MORE ON THE JPMORGAN CHASE FIASCO and THE TRUTH ABOUT THAT NEW 3.8% TAX ON HOME SALES

News for the "Legion of the Gullible" about "ObamaCare's" 3.8% Tax on Home Sales

One of the items the right wing internet propaganda machine has been feeding to the “Legion of the Gullible” is misinformation about a supposed 3.8% tax when you sell your home.  This is part of the Affordable Health Care Act and is one of the means it provides to fund its benefits.  Don't fall for the carefully worded lies on the internet about this tax. Their intent is to turn the gullible against the Affordable Health Care Act.  Here is the truth about it.
                                 
                                          

                                          If you live here and sell for a profit, the tax probably won't affect you.

There is such a tax in the act, and it is not only on real estate.  It is on all profits made from investments including real estate sales, capital gains and similar profit sources.  It only applies, however, to couples with an annual income of $500,000 or more (or single individuals with an annual income of $250,000).  If you earn less, it does not apply to you at all.  And if you make enough for it to apply, the amount of profit it applies to is only that amount over and above those $500,000 and $250,000 levels. 

Here’s an example.  A couple earning over $500,000 sells the house which they had purchased many years ago for $200,000 to a buyer willing to pay $500,000, netting them a $300,000 profit.  Since this is below $500,000, this profit would not be subject to the tax, even though their income is over $500,000.  But let’s assume they also sold some stock that they had held for years creating capital gains of $300,000 bringing their total profit for the year to $600,000.  That would make them subject to the 3.8% tax but only on the $100,000 in excess of $500,000.  They would pay $3,800.  Clearly, the vast majority of people would not be subject to this tax.  No matter what you read on the internet.

                                           
                                                   If you live here and sell for a profit, the tax might affect you.

How to spot members of the “Legion of the Gullible.”  There are many in your community.  If they meet two or more of these criteria, they may belong to the “Legion.”  More than two, they are likely to be charter members, and probably beyond redemption, no longer being able to distinguish truth from untruth.

1.     Some believe the President was born in Kenya.

2.     Some believe that the President is a closet Marxist, leading the country down the road to Socialism.

3.     Some believe the President is a Muslim.

4.     Some leave their TV sets permanently tuned to Fox News.

5.     Some leave their car radios permanently set on stations broadcasting Limbaugh, Prager, Savage, Beck and other right wing talk show hosts.

6.     Some have weapons which they feel the government is intent on taking away from them, despite the Second Amendment.

   

Jack Lippman

                                                           

More on the JP Morgan Fiasco

Let’s think a little more about that JP Morgan Chase deal that went sour.  Investors buy bonds.  Some are very highly rated and are unlikely to default.  With such bonds, the debt the investors buy is almost always paid back when due and the bond, if traded before then, will bring a fair price.  Other bonds, of necessity, pay a much higher interest rate to those who purchase them, are lower rated and have a greater chance of their defaulting.  If traded, such bonds may not be worth as much as more highly rated bonds.  

To protect this “downside” in the bond market, it appears there is an “index” which shows the likelihood of a bond defaulting.  This is important because insurance to reimburse some bond holders in event of defaults can be purchased and its price depends upon this index.  It appears that JP Morgan Chase was “taking a position” in this index.  And here is where the picture gets murky.  To perhaps help you understand more of what happened, here is Joe Nocera’s column from the New York Times of Monday, May 14.

Make Banking Boring

By JOE NOCERA

Published: May 14, 2012

 

Let’s begin by stipulating the obvious: nobody outside of JPMorgan Chase knows for sure what really happened with those trades that have cost it so much money and done such severe damage to its once stellar reputation. 

Fred R. Conrad/The New York Times

In his conference call last Thursday, Jamie Dimon, the bank’s chief executive, characterized the trades as “stupid,” but refused to get into any specifics. Even hedge fund managers on the other side of the JPMorgan trades have been able to cobble together only bits and pieces. Most of the emphasis has been on the credit derivative business managed by one Bruno Iksil in JPMorgan’s London office — a k a the “London whale.” Yet from what I hear, his losses probably won’t total more than $600 million — while the bank’s total losses have reached $2.3 billion, and could well hit $4 billion, according to The Wall Street Journal. Where are the rest of the losses coming from? As I say, nobody knows. 

                                

                                                         Jamie Dimon, JPMorgan Chase CEO

Still, we know enough to be able to make some informed judgments. We know that JPMorgan, awash in taxpayer-insured deposits, took some of that money — around $62 billion at last count — and decided to invest it in corporate debt, which had the potential to generate higher returns than, say, old-fashioned loans. Citigroup and Bank of America, chastened by the financial crisis in ways that JPMorgan was not, had far less invested in such securities. 

