Archives For November 2011

In 2012, the amount of income subject to social security taxes (confiscation) is going up to $110,100 from $106,800 (the wage base for 2009 – 2011). This means the maximum social security tax will now be $6,826.20 ($13,652.40 when you include the employer’s portion). Take a look at these two graphs I put together to see just how quickly the maximum tax and the amount of income subject to the tax have increased since 1965. It’s not a pretty picture (and it’s only going to get worse).

All of this wouldn’t bother me so much if…

1. We didn’t have to pay income tax on the amount confiscated.


2. I could plan on getting our share back when we retire. It’s doubtful that’s going to happen. What is there will get taxed away because we have managed to save on our own.

NOTE: While researching this post, I tried to find a history of the maximum social security payment amounts but came up empty. Do any of you know where I can find this information?

This is a first.

The randomly-selected winner of the latest AFM giveaway winner was commenter #1, Laurie Smith. This is the first time in my 7 years of blogging that the first commenter was randomly selected for any giveaway. Congrats to Laurie.

For those of you who didn’t win, I still highly recommend Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves*. It’s a very interesting and easy read.

The next giveway will be posted in a bit.

I’m Back!

November 29, 2011

I had a nice time off with family.

How was everyone’s Thanksgiving?

I’ll announce the winner of the book giveaway in my next post.

NOTE: My wife is off work this week and the kids are out of school. My family is coming to town on Wednesday. So…I’m spending time with the family. I’ll be back next week. I’ll also announce the book winner next week.

Interesting piece on 401(K) plans and the guy who helped create them, Ted Benna. He thinks they have become too complex. What was the cause for the complexity? I’ll let him tell you…

Benna blames the newfound complexity on what he says was the small percentage of employees who wanted it. “What triggered this whole mess is that some of the more sophisticated participants were a pain in the butt,” he says. “You’d have these troublemaker loudmouths push human resources, and say, ‘why don’t we have this ‘flavor of the month.’ fund” These sophisticated employees are also the ones taking advantage of the education and advice being offered, he says.


Honestly, I don’t think that’s the problem at all. I think it’s just the nature of the game. You have lots of companies competing for the business and offering more and more choices. I don’t think you can blame that on “troublemake loudmouths.” These same “troublemaker loudmouths” are the ones asking for more index choices and fewer managed funds.

I think the problem is that people just don’t want to save. Either that, or they simply can’t afford (or don’t think they can afford) to save. The other reasons are simply excuses.

I do like his suggestions:

“We need a legislative mandate that when you change jobs, the money needs to be retained in a retirement account – there cannot be an option of ‘here’s a check, you decide,’” Benna says. He also advocates mandating all employees be auto-enrolled in the plans, and that their contributions be automatically increased one percentage point per year to a maximum of 10% to 15%.

Those are all good ideas. Too many people cash out their 401(K) plans when they change jobs.

A friend of mine started a blog to chronicle her family’s march to a debt-free (at least to credit-card free) lifestyle. It takes a lot of guts for her to do what she’s doing. I respect that.

I’m hoping that AFM readers will go check out her new blog, Downs With Debt, and offer her some encouragement. If you’re a blogger, I’m hoping you might send her some link love.

Thanks for reading.

I received a copy of Mike Mayo’s Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves* a week and a half ago. As the title suggests, the book is about his experience as a securities analyst covering banks.

First things first. Who is Mike Mayo? According to the inside flap of the book, he’s “…one of the top-ranked banking and finance analysts of the past twenty years. Mayo was the only analyst to testify during the Senate Banking Committee hearings in 2002 on conflicts of interest on Wall Street, and in 2010, he testified again, this time as the first analyst to speak on the causes of the crisis.”

My thoughts on the book

Overall, I liked the book very much. It was an easy read and gave a nice overview of what happened in the years leading up to and following the housing crisis. Along the way, the author discussed the problems he had trying to be an honest analyst. When he was critical of banks, they shut him out and wouldn’t give him access to their management. He was even fired for his honesty. I applaud his efforts to put investors first.

Reading the book, it’s very clear that Wall Street is a racket. It’s heavily loaded in favor of the bankers and investors are only important because they provide money. Something needs to be changed.

I enjoyed the personal aspects of the book like when he shared about his struggles to land his first banking job. He ended up working at the Fed in the merger-approval area after working briefly at IBM. He spent five years at the Fed and eventually landed a job at UBS. Mayo’s honesty in his reports didn’t do him any favors with his employers. At one point he was fired from his job a Credit Suisse and spent six months unemployed.

When it came to his discussion of the causes of the housing debacle, I felt he was too easy on the politicians and their role in helping create the crisis. The lack of detail here could be because he was writing about the crisis from his perspective. Whatever the case, he left the impression that politicians (both Democrats and Republicans) played a minor role in the creation of the crisis.

The best part of the book was his discussion on fixing capitalism. From the book:

To fix the banking sector, should we rely more on government regulation and oversight or let the market figure it out? Tougher rules or more capitalism? Right now, we have the worst of both worlds. We have a purportedly capitalistic system with a lot of rules that are not strictly enforced, and when things go wrong, the government steps in to protect banks from the market consequences of their own worst decisions. To me, that’s not capitalism.

I can understand the appeal of certain regulation. If we’d had the right oversight in place, we would have limited the degree of the financial crisis, which included bailouts measured in hundreds of billions of dollars, and millions of people losing their homes due to foreclosures. But we also would have sacrificed innovations in credit and a vibrant financial sector. Over the past century, our economy probably would not have grown as fast or been anywhere near as dynamic. Moreover, the real problem with regulation is that it often doesn’t work very well, in part because it’s always considering problems in the rearview mirror. The financial system today is almost dizzyingly complex and moving at light speed, and new rules tend to address fairly precise things. They ban specific types of securities or deals or trades instead of addressing larger principles.

He goes on…

A related issue is that regulation can sometimes trigger unintended consequences. Another section of Dodd-Frank cut the fees that a bank can charge a store for debit card transactions. As you can imagine, banks are not about to simply shrug that off. It adds up to billions each year. Instead, they’ll make it up somewhere else—most likely by charging consumers for other services, as in no more free checking. The bottom line? Consumers will now pay more for the convenience of using a debit card, and will likely never see the benefits from the lower costs to merchants. This is—let’s face it—price-fixing by the government, and it shows why measures like this don’t really help things in the long run. If the government were to set a cap on how much McDonald’s could charge for Big Macs, it wouldn’t take long before the price of fries went up to cover the difference.

I agree. Unfortunately, our politicians don’t seem to be listening.

Overall, Exile on Wall Street* is a great read. It’s easy to understand and not at all mundane. I highly recommend it to anyone who’s interested in learning more about the housing crisis and the interworkings of the banking industry.

Now you have a chance to win a copy of the book from AllFinancialMatters. If you’re interested, please leave a comment below. I’ll randomly select and announce a winner on Friday. Before you enter, please consider my two rules:

1. You must be a resident of North America (I will not ship internationally).


2. You can only enter one time.

*Affiliate Link

If you’re not familiar with Mike Mayo, stay tuned. I’m working on a review of his new book. This is an interesting invterview from Bloomberg:

Thanks to Ritholtz for the find.