What the bailout package means to you
Filed under: Banks, Borrowing, Tax, Recession
The U.S. government passed a $700 billion economic bailout package in an effort to stabilize the flailing banking sector. So far, it hasn't worked as hoped and the financial crisis has deepened since the law was approved. That's the bad news.The good news is that there is a lot more than help for just banks in the 451-page legislation. Lawmakers added hundreds of other "sweeteners" to make the bill more popular with the public. See if you can benefit from any of the following provisions:
More insurance for bank deposits: Now your bank deposits are protected up to $250,000 for each account. Formerly, the Federal Deposit Insurance Corporation (FDIC) backed your deposits up to $100,000. The increase is temporary, but is likely to be extended.
AMT Reform: Fewer taxpayers are going to get hit with the dreaded Alternative Minimum Tax, a parallel tax code that was originally intended to make sure wealthy people paid their fair share of taxes, but which has increasingly slammed middle-income earners. Basically, unless you make more than $100,000 for single taxpayers or $175,000 for married taxpayers filing jointly, you shouldn't have to worry about the AMT due to the change.
Easier to get your mortgage terms modified: The new law asks Federal agencies to encourage companies that service mortgages to help their borrowers who are having trouble making payments modify their loans so they become more affordable. It sounds a little vague, but lenders are already responding to government prodding and agreeing to modify mortgage terms for some distressed borrowers. Bank of America, for example, announced a new plan Oct. 6 that will aid certain former Countrywide mortgage holders.
Caps on executive pay: Again, the terms here are a little murky, but basically executives of firms that participate in the bailout could have to repay some of their bonuses if the funds were awarded based on inaccurate financial statements. Execs also should not get so-called "golden parachutes" or large payments if they are fired. This provision may have psychic, rather than monetary benefits for those Americans who are angry about the high pay awarded some of the same bankers who have presided over the economic crisis.
Banks may be less at risk of failing due to accounting issues: In a controversial move, the law asks the Securities and Exchange Commission (SEC) to consider changing accounting rules that require banks to value securities at market prices even when there are no buyers. That so called "mark-to-market" requirement means banks have to account for some securities as if they are worthless (putting them in bad stead with rating agencies), even if they are sure the securities will eventually be worth something.
Insurers have to treat mental health like other illnesses: The law requires health insurance companies to cover treatment for mental illnesses the same way they cover any other disease. This became part of the law due to procedural requirements. The Senate's financial rescue plan was actually added to a bill for "mental health parity" that passed the house last March.
Assorted niche tax breaks: The bailout plan has been faulted for including lots of pork – provisions that benefit a small number of people, but that can be key to a politician's reelection bid. The law contains tax breaks that benefit makers of wooden arrows used in children's toys, the rum industry of Puerto Rico and the Virgin Islands, wool manufacturers and racetrack owners to name a few.
More development of alternative energy: The law contains extensions for some tax breaks intended to spur the use and development of alternative energy. Homeowners can continue to get tax credits to cover part of the costs of solar panels, windmills, geo-thermal heating systems and electric cars. Companies that invest in alternative energy technologies will also continue to enjoy some nice tax breaks.
Lower taxes in the future? A part of the law which invites skepticism currently, allows the government to take equity stakes in Wall Street firms that participate in the bailout. Theoretically these stakes could one day be quite valuable. Another provision states that after five years, if there are any losses due to the bailout, the government will recoup the shortfall from the financial services industry. In theory, one day this could mean increases in government coffers without tax hikes for individuals. That would be nice.
Reader Comments (Page 1 of 2)
10-08-2008 @ 6:50AM
Tom Howard said...
I was drafted in 1969 and went across the pond (Vietnam) didn't ask to go but did unlike those that went to Canada. Dad died and we lost the family farm for taxes owed. Now here I am 39 years later. I saved for my 2 kids education which due to this financial meltdown have lost 50% of that. The broker says don't cash out so I waited and really took a hit on the kids education fund that I needed next year. I lost my retirement money almost all of it. Frankly I don't know who to trust anymore. Those I thought I could trust really let me down with advice that benfited them with commisons and fees but since have found out they really didn't give a hoot about me or my savings. Just more of the greed gene of those connected to wall street. I have just been diagnosed with post dramatic stress that I don't understand why at this point in my life. I guess my hard work and honesty just doesn't pay off anymore. I know this sounds like negative thinking but I don't think I can take much more.
