New Banks Placed on FDIC's Troubled List

The Federal Deposit Insurance Corporation or the FDIC has placed 703 banks on its list of problem banks, which is the highest since 1993.  The FDIC is expectng $20 billion in additional losses for 2010.  However, the agency does not believe it will need to access its emergency reserve fund with the US Treasury.  Most of the lsses have already been accounted for by the banks.  Last year, the fund fell into the red and required member banks to pre-pay their quarterly assessments to bring the fundi back up to normal levels. The fund is attempting to attract non-traditinal buyers of the bank assets such as investment groups and private equity firms. 

Credit Card Reform

This is one of personal favorite pieces of legislation that has passed Congress in quite some time.  Finally, our lawmakers have listened and put an end to some of the predatory practices that credit card companies use against consumers. Some provions have already taken place last August.  These are the new ones. 

Interest Rates

• Starting Monday, interest rate hikes on existing balances will be prohibited unless the cardholder is more than 60 days late in making a payment.
• Additionally, credit card companies will be prohibited from raising interest rates on customers if they are late paying an unrelated bill such as a car loan or a utility bill.
• Introductory or "Teaser" rates will be required to last for at least six months, and credit card companies will be prohibited from increasing rates in the first year after a credit card account is opened.

Discosure Clarity 

• Payment dates and late payment dates will be clearly indicated on the bill.
• Agreements will be posted on the company's web site.
• Montly statements will inform customers on the length of time it will take to pay off a bill using minimum payments.
• Card holders will be notified 45 days in advance of changes to their card conditions
• Card holders will have five years to pay the card off.
• Statements will be mailed out 21 days prior to their due date.

Other Terms

• Any payments in excess of the minimum pays off the highest interest balance first.
• Card companies will be unable to charge customers for paying by phones, or the internet.
• Customers may opt in or out of over limit fees.  If they opt out, their card will reject when it is over limt.
• Customes under age 21 must obtain the signature of a parent or guardian.
• Credit card companies must not use misleading marketing presentation to minors. 

TGIF Series-Accounting Boot Camp-Episode 1

I completed my degree in accounting at the University of Tulsa, a private university in Tulsa, Oklahoma in 1982. At this time, (at the risk of totally dating myself) there were eight national public accounting firms, “The Big Eight.” At the University of Tulsa, the professors made it clear that if you did not work for one of these firms, your entire career would basically be a failure. It was imperative to make a high grade point and have sufficient extracurricular activities so that these firms (not all were located in Tulsa) would interview you.


No one wanted to stay at these firms long, because everyone knew they were “sweat shops”. They hired large recruiting classes only to layoff half of them each year. Not only that, but we heard that they made you work insane amounts of hours. If you were still there at the end of the third year, you had it made. You could get a really good job at a private company.

Fortunately for me, school was easy for me and I easily secured interviews with all of the firms located in Tulsa. Each one was reputed to have a certain personality, but the two best firms, hands down. were Arthur Andersen (Go Ahead and Laugh-Worldcom, Enron, fraud, document shredders, eventual dissolution of the firm, etc.) and Arthur Young. I went for my first interview with Arthur Andersen and spent all day there. (All of the interviews took all day long) My last interview was with an influential partner who just happened to be a large donor to the University of Tulsa.

Evidently I failed the question: “Where do you see yourself in 10 years?”. I answered honestly and said, that I certainly did not want to be a partner or anything like that, but that maybe I would want to stay about three years. Evidently this was the wrong answer and I did not receive an offer! This was the first inkling I had, that I might have chosen the wrong career. Apparently, from talking with other recruits, you were supposed to lie about this question. Although only about one out of twenty accounting students that I knew were planning on remaining with an accounting firm, the answer you were supposed to give was “My greatest desire is to become a partner at this firm”.

This inability to go with the flow, speak the company line, be a team player, etc has plagued my entire career, unfortunately. I decided that the next interview I was going to ace, so I practiced in front of my family and friends. I was fully prepared when I went to Arthur Young and they asked me “Where do see yourself in ten years? “ I swallowed, slowed my breathing and squeaked out “My greatest desire is to be a partner at Arthur Young”. Fortunately, they did not know me well enough to know I was totally lying. I received an offer from Arthur Young and was thrilled.

Little did I know just what I was getting into.

