Why I Read The Wall Street Journal

I didn’t start reading it religously until I was about 40, but I love the Wall Street Journal. I’m sure many people who read the Journal see it primarily as a newspaper with a strong financial emphasis, which is true. But the thing I like most about the Journal is the way its editorials and columns connect financial and economic news to a social and cultural context. I like that the Journal allows space for long articles include explanations as well as statements. Explicitly and implicitly, the Journal presents coherent world-views along with its news. You might not agree with every point of view, but I find the perspectives are much more on display and under debate in comparison to most newspapers or magazines. The Journal does more than inform; it gives you some insight into the thoughts of the people who present the information.

It’s because of the unique connection of news and ideas that unread Journals pile up around my office. Even if I’m not using the Journal as a source of current news and information, there are still great pearls of knowledge waiting to be discovered. That’s why I try to give every issue a once-over, regardless of the date, because I know there’s probably something worthwhile in every issue. It might be in the letters to the editor, a piece on the Opinion page, a book review, or a comment in the Houses of Worship feature that appears every Friday. I don’t know what, but usually I find something.

 The other day, I pulled up a stack of Journals still wrapped in the protective newspaper baggies (that’s how they come delivered to my mailbox). They were more than a year old. “Aww, maybe I should just pitch ‘em,” I thought. “After all, if I hadn’t read them in the past year, any thing I’ve missed hasn’t made a difference.” But I’m one of those people who’s a compulsive reader. If it’s printed, I’m reading it – back of the cereal box, nutritional label, junk mail, fine print on the menu, anything. So, of course, I sat down to read. A half hour later, I still have three issues left to scan, but I’ve also found a couple of new ideas for my newsletter, plus an article to show my wife. In addition, skimming old news gives me the chance to see whether the financial and political prognostications were accurate (the sub-prime crisis was on the radar, but the magnitude of the problem wasn’t seen, Obama and Hillary yes, McCain no, and boy did Mitt Romney implode).

 I know some of my older peers, particularly those who have more money and grew up on the East Coast, prefer Investor’s Business Daily or the New York Times, but for my money the Wall Street Journal is best newspaper in America – although it took me almost 20 years to arrive at that conclusion.

 My introduction to the Journal came in my sophomore year in college. I took an economics class taught by a distinguished older professor who had been a frequent economic policy advisor for the Johnson, Nixon and Carter administrations. One of the requirements for his class was every student had to subscribe to the Journal for the entire semester – and learn how to read the paper. This meant scanning the “What’s News” section (at that time it was once column on the front page), checking the editorials, and reading articles from the business and investment section. I shared a subscription with another student in my dorm, and made half-hearted efforts to read it according to the professor’s instructions, but never really got it. There wasn’t anything that resembled a sports page, no comics, and I just didn’t have the educational background or life experience to tackle some of the editorial perspectives.

 It wasn’t until I was about five years into my career in the financial services field that the Wall Street Journal became relevant. And it wasn’t just the financial stuff that grabbed me. It was the human interest stories of business, the political commentaries, the historical perspectives, the sophisticated entertainment reviews. It seemed like every section had something I wanted to read.

 I know the non-reading, give-me-streaming-video younger demographic probably doesn’t have the same affinity I have for newspapers. I know USA Today has its niche as “McPaper,” something that’s quick to read and easy to digest. But I appreciate the Journal’s depth, and the time it takes to read it. I think the best way I can describe it is that the Wall Street Journal is a newspaper for adults. From my experience, reading the Wall Street Journal is one of the ways you know you’ve become an adult. I was 35 when the Journal started making sense to me, and that’s about the time I finally “crossed the line” into adulthood.

 I hear stories about the decline of newspapers and other print media. A lot of the blame for this demise is placed on television, the Internet, and the fast pace of life. On one hand, I can see the connection. Most local daily papers aren’t much more than print versions of national wire stories and local TV news reports – received a day later. It’s more convenient (and more current) to click on the news scroll running across the top of my computer screen when I’m online.

On the other hand, when newspapers like the Wall Street Journal suffer circulation declines, I’m more inclined to think the problem isn’t competition from the Internet and Action News. The reason fewer people read the Wall Street Journal is because they simply aren’t as many adults in America as there used to be. There’s a lot of people over the age of 18, but not many adults.