Good luck to the rest of you and may you fair better in this mess than I have. Thanks for listening Tom Howard
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10-08-2008 @ 7:39AM
Pamela said...
the broker just wanted your money and you should of cashed out when you wanted to. I hope everything will be ok and you are in my prayers ok
10-08-2008 @ 7:50AM
Ted Gager said...
Hello Tom, Ted here.
I won't even try to cheer you up as I feel that no one would be able to cheer me up any more.
I went to Vietnam by way of Hurricane Camile in Boot Camp, August, 1969. At least my first nineteen years were good. It's been a rough ride since. I'm told I have Post Trematic Stress Syndrome by people I know. My head feels like a Ticking Bomb some times. Maybe I have it and maybe I don't but I refuse to seak any assistance from the same people that may be responsible for it. I'm told that the VA can help dramatically if you approach them. I have a friend that did and they helped him a lot. Saved his house for him amoung other things....Good Luck and God Bless, Ted (US Navy Seabees)
10-08-2008 @ 8:55AM
Ady Rodriguez said...
Hey Tom, i was reading your post,and some way sound very familiar to my case,i got here to Florida with my husband and family 13 years ago with only 13 boxes ,of personal things and full of dreams.We are very hard working couple ,we have two kids, my husband used to work up to 70 hours a week. Two years later we were living at our own home, that we purchased with sacrafice.When the market star raising up and people got crazy getting properties, we saw the opportunity to capitalized , invest for the future and triple our money to pay for the kids collage and lived more comfortable. Our daugther is 15 yrs.old and already taking collage classes and want to become a lawyer. So we went ahead and star investing and ending up with 5 properties and excellent credit score over 800.Right now we are lossing everything. And both working part time because of lack of hours.If i would it had the opportunity to cash out or sale, minimum a will have no less than 600k on hands but the market suddendly crash and we loss out.Two weeks ago i ending up at the hospital with panics attacks, stress and depressions, like you very disapointed of life and everything, but then i start thinking about the kids ,the don`t deserved going to more that we already going thru.and i`m not capable of hurting them.And if i do something stupid i going to mark them for life . I`m taking it day by day and like i came here with nothing start all over again. But i still have something that the market couldn`t take away from me and that is my family and the love that we have for each other.Good luck.
10-08-2008 @ 4:58PM
chris said...
to tom howard,
just to make you feel a little bit better. you are not alone and i feel with you. somehow the people that did the right thing got hit the hardest. i was married for a long time, divorced now, my x went and i had to go on and pay the bills. i settled to pay him off for the house, right after that the market crashed. my x still gets the money, the house is worth less, i am in dept, my retirement is going down and there is not much time left to make up for all the loss.
but don't give up on the kids, my daughter made it through college even without a big collgege fund. she worked part time, i helped her and she applied for grants. where there is a will there is a way.
10-08-2008 @ 11:33AM
cathy said...
I just wanting to say thank you for your service. I'm sorry for all of your loss but don't give up Tom. I can tell your a good man.
10-08-2008 @ 11:39AM
Van Hamlin said...
I hear you Tom! I am a Vietnam Vet too(03/68 - 03/69)!
My wife is usually right about stuff like putting up the shutters when a hurricane is looming or, in this case, cashing in your chips on Wall Street. I listened and moved our investments to CD's, etc. before the big crash started. I have a state retirement too. I am fine, my kids are raised and I could pay the house off if I had to.
All good things aside, I have learned from past experience that the financial world is a INVESTOR BEWARE world. I believe that foreign investors have figured this out too! Hey, every day you see where people walked out of failing businesses with hundreds of millions of investors dollars.
Your problem was that you screwed up and trusted the biggest thieves in America. They shot Bonnie & Clyde for taking only a fraction of what our modern day CEO's have taken. The difference between outlaws and CEO's is the fact that Bank Robbers don't pay lobbyists to grease the old political chute! If the Barrows gang had used the right lobbyist they could have gotten a grant to study Bank Security and the damned thing would have been tacked onto a crime bill.
My advice to you is hold on any stock you have with a company still in business ans seek out any class action suits that may arise against the companies that you invested in and lost everything. In five to six years your stock should improve to a level that you could sell at least at you purchase value. If you are getting ready to retire; get your investments converted to cash.
There is a ray of hope Tom. God bless you brother!
10-08-2008 @ 11:39AM
Frances said...
Hey Tom - Hang in there.
Loving family and friends are the most important thing and no one can take that away. Some say this financial stuff is just an "adjustment" and things will get better soon.
10-08-2008 @ 7:54AM
John Ellis said...
