Lower Your Property Taxes Through Assessment Appeal

CHICAGO, May 14 (Reuters) – One of the best investments I
made in my home this year was to hire somebody to prove that its
value had fallen.

I know this sounds daft, but it resulted in a lower property
tax bill. In our case, our taxes dropped by $1,000 to around
$10,000 for the 2011 tax year. But we didn’t challenge our taxes
ourselves – we will pay a specialized property-tax consultant
$250 – 25 percent of our tax savings – to appeal for us.

If you owe more than your home is worth and you want to stay
in your home – or just can’t sell – taxes are the one fixed cost
you can have some success in reducing. (You can also try to
refinance to a lower mortgage rate, but that can be difficult
or impossible when you haven’t any or enough home equity.)

To begin your home-assessment challenge, you can either hire
a consultant to appeal your assessed valuation locally as my
wife and I did, or do it yourself.

Part of this story is hardly satisfying. We knew our home
value declined by at least $50,000 in the housing bust. Our
estimated market value now is roughly what we paid for it more
than a dozen years ago when we built it. Fortunately, due to a
large down payment, we are not under water, although that equity
value probably will not be coming back soon.

It’s never made more sense to challenge your home assessment
than it does now, although relatively few do. Some 11 million
properties are underwater, meaning due to equity loss, the
mortgages on these homes exceed the value of the properties,
according to CoreLogic. Taxes will not necessarily track the
depleted equity values, so you have to see if your local
assessor has valued your property correctly.

Adding salt to homeowners’ wounds is the ongoing,
disheartening erosion of home prices in most cities: Over the
past year, 15 of the 20 largest markets have experienced
declines year-over-year through February, according to the S&P
Case-Shiller Index. U.S. home prices are now at their lowest
level since 2002.

The disparities between what homes are worth on the open
market now and what they are assessed at for tax purposes can
often be huge. The National Taxpayers Union estimates that from
30 to 60 percent of U.S. properties may be over-assessed, though
only 5 percent of property owners challenge their assessments.

The gap between assessed and market value is even larger in
some areas where assessors haven’t accurately marked down home
values due to the housing bust. That is one reason why there
were more than 25,000 assessment appeals in my county in
Northern Illinois last year, compared to 17,000 the previous
year. You will have to do the research on your own to tell if
you’re properly assessed since each property is assessed
differently depending upon home type and local market
conditions.

Should you choose to go solo on your assessment challenge,
you will need to find three comparable properties that have
declined in value. Also check the property description with your
assessor to see if it’s correct. If the assessor erroneously
included in your property record a finished basement or more
living space or amenities than you actually have, you can
correct it by contacting the assessor directly. That could
result in an immediate assessment reduction.

Are you a senior citizen or a veteran? There’s another way
you might be able to save on property taxes. Check to see if you
qualify for a special exemption. You also should have a
homestead exemption for living in your home. You also may
receive a break on recent improvements or energy-producing
appliances like solar panels. While this is not part of the
appeals process, it might be another way of saving you money.

Having tried appealing on my own in past years with meager
success, I would recommend you hire a consultant. Assessors are
really in the business of pooling money for taxing bodies; many
of them are not homeowner friendly and assessors may guard the
data and methods they use to value homes zealously. I discovered
this years ago the hard way, and helped set up a nonprofit group
in my area to inform homeowners on how to deal with assessors.

Most private consultants will take a percentage of your tax
savings or a flat fee, or both. They should be experienced
assessment professionals (mine worked in a township assessor’s
office) or a professional appraiser. You can find these
consultants through a search engine. Enter “property tax
consultants” for your county. We found ours through a
neighbor’s referral.

Keep in mind that an appraisal for a bank is not the same
thing as a valuation for the assessor. It’s a different animal
and your assessor may not accept a current real-estate
appraisal.

If you cannot reach an agreement with your local government
assessor on a lower home value, then you can appeal at the state
and county levels, although that typically involves more time
and paperwork. Many appeal boards are incredibly backed up and
if you miss their deadlines, you’ll have to wait another year.

Here is another misconception you need to avoid: While you
can lower your home’s assessed value, it does not always
translate into a lower tax bill. The other side of the equation
is what rates local taxing bodies such as schools, fire
districts and counties charge you. They can – and will – raise
their rates to cover their budget shortfalls. So you can have
situations where home values have plummeted, but tax rates go up
to cover revenue shortfalls.

Begin planning your assessment challenge now. You will not
only lower your total ownership expenses, but make your home
more marketable. A lower tax bill than your neighbors adds
considerably to curb appeal when it comes time to sell.
Editing by Linda Stern and Phil Berlowitz)

Creating Your Investment Bucket List

By John Wasik

(Reuters) - Got travel or mountain climbing on your bucket list? How about taking up the guitar? If you really want to live life to the fullest in your remaining days, then what you should also add to those goals is a list of your investment priorities and adjusting your risk accordingly.

This idea doesn't come from a cheesy Hollywood movie, but rather from the study of behavioral portfolio theory put forward by Nobel Prize-winner Harry Markowitz and leading behavioral economics expert and finance professor and author Meir Statman (). They theorize that if investors divide their portfolios into mental account layers measured by risk, they can counter nervous investment errors.

This is how it works: let's say you have a $1 million portfolio. You can divide it up into different-sized buckets with goals for items like college savings and retirement. For example:

* The largest bucket, or sub-account, would be for retirement. Assume that about $800,000 is in this bucket for an event that's 15 years away. Ultimately, you would like to build this to $2 million.

* Saving for college? Earmark $150,000 for a goal that's three years away, eventually totaling $180,000 when your student matriculates.

* Want to fund a bequest for your alma mater or your favorite charity? Put aside $50,000 for a goal that's 25 years away.

If all of these goals were equal - and they are not - you might leave them in one portfolio. However, you want to take much less risk with the college fund than with the bequest goal that is 25 years away.

By marking each bucket high, low or medium risk, you've identified some prospective allocations in this behavioral approach. In this case, risk is roughly equivalent to the time you have to save for each goal. The shorter the time horizon, the lower the risk you can assign to the bucket.

The short-term bucket should be invested mostly in bonds or cash equivalents in which you cannot lose principal. This is your most secure bucket and it's for goals such as saving for a down payment on a home or a car, or to set aside money for a known expenditure like property taxes. Don't expect much, if any, return on these funds. Federally-insured money-market accounts, Treasury bills and certificates of deposit are probably the safest assets.

The medium-term bucket can be for major emergency expenses such as unemployment and out-of-pocket medical expenses. I keep that money in a short-maturity bond fund. It's not principal-protected, but it pays a somewhat higher return than a money-market fund.

A medium-term bucket is also a good place for college savings. For the biggest chunk of college funds for my two daughters, for example, I have money set aside in automatically age-adjusted 529 savings plans. As they get older, the fund company shifts more money from stocks into bonds. I like this approach because the accounts are rebalanced every year, so I don't fret about market risk. All I worry about is putting enough money in to cover soaring education bills.

Your longer-term goals can be weighted more heavily toward stocks and alternative vehicles. Again, you can choose an automatic approach through a target-date maturity fund that ratchets down stock-market risk as you age, balance your own portfolio of low-cost exchange-traded funds or hire a fiduciary adviser to select passive funds for you (the most expensive route).

As you create your bucket list, don't get tripped up by things like projected or "desired" returns. Guess on the conservative side - less than 4 percent for bonds and 6 percent for stocks.

It's also important not to try to overthink your decisions. Be flexible and try different scenarios. Use allocation engines to guide you through determining a comfortable portfolio mix. For some good calculators, see websites like those of Yahoo Finance, TIAA-CREF or T. Rowe Price.

Any comprehensive financial planner who works on a fee-only basis (no commissions) will be able to fine-tune your strategy if your needs are complex. Brokers and insurance agents should be avoided.

If you do this right, you'll be able to see a range of investing possibilities that you may not see today. There is no one right way to go about this, but if it is done with care, you can avoid a leaky investing bucket.

Ignoring the Market and Being True to Yourself

By John Wasik

(Reuters) – For many investors who have stayed away from the stock market for the past four years, this is a Hamlet moment. Returns look so tempting right now as stock indexes show their best performance since May 2008, with technology shares leading the way. To invest or not to invest?

Fortunately, you can take a Polonius approach to the market. He’s the father of Ophelia and Laertes who gets stabbed by Hamlet while spying on the vengeful prince of Denmark. Despite his bad timing, he has some great advice: “This above all: To thine own self be true.”

I’m reminded of Polonius’s speech by the notorious bear money manager Jeremy Grantham, who counsels long-term patience and resilience in a recent newsletter. While Grantham is bullish on “high-quality” (dividend-paying) stocks, oil, copper, forestry and farmland, I’m not suggesting you jump into anything before you do some serious self-analysis.