 

 

Why You Need To Meet Murray Rothbard

Question #1. Ever heard of fractional banking?Question  #2.Did you know a bank can legally lend up to 10 times more money than it has in deposits?Question  #3. Did you receive a government-sponsored “public” education?(Best guess: If you answered “no” for Questions 1 and 2, you answered “yes” for 3. If you answered “no” to 1, 2 and 3, you probably over-paid for your private education.)

The ignorance of the general public about the negative economic impact of fractional reserve banking is enough to make one seriously consider whether public education isn’t some form of mind-control conspiracy. When what would be considered theft or fraud in any other business transaction is completely ignored simply because it bears the stamp of government approval, you have to wonder if the absence of outrage isn’t due in part to a deliberate campaign to obscure or hide the truth.

Which is why I love Murray Rothbard and his book The Case Against the Fed (Click here to purchase it). In 150 pages, Rothbard takes a subject (banking) that is almost unintelligible to the average American and makes the essential elements crystal clear. And when the scales drop from your eyes, two items stand out:

1. Fractional banking isn’t much different than counterfeiting. The government gives one institution (the central bank) the authority to print paper money – out of thin air – and then requires that it serve as “legal tender” for all financial transactions.

1. Governments cannot help but love fractional banking because it gives them economic power over the citizenry. The first party to obtain the use of counterfeit money is the government, and the government is the only party that benefits from the introduction of it into the economy. After that, all others suffer because the excess paper money creates an imbalance between the cost of goods and services and money that can be used to purchase them. This inflates prices. Real people, working for real money, must now pay more for the same loaf of bread or automobile.

 According to the bio on the back of his book, “Rothbard (1926-1995) was dean of the Austrian School of economics and America’s foremost scholar of central banking.”

America’s foremost scholar of central banking. There’s an obscure distinction. (Who would want to put “scholar of central banking” on their resume? The fact that we would ask that question is indicative of how little we know or understand about how central banking distorts every economic action in the United States.)

But read this brief comment from Rothbard:

“…if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed (i.e., the Federal Reserve Bank, the central bank of the United States), far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem.”

Got that? The Fed, now led by Ben Bernancke, formerly under the direction of Alan Greenspan, is the cause of inflation. And because the Fed is the cause of inflation – which progressively diminishes the purchasing power of our hard-earned dollars – it can never be the solution.

The irony is that 170 years ago, the citizens of the United States understood the impact of a central bank – and they voted to close it. The first “Fed” was called the First Bank of the United States (catchy title). It was authorized by Congress in 1791 and “retired” 20 years later when Congress declined to renew its authorization. A Second Bank of the United States was chartered in 1816, but 20 years later, its charter was not renewed either. From 1836 to 1913 the United States did not have a central bank.

A major plank of Andrew Jackson’s presidential campaign in 1832 was his opposition to the re-chartering of the Second Bank of the United States. Can you imagine a sound byte today from McCain or Obama or Hillary that promised to “rid us of the scourge of central banking?” (Hmmm…that sort of sounds like Ron Paul, doesn’t it?)

Two final comments:

Every citizen who cares about their financial future should understand fractional reserve banking and the role of the Federal Reserve in the economy. Rothbard’s book is a good place to start, but any education would be helpful.

The opposition to central banking and the economic abuses that result is not new. As far back as Biblical times, Solomon warned that “dishonest scales are an abomination to the Lord, but a just weight is His delight.” (Prov. 11:1). Government-authorized counterfeiting might be legal, but it is dishonest – every new piece of paper distorts the value of our work and our assets.

Not Yours To Give

Not Yours To Give

You can’t believe everything you read on the internet. (But even the lies and half-truths can provoke some interesting thoughts.) If you want to get the whole story here, take the time to read everything – because I saved the best for last.

On February 18, 2008, I received an e-mail about taxes, which included the following excerpt:

The next time you hear a politician use the word “billion” in a casual manner, think about whether you want the “politicians” spending YOUR tax money. A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into some perspective in one of its releases.

• A billion seconds ago it was 1959.
• A billion minutes ago Jesus was walking the streets of Jerusalem.
• A billion days ago no-one was around.
• A billion dollars ago was only 8 hours and 20 minutes, at the rate our government is spending it.

 While this thought is still fresh in our brain, let’s take a look at New Orleans. It’s amazing what you can learn with some simple division…

Louisiana Senator Mary Landrieu (D), is presently asking the Congress for $250 BILLION to rebuild New Orleans. Interesting number, what does it mean?