Tom,
I do sympathize with your disappointment. I am a financial professional and understand your feelings about your advisor.
The urge to cash out when the market is down is very strong. However, cashing out when the market is down is exactly why so many investors loose the growth in the accounts. Prior growth from months or years can be wiped out in one quick decision to "sell low". This is the time to either buy or hold your investments. It WILL come back. No one knows for sure when or how fast it will, but it WILL come back.
Have faith in the American dream of being productive, successful and working to make your dreams come true.
If you continue to have your investments in the market just have lots of patience and believe that our Country will come out of this mess in time.
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10-08-2008 @ 8:10AM
ABC said...
Hi! Tom,
Fear is:
False Evidence Appearing Real.
God gives you what you need not always what you want.
it still is only on paper.
ride the storm.
when your in faith your not in fear.
and calm waters don't make good sailors.
Tom your kids can get money for school and when your money comes back up if you still feel the need to pay it. (do it down the road). most people say your retirement means more then paying for your kids school your kids have a whole life to pay it back.
what time line is your retirement? enjoy the day, you don't know how many you have left.
why waste any more time worrying on what you can't change
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10-08-2008 @ 8:35AM
Barb said...
The bailout will not help me at all and I'm stuck taking the consequences for everyone else. I'm middle age, lower middle class ($45,000/yr in Connecticut), have hardly any savings so the increase in FDIC doesn't affect me. I don't have a mortgage, as I worked hard to pay off my house and didn't get greedy to "keep up with the Jones'". I drive a 1993 Toyota which still runs great and looks fine. I have a 401K that I'm worried about because that will be my retirement fund. I'm 53 and have at least 10 more years to work. Hopefully it will go back up. These are just examples. The bailout is only for the rich banks and the poor who shouldn't have had been able to acquire a mortgage anyway. I'm sick of being in the middle and rescuing those above me and below me. By the way, I'm voting for McCain because I wouldn't trust Obama as far as I could throw him with any middle class issues. Thanks for listening. I was just venting. My main point is that the bailout is not for the middle class. Oh, I almost forgot, I also keep my thermostat at 60-65 during the winter to save heating oil. I think I'm doing my part in more ways than one. I don't see hardly anyone else doing the same and it makes me sick how people can't take control of any situation. They just keep relying on Government to rescue them. Again, thanks for listening! Barb
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10-08-2008 @ 10:00AM
dawn said...
barb..lots of people are in the same situation that you are, and I see many doing what they can to do their part. my husband is a firefighter and a paramedic..he works 3 jobs. I used to work a minimun of 55 hours a week. I am in nursing school now. We have a 3yo and 4month old. we too keep the heat on 64 all winter and dress warm, we spend about 55.00/ for food for the family, we go to McDonalds as a treat, go to free museums, parks and the library etc for entertainment for the kids, have sold tons of things on craigslist.org, use as little electricity as possible, hang clothes outside to air dry on the line, dilute juice to make it last longer, etc etc etc. My husband was out of work last year while i was pregnant b/c of an injury. We had to use the rest of our savings to survive. Through all of this, I do not blame anyone, I keep my chin up and a positive attitude about me. Things will get better for everyone. We are doing our part...lots of people are. A positive attitude helps get through the hardest of days. I take this opportunity to show my three year old about reusing, recycling, not wasting, and using money wisely. He has no idea how hard we struggle every day. Nor does anyone else. What other people do is their business. I keep my eyes on my own plate and keep working hard. We are rich in the important areas of life and even though it is hard right now, I could not be happier with what I have. God Bless everyone who is struggling...no matter who's fault it is, it still is so very hard.
Caroline
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10-08-2008 @ 10:57AM
john said...
Well I could be wrong but my take is simple we need to get things under control. Throwing money to the banks and mortgage companies IS NOT THE ANSWER its like putting a bandage on cancer we need to get the fuel prices at $2.00 or less. Fuel drives the cost of everything EVERYTHING !!!!!!! Think about it .It has caused the loss of jobs / business / industry / people cant afford to do anything anymore because their putting any extra money the might have in their fuel tank. I am a small business owner (flight school )and a realtor my wife is a closing coordinator everything we do for a living has fallen off to nothing to make matters worse12 weeks ago I broke my neck in a car accident my wife stayed in the hospital with me and as a result she got MRSA and while testing her we found out she also has leukemia we caught it 22% very early so I guess everything happens for a reason I now have my halo brace removed and doing pretty good I am sitting in the hospital with my wife we just finished her second round of chemo the good news is the DR said this will be a cure thank god !!! but even with insurance all of this is still costly I am working morning till night 7 days a week trying to make ends meet and steeling a few minuets at a time to go to the hospital and see my wife after reading everyone else’s unfortunate events I think I am take some time each day to spend with my wife you never know what’s next and life is just to short Ill pay what I can for as long as it takes to repay all of this debt we have incurred I created the debt Ill repay it.