How do you be true to yourself? You need to lay down a set of investment principles and goals — if you haven’t down so already. When do you want to retire? Are you saving for college? Do you have to take care of an elderly relative? How much risk can you tolerate in the form of annual losses? Once you’ve answered these questions, write them down. This is your template for asset allocation.

COOKING LESSON

Your asset allocation is like making a pie. In fact, when you’re done, it should look like a pie chart with each portion of stocks, bonds, cash and other investments graphically displayed. It won’t come out right, though, unless you’ve been honest with yourself.

A self-questionaire will get you most of the way there. I like the retirement asset allocator at Yahoo! Finance (link.reuters.com/buq86s).

Bankrate.com also has a useful tool (link.reuters.com/cuq86s).

The Yahoo tool, for example, asks you about upcoming major expenditures, time horizons, income, age and investment risk profile. Since it’s geared toward behavior and not absolute numbers and market predictions, it tends to focus more on your psychology. Very few people are good at market forecasts, nor should they be.

Based on what you tell these calculators, they will give you a thumbnail asset allocation. Here’s a sample based on my inputs:

* 50 percent stocks, with 15 percent in large-company value, 10 percent in large-company growth, 10 percent in small/mid-sized companies, 15 percent in non-U.S. stocks.

* 45 percent in fixed income, with 25 percent in U.S. bonds and 20 percent in international bonds.

* 5 percent cash in a money-market fund.

Of course, this pretty much reflects my age (54) and how I’ve invested my family’s portfolio. You have to adjust the percentages to your situation. It’s a fairly conservative mix.

I’d like to see more of an allocation to treasury-indexed securities and commodities for inflation protection. I’ve done that in our portfolio, although you probably won’t get this kind of advice from a generic, off-the-shelf tool.

FILLING IN THE PIE

Wait, you’re not done yet. At this point, all you have is the crust and shell of the pie and what it might look like. You need to fill it with something. You can easily create your mix with passive, low-cost exchange-traded or mutual funds. Sites like MyPlanIQ.com, Folioinvesting.com or Betterment.com can help with individual portfolios.

With these pre-packaged portfolios, you can take as much or as little risk as you want. Don’t forget to do some retirement-income estimates as well. There is a plethora of calculators, on every mutual fund and brokerage-firm site.

For even greater customization, you should talk with fiduciary advisers such as certified financial planners, registered investment advisers or chartered financial analysts. Even certified public accountants designated as personal financial specialists can help you craft a personalized plan. These are the kind of professionals you need to consult if your needs are complex and you also need tax, estate and college-planning advice.

Having invoked Polonius’s famous line, I caution you to do what he says and not what he does. Do your homework. Spell out your dreams and fears. Don’t act on impulse just because the market is surging. Invest based on the way you live, not what Wall Street tells you to do. Don’t follow your gut; look at long-term returns.

In other words, don’t stand behind a curtain waiting to hear what you want to hear and end up getting skewered. You don’t have to be a bit player in a tragedy involving your money and future.

(Reuters Editing by Beth Pinsker Gladstone and Andrea Evans)

A Way to May the US Tax Code Fairer

(Reuters) - If the president and Congress are serious about income equality and cutting huge breaks for the wealthy, they should raise the capital gains rate.

While the president didn't mention it by name in his State of the Union speech on January 24, it's one of the many gorillas in the tax reform room.

There's no question that the 15 percent rate on capital gains and dividends largely favors super-wealthy taxpayers over wage earners. Just look at Mitt Romney's tax return. As former Labor Secretary and economist Robert Reich once noted: "It's a loophole large enough for the super-rich to drive their Ferraris through. About 80 percent of the income of America's richest 400 comes in the form of capital gains." (link.reuters.com/gen36s)

According to economist Jared Bernstein, who analyzed Congressional Research Service figures, capital gains and dividends were "the largest single contributor to the growth of inequality from 1996-2006." (link.reuters.com/hen36s)

Why should those who primarily make money from private equity, financial, business and real estate appreciation and dividends pay more than 50 percent less than wage workers who are subject to the top rate in federal, state, Medicare and Social Security taxes?

If you're from the supply-side camp, it's because the lower rate may encourage wealthy taxpayers to invest in capital, business and job formation while raising more tax revenues. More fundamentally, at least according to the conservative group Americans for Tax Reform, "when you tax something more, you get less of it."

When taxpayers know that the capital gains rate is going up, the "fire sale" effect comes into play: They sell assets to get taxed at the lower rate before the higher levy kicks in, hence the higher cash flow to the Treasury before the lower tax expires.

But there's no consistent evidence that shows that a lower capital gains rate does much for the economy long term. The rate of new business formations actually climbed from 1983-1987, when the maximum capital gains rate was 20 percent, according to the Kauffman Foundation, a think tank that specializes in entrepreneurism. (link.reuters.com/jen36s)

When the gains rate hit a maximum 29 percent from the middle of 1993 into 1997, there was another spurt of new business growth. Since 2006, though, small-business creation has generally fallen - even with the lower capital gains rate. The recession and housing meltdown are the likely malefactors.

Of course, recessions or periods of double-digit interest rates - which hurt small businesses the hardest - are the worst times for small-firm growth anyway, so the capital gains rate would not necessarily have been a primary hindrance during times like 1979 through 1983.

When do capital gains proceeds fill up the national Treasury the most? The data is inconclusive. In 1988, realized gains as a percentage of gross domestic product were more than 7 percent - the highest amount in almost a quarter century, and that was when gains rate was 20 percent.

Tax rates are often like porridge. Sometimes they may be too high; at other times just right. It could be that 20 percent is a sweet spot for gains. In contrast, the lowest capital gains/GDP percentage was 1.57 percent in 1977, when the maximum rate was nearly 40 percent.

What can barely be debated is that the capital gains rate is one of the multi-millionaire's best fiscal friends. Those who made $10 million or more, according to IRS statistics from 2009, reaped a total of nearly $70 billion in long-term capital gains. That's 10 times the amount of gains taken by those making from $75,000 to $100,000.

While cutting the capital gains rate generates more revenue overall due to the fire-sale effect, it's not in the best interest of the country to keep it at 15 percent. Raising it would also reduce the burgeoning federal deficit. If it's not an efficient way of creating jobs or businesses, why keep it so low?

"Arguments that the capital gains rate affects economic growth are even more tenuous," says the non-partisan Tax Policy Center. The group saw no correlation between rates and GDP growth "during the last 50 years."

Of course, the gains rate is but one item among thousands of special breaks in the tax code. You have to put everything on the table, from mortgage deductions to offshore corporate income if you want to ferret out wasteful tax handouts, which is highly unlikely in this election year.

Yet if one believed that Congress was earnestly tackling deficit reform in the interest of fairness and fiscal sanity - or did nothing this year - I would tell my tax preparer to take every possible break in 2012. That's because the special rate on capital gains will expire after December 31 - a deadline that will seem pretty urgent right around election time in November.

(The writer is a Reuters columnist. The opinions expressed are his own.)

Even the Bond King Can Be Wrong

By John F. Wasik

No matter what theme you adopt in a market forecast, predictability has always been a bugaboo. Just ask Bill Gross, the legendary manager of the PIMCO Total Return bond fund.

Gross's $244 billion baby saw at least $5 billion in assets flee in 2011, more than $1.4 billion in the fourth quarter alone. Relative to the size of his fund, this is a notable vote of no confidence ().

Investors voted with their money because of Gross's bet against U.S. Treasuries last year. Like many of us, he digested the headlines and became dyspeptic over the Congress defaulting on its debt, sluggish economy, the S&P credit downgrade and euro zone debt woes. Yet what actually happened didn't follow Gross's "new normal" script. Instead we got the "old abnormal" of unpredictability.

While none of those perils can be dismissed - nobody is out of the woods - something odd happened. U.S. debt remained a safe haven and even more money flowed into Treasuries, which became the best-performing bond class and returned 17 percent last year.

In the second half of last year, U.S. Treasury prices climbed, while hot money fled European paper. It wasn't too long ago that the euro was seen as a respectable currency while the buck was being battered. Gold, that ultimate nervous Nellie insurance policy, also went south for a while.

"The 'new normal' thesis at PIMCO was predicated on a low interest rate environment dragging safe bonds down as investors sought higher-yielding opportunities elsewhere," said Jeff Tjornehoj, director of research at Lipper, a Thomson Reuters company. "That was reasonable in 2009, but started to fade in 2010 and was completely undone in 2011 as credit conditions in European banks deteriorated and investors rushed to safety."

So it's time to question whether Bill Gross is on target with his new "paranormal" theory and more importantly, if active managers can consistently predict market movements and protect your wealth.

