Interesting piece from Ron Lieber on how the government might someday tax Roth IRAs, which are supposed to be all-but-exempt from taxation once you fund them with after-tax dollars. It would be a great betrayal and breed even higher levels of anti-government cynicism if Washington were to ever subject Roth assets to double taxation.

At the most extreme end, the federal government might try to tax the earnings on a Roth after all, say through the capital gains tax, which is currently at 15 percent for long-term gains but could go up in the next few years. Or it might levy some sort of an excise tax on excessive balances, however those might be defined.

Roths are especially useful for estate planning purposes. Regular I.R.A. holders have to start taking money out once they reach the age of 70 and a half, but Roth owners don’t have to take money out during their lifetimes. Heirs of Roth holders, meanwhile, pay no income taxes when they cash out of the inherited account and can spread those distributions over an entire lifetime, allowing for decades more of tax-free growth thanks to the wonders of compound interest. Some part of this could certainly change.

Posted by Jay Hancock at 10:44 AM | Permalink | Comments (3)
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Another sad story of a jock blowing his millions. Lenny Dykstra, who loved the Atlantic City casinos when he played for the Phillies, sought protection from creditors under Chapter 11 of the bankruptcy code, Bloomberg reports. Since retiring in the 1990s he has put his money in the dumb places typical of jocks: A "lifestyle" service for athletes, a magazine, a car-wash chain and a Web-based stock-picking service. What, no restaurant?

The players unions really need to do a better job of educating retiring athletes. A diversified portfolio of stocks, bonds, commodities and real estate is what these guys need. But they have already beaten the odds by making it to the majors, and they are accustomed to thinking of themselves as exceptional. They figure they'll get to the bigs in business, too. Rarely happens.

July 8 (Bloomberg) -- Lenny Dykstra filed for Chapter 11 bankruptcy protection in a petition that says the former Major League Baseball All-Star owes $10 million to $50 million.

The former center fielder for the New York Mets and Philadelphia Phillies has less than $50,000 worth of assets and 50 to 99 creditors, according to a petition filed with the U.S. Bankruptcy Court for the Central District of California in the San Fernando Valley.

Dykstra, 46, already faces about 20 lawsuits stemming from his entrepreneurial work, including The Players Club, an athletes-only magazine start-up. He owes JPMorgan Chase & Co. $12.9 million, according to the filing, and Bank of America Corp.’s Countrywide and credit-card units a combined $4.2 million.

Dykstra also owes almost $1 million to jet charter services, about $342,000 to celebrity lawyer Daniel Petrocelli and $229,000 to literary agent David Vigliano.

UPDATE: I missed this last month. Former Cleveland Browns QB Bernie Kosar filed for Chapter 11.

Posted by Jay Hancock at 12:06 PM | Permalink | Comments (1)
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When every other asset was plunging a few months ago, U.S. Treasury securities reached what may have been the peak of a long and amazing bull market that began in the early 1980s. Despite soaring U.S. debt and questions about whether it will all be paid back, Treasuries, backed by the taxing power of the government, were deemed a safe harbor during the financial collapse.

But when storms begin to abate, safe harbors empty out.

In a reverse image of soaring stock markets, Treasuries have fallen sharply since March. The longer the maturity, the worse they have done. Mutual funds owning lots of 30-year and 10-year Treasuries have gotten hammered. T. Rowe Price’s U.S. Treasury Long-Term Fund is down 13 percent so far this year. The Wasatch-Hoisington U.S. Treasury Fund has lost more than 20 percent, according to Reuters.

There is a big debate about whether the plunge heralds increasing fiscal problems for Washington and resurgent inflation or just signals that the emergency is over. (Bond interest rates and prices move in opposite directions. Investors bid rates up and push prices down when they fear inflation is near.)

It’s true that Treasury rates have spiked. But at 4.5 percent the yield on the 30-year bond is merely back where it was last summer. If the economy keeps improving it’ll go much higher

Posted by Jay Hancock at 9:36 AM | Permalink | Comments (0)
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From Maryland Public Television

Manage Your Debt, Repair Your Credit & Avoid Scams MPT program June 1 offers straight-ahead advice from experts and the opportunity for free, confidential advice with a live 90-minute phone bank

Owings Mills, MD—If you’re confounded by how to manage mounting debt while repairing credit and avoiding financial scams, you’re not alone.

Maryland Public Television (MPT) is stepping forward with straight-ahead advice from experts and the opportunity for free, confidential advice with a special edition of Direct Connection and live 90-minute phone bank.