Financial Reform Bill

As part of the Financial Reform Bill, the Senate Banking Committee is currently working on legislation which could create a standalone “Consumer Financial Protection Agency”. The creation of the agency is in response to the recent financial disasters including sub-prime mortgages and other financial instruments, which escaped government regulation, as well as the failure of several large financial institutions and the subsequent federal bailouts of these institutions. Another disputed topic is the amount of control that shareholders should have over executive pay. Additionally, President Obama has asked that the bill limit bank’s proprietary trading, refuse bank access to the hedge fund business, and limit bank growth. Some critics of the bill had previously expressed concern that the proposed agency would over regulate the Securities and Exchange Commission. However, Senator Bob Corker (R-Tenn), a member of the committee expressed optimism that the bill would receive Republican support. Senate Banking Chairman Christopher Dodd (D-Conn) also expressed encouragement about collaboration between Democrats and Republicans on the bill.

Jobs Bill

Senate Majority Leader Harry Reid, (D-Nev) received unexpected help from the Senates newest member Scott Brown (R-Mass) with the new jobs bill. Senator Brown and four other Republicans joined the Decomocrats in voting for the bill.  Democreatic opponents of the bill argue that it did not go far enough, because an extension of unemployment benefits and Cobran benefits for unemployed workers was not included.  However, the following items were included:

The jobs bill includes four components:

• a tax credit to employers who hire new workers
• a provision giving small businesses more leeway to write off the cost of capital investments
• the Build America Bonds, which would subsidize the borrowing costs of state and local governments
• a one-year extension of surface transportation authorization funding

The unemployment benefits and COBRA benefits will begin to expire on February 28, prompting other Democratic lawmakers to push for more jobs legislation.

 

 

 

 

 

 

 

  

 

Home Mortgage Deduction-Tax Savings or Not?

Are you renting right now?  Have you had many of your friends who own their own homes hassle your about making the plunge and buying a home? Would you be surprised If I told you that sometimes it does not make economic sense to buy a home for tax purposes? Owning a home has other advantages including the potential for appreciation with the property and the opportunities for making changes to the property as you see fit in order to make it more of a home for your family.  However, depending on your personal situation, and the other itemized deductions you have, owning a home may not make sense for taxes. In order to claim the mortgage interest and real estate taxes deduction, you must itemize.  Below is a list of the standard deduction amounts for 2010:

Single – $5,700


Married Filing Jointly – $11,400

Married Filing Separately – $5,700

Head of household – $8,350

Qualifying widow(er) – $11,400

Example 1 The net effect for deducting mortgage interest would be as follows:

• Net interest deduction  $11,500
• Tax refund                      2,875
• Net Cash Paid                8,625

Example 2 The net effect for using the standard deduction for married filing joint is as follows:

• Standard deduction     $11,400
• Tax refund                      2,850
• Net Cash Paid                       0

As shown in the example, although the tax refund in example 1 is $25 higher, no mortgage interest was paid to the bank, so the taxpyer actually came out $8,600 ahead.  The standard deduction versus the amount of estimated itemized deducations is a consideration when deciding on purchaing a home.  A home puchase does not always guarantee a better tax situation.

Work at Home Strategies for Business Continuity

Several strategies are currently in use by organizations in the event of a disaster or emergency affecting the continuity of business operations. 

• One approach is to use an alternate site within the same organization already equipped to accomodate an infusion of staff during an emergency including computer equipment, office equipment and furniture.
• Another approach is to contract with a third party vendor to deploy assets which the company can utilize during a disaster.  These arrangements are typically shared with other organizations or dedicated for a single organziation.  The dedicated arrangements are obviously more expensive.
• Additionally, a company may cross-train employees located in another area of the company to take over responsibilities of a different department during a business interruption. 
• Some organizations do not have a planned strategy and intend to deal with the situation as it occurs.  If recovery time objectives (RTO) are more than a few days or weeks, this strategy may work.
• A quick ship strategy which involves contracting with a vendor to ship essential equipment and materials to a pre-planned location in the event of a disaster, is another strategy to consider.  If proper planning is employed, each computer can be imaged to meet that person's needs for the workplace.
• The most progressive and innovative program that many companies are using is Virtual Desktop Recovery (VDR) also called Work-At-Home Continuity.  The most effective version of this strategy uses a remote central server which runs all applications, programs, and data centrally.  Each employee is able to log on to this virtual server with any computer using the proper security protocol.  Some organizations use specially designed USB devices for this purpose.  This method retains the security within the central server and eliminates the need to install software on employees home computers.

Many strategies for business continuity are available for organizations to consider.  The size of the company,  the number of employees, the number of locations, the complexity and nature of operations and recovery time objectives are important considerations when selecting a strategy which is appropriate for the company.  The VDR option is being considered by many progressive companies as the most viable solution because it meets more of their business continuity objectives at a lower cost than the other available options.