Is Gross still on track? Here's what he said in his most recent "Investment Outlook" ():

"For 2012, in the face of a delivering zero-bound interest rate world, investors must lower return expectations. 2-5 percent for stocks, bonds and commodities are expected long term returns for global financial markets that have been pushed to the zero bound, a world where substantial real price appreciation is getting close to mathematically improbable."

Of course, Gross has forgotten more about bond trading than I'll ever know, so his long-term record is worth respecting. His cautions are still valid. But actively managing money becomes nettlesome because the future is as slippery as a politician's promise. What's predicted doesn't always transpire; if you make big bets, you can suffer big losses.

The larger question for investors is should you even bother with an active manager making periodic wagers based on theories that may not hold water?

Would you be better off in passive bond-index funds like the Vanguard Total Bond Market ETF or the iShares Barclays Aggregate Bond fund, which I hold as a U.S. broad-market bond proxy in my 401(k) portfolio?

Passive investing usually makes more sense since you avoid the high costs and frequent missteps of active managers. As of the last Lipper research report, Gross's PIMCO Total Return fund finished in the bottom 12 percent of its category, posting a 4.15 percent return. That's compared to a 6 percent average performance for its peers.

That's why a passive strategy still makes sense. The Vanguard fund, for example, samples a fairly static basket of U.S. government-based mortgage bonds, Treasuries, corporates, utilities and a touch of non-U.S. paper. It charges 0.11 percent annually for management. The PIMCO fund has an expense ratio of 1.15 percent annually with a costly 430 percent turnover rate, indicating high trading costs that are passed along to investors.

As for predicting the market going forward? Be cautious and hedge any large position in bonds (European or American), stocks and metals. The only guarantee is that big financial events often follow an abnormal course.

How to Help the Jobless

(Reuters) - Two of my friends lost their jobs in the last month. One had worked for a large computer services company for 31 years. Another was an information technology manager whose position was eliminated in a restructuring. Both men are in their fifties.

Having been laid off more than once, I have a certain protocol I share with friends. I hope it's of value to them; I know it's paid off for me. Here's the plan that has worked for me in the past:

-- The best strategy is to be ready for a potential layoff with several months of cash, no credit card debt and an up-to-date resume. But don't lose heart if you're one of the more than 15 million unemployed and 1 million "discouraged" workers who can't find openings suitable to their skills and have stopped looking. There are strategies to lessen the pain and to improve your chances of finding a new job.

-- Ideally, don't leave your employer without knowing what benefits are available. Many large companies offer a suite of outplacement services to laid-off workers. Always take advantage of them.

One of my newly laid off friends got help in writing a resume, branding statement and doing interviews. He also got to keep his company-issued laptop. You're also entitled to at least 26 weeks of unemployment compensation, and in some cases as much as 99 weeks (assuming Congress extends long-term benefits by year-end).

-- You'll also need to make decisions about health care and your 401(k) plan. You have a choice of whether to keep your 401(k) with an employer or roll it over into another plan. Take your time in deciding what to do. I generally recommend that people look at the offerings of the largest fund companies (Fidelity, Vanguard, T. Rowe Price) and see if they can get better service, lower expense ratios and more diversification.

If health insurance is not covered in a severance plan, you may be eligible for it through a COBRA extension (link.reuters.com/zyq35s). This is a federal law that says an employer with more than 20 workers must extend their health plan to you if they lay you off. There's a nasty catch, though: You may have to pay for the premiums, although they can't be more than 104 percent of what employees are paying.

Of course, with no income coming in for a while, a large insurance premium could be unaffordable. If so, look at trade or alumni associations that may offer less-expensive group coverage. You'd have to be a member to qualify. A third alternative is to shop for short-term policies online (www.ehealthinsurance.com/).

Price high-deductible health policies first. Although out-of-pocket expenses range from roughly $1,200 for individuals to $11,900 for families (link.reuters.com/car35s), they are designed to cover most catastrophic health events such as heart attack, stroke or cancer. The premiums are much lower than full coverage policies and don't offer "soup to nuts" coverage.

-- Cash reserves are also essential. My friends were diligent savers, but they needed to do cash-flow statements to see how long their cash would hold out. That's a simple matter of adding up all basic expenses such as mortgage/rent, food, property taxes, health insurance and utilities to come up with a monthly "nut" number. These are the core bills when all discretionary items such as restaurant meals, movies/entertainment and cable TV are stripped out.

-- Need quick cash? Don't forget, that in a pinch, you can cash in or borrow against a life insurance policy -- if it carries a cash value -- or go down to one car.

And if you absolutely need the money, you can tap into your retirement plan, although I don't recommend it, because if you do it prior to age 59 ½, you'll pay income tax plus a 10 percent

federal penalty on withdrawals. That money's awfully hard to replace.

-- The nonmonetary part of joblessness is no less important. How well networked are you? Have you updated profiles on social media services such as Linkedin? Have you told friends and associates that you're looking for work? Have you checked college alumni association for job services? Use all social media options.

Often the hardest emotional toll is the long wait before another job is secured. Prior to the 2007 recession, the average wait to reemployment was five weeks, according to the U.S. Bureau of Labor Statistics. Today the wait is double that, and potentially longer if your chosen profession or industry is contracting.

New perspectives and brainstorming are essential. Forget about what you did; what can you do? Write down your life skills. What are you best at? What have you accomplished on the job and outside of work? What are your social skills? Do you need additional training? Don't forget skills you may have mastered outside the office volunteering.

The best jobs are often not advertised. Look at business headlines to see if companies are expanding. What kind of people are they seeking? Drill down into the story to see which executive is quoted and pitch them directly.

My recently unemployed friends are optimistic. They have decades of experience, are highly motivated and are well organized. One friend has already been on two interviews, and the other one has spent hours with an outplacement firm refining his resume.

Ultimately, getting a decent job is a numbers game. Job candidates need to make contact with the people who are doing the hiring -- and do it on a daily basis. Resumes are useful, but they may not sell their talents well enough.

---

The author is a Reuters columnist. The opinions expressed are his own.

How to Help the Jobless

(Reuters) - Two of my friends lost their jobs in the last month. One had worked for a large computer services company for 31 years. Another was an information technology manager whose position was eliminated in a restructuring. Both men are in their fifties.

Having been laid off more than once, I have a certain protocol I share with friends. I hope it's of value to them; I know it's paid off for me. Here's the plan that has worked for me in the past:

-- The best strategy is to be ready for a potential layoff with several months of cash, no credit card debt and an up-to-date resume. But don't lose heart if you're one of the more than 15 million unemployed and 1 million "discouraged" workers who can't find openings suitable to their skills and have stopped looking. There are strategies to lessen the pain and to improve your chances of finding a new job.

-- Ideally, don't leave your employer without knowing what benefits are available. Many large companies offer a suite of outplacement services to laid-off workers. Always take advantage of them.

One of my newly laid off friends got help in writing a resume, branding statement and doing interviews. He also got to keep his company-issued laptop. You're also entitled to at least 26 weeks of unemployment compensation, and in some cases as much as 99 weeks (assuming Congress extends long-term benefits by year-end).

-- You'll also need to make decisions about health care and your 401(k) plan. You have a choice of whether to keep your 401(k) with an employer or roll it over into another plan. Take your time in deciding what to do. I generally recommend that people look at the offerings of the largest fund companies (Fidelity, Vanguard, T. Rowe Price) and see if they can get better service, lower expense ratios and more diversification.

If health insurance is not covered in a severance plan, you may be eligible for it through a COBRA extension (link.reuters.com/zyq35s). This is a federal law that says an employer with more than 20 workers must extend their health plan to you if they lay you off. There's a nasty catch, though: You may have to pay for the premiums, although they can't be more than 104 percent of what employees are paying.

Of course, with no income coming in for a while, a large insurance premium could be unaffordable. If so, look at trade or alumni associations that may offer less-expensive group coverage. You'd have to be a member to qualify. A third alternative is to shop for short-term policies online (www.ehealthinsurance.com/).

Price high-deductible health policies first. Although out-of-pocket expenses range from roughly $1,200 for individuals to $11,900 for families (link.reuters.com/car35s), they are designed to cover most catastrophic health events such as heart attack, stroke or cancer. The premiums are much lower than full coverage policies and don't offer "soup to nuts" coverage.

-- Cash reserves are also essential. My friends were diligent savers, but they needed to do cash-flow statements to see how long their cash would hold out. That's a simple matter of adding up all basic expenses such as mortgage/rent, food, property taxes, health insurance and utilities to come up with a monthly "nut" number. These are the core bills when all discretionary items such as restaurant meals, movies/entertainment and cable TV are stripped out.

-- Need quick cash? Don't forget, that in a pinch, you can cash in or borrow against a life insurance policy -- if it carries a cash value -- or go down to one car.