Join MPT Monday, June 1 at 7:30 p.m. as host Jeff Salkin talks to financial pros Robin McKinney (Director, Maryland CASH Campaign), Deborah Owens (President, Owens Media Group) and Jim Godfrey (President & CEO, Consumer Credit Counseling Service of MD and DE, Inc.) about how to manage debt, repair credit and avoid scams that prey on average consumers during tough economic times. Viewers are invited to call in or e-mail questions for experts during the live program at 1-800-926-0629 or directconnection@mpt.org.

A live phone bank (800-222-1292) staffed by representatives of Consumer Credit Counseling Service of MD and DE, Inc. will accompany the program to provide viewers with trustworthy, confidential, free advice on credit, debt and scams.

The 90-minute phone bank will open at the start of the broadcast and remain open for one hour after its conclusion (7:30 to 9 p.m.).

For more information on MPT, visit mpt.org.

Posted by Jay Hancock at 3:36 PM | Permalink | Comments (1)
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UPDATE: Pulled from comments. Here is a piece of evidence suggesting that what the Times predicts (see below) is already happening.

I have been a customer of a particular card for 17 years. Last week I received a notice that they were lowering all sorts of fees and penalties that were never an issue for me since I paid in full each month. In return, they were now going to charge an annual fee. I was forced to canceled the card to avoid the fee. Once again, those who follow the rules and act responsibly will be forced to subsidize those who do not.

Story in the NYT on what may happen in the credit card business now that they can't soak borrowers with low credit scores quite as much as they used to. To a degree, credit-card customers like me who never miss a deadline and pay their balance in full each month have been subsidized by borrowers who don't. The companies were raking in so much money on 29 percent interest charges, late fees and all the other outrages that they didn't much mind low-profit "convenience users" like me. According to the Times, that may change.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”

I'm skeptical. First of all, Yingling is not a credible source. He's the first guy the Times quotes, and he's a flack for the banks. It's his job to paint a dire picture of what will happen under credit-card reform and to try to sow class warfare between sloppy credit-card customers and punctilious credit-card customers. Second, as I wrote recently, the legislation doesn't do that much to keep card companies from making a mint off careless customers in the future.

Bills in the House and Senate would end the worst abuses but do little to stop stalker lending or cut the fine print.

We still have the problem of high interest rates" that aren't addressed in the bills, says Charles Shafer, a law professor at the University of Baltimore and president of the Maryland Consumer Rights Coalition. "We still have the problem of misleading disclosures and these teaser rates that lull people into thinking they can borrow a lot of money.

"We still have the problem of having lots of fees - annual fees, fees for late payments, fees for going over the limit, whatever."

Posted by Jay Hancock at 11:00 AM | Permalink | Comments (9)
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Scott Rick (Wharton), Deborah A. Small (Wharton) and Eli Finkel (Northwestern) report:

Although much research finds that "birds of a feather flock together," surveys of married adults suggest that opposites attract when it comes to emotional reactions toward spending. That is, "tightwads," who generally spend less than they would ideally like to spend, and "spendthrifts," who generally spend more than they would ideally like to spend, tend to marry each other, consistent with the notion that people are attracted to mates who possess characteristics dissimilar to those they deplore in themselves (Klohnen and Mendelsohn 1998). In spite of this complementary attraction, spendthrift/tightwad differences within a marriage predict conflict over finances, which in turn predict diminished marital well-being. These findings underscore the importance of studying the relationships between money, consumption, and happiness at an interpersonal level.

Thanks to Marginal Revolution

Posted by Jay Hancock at 2:53 PM | Permalink | Comments (0)
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Merrill Lynch economist David Rosenberg, one of the best in the business, left the firm last week in the wake of its acquisition by Bank of America. He posted one last commentary on Thursday, and, typical of Rosenberg the past few years, it's not very optimistic. Henry Blodget has some Rosenberg prose:

This is a bear market rally that may have run its course. The investing public is still holding tightly to their long-term resolve, but much of the buying power at the institutional level seems to have largely run its course, in our view. That leaves us with the opinion, as tenuous as it seems in the face of this market melt-up, that this is indeed a bear market rally and one that may well have run its course. We have “round-tripped” from the beginning of the year and there is real excitement in the air about how these last nine weeks represent evidence that the economy will begin expanding sometime in the second half of the year.

Growth pickup will likely prove transitory While it is likely that headline GDP will improve as inventory withdrawal subsides and fiscal policy stimulus kicks in, our view is that whatever growth pickup we will see will prove to be as transitory as it was in 2002, when under similar conditions the market ultimately succumbed to a very disappointing limping post-recession recovery. So yes, there may well be some improvement in the GDP data, but it is based largely on transitory factors. We strongly believe it is premature to totally rule out the end of the vicious cycle of real estate deflation – residential and now commercial – that we have been experiencing since 2007. Balance sheet compression in the household sector will continue to pressure the personal savings rate higher at the expense of discretionary consumer spending. This is a secular development, meaning that we expect it will last several more years.