Maybe if we all felt that way we wouldn’t be in trouble ??
John
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10-08-2008 @ 12:14PM
Valarie Thomas said...
Tom & anyone else feeling depressed, cheated and hopeless-
This is a little unconventional for some, but here it goes. I am a licensed minister, attorney, financial advisor, market investor and parent of three. I have just as many reasons to feel hopeless and disappointment as I do to feel hope and peace for the future. I CHOOSE to be hopeful and to put my trust in God. Sure, that alone won't pay this month's mortgage, but it will help me to keep my cool and find new ways to make up for where I feel I may fall short in the future. Unfortunately, there's nothing that can be done about the loss we've all endured the past month, but we have to do in the market what we do each day in the stores - don't cash in something you paid full price for when it's on a sale because you'll only get the lower sale value. In the market right now, things are on sale. If you have money, it's a good time to start buying. If you don't, it's a good time to hold steady on what you already have. DON"T SELL. In all of this, if you have faith in God, then use it. We should be using it each day anyway, but somehow many of us only find it when we go through crisis. That's okay, because God is available for the crisis. This may not be what some of you want to hear, but trust me to know that your faith in God will keep your heart and mind in peace, and it sounds like we are all in need of a little more of it. Don't give up or give in! The end is not here yet. Trust God.
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10-08-2008 @ 11:16AM
RHONDA said...
How about if your already rich and you want to serve your country in office you do so without a paycheck, YOUR ALREADY RICH!!!!
How much could be saved if all elected officals with a net worth over two million, worked on a volunteer basis, worked for the love of country worked for their fellow citizens.
How about net worth caps, if your worth millions already, your fired, let someone else have a chance at that good job, someone not rich.
How about the doctor who made 20 million last year, works this year for free!
How about the lawyers who made 10 mil last year, works for free this year!
Don't want to work for free, fine stay home, we will see you next year.
HOW ABOUT COMPANIES PUT PROFITS BACK INTO COMPANIES, INSTEAD OF IN CROOKED INVESTORS HANDS!
HOW ABOUT ANY COMPANY THAT RECEIVES TAX BREAKS-CREDITS AND PROFITS MORE THEN 5MIL, HAS TO RETURN THE MONEY TO THE GOVERNMENT, IF THEY MADE A PROFIT THEY DON'T NEED CREDITS AND TAX BREAKS.
HOW ABOUT WE LOCK UP POLITICIANS, LAWYERS, STOCKBROKERS, CEO's FOR THE FRAUD THEY COMMIT. ACROSS THE BOARD RETURN THE MONEY YOU STOLE OR YOU WILL STAY IN PRISON.
I AM A NOBODY, SO ARE YOU, YOU CAN BET YOUR LAST DOLLAR THEY WOULD LOCK US UP IF WE STOLE THEIR LIFE SAVINGS.
HOW ABOUT YOU GO TO THIS SITE WHERE YOUR VOICE CAN BE HEARD BY OUR POLITICIANS
http://gooohc.sslcert35.com/home.aspx
Get Out Of Our House the only site serious about government reform,
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10-08-2008 @ 12:57PM
Lynne said...
It really hurts to hear about other real people, doing it right, living within their means, planning for the future, and then going through this stress because the government mismanages our money, doesn't live within its means and didn't plan for the future... using our money to support waste, incompetence and greed!! My husband and I own a small business and get very frustrated that the calls for higher taxes are made under the guise of "redistribution". We willingly redistribute every day, contributing a significant percentage of our earnings to organizations that manage their money well and provide real help(food,clothes,shelter,jobs) to people who are in need. We are very fortunate that our hard work and planning has been able to support us (so far), and wouldn't be upset paying our "redistribution" taxes if the redistributed dollars went to help people like Tom and Barb and Dawn... but we're absolutely confident that the 50% of our earnings paid to the government under the pretense of redistribution will NEVER get to Tom and Barb and Dawn but will continue to be used to fuel a huge, wasteful,inefficient government. When you hear how smart and careful and efficient Dawn is with our resources.. wouldn't it be amazing if our government operated under those same values?!! There is plenty of money in the Federal government to work this out, if only they had to manage their business like we have to manage ours!!