And if you absolutely need the money, you can tap into your retirement plan, although I don't recommend it, because if you do it prior to age 59 ½, you'll pay income tax plus a 10 percent

federal penalty on withdrawals. That money's awfully hard to replace.

-- The nonmonetary part of joblessness is no less important. How well networked are you? Have you updated profiles on social media services such as Linkedin? Have you told friends and associates that you're looking for work? Have you checked college alumni association for job services? Use all social media options.

Often the hardest emotional toll is the long wait before another job is secured. Prior to the 2007 recession, the average wait to reemployment was five weeks, according to the U.S. Bureau of Labor Statistics. Today the wait is double that, and potentially longer if your chosen profession or industry is contracting.

New perspectives and brainstorming are essential. Forget about what you did; what can you do? Write down your life skills. What are you best at? What have you accomplished on the job and outside of work? What are your social skills? Do you need additional training? Don't forget skills you may have mastered outside the office volunteering.

The best jobs are often not advertised. Look at business headlines to see if companies are expanding. What kind of people are they seeking? Drill down into the story to see which executive is quoted and pitch them directly.

My recently unemployed friends are optimistic. They have decades of experience, are highly motivated and are well organized. One friend has already been on two interviews, and the other one has spent hours with an outplacement firm refining his resume.

Ultimately, getting a decent job is a numbers game. Job candidates need to make contact with the people who are doing the hiring -- and do it on a daily basis. Resumes are useful, but they may not sell their talents well enough.

---

The author is a Reuters columnist. The opinions expressed are his own.

How to Nail Zombie Funds

By John Wasik

(REUTERS) - Do you have zombie index funds within your portfolio?

Instead of eating up your brains, they devour your nest egg with high expenses and walking dead performance. They may be lurking within your 401(k)-type plan or individual retirement account.

I like index funds because they generally can track nearly any kind of asset class. As such, they are the white bread of investing and should cost about the same from fund to fund. The cheaper the better. Why pay Nieman-Marcus prices for the same thing you can get at Costco or Sam's Club for less?

You can vanquish these funds without overtly violent acts, but first you have to identify them. Unfortunately, mandated fee disclosure is still pending, so you have to take the initiative.

So how do you identify a zombie fund? First you need a reliable benchmark for comparison purposes. The easiest way is to look at the index that the fund is supposed to be tracking.

A good proxy for the U.S. bond market, for example, is the Barclays Capital Aggregate Bond Index. It's a basket of listed bonds. If a fund tracks the index return within 0.20 percentage points or less, then that's pretty good and not expensive.

A low-cost bond index fund would look like the Fidelity Spartan Intermediate Term Bond Index investor class fund, with a 0.20 percent expense ratio. You'd need at least $10,000 to get into this fund, though.

You want to pay a manager more to get less return on bonds? The ING US Bond Index portfolio charges a hefty 0.95 percent annually, meaning it will lag the index by nearly a full percentage point every year.

What about garden-variety stock index funds? Suppose you were stuck in a fund like the Principal Large Cap S&P 500 Index fund (C Shares). The managers charge you 1.3 percent annually to hold a basket of the largest U.S. stocks. You could reap huge savings by replacing it with the Fidelity Spartan S&P 500 Index Advantage fund, with an expense ratio of 0.07 percent.

Here's where "less is more" refers to more than architecture. The Principal fund lagged the S&P index by roughly a percentage point over the past year through October 28.

The Fidelity index fund, in contrast, slightly beat the index over the same period. By lowering your expense ratio, you got back that percentage point you would've lost in the more expensive fund.

Over time, the numbers add up. Let's say you had $100,000 in the Principal fund earning 5 percent over 30 years. At the end of that period, you'd have lost more than $140,000 to fees and foregone earnings. The Fidelity fund would have only cost you about $9,000. So one decision can save you roughly $131,000. Run your own numbers on the free SEC Mutual Fund Expense Analyzer (see here). It will take about two minutes.

If you have a zombie fund in your portfolio, run away from it and consider offerings in the DFA, Fidelity, iShares, Schwab, TIAA-CREF or Vanguard groups.

Have a nest-egg eater in your 401(k)? Suggest alternatives to your employer or plan administrator. By law, they must provide the most prudent, low-cost choices. You can sue them if they've loaded your plan with zombies. Several employee groups have done so in recent years -- and won (see www.uselaws.com/news/3/108).

Managing the Message

What the Occupy Wall Street crowd should be saying when they talk about their plight

By John F. Wasik (Reuters)

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Are the thousands who have taken to the streets in the “Occupy Wall Street” (OWS) protests a bunch of anarchistic slackers or do they have a point?

If they’re protesting their personal financial situations or prospects for the American Dream, they have plenty to howl about, but the “99 percent” crowds could use some message management.

When I recently visited the Chicago OWS spin-off in front of the Federal Reserve Bank, they were decrying everything from predator drones to corporations in general. There were fewer than 100 people there, although their theme was similar to the New York demonstrations.

Instead of yelling at people ensconced behind financial district edifices, though, protesters could be making some more constructive demands. I’d like to humbly offer a few suggestions:

• Demand that big banks give ordinary citizens the same rates they receive from the Federal Reserve on loans. Borrowers can’t re-negotiate their college loans the way a big corporation or bank can, because they have access to interest rates that are nearly zero. Moreover, students can’t consolidate high-rate private loans with lower-rate federal borrowing, so the plums of high finance are out of their reach. Those who graduated from college may be staring down decades of paying off debt — an average of nearly $23,000 per student; those with professional degrees are wincing at six-figure burdens.
• Demand that Congress permit regular folks to discharge student debt in bankruptcy. It’s somewhat of a consolation that graduates can get lower payments based on sparse income or employment if they have federal loans, but they still have to repay those loans. If they file for bankruptcy, they can’t discharge those debts, which are like albatrosses. Not so with the megabanks, who not only received a multi-trillion-dollar bailout, but got the U.S. Treasury and Federal Reserve to buy their bad debt and toxic securities. There’s a solid reason why the delinquency rate for student loans is almost as high as credit cards.
• Demand that Congress pass a stimulus plan to create infrastructure, education, research and clean energy jobs instead of investing in two wars that three-quarters of the American electorate thinks are senseless. If the job market were robust, none of these protesters would have to worry. Like previous generations, they could work, pay off their debts and buy things like appliances, furniture and homes. They could afford to have children and provide them decent educations. That was the American Dream. The younger generation is not getting the job opportunities their parents or grandparents had. They are faced with average 15 percent unemployment. It’s much higher for minorities. Even if they can get a job, wages are depressed due to the recession and many are underemployed, working several jobs or are part-timers.
• Instead of targeting financial districts, focus on specific congressmen and senators blocking financial/bankruptcy reform and job creation.

Unless more people get in the face of politicians, one thing is certain: it will be continue to be a raw deal for the middle class. Now is the time for the protesters to take their demonstrations out of financial districts and into the offices of their elected representatives. All of this reminds me of when Ralph Waldo Emerson visited Henry David Thoreau in jail, who was imprisoned for not paying a poll tax. Emerson asked his friend why he was there. “Why are you not here?” Thoreau replied. Maybe we’re not quite on the streets today in spirit, but most of us were there some time ago in personal financial solidarity — whether we choose to admit it or not.

Cutting Your Property Taxes

By John F. Wasik (Reuters)

The author is a columnist for Reuters.com and author of The Audacity of Help: Obama's Economic Plan and the Remaking of America. The opinions expressed are his own.

By John Wasik

(Reuters) - For years, the mantra of American homeownership was to count on home appreciation. Every year like clockwork the value went up and houses were a growing source of wealth.

Now, more than three years after the housing market imploded, the tune is different. It may make sense for you to prove that your home's value has dropped so you can file for reduced property taxes.

This is the time of the year when local assessors send out notices of your home's assessed value. Note, however, that this is not your real market value. It's a base value that's used to calculate your property taxes. If you want to reduce your real estate taxes, start with paring your assessed value.

You have a reasonably good chance of winning a challenge to your assessed valuation. It's estimated that some 60 percent of residential properties are over-assessed, although only a handful of home owners appeal, according to the National Taxpayers Union.

As someone who's volunteered with a local nonprofit in Northeastern Illinois on property tax issues, I know it's worth fighting assessments every year. Sometimes I win, sometimes I lose. If you feel that your assessment is too high, there are many ways to challenge it, but it takes some homework and diligence.

You can always start by checking the property record of your home, which is on file with the assessor. Does it have the correct number of bathrooms and bedrooms? Is the total living space correct? Does it list a finished basement in error? You can fix any incorrect data by either allowing the assessor to inspect your home or by submitting an approved builder's drawing or survey.