1. Well, if you are one of 484,674 residents of New Orleans (every man, woman, child), you each get $516,528.
2. Or, if you have one of the 188,251 homes in New Orleans , your home gets $1,329,787.
3. Or, if you are a family of four, your family gets $2,066,012.

Washington, D.C .. HELLO!!! … Are all your calculators broken??

Interesting statistics, right? They really help put the concept of “billion” in perspective. And wouldn’t it be nice to be a New Orleans family of four in line for more than $2 million in federal money. Except…

Senator Landrieu isn’t “presently asking Congress” for $250 billion. She asked for it in 2005, right in the midst of the all the “we’ve-got-to-do-something” hysteria about Katrina. After further review, it was fairly obvious the $250 billion figure was overkill. So while the billion info is interesting, the “outrage” is over something that didn’t happen.

However…

Skip the math. There’s another issue here. It’s the assumption that government should be involved in providing “relief” through disbursement of public funds. I know it may sound like a noble undertaking, but is there any rational economic or social justification for having FEMA or any other government disaster relief agency?

This is not meant to be cold-hearted or mean-spirited. Helping those is need is certainly one of the primary virtues of a healthy society. But strong, logical arguments can be made against using government as an instrument of social mercy. In fact, the more likely by-product of government-sponsored social relief – even in emergency and disaster situations – is greed, corruption and waste.

Almost 20 years ago, a mentor gave me a booklet entitled “Not Yours To Give” which convincingly explains why charity should not come from government coffers. The story features an incident in the life of the legendary Davy Crockett during his service as a Congressman. To read the full story – and to fully understand why government should not be in the social relief business, clink on this link “Not Yours To Give”

A Bailout Seems Wrong…But The Precedent For it Goes Back A Long Ways

“The Bush administration is hardening its opposition to the chorus of Democrats, bankers, economists and consumer advocates calling for a big-money government rescue program for struggling homeowners.”

(to read the entire article, clink on this link:

http://www.smartmoney.com/bn/smw/index.cfm?story=20080228102127)

The business people I know are probably praising the Bush administration for holding the line. After all, why should people who took on foolish debt obligations be allowed to skip out on them? When irresponsible people don’t make good on their obligations it leaves the responsible people – both debt payers and debt holders – holding the bag. But based on some of my recent reading, I won’t be surprised if the end result of the sub-prime mortgage crisis is some form of wholesale debt cancellation.

On a principled level, the idea of canceling debts seems wrong (provided you believe some governing authority has the right to legalize fractional banking and paper money creation). But from a practical aspect, the lenders – and the government – may have no choice.

In a 1988 book (now out of print) titled “Usury, Destroyer of Nations,” author C.S. Mooney provides an interesting history of debt, from ancient to modern times. In general, Mooney notes that debt follows a regular cycle of expansion then bust. At the point where large segments of the population are destitute and can no longer pay their debts, governments are faced with the prospect of widespread social unrest. And lenders, having repossessed or collateralized every asset and wrung every possible payment from the borrowers, have little hope of squeezing more blood from the turnip. For everyone’s safety, a repudiation of debts solves everyone’s problems – and allows the process to start all over again. Politicians can rule, and lenders can lend because borrowers have some of their collateral restored.

Mooney mentions several ancient examples of debt repudiation, among them:

• The Biblical story of Nehemiah after the Jews had returned from Babylon (for the full story, see Nehemiah 5:1-13)

• The Greek ruler Solon who declared that “all persons enslaved or attached for debt were released, those sold into servitude abroad were reclaimed and freed.”

Some commentators think Solon’s efforts were not a full repudiation of debts, but rather a restructuring. In either event, the attitude of the ancient rulers was the same as today: To maintain order (and keep lenders in business), it may be necessary to occasionally “take a loss” to return things to their “natural state” (i.e., the masses are mollified, the lenders get rich, and the politicians stay in power).

When politicians and lenders fail to heed calls for debt relief it can be disastrous. An unsympathetic Marie Antoinette said “let them eat cake,” and the populace responded with “off with her head.” The ignorance of the czars eventually led to the Bolshevik revolution. The corruption of Batistista (including his acceptance of the Mafia, some of the toughest lenders on the planet) gave Castro the popular support to become a dictator/liberator.

Granted, not all of the reasons for these revolts were exclusively financial. But prosperous people don’t usually resort to civil protest. When financial oppression rises, so does the inclination to violence and revolution.

