have to persuade a lawyer to take your case. And if it seems that you’re simply shirking your obligations, many lawyers will kick you out of their offices. “It’s not easy to find a dishonest bankruptcy attorney who is going to risk their license to practice law on a case they don’t believe in,” Mr. Winchell said.

Sallie Mae can live with a change, so long as there’s a waiting period before anyone can try to discharge the debts. “Sallie Mae continues to support reform that would allow federal and private student loans to be dischargeable in bankruptcy for those who have made a good-faith effort to repay their student loans over a five-to-seven-year period and still experience financial difficulty,” the company said in a prepared statement.

While there is no waiting period in either of the current bills, Mr. Cohen said he could live with one if that’s what it took to get a bill through Congress. “Philosophy and policy can get you on the Rachel Maddow show, but what you want to do is pass legislation and affect people’s lives,” he said, referring to the host of an MSNBC news program.

BANKS WOULDN’T LEND ANYMORE Private student loans are an unusual line of business, given that lenders hand over money to students who might not finish their studies and have uncertain earning prospects even if they do get a degree. “Borrowers are not creditworthy to begin with, almost by definition,” Mr. Hupalo said in an interview this week.

But banks that have stayed in the business (and others, like credit unions, that have entered recently) have made adjustments that will probably protect them far more than any alteration in the bankruptcy laws will hurt. For instance, it’s become much harder to get many private loans without a co-signer. That means lenders have two adults on the hook for repayment instead of just one.

BORROWING COSTS WOULD RISE They probably would rise a bit, at least at first as lenders assume the worst (especially if Congress applies any change to outstanding loans instead of limiting it to future ones). But this might not be such a bad thing.

Private loans exist because the cost of college is often so much higher than what undergraduates can borrow through federal loans, which have annual limits. Some lenders may be predatory and many borrowers are irresponsible, but this debate would be much less loud if tuition were not rising so quickly.

So if loans cost more and lenders underwrite fewer of them, people will have less money to spend on their education. Some fly-by-night profit-making schools might cease to exist, and all but the most popular private nonprofit universities might finally be forced to reckon with their costs and course offerings.

Prices might come down. And young adults just getting started in life might be less likely to face a nasty choice between decades of oppressive debt payments and visiting a bankruptcy judge before starting an entry-level job.

www.familymaritallaw.com

Mortgage Loans Discharged In Chapter 7 Bankruptcy

Mortgage loans can be discharged in Chapter 7 bankruptcy proceedings so that homeowners no longer have to worry about paying an expensive loan when their income has dropped. But with a discharge, the owners will not be able to keep their house, as the bank will receive the collateral back as a result of the loan being eliminated. So there must be other reasons for owners to consider this tactic, since it does not actually save the house.

The main benefit of doing this is that homeowners are able to stop foreclosure from moving any further along in the legal process, meaning no more court documents, lawsuit paperwork, sheriff sale dates, or eviction hearings. Even if the borrowers move out of their house before the foreclosure process is complete, the courts will still move ahead with the necessary procedures to sell the house to satisfy the mortgage lien. Discharging the mortgage through bankruptcy ends this sequence of events.

Another important reason to consider filing Chapter 7 to eliminate the mortgage and move out of the house is the possibility of avoiding deficiency judgments after foreclosure. Although few banks sue again after the sheriff sale for any difference between what was owed and what the property sold for, it may be best just to discharge the mortgage and not worry about any further lawsuits regarding this property.

Bankruptcy is an important legal defense that homeowners have against unmanageable debt burdens and aggressive collections efforts, whether they are from credit cards, collection agencies, or mortgage companies. Collectors will never give up trying to go after a debt, and every day of the foreclosure process can be a nerve-wracking experience. Although the social stigma of bankruptcy may be severe, many debtors will liberated and generally much feel better with a fresh start and no extra debt.

www.FamilyMaritalLaw.com