Although you can dispute the assessed market value of your home with your assessor, it's not an easy task since you may need at least three comparable homes in your neighborhood with lower values.

If you can't reach an agreement with your assessor, then you'll have to file appeals with your county and state property-tax appeal boards. Your documentation should be filed on time and you may be scheduled for a short hearing.

You can, of course, hire a consultant or lawyer to do the appeal for you, but they will charge a flat fee or take a percentage of your tax savings.

When going through this process, you may feel like it's an uphill battle. It's much easier for assessors to neglect reducing assessed values -- even though home prices have plummeted 30 percent or more in many metropolitan areas since the housing meltdown began. They're in the business of pooling money for the taxing bodies, not providing current market values.

Yet to get an idea on how much housing values have dropped, you need to consult some recent numbers from Realtor.com , the main web site from the National Association of Realtors, the trade association.

Here's a sampling of some markets that showed the largest year-over-year declines in median list prices, that is, what buyers were asking for homes:

*Chicago: -14.9 percent

*Las Vegas : -11.19 percent

*Atlanta: -11.17 percent

*Los Angeles/Long Beach: -10.99 percent

*Detroit: -10.39 percent

*Tampa/Clearwater: -10.26 percent

Of course, these markets have declined much more than these percentages show since the real-estate market peaked in 2006-2007. So you may be able to reap some genuine savings in your property-tax bill.

For the purposes of your assessment, you can generally only focus on the last year. Your mission is to show how similar properties in your immediate area have declined along with your home.

Assessors aren't interested in national, statewide or even county housing prices, though. Stick to your neighborhood and get a professional appraisal for assessed valuation. And if there's something that has reduced the value of your property - a recent storm, neighborhood deterioration, etc. - you should present your case with pictures.

Even if you get a reduction in your assessed value, you may not see a huge decline in your property taxes, if at all. In most places, taxing bodies can still raise their tax rates or multipliers. When multiplied by your assessed value (minus any exemptions or credits), the rates will determine your tax bill. Unless subject to a tax cap, even in a sour property market taxes can still rise.

Since they are suffering from reduced tax revenue due to the housing recession, most public services are going to do whatever they can to ensure that they receive as much money from taxpayers as possible.

The good news is that, unless you employ outside help, it will cost you nothing to fight.

There's a strange benefit in arguing that your home is worth less than the year before. While it may be a blow to your ego, it's a fight worth waging that can make a difference in your tax bills in the future.

Some Sanity in Scary Times

Balancing your portfolio in a bonkers market

By John F. Wasik

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Balance is a rare bird these days. Jobs, housing, stocks, European debt: All seem to be in a spasmodic tailspin.

There is some consolation that a balanced portfolio can help smooth out the jagged curves of a bipolar market economy. But balance is rarely what we think it is, and it needs constant monitoring.

When most investment advisers tout a balanced portfolio, it typically means one thing: About 60 percent would be invested in a U.S. all-stock fund and the remainder in bonds.

A good proxy for the stock component would be the index exchange-traded fund SPDR S&P 500 fund. U.S. bonds could be ably represented by the SPDR Barclays Aggregate Bond ETF. Both funds are low cost, diversified ways of owning the lion’s share of each market. Here’s how the returns break out, according to Craig Israelsen, professor of finance at Brigham Young University, who analyzed the underlying indexes:

A balanced portfolio is roughly half as risky as an all-stock mix. If you looked at August’s returns, you would have only lost 2.75 percent in the 60/40 portfolio, compared to a 5.5 percent loss in the all-stock portfolio or a 1.37 percent gain in the much safer all-bond portfolio. No surprises there because bonds are safe havens when investors flee stocks as they did during last month’s volatility — and may continue to do so in a broad-based pullback.

Let’s look back even deeper into the past decade, which included two recessions, 9/11, the 2008 meltdown and the dot-com blow-out of 2001. Bonds are again the best performers as a buffer against stocks — returning 5.5 percent vs. 2.59 percent for 100 percent stocks. Between those two extremes was the balanced portfolio, with a 4.1 percent return through August 31.

In an even more volatile period — going back only five years to include the 2008 meltdown, recession and recovery — bonds again came out on top with a 6.26 percent return, compared to 0.74 percent return for all stocks and 3.3 percent for the balanced mix.

It’s hard to argue against being all in stocks or bonds at the right moments. In good times, stocks are the place to be as you’re rewarded with dividends and capital appreciation based on corporate earnings expectations. When the skies darken, though, bonds are decent hideouts due to their steady payments and appreciation when interest rates decline. Yet how do you time the market? That’s what makes the balanced approach a solid middle ground that lowers both stock and bond-market risk simultaneously.

Long-term, the middle route makes a huge difference. From 1926 through 2010, according to a recent T. Rowe Price study, a balanced portfolio delivered returns above 10 percent almost as frequently as an all-stock portfolio — with 40 percent less volatility.

That means in a dreadful year for stocks, the balanced portfolio would only lose 28 percent, compared to 43 percent for the 100 percent stocks mix.

The balanced approach is a compelling argument for mutual funds that automatically do the 60/40 allocation and for target-date or lifestyle choices within 401(k)-type plans that do the same thing only with specific years targeted for retirement withdrawals. Every major mutual-fund firm offers them as does Folio Investing.

You could also build a balanced portfolio on your own by buying the two SPDR funds I mentioned above. Buy them through a deep-discount broker or find their equivalents commission-free through Fidelity Investments, Charles Schwab or the Vanguard Group.

Want to take the balanced approach one-step further? Consider an ultra-balanced approach with at least 12 separate funds representing seven asset classes, such as the ones found in the 7-12 portfolio. Over the past five years, the passive version of 7-12 has returned 4.8 percent, compared with 3.87 percent for the Vanguard Balanced Index and 0.71 for the Vanguard 500 Index fund, according to Israelsen, who designed the portfolio.

Israelsen has expanded the definition of balanced portfolios by including inflation-protected bonds, cash, natural resources/commodities, global real estate, emerging markets and all sizes of companies. This model reduces risk through diversification and includes tangible assets such as commodities and real estate.

What’s important in a balanced approach for moderate to conservative investors is that more global asset classes get you away from the all-U.S. stocks and bonds orthodoxy. This diversity not only gives you room to breath, you’ll never fly too close to the sun.

Market Madness Avoidable

How to focus in a manic market

By John F. Wasik (Reuters)

While the market was doing another backward swan dive, one email came to me that reflected the mass anxiety: “Some are saying it may be time to panic, and I am resisting. What do you think? And what does panic mean: Jump? Sell off?”

After I offered some brief words of staid resolve, it occurred to me that the luncheon speaker at the Morningstar ETF conference I was attending at the time had the right idea, even though he didn’t utter a word about finance or markets.

Words of fortitude came from Jeffrey Zaslow, who co-authored books with Chesley Sullenberger, the pilot who safely landed a disabled jet in the Hudson River (saving all 155 aboard); and Randy Pausch, the Carnegie-Mellon Professor who offered a moving “last lecture” on life and love before he died of cancer.

Both men faced life-threatening panics and had to make tough decisions. Sullenberger had minutes to decide the best course of action when bird strikes took out his jet’s engines after he left LaGuardia airport. Pausch had a few months to deliver his key life lessons to his students, colleagues and family.

What did they both have in common? Focus and an ability to discern what was important. To distill the essentials of life and articulate them. A lifetime of training, experience and thoughtful examination had prepared them for the moment of truth. As Zaslow noted, they — along with most of us — would be remembered for what they did in critical moments. Yet another such global moment is upon us.

I’m not going to pretend that the markets will suddenly see tomorrow that all will be okay with European banking, or that the U.S. government or American megabanks will fix their tattered balance sheets anytime soon. Or that we’re not all headed for a global recession or more bank failures.

All of that is possible and that’s why the markets are so utterly spooked. Volatility will not ease soon and if you can’t afford the risk, you shouldn’t be invested in stocks.

What I do know is that this is a perfect time to concentrate on what’s essential to you and your family. It’s nearing year-end, so now’s the perfect time to start asking — and answering — these questions:

Are you protected?
This question goes beyond having the basic forms of insurance to cover your vehicles, home/apartment/valuables, life and health. Disability insurance is essential because you’re far more likely to suffer loss of income for health reasons. Portfolio protection is key to make sure all of the risks (inflation, market, credit) are fully hedged.

Is your “gross family spending” positive?
I heard this phrase from Robert Arnott of Research Affiliates and thought it was perfectly descriptive of household financial health. It’s simple: Do your assets (home, business equity, pension, savings, cash) exceed your liabilities (mortgage, credit cards, taxes owed, loans)? If not, what can you do to clean up your balance sheet?