In addition, the ability of the contemporary governments to arbitrarily print more money makes a bail-out/debt forgiveness plan more likely because it can be disguised. If necessary, lenders can be “paid” worthless paper to project the illusion of solvency. The reality of course, is that no real value has been tendered as repayment; but then again, no real value was loaned by the banks either. In a twisted way, one sham transaction can appear to reconcile the other.

Politicians may not learn all the lessons of history, but they are smart enough to learn the ones they need to keep their positions. Bottom line: If a bail-out makes political sense, it will happen.

Getting To Known The IRS – Part 3

A week after my interview with the IRS criminal investigators, I had the chance to meet with an Enrolled Agent who was an IRS collection officer for 38 years. An Enrolled Agent (EA) is a “federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.” (from the National Association of Enrolled Agents web site, www.naea.org)

Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. Unlike attorneys or CPAs, Enrolled Agents are licensed specifically by the government. EAs either pass a comprehensive examination which covers all aspects of the tax code, or qualify by having worked at the IRS “for five years in a position which regularly interpreted and applied the tax code and its regulations.” (Many ex-IRS personnel become EAs.)

This Enrolled Agent had been helping several other taxpayers whose returns had been audited as a result of their association with the tax preparer under investigation by the criminal division (see Getting to Know the IRS – Parts I and II). From what I had been told by other taxpayers, this Enrolled Agent was a sympathetic advocate, and had been quite helpful with several individuals who, on the advice of the tax preparer, had chosen to respond belligerently to the IRS.

After two years of sparring via correspondence, the IRS had asserted its muscle, garnishing wages, and seizing bank accounts. Apparently, the Enrolled Agent had been able to undo the damage, stop the liens, and get people back in good standing with the IRS. In one case, the taxpayer was even getting a refund of most of their taxes paid. For the others, additional taxes were still due, but he was helping negotiate reasonable terms of settlement. (When he was a collection agent, one of the EA’s areas of expertise was offers in compromise. When a taxpayer gets in too deep, there may be the realization that the IRS has no reasonable hope of collecting all of the tax due. At that point, offers in compromise can result in a settlement.)

I was eager to meet this man, partly because of his knowledge and background, but also to assess his perspective. How do you work for an employer like the IRS for 38 years, then become an advocate for the taxpayer? It seems like the two positions are not compatible, so was there a change in heart about the IRS that led this individual to retire and work for the “other side?”

Turns out that what I might see as a moral paradox didn’t register with the EA. He admitted being a bit disillusioned by changes in the offers in compromise programs, but by itself that issue wasn’t enough to make him quit. It was simply a pragmatic financial decision. He had just done his retirement calculations, and decided that the time was right to get out. Furthermore, between his experience and connections, he could have a nice retirement career. In short, he knew the system, and had no qualms about working it, either from the IRS’ or the taxpayer’s side of the table. (I should add that although his attitude toward taxation and the IRS was pragmatic, the EA impressed me as someone of high integrity. While at the IRS, I’ll bet he was an exemplary employee, and now operates in the same manner as an EA.)

For openers, we talked a little about the Fair Tax initiative, and while he understood the concept, remained unconvinced because of enforcement logistics. “Someone’s always going to cheat,” he said. “That’s why there’s always going to be an IRS in some form.” This veered off into a discussion about whether it was necessary for the government to provide so many services, and tax so much. Again, his view was pragmatic: Government provides services people want, and there’s got to be a way to collect the revenue to cover the costs. When I countered that most people don’t have any say in what their government provides or what it costs, he agreed, but noted that most people probably couldn’t determine if the government was delivering good value for the taxes received. “How do you know if you’re overpaying for police protection or national defense?” he asked.

Several things he said surprised me. In his entire time at the IRS, he never carried a gun, even though most people thought he did. “The government doesn’t like the idea of collecting taxes at the point of a gun,” he said. For the most part, he lived where he worked. His home phone number was listed in the local directory, but only once in his 38 years with the IRS had he been physically threatened.

He said that even though the IRS had lots of regulatory authority and enforcement power, most situations were best resolved with a little human finesse. The goal is not in most cases to break the taxpayer over past issues, but to exact a payment that encourages him to stay in line for the future. That was one of the benefits of the offer in compromise program; it not only secured revenue to satisfy taxes owed, but made it worthwhile for people to stop fighting the system.