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10-08-2008 @ 11:47AM
William B. Wales III said...
Brothers and Sisters,
1st Thess: 4:14-18
Paul tells us to keep watch for the Dead in Christ will raise out of
the graves and we which are alive will be caught up with them to
meet the Lord Our savior in thee air to be with Him for ever. The Lord is going to take His to Heaven to be with Him the people that are teaching about Christ comming back to this earth. Have it all wrong,the Lord is not comming back to earth
till after the Great Tribulation. So in short get your house in order with Christ Jesus. The last days are upon us. Trusting God and His word!!!! Yours In Christ Bill Wales
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10-08-2008 @ 11:43AM
cathy said...
ya know when you put obama with biden it looks kinda creepy to me.
obama biden
osama bin laden
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10-09-2008 @ 10:26AM
justdon said...
I was employed for as a senior loan officer for a financial institution and in 2004 and I was terminated for being to conservative in my underwriting practices because I would not approve the loans of some people who were clearly buying over their heads. I had people with housing ratios of over 50% of their gross income (that’s 50% of their income before taxes to just make their mortgage payment); this doesn’t even take in consideration their other debts like auto loans, credit cards, utilities or basic daily needs like food on their tables. When I would explain that if these potential new home buyers would realistically look at these additional expenses along with their mortgage payment, they in many cases where already spending more then they actually made, they would go down the road to another lender who only cared about making their commission and selling the loan off to FannieMae or FreddieMac.
If you add to that the creative lending practices of lending first time home buyers 100% of the purchase price of their home by giving them an 80% first mortgage and a 20% second mortgage, well the writing was on the wall in big bold print that trouble was on its way and my parting words to my previous employer emphasized just that, they now have the highest percentage of delinquent loan payments in the area and have so many foreclosures on their books that they now have an in house real estate agent marketing their REO’s (RealEstateOwned). Then there were the homeowners who had been in their homes for years that were refinancing 120% of the value of their homes in anticipation that housing prices where going to increase at 7% to 10% per year, some took the extra cash to invest back into the real estate market thinking that could become “flippers” like they see on TV and realtors certainly didn’t mind finding them the wreaks to purchase. Believe me if a realtor knew of a property that could appreciate 50% in value with little work in a short time, they wouldn’t be offering it to just anyone.
All in all there are many people at fault here, from the over zealous homeowners, the mortgage brokers looking to score commissions or the financial institutions with their high paid executives making outrageous salaries and bonuses for doing what? Think about it, when the president and vice president of the United States makes $400,000 and $208,100 respectfully, how can the salary of a CEO of a financial institution with as few as 6 branch offices be paid over a 1million dollars a year and receive bonuses of over another ½ million when the bank is losing money for the past few years? And that’s just the top guy, the EVP’s and other officers of the banks are pulling down anywhere from ½ to 1 million after bonuses. Obviously this is my personal example of CEO abusive pay from the small financial institution I worked for at a salary of $60,000 a year as Senior Loan officer who was responsible for finding the mortgage customer, taking their application, securing their credit and income information, underwrite, approve and actually close the loan which eliminated the need for a loan closer. Ever wonder why you earn less than 1% on the money you keep in your checking account or less than 3% in your savings…..? I could go on forever about the crazy expense accounts, company cars and other waste but I think I’ve made my point… Vote McCain, Obama needs to experience life in the Senate for a while to see what is going on and get involved in trying to change things from the inside. Unfortunately most of his experience as senator has been spent running for president, not a bad guy, just needs more hands on experience to really make a change, put him in office now and if he fails from lack of non-partisan relationships built we are all losers. Both parties are quick to point to the other guy when things are going bad, but nobody really has an idea how to fix things while staying within party lines. McCain has earned his chance to try and fix this mess that both parties got us into, he was admired by both parties before he was running for president any many said they would be proud to serve with him. Words change when they have an agenda to stay in party lines.
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10-08-2008 @ 1:14PM
Sherrie said...
Mr. Howard, I'm praying for you and all the other middle America people who are stuck in this mess. I am probably about the same age as you (grad HS '72) but childless. I expect, after putting money away in IRAs and 401Ks for years only to see it meltdown, that I will never retire, but work in less and less secure, lower and lower paying jobs, until the day I die. I was sometimes sorry I hadn't had kids, but now I can't imagine the worry I would have over how they will be able to exist in the world as it is. Keep trying, we're all in the same boat.
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