Do you have a plan?
I’m not just talking about a comprehensive financial plan that sets down your goals, objectives and risk factors in an investment policy statement. What about your estate planning? Do you have a living will or trust? Do you want to continue your education? How can you reduce your taxes? How do you plan to invest in your human capital — what you’re good at and passionate about?

What’s your legacy?
This is the hardest question of all. Building an estate is just fine, but if you leave behind love for the people you care about, there’s nothing wrong with that. This is the most lasting legacy.

You may come to the conclusion that you need some help in answering all of these questions. It wouldn’t hurt to approach all of your trusted advisors or summon your family to discuss some of these items. Also check in with your lawyer, accountant or financial planner.

Please note: By “trusted,” I don’t mean brokers or agents. Professionals who are not on commission can give you more objective advice.

Don’t make a move until you know your long-term plan. Now is a bad time to make a decision if you’re just doing it out of panic. You’re not alone in this and there’s no need to completely jump into gold or cash without having a rational defense.

The bottom line is sustainability. If your debts are out of control, why are you worried about the markets? And if you’re not protected against loss of income, the European banking situation is incredibly irrelevant.

After you’ve consulted with your family and professional counselors, then decide if your plan makes sense. You may feel that you’re still wobbly — and need to make some course corrections. But at least you won’t be flying blind.

Why Social Security Will Survive

Perry’s monstrous lies about Social Security

By John F. Wasik (Reuters)

Gov. Rick Perry, the GOP presidential candidate who calls Social Security a “monstrous lie” and a “Ponzi scheme” has implied that future retirees can’t rely upon receiving benefits from the system.

Not only is Perry shooting wildly from the hip on these statements — a strategy cynically designed to attract angry, younger independent voters — he’s spewing some layered falsehoods that need to be addressed.

Social Security can not only be preserved for future generations, its coming fiscal shortfalls can be fixed relatively simply. What Perry also neglects to mention is that it’s one of the most successful anti-poverty programs in U.S. history.

The before-and-after Social Security picture is dramatic. Before Social Security, almost half of elderly Americans had income below the poverty line, reports the Center on Budget and Policy Priorities. Roughly 12 percent of elderly citizens are considered poor today. The program lifted more than 11 million out of poverty — more than 60 percent of those were women.

Here’s some even more relevant Texas-sized context: Today, more people are slipping back into poverty because of permanent job losses, recessions, a housing meltdown, stock-market downturns, reduced employment benefits, higher medical costs and stagnant wage growth. The U.S. poverty rate last year increased for the third straight year — the highest it’s been since 1993. Some 46 million have annual incomes below the poverty line of $22,113.

As the U.S. is saddled with the highest poverty rate among industrialized countries, why are the anti-poverty features of Social Security being attacked?

Behind Perry’s venom about the system is a larger truth that he’s yet to illuminate: Making cash-strapped states responsible for replacing Social Security or privatizing it is unrealistic. There is nothing in the private sector — nor is anything likely to emerge — that could replace Social Security at the same low cost to taxpayers.

Simply trashing Social Security by calling it a Ponzi scheme ignores the fact that when you pay your FICA payroll tax, you’re getting an inflation-adjusted annuity, disability insurance, a small death benefit for your survivors plus Medicare benefits.

Try to find a package like this in the private sector. It doesn’t exist. You’d have to buy an inflation-protected annuity, disability and life policy separately — and they are no bargains.

Keep in mind, when private insurers offer these products they have to pay commissions and marketing costs, so they load policies with lots of hidden expenses. They can’t offer the same economies of scale that Social Security can, which isn’t burdened with the excessive marketing and administrative expenses.

On an inflation-adjusted annuity alone, you pay dearly to keep up with the cost of living. Compared to an immediate annuity (without inflation protection), your payment would be from 24 percent to 30 percent lower. For that reason, private inflation-protected annuities are relatively scarce and unpopular.

Private disability policies, which I recommend, are expensive outside of group plans (buy one through your employer if you can). For a 40-year-old wanting a $4,500 monthly benefit, the annual premium would be about $2,300.

Life insurance premiums vary greatly, depending upon your health, age and amount of coverage. The older and sicker you are, the higher the cost. If you have chronic conditions, risky occupation or a flawed medical history, good luck getting coverage. Social Security and Medicare don’t turn anyone away.

What about examining Perry’s inference that current workers are contributing money for today’s retirees?
That’s true, but it’s not a Ponzi scheme. It’s well known that there will be fewer workers in the future to fund the system, which will create a regular structural deficit by 2016. But that’s only the case if nothing happens and Congress completely ignores technical fixes or simply cuts benefits.

There’s more about the “if nothing is done” scenario: The Social Security Trust Fund — Congress borrows the cash and replaces it with Treasury securities from a pool of payroll taxes — will be exhausted in 2039, according to the Congressional Budget Office. Yet that doesn’t mean that Social Security will be bust; it will then begin to pay reduced benefits, again, if Congress doesn’t take action.

In what Washington Post economics blogger Ezra Klein calls “the boring truth” about Social Security, Congress can raise the amount of salary subject to Social Security tax to fill the funding hole.

Right now, the earnings cap is $106,800 and the tax is only 4.2 percent for employees, which may drop even more (temporarily) if Congress approves President Obama’s extended payroll tax break.

If you want to get personal on how Social Security will impact your life, run a benefits estimate of how much you’re entitled to at retirement age. For me, it’s about $2,000 a month. It’s not a lot of money and I know I couldn’t live on that where I live now.

Now think of what would happen to your future lifestyle if that modest supplement was scaled back — or you had to retire later. Would you have enough in your 401(k) and other savings to ensure a dignified retirement?

Behind Social Security is an appallingly simple truth: We can put more money into it by asking higher-salaried employees to pay more, and by including immigrants and public-sector employees. I know that doesn’t have much political sizzle to it, but this kind of math doesn’t lie.

9/11's Unfinished Business

Days of simmering carbon rage in the post 9/11 world

By John F. Wasik (Reuters)

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By John Wasik
The opinions expressed are his own.

Three friends were recently arrested for sitting in front of the White House to protest a potentially damaging Keystone XL tar sands pipeline. They were joined by actress Darryl Hannah, environmentalist Bill McKibben and more than 1,200 others.

Although they were handcuffed, stuffed into a paddy wagon like livestock and quickly released after paying a $100 fine, they believed their civil disobedience was instrumental in bringing attention to a damaging fossil fuel production process. They are all in their seventh decades and highly educated, but felt they needed to make a stand.

A decade removed from the horror of 9/11 and what’s changed in our attitude towards ecology, energy and economics?

We are still frighteningly dependent upon imported oil and there’s no comprehensive U.S. energy policy other than to consume with abandon every last molecule of carbon by blowing up mountains, fracking bedrock, fouling waterways, polluting oceans and warming the atmosphere.

If you think I’m conflating the horrendous loss of life on and since 9/11 with something unrelated, I’m not. Terrorism is a beast that seems to know no master and we’re still fighting that battle. We are all still grieving for the thousands lost and a violated sense of security that will never be reclaimed.

Yet we can only live in the present and head into the future. The U.S. mostly exports jobs now and debt now instead of fostering new energy technologies to rid us of dependence upon foreign petroleum. We’ve become really good at consuming more than our share and kowtowing to entrenched interests that profit from feeding this addicted dragon, which has the face of most all of us.

If you were looking for a hint of an energy policy in President Obama’s jobs speech Thursday night, you would have needed a microscope. The proposed $447 billion plan is big on more tax cuts and didn’t directly promote earlier Obama proposals for green energy development.

Meanwhile, the carbon age grinds on with more drilling and billing from countries who are not really our friends. Each drop of the 4 million imported barrels of oil the U.S. imports every day uncomfortably links us to many countries that have appalling human rights records that are often openly hostile to American interests.

If anything, U.S. energy security has worsened since 9/11. With the exception of Canada, the leading U.S. oil supplier, five out of the top six exporting countries are run by repressive, hostile or unstable governments (Iraq is number six on the list). We’re financing brutal thuggery on a global scale.

The deadly irony is our nearly complete dependence upon fossil fuels — and our many battles to protect this dependency — has cost lives. Some one in eight soldiers were killed in Iraq from 2003-2007 just protecting fuel convoys.

All told, the U.S. war on terror in two countries and elsewhere is estimated to have cost us $5 trillion.

The lives and the dollars lost to fossil fuel dependence are needlessly wasted. The Navy alone estimates that for every $10 hike in the price of crude, it spends $300 million more annually in fuel costs. And that’s just the Navy.

Shouldn’t that money be going to create jobs, fund schools, clean energy research and fixing infrastructure?

Reducing U.S. dependence upon crude (and coal for that matter) can bolster the flagging U.S. economy and trim the budget deficit. The clean technology sector surged 8 percent last year and is now outpacing job creation in the oil industry.