We know that JPMorgan’s chief investment office, which had orchestrated the debt purchases, decided to hedge the entire portfolio by selling credit default swaps against a corporate bond index. You remember our old friends, credit default swaps, don’t you? Three years ago, they nearly brought down the financial world. Not content with its hedge, it then hedged against the hedge. It was all very complex, of course, and all done in the name of “risk management.” 

We also know that Ina Drew, a JPMorgan veteran who headed the chief investment office — and who departed on Monday — made $14 million last year. Wall Street executives who make $14 million are not risk managers. They are risk takers — big ones. And genuine hedging activity does not cost financial institutions billions of dollars in losses: their sole purpose is to protect against big losses. What causes giant losses are giant, unhedged bets, something we also learned in the fall of 2008. 

Thus, the final thing we know: At JPMorgan, nothing changed. The incentives, the behavior, even the trades themselves are basically the same as they were in the run-up to the financial crisis. The London whale was selling underpriced “credit protection.” Isn’t that exactly what A.I.G. did? The only difference is that JPMorgan has the balance sheet to absorb the losses that Iksil and his colleagues have racked up. That is small comfort. 

In recent years, whenever I heard Dimon defend derivatives, he cast it as something banks had to offer their clients. Caterpillar, he liked to say, needed to hedge its exposure to foreign currency shifts, which JPMorgan’s derivatives made possible. But what client was being served with these trades? They were done for the bank, by the bank, solely to fatten the bank’s bottom line. 

Which brings us, inevitably, to the Volcker Rule, that part of the financial reform law intended to prevent banks from doing what JPMorgan was doing: making risky bets for its own account. JPMorgan executives have insisted in recent days that the London trades did not violate the Volcker Rule (which, for the record, has not yet taken effect). But that is only because the banks have lobbied to protect their ability to hedge entire portfolios. A letter to regulators written in February by a top JPMorgan lobbyist — a letter denouncing the potential effects of a strictly interpreted Volcker Rule — describes a trade that sounds exactly like the ones that have just caused all the problems. Such trades need to be preserved, the lobbyist argues. 

Actually, they don’t. “I just want all this garbage out of insured banks,” said Sheila Bair, the former head of the Federal Deposit Insurance Corporation. “A bank with insured deposits should be making loans. If they have excess they should put the money in safe government securities. If they want to trade, set up separate subsidiaries that have higher capital requirements.” 

What banking most needs is to become boring, the way the business was before bankers became addicted to trading profits. But if that were to happen, Ina Drew wouldn’t make $14 million. Safer banking means lower profits, which means smaller compensation packages. That is precisely what JPMorgan’s London traders were trying to avoid.  “Paul Volcker by his own admission has said he doesn’t understand capital markets,” Dimon has famously said. What Volcker understands is far more important: the behavior of bankers. 

                                                
                                      Paul Volcker, Former Federal Reserve Bank Chief

Happily, the recent behavior of JPMorgan’s London traders could well cause regulators to put in place a Volcker Rule so tough that it would make banking boring again. One can only hope.

                                                                    

                                                                 *  *  *

Okay, now you may understand what happened a little bit better after reading Joe Nocera’s column.  After all, even Paul Volcker, according to JP Morgan Chase’s CEO, “doesn’t understand capital markets.” You and I should be expected to?  No way.  

It looks like the price of insurance to cover the event of a bond defaulting or dropping in value, the “hedge,” was based on an “index” and JPMorgan’s London office figured out a way to game that “index,” so that the “hedge” insurance was cheaper.  And they got caught.  It’s like when your neighbor who brags that he pays half of what you do for homeowner’s insurance is surprised when his insurance company gives him a check for $25,000 to cover $100,000 of damage to his home.

Bottom line:  it was a mistake back in 1999 to get rid of the New Deal’s Glass-Steagall Act which separated investment banking from traditional retail banking.  The Dodd-Frank financial reforms attempt to undo that blunder and the fiasco described above should go a long way to assure that these banking reforms are vigorously and promptly implemented.  Where do the two Presidential candidates stand in regard to such reform?  That's a very important question!

(A good way for JP Morgan Chase to start toward banking reform is to move its London investment office to a suite in the Venetian Hotel in Las Vegas where its traders can have fun at the tables rather than with our banking system.  Ms. Drew can become a croupier.  Actually, she already is one.  That was the problem.)

                                    
                                        Where JPMorgan Chase Traders Belong

JL

                                                                  


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