Chances of a re-test of the March lows are non-trivial. To reiterate, it seems to us likely that the risk in the market is actually higher today than it was back at the same price points in early January,

Posted by Jay Hancock at 1:39 PM | Permalink | Comments (1)
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The 82-year old winner of the $144 million Powerball lottery jackpot shunned the press conference and sent his lawyer intstead. From today's WP:

Helium-filled balloons bobbed in the air at the Frank D. Reeves Center on U Street NW. Icing on a sheet cake exclaimed: CONGRATULATIONS TO THE D.C. LOTTERY'S $144 MILLION POWERBALL JACKPOT WINNER! Gift bags were filled with small favors, all with the lottery's logo.

But the winner kept his distance. He dispatched his attorney instead, choosing to remain out of the public eye.

The attorney, David Wilmot, did little to enlighten things. He offered a thumbnail sketch of the winner, an 82-year-old widower from Southeast Washington with 10 children and 47 grandchildren and great-grandchildren. He is a lifelong District resident who "works in his community," Wilmot said.

In addition, Wilmot said, the winner hoped to be able to maintain his privacy, keep from being overwhelmed by publicity and go on with a normal life. "He wants to remain anonymous," Wilmot said. "I have to respect his wishes about privacy."

I don't know why every lottery winner doesn't do this. This guy set up a limited liability corporation, named Wilmot as the agent and never has to see his name in the papers. He can sit back and dispose of his money the way he likes. He'll be free of wheedling friends, lamprey relatives and importuning strangers. If he can keep his mouth shut and disguise the Lamborghini in the driveway, that is.

Posted by Jay Hancock at 10:02 AM | Permalink | Comments (2)
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The House passed its version of credit card reform. From AP:

WASHINGTON (AP) — Propelled through the House by antibusiness sentiment in tough economic times, legislation putting new reins on the credit card industry now goes to the Senate, where the bill's prospects appear promising.

The legislation, which has President Barack Obama's backing, would eliminate abrupt increases in interest rates and other practices decried by consumer advocates. It could be taken up in the Senate as early as next week.

Wednesday's column tells why it's not enough:

The liberal case for credit-card reform is well known: Greedy banks victimize card users with high interest rates and outrageous fees; Congress must crack down to make the system fair.

Here is the less-known, conservative argument: Credit card complexity prevents users from making rational decisions about borrowing and spending, thus hurting the economy; Congress must intervene to make the system understandable.

Unfortunately, Congress might not take either course. Bills in the House and Senate would end the worst abuses but do little to stop stalker lending or cut the fine print.

Posted by Jay Hancock at 9:58 AM | Permalink | Comments (5)
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Today's column:

The liberal case for credit-card reform is well known: Greedy banks victimize card users with high interest rates and outrageous fees; Congress must crack down to make the system fair.

Here is the less-known, conservative argument: Credit card complexity prevents users from making rational decisions about borrowing and spending, thus hurting the economy; Congress must intervene to make the system understandable.

Unfortunately, Congress might not take either course. Bills in the House and Senate would end the worst abuses but do little to stop stalker lending or cut the fine print.

Credit card practices are so out of control that even legislation that consumer groups see as a huge step ("Great news on the credit card front!" says Consumers Union) would leave plenty of room for trouble.

Read the whole thing here.

Posted by Jay Hancock at 11:44 AM | Permalink | Comments (6)
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In October I doubled my biweekly 401(k) contribution and put 100 percent of new contributions into foreign and U.S. stocks. I can't count the number of intelligent people who have told me that, because stocks have crashed, this is crazy and scary. My friend Walter Updegrave of Money mag tells why it's not:

Question: I've lost a lot of money during this financial mess and I'm wondering when I should go back to putting 15% of my salary into my 401(K)? --Michelle Bonds, Rocky Mount, N.C.

Answer: Uh, how about like, right now.

I'm serious. I know that some people have reacted to this financial crisis by eliminating or scaling back their 401(k) contributions. A recent survey of plan participants by Spectrem Group found that 20% have cut the percentage of pay they contribute, while another 5% say they plan to do so over the next 12 months.

Think of it this way. When stocks were booming in the late 90s or, for that matter, when they were at their highs in October of 2007, I got no emails from people saying they were thinking of stopping their 401(k) contributions. No, people are quite comfortable plowing money into their 401(k)s when stock prices are marching to new highs.

Fact is, though, the long-term return you'll likely earn on the money you invest after stocks have been on a long run or are at or near a peak is much lower than the return you'll likely get when you buy after stocks have been seriously hammered, as they've been over the past year.

Which brings us to one of the great ironies of investing in stocks. People are least comfortable investing in them when their future long-term return prospects are strongest and most comfortable buying when the outlook for future returns isn't as strong.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (0)
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