Policymakers in Washington have known all of this for years, yet keep ignoring the inebriated folly of energy co-dependence.

This institutional blindness leads to astounding decisions such as the U.S. State Department green lighting the environmental soundness of the tar sands pipeline.

Since when did the State Department gain meaningful authority over environmental concerns? What’s next? Will the Energy Department gain purview over Yellowstone?

I’d like to believe that my friends briefly sacrificed their freedom and, in the words of Henry David Thoreau, refused to “resign their conscience” to show what an onerous burden dirty energy places upon the entire earth and society. They don’t want to leave behind one of the most destructive legacies of the industrial era that has become a paramount human rights issue as well.

We must challenge our government when it ignores the collective conscience. And if two wars, street protests, massive activism and voluntary incarceration aren’t enough? Then we will have learned nothing from one of the lessons of 9/11.

Photo: American actress Daryl Hannah is arrested as she joins a protest against the Keystone XL oil pipeline, outside the White House in Washington, August 30, 2011. Dozens were arrested on Tuesday in the protest against the pipeline that, if completed, will stretch from Canada to the gulf coast of the United States. REUTERS/Jason Reed

How Wall Street is Blocking Financial Reform

Published on iWatch News (http://www.iwatchnews.org)

Home > Investor protections imperiled by Wall Street, GOP assault on financial reform

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Consumer Finance [1]

Investor protections imperiled by Wall Street, GOP assault on financial reform [2]

It's no secret that a powerful, well-funded coalition of mega-banks, derivatives users and insurance brokers wants to see major pieces of the Wall Street financial reform law dismembered and defunded. They are partnering with mostly GOP House members to do so.

What's lost in this complex cyclone of industry lobbying, free-market ideology and campaign contributions: some of the most pro-investor protections of the law are at risk of disappearing, including safeguards that would help every American who deals with a broker, bank or insurance adviser.

Among the pro-investor measures facing an uncertain future:

• Requiring stock brokers and insurance agents who offer financial advice to act as “fiduciaries” and put client interests ahead of their own profits;
• Creating an Office of the Investor Advocate and a new Investor Advisory Committee within the Securities and Exchange Commission. Both have been put on hold [3] for lack of funding;
• Supplying all the funding mandated by the Dodd-Frank financial reform law for the new Consumer Financial Protection Bureau;
• Increasing the annual funding sought by the SEC and the Commodity Futures Trading Commission to carry out their Dodd-Frank mandates.

The all-out assault on the reforms began almost as soon as the law was signed in July 2010.

Following the money

Financial industry dollars have been pouring into congressional coffers for years and have mushroomed in the wake of the Dodd-Frank law.

While both Democrats and Republicans receive money from Wall Street, banks and insurers, several House GOP members have aggressively led efforts to dismember key provisions of the Wall Street reform law.

The House Financial Services Committee, now chaired by Republican Spencer Bachus of Alabama, has been at the forefront of trying to delay or dismantle Dodd-Frank investor rules. This was the committee that did the heavy lifting for financial reform under former chairman Barney Frank, the Massachusetts Democrat and eponymous co-author of the law passed in 2010.

Bachus has not only opposed the formation of the CFPB, he has introduced several bills to delay its start-up and replace its sole director with a five-member board answerable to a financial crisis committee of top regulators.

Bachus' frontal assault on the consumer bureau and other Dodd-Frank regulations reflects the disdain of GOP House leadership in general. Only three Republicans voted for the Dodd-Frank bill when it passed the House in a 237-192 vote on June 30, 2010.

First quarter 2011 campaign finance filings reviewed by the Sunlight Foundation showed "that seven of the 10 freshmen Republicans appointed to the House Financial Services Committee have received 40 percent or more of their political action committee (PAC) contributions from the finance, insurance, and real estate sector."

Bachus, who depends on the financial services industry for more than 80 percent of his campaign funds, framed his attack on the CFPB and other Dodd-Frank reforms in the context of government accountability and over-regulation.

“Everyone on this Committee supports robust consumer protection. But there must be real oversight and accountability of every massive government bureaucracy, and that includes the CFPB,” Bachus said [4] on the passage of a trio of bills passed by the Financial Services Committee on May 13.

A coalition of consumer groups including the Consumer Federation of America and the U.S. Public Interest Research Group assailed Bachus' approach, saying that his bills "aren't about reasonable oversight of the CFPB, they are an attack on consumer protection," according to Ed Mierzwinski of US PIRG.

When financial reform was still being debated in 2009, opponents of the bill—mostly Republican—reaped an average 20 percent more in campaign contributions from the financial industry than proponents, according to the Center for Responsive Politics.

House Democrats also received plenty of money from financial interests for their re-election campaigns.

Frank, an architect of the bill, received nearly $1.3 million, the second-highest amount of any House member, from the industry. Jim Himes of Connecticut received $1.2 million. He was followed by Ron Klein of Florida and Carolyn Maloney of New York, who received about $1 million each. Topping the list with $1.7 million was Democrat Paul Kanjorski of Pennsylvania, a former House Financial Services subcommittee chairman who lost his seat in the last election.

When Republicans took over House leadership last November, they began blasting away at the Dodd-Frank law with the support of the financial services industry. Since they knew they couldn't repeal the bill outright, they cherry-picked provisions that were most costly to the industry such as fiduciary duty, derivatives reform and the CFPB.

Bachus told [5] an Alabama newspaper weeks after the November 2010 election that his role was to "serve the banks," later clarifying his comment to say that regulators should set parameters for banks but not micromanage them.

"If they (Republicans) can get control of both houses," Frank told iWatch News , "they can gut this thing (Dodd-Frank). In general, [GOP attacks on Dodd-Frank] are a way to attract campaign contributions and intimidate regulators."

Bachus and his House Financial Services Committee have already passed more than a dozen bills this year aimed at killing or weakening various aspects of the reform law, but the bills have not advanced in the Democratic-controlled Senate.

The top donors [6] to Bachus: Independent Community Bankers PAC, JP Morgan Chase & Co., American Financial Services Association and Capital One Financial Corp. Assn. PAC. Of the 20 top contributors to Bachus, only two—ExxonMobil and Honeywell—had no direct connection to financial services.

All told, Bachus' campaign took in [7] at least $1.23 million from the finance, insurance and real estate sector, more than half of the $1.97 million he raised in the 2010 election cycle, according to Sunlight Foundation.

Financial lobbies have been particularly generous to those on the House Financial Services’ capital markets subcommittee, which has jurisdiction over the SEC, exchanges, capital markets and government-sponsored housing enterprises like Fannie Mae and Freddie Mac.

The subcommittee’s chairman, Republican Scott Garrett of New Jersey, opposes expanding the fiduciary standard. Garrett and 13 of GOP colleagues sent a letter on March 17 to the SEC, saying the agency "has not identified and defined clear problems that

would justify a [fiduciary duty] rulemaking and does not have a solid basis upon which to move forward." Lawmakers said they shared the concerns of the SEC’s two Republican commissioners, who said [8] the agency’s fiduciary study “fails to adequately justify its recommendation that the Commission embark on fundamentally changing the regulatory regime for broker-dealers and investment advisers."

Garrett also demanded a "thorough cost-benefit analysis" of any fiduciary rule that the SEC might propose. Soon after receiving the letter, the SEC chairman announced the rule was put on hold for further study.

Like Bachus, Garrett's campaign was flush with financial services money. Throughout Garrett’s political career, his single-largest contributor by industry came from the finance, insurance, real estate and securities sector, which accounted [9] for $1.8 million of the career total $5.2 million raised.

To be sure, the party in power generally receives more money from special interests, especially when new regulations surface.

According to Opensecrets.org, "The average member of the Financial Services Committee received about 75 percent more money in the last election cycle from industries under their jurisdiction than the average member of Congress." That included more than $3 million from the American Bankers Association, $1.7 million from JP Morgan Chase, $1.6 million from Bank of America and $1.3 million from Wells Fargo.

By imposing restrictions and curtailing funds for the key agencies responsible for protecting investors, House Republicans have put regulators on notice that they will be gunning for them. And if Republicans take control of the Senate in 2012, Dodd-Frank may be mortally wounded.

Investors who lost money from commission-oriented broker advice will continue to get hurt or be sold risky investments they don’t need without tougher watchdogs, according to consumer advocates.

"There absolutely needs to be fiduciary duty," says Robert Talbot, a University of San Francisco law professor who has represented hundreds of broker-fleeced investors. "People are completely trusting."

Attack on SEC funding, fiduciary rule

SEC Chairman Mary Schapiro, a champion of the Dodd-Frank reforms, has faced an onslaught from House and Senate Republicans. GOP members of the House Financial Services Committee want to cut the SEC’s funding and staffing, which would make it difficult for the agency to put in force the major safeguards mandated by the Dodd-Frank law, such as the Office of the Investor Advocate and better policing of investment advisers.