I asked him about some of the high-profile incidents where celebrities (Willie Nelson, Mike Tyson, etc.) end up owing a huge amount of taxes, yet continue working, touring, and living large. He said that often in those situations, the government settles by taking a flat percentage of all future earnings, say 30 percent. The government may not ever recover all that was owed, but their getting a sizable guaranteed cut of future earnings. And the taxpayer has reasons to stay in compliance, because if they ever miss a future tax payment, the offer in compromise can be voided.

I asked him how he viewed the people he pursued in collections. Did he think they were tax evaders or hapless people caught in the system? He said in his experience, he thought 45% of the taxpayers were people who just got stuck – health problems or a failing business upset their world, and they just never recovered. Another 45% were probably playing fast and loose with the tax code and got caught. And 10% were just plain bad apples – avoiding taxes wasn’t their only criminal activity.

I told him I imagined he had some pretty good stories after 38 years with the IRS. He nodded and said, “Every retired IRS guy thinks he ought to write a book.”

The conversation veered to specific examples of how an EA’s knowledge might save the taxpayer money:

Any time a taxpayer owes more than $25,000, the IRS can demand a complete financial statement, listing all assets. The information the IRS can glean from an audit is limited to what you report relating to income in that particular year. Now, because you owe and can’t pay immediately, the IRS gets to look at everything you’ve accumulated over your lifetime as well – the equity in your home, your investment portfolio, the size of your 401(k), the savings accounts you have for your kids, the vacation home, all of it.

After they see it all, IRS collection agents can make a determination of what, if any, assets they would like the taxpayer to sell or re-finance in order to meet their tax obligation. In a sense, the IRS becomes your “financial advisor” for the purpose of recommending what should be liquidated to meet the tax obligation.

Although the IRS does not have absolute authority over how you settle your tax bill, the agency will use the information to push for resolution, implying they are there to help you resolve your problem.

In some situations, the easy answer is to sell some stocks or bonds and pay the debt. But if you don’t have assets that can be quickly liquidated, the IRS can propose other solutions. If you don’t have an equity line of credit against your home, the IRS might suggest establishing an account and borrowing from it (after all, the interest might be deductible). If there’s a loan provision in your 401(k), they might push for taking a loan.

One of the typical recommendations a collection agent might make is to liquidate an IRA account, if one exists. Of course, the liquidation may result in additional taxes for the current year, as well as a penalty for early withdrawal, so paying a $25,000 tax bill could cost something like $40,000.

As this point in his example, the EA digressed to tell a story. “Ever hear of the tortoise and the scorpion?” he asked.

The Tortoise and the Scorpion

One day a scorpion was on the bank of the River Jordan, wanting to get across to the other side. But of course scorpions can’t swim. Luckily it spotted a tortoise that was about to swim across the river.

‘Please, tortoise,’ said the scorpion, “I need to get across the river, but I can’t swim – let me ride on your back.”

“What sort of a fool do you take me for?” said the tortoise. “If I let you near me you’ll sting me to death.”

“Of course I won’t,” said the scorpion. “I’m trying to get across the river. What possible good would it do me to sting you? I’d drown!”

The tortoise thought it over, and could see the logic of the scorpion’s argument. So he let the scorpion jump onto his back, and set off swimming across the Jordan. But half-way across the river, where the river was at its deepest, the tortoise felt the scorpion’s sting stab deep into his flesh. As both animals began to drown, the scorpion apologized: “I’m a scorpion – I couldn’t help myself. That’s what I do.”

“The IRS is the scorpion,” said the EA. “They collect taxes. It’s what they do. No matter how much an IRS agent says he’s trying to help you, his first and only assignment is to collect revenue. And what happens to you after they get the money doesn’t matter.”

To finish his example, the EA noted that if the taxpayer reduced his outstanding tax liability below $25,000, he most likely would have several less intrusive and burdensome options for resolving the rest of the tax owed. So…

If the taxpayer took a partial liquidation to reduce the outstanding tax bill to less than $25,000, he/she might be eligible for a streamlined installment agreement in which monthly payments are made over the next five years. This agreement can usually be completed by phone – without submitting to a detailed financial examination.

Would a collections agent help the taxpayer by explaining the above regulations and mentioning a partial liquidation as a possible solution? In the experience of this particular EA, “No. If they can get it all now, that’s what they do.”

From the EA’s perspective, it’s foolish to mess with the IRS. But that doesn’t mean you should just capitulate when you receive correspondence or an audit notice. Maybe it was nothing more than an advertisement for his services, but his statement was compelling. “Never deal with the IRS alone. People who go it alone are usually the ones that end up having the most problems.”