Republicans also want to neuter the power of the new consumer protection agency, complaining [4] that the CFPB should not be led by a single director as the agency is now structured.

Not only is the alliance of GOP lawmakers and the financial services industry seeking to cut funding for the SEC, it wants to shelve a stricter fiduciary rule for brokers. Under pressure from a group of House Republicans and GOP members of the Senate Banking Committee, Schapiro has delayed the rulemaking for the fiduciary rulemaking. The SEC has already received more than 400 emails [10] from industry groups as well as small investors in response to its January study.

One of the biggest supporters of expanding the fiduciary rule, the AARP, plans to do its own research to gauge the financial impact of the proposed rule, said Mary Wallace, senior legislative representative of the group that represents Americans over 50. Amid attempts to weaken or dismantle the Dodd-Frank law, Wallace says it's essential that the fiduciary rule survive so that investors will "be guaranteed that the products they are being sold are the best for the client's needs."

Schapiro recently told iWatch News that the agency has placed a higher priority on other rules for the time being. The reform law requires the SEC to write some 100 new rules, create five new offices and produce more than 20 reports. The SEC plans [11] further economic analysis of the fiduciary issue, and hopes to propose a fiduciary rule in the second half of this year, Schapiro said in May.

Even with its new powers under the Dodd-Frank law, the agency acknowledges that it will be difficult to police such a large and powerful industry.

The investor protection agency was crippled during the Bush administration as the SEC budget was reduced or frozen from 2005 to 2007 – just as Wall Street was selling securitized products that later proved to be toxic for investors and the financial system. Only recently has the agency returned to staffing levels of fiscal year 2005, Schapiro says.

In the interim, the SEC saw trading volume double, a 50 percent jump in the number of investment advisers, and investor assets grow to $38 trillion.

Six years ago, about 19 SEC examiners were available for every $1 trillion invested; now the ratio is 12 examiners per trillion, Schapiro said. Investor protection advocates are troubled by the fact that assets under management have ballooned while the number of watchdogs has dropped.

The agency requested $1.4 billion for fiscal 2012, an amount it says would be covered by the fines and other revenue the SEC generates. That's an increase of $222 million over the previous year, and would pay for 780 new jobs to carry out Dodd-Frank. House and Senate Republicans would like to cut the agency's funding.

"Insufficient funding for the SEC means fewer cops on the beat," Schapiro said in an April 8 speech, "even though fraudsters show no sign of backing off."

Industry defends status quo

Main Street investors have to look deep into the back story of the fiduciary rule to understand why it's attracted the enmity of financial advisers, brokers and insurance agents. The fiduciary rule would upend current business models used by brokers and insurance agents. It would cost brokerages, insurers and banks millions of dollars to retrain their brokers as fiduciaries, add in-house compliance practices and register with states or the SEC as investment advisers.

How much would it cost the industry?

Spokesmen with Securities Industry and Financial Markets Association (SIFMA), the National Association of Insurance and Financial Advisors (NAIFA) and the Independent Insurance Agents and Brokers of America did not respond to iWatch News’

repeated requests to comment on the issue.

Registered investment advisers, certified financial planners and many financial advisers already work in a fiduciary capacity with clients. And so do many lawyers and accountants who provide financial advice.

A coalition of fiduciary advisers has long supported and lobbied for the SEC rule. Their business model is simple: the client comes first. Brokers typically adhere to a much-weaker standard that simply says they must choose financial products that are "suitable" for clients – a definition allowing them to sell products with lucrative fees and commissions.

Another big difference: If an investor is wronged by an investment adviser, the investor can sue in court. But non-fiduciary brokers and insurance adviser/agents usually require customers to take any disputes to an arbitration forum run by the securities industry self-regulator, FINRA.

To challenge a broker’s behavior, a small investor must pay fees and appear before a three-member arbitration panel run by the industry with at least one of the arbitrators representing the brokerage industry. And as an investor, the odds are not in your favor, says Louis Straney, a securities arbitration consultant based in Santa Fe, N.M.

At present, the number of fiduciary advisers is small, so any imposition of a fiduciary rule on broker-dealers and other commissioned financial sales representatives would have broad impact and help the majority of American investors, according to investor advocates.

There are less than 12,000 registered investment advisers policed by the states and SEC, and even fewer certified financial planners. But the securities industry is represented by more than 600,000 brokers and 400,000 insurance agents, many of whom are cross-licensed to sell securities and commissioned variable annuities, which regulators frequently cite as sources of marketing abuses—particularly to older investors.

SIFMA, the main industry group representing securities brokers, stated earlier this year it supports "a uniform fiduciary standard of care for broker-dealers, investment advisers…yet remains concerned about the possible effects on broker-dealers' ability to serve customers as this approach is developed.”

While appearing to support the concept of fiduciary duty, SIFMA has also claimed that its customers would pay more if they were subject to fees instead of commission. A SIFMA-paid study said an investor with $200,000 in assets would pay $460 more annually in additional expenses with fee-based advisers versus commission-based brokers.

NAIFA, a group representing 200,000 insurance agent/advisers, also says that small investors would be hurt. A NAIFA survey of more than 3,000 members found that imposing a fiduciary duty would force many to "discontinue providing some services to middle-market clients," the group said.

“Clients aren’t concerned about whatever standard of care might be imposed by regulators or legislators,” NAIFA President Terry Headley said in a recent statement [12]. “An imposed universal fiduciary standard that increases costs and eliminates the ability of investors to choose how, and from whom, they receive financial products, advice and services would not be in the best interests of consumers.”

Barbara Roper, who has championed fiduciary duty for years on behalf of the Consumer Federation of America, has asked House Republicans to drop their opposition.

"The SEC has proposed a way to move forward on fiduciary duty that maximizes investor protections while minimizing industry disruption," Roper said in a May 9 letter to lawmakers. "It would be tragic if opposition from a few industry members intent on maintaining the status quo were able to derail that progress."

However, FINRA arbitration statistics [13] indicate growing discontent with non-fiduciary brokers and advisers. The number of investors’ claims citing "misrepresentation, omission of facts, unsuitability, negligence, failure to supervise and misrepresentation" doubled in 2009 over the previous year, according to FINRA data. The single-largest problem category was "breach of fiduciary duty."

The human toll

With the 2010 passage of financial reform, there was some hope that investors would gain more robust protection from inappropriate investments. Some $114 billion has been directly lost by investors since 2008 in high-risky, broker-sold products such as auction-rate securities, principal-protected notes and sham securities, according to a study published [14] by the nonprofit Nation Institute.

Linda Soltis, 63, could have used one of the reform law's intended investor shields when she was approached by a broker working inside a Washington Mutual Bank. After inheriting some money from her brother in 2007, the retired San Francisco teacher was hoping to buy a condo in one of the most expensive real estate markets in the country.

Despite making clear that her goal was to keep her money insulated from market volatility, the bank broker invested the money in risky and inappropriate mutual funds that earned him a healthy commission. When the Wall Street meltdown occurred in late 2008, Soltis was told by her broker that she had lost more than $46,000—a large part of her life savings.

After contacting several lawyers, her case against the broker was taken up by the Investor Justice Clinic at the University of San Francisco law school, which was able to recover more than $43,000 in an arbitration award against the bank, JP Morgan Chase & Co., which bought Washington Mutual in 2008 after it failed.

"Something about being in a bank made me trust him," Soltis says of the broker. "I thought he represented me and cared about my account. Then it came out in arbitration that his job was sales. I wasn't able to buy the condo when the money was lost."

Soltis is one of many investors who have been confused by brokers who work in banks, major wealth management firms or insurance agencies.

She could have been protected if the bank broker was required to act as a “fiduciary ,” a legal definition that means placing the client’s financial interests first. Investment advisers are already held to this legal standard when recommending where clients should put their money. But many less-sophisticated investors are unaware of the difference between brokers and investment advisers.

The Dodd-Frank law created a Consumer Financial Protection Bureau (CFPB) and an SEC Office of the Investor Advocate, both designed to protect bank customers and

small investors with a new arsenal of police. It also ordered the SEC to study a fiduciary duty for brokers.

The SEC produced [15] a report in January that said that the fiduciary standard should apply to anyone giving financial advice. The agency planned to begin writing a rule to that effect until it ran into pressure from Republican lawmakers and financial services industry lobbyists.

John F. Wasik is author [16] of ``The Cul-de-Sac Syndrome'' and 12 other books, and is a Reuters columnist.

SEC has yet to move on rules that would hold brokers, insurance agents to stricter “fiduciary” duty to clients