The Nifty Fifties: People's Capitalism

The Advertising Council seems to have invented "People's Capitalism" in the early 1950's, seeking to encourage widespread stock investing. G. Keith Funston of The New York Stock Exchange picked up the ball and ran with it, and in 1956 General Electric jumped on the bandwagon with this ad.

 In 1952 only 6 percent of Americans owned stocks. How is People's Capitalism doing these days? Pretty good, though somewhat slowed by the Great Recession. The exact answer depends on how you define stock investing.

In 2005, according to a Census Bureau estimate, only a third of white Americans, and less than 10 percent of blacks or Hispanics, owned stocks directly on through mutual funds.

From the PBS archives comes a brighter picture. By the end of the 20th century the average American was indeed a capitalist:

Recently Gallup found that 54 percent of Americans own "individual stock, a stock mutual fund or in a self-directed 401(k) or IRA." That's down from 65 percent in 2007, but still a majority. Slightly fewer Americans pay federal income tax.

Who's most likely to own stocks? Gallup found that 87 percent of Americans making over $75,000 own shares. Also, Republicans, men and postgraduates are much more likely to hold stocks or mutual funds than Democrats, women and less-educated people.

Could the Loose Cannons Push America Into Default?

Smash the Ceiling, advises James Surowieki in The New Yorker. Suroweiki sees Congressional votes on increasing the national debt as useless.

One argument you hear for having a debt ceiling is that it’s useful as what the political theorist Jon Elster calls a “precommitment device”—a way of keeping ourselves from acting recklessly in the future, like Ulysses protecting himself from the Sirens by having himself bound to the mast. As precommitment devices go, however, the debt limit is both too weak and too strong. It’s too weak because Congress can simply vote to lift it, as it has done more than seventy times in the past fifty years. But it’s too strong because its negative consequences (default, higher interest rates, financial turmoil) are disastrously out of proportion to the behavior it’s trying to regulate. For the U.S. to default now, when investors are happily lending it money at exceedingly reasonable rates, would be akin to shooting yourself in the head for failing to follow your diet. 

The danger, Surowieki concedes, is that when push comes to shove,  cooler heads don't necessarily prevail. "As the economist Thomas Schelling showed many years ago, 'It does not always help to be, or to be believed to be, fully rational, coolheaded, and in control of oneself' when it comes to brinksmanship."

Trusts In the News

Not every Sunday does our local paper offer two articles featuring trusts:

Feds want home, say owner hid millions in trust. The IRS wants $1 million in back taxes from a man who changed his name and transferred $4 million to a "Massachusetts special needs trust." Think the ploy will work?

Can you protect assets from in-laws? Elaine Morgillo discusses trusts as a way to protect a child's inheritance from improvident or impermanent spouses. The subject is getting increased attention, especially now that New York has joined the states permitting same-sex marriage. For privacy reasons, Morgillo points out, such trusts are better created via revocable living trust rather than by will: one child need not know that a sibling's inheritance is structured differently.

“Greed Is Good” But “Pigs Get Slaughtered”

Lenny Dykstra, the former ballplayer with the Mets and Phillies, reportedly liked to quote from Oliver Stone's "Wall Street." After retiring from baseball he headed up businesses, sold stock picks on Jim Cramer's The Street, launched a magazine and bought an $18.5 million mansion.

Now, after defrauding investors, friends and family, he cannot make bail. The NY Times tells the sad story: The Fall of Lenny Dykstra.

Flight to Quality

Banks zero in on the ultra-rich, those with more than than $1 million in investments. Normally we'd knock that impoverished journalist's conception of "ultra-rich," but the article is better than its headline::

"Every board of directors of every bank in the world wants to focus on wealth management now."

 "We think there are a lot of people who want the convenience of consolidating their affairs in one place."

"One thing the last several years has proven is that a lot of people who want their assets managed want a strong financial institution with…staying power…"

More Inheritances For Saudi Women

Not only is Saudi Arabia the only country in the world where women are forbidden to drive, it is a country where many women lose inheritances to the males in the family. The Saudi Justice Ministry has launched an inheritance program to combat the problem. (Women are already handicapped by Sharia Law, which limits a female child's inheritance to half that of a male child.)

Farrah Fawcett's Living Trust

As Jim Gust and I have written countless times, revocable living trusts have their pros and cons.

One pro: Because living trusts avoid probate, they don't go on public record like a will. The terms of the trust usually remain confidential.

One con: Revocable trusts must be funded. Countless revocable trusts prove worthless because they are empty; the trustors never retitled their securities and other assets.

Neither truism seems to apply to Farrah Fawcett's living trust, last amended two years before her death. The trust terms did not remain confidential. You can read them here. And the "Schedule A" that might be expected to detail the assets placed in trust merely says, in effect, "everything." All Fawcett's personal effects, including artworks. All stocks, bonds and mutual funds. All business interests. All real estate.

Is this how revocable trusts work in California? What about other States?

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Fawcett's estate planning draws attention because she left her art collection to the University of Texas. That university is now suing Ryan O'Neal,  claiming ownership of both the silk-screen portraits of Fawcett created by Andy Warhol. O'Neal contends that his friend Warhol created one of the portraits for Farrah and the other – which hangs in his bedroom – for him. 

The Auction Houses Were Circling

H/T to Art Market Monitor for calling attention to observations by Alistair Sooke concerning expensive paintings and the people who buy them. He includes this glimpse of auction-house competition from Kate Ganz, the daughter of art collectors Sally and Victor Ganz:

“Right after my mother died – she died second – we were inundated by teams of people from Sotheby’s and Christie’s descending on the house,” Ganz recalls. “That was fairly uncomfortable, but that’s their job. Now it’s all computerised – they have on their computers the 50 most important collectors in the world, how old they are, when they’re going to die, and who’s going to inherit what. As my mother used to say: ‘The vultures are circling’.”

Oops!

$22 Billion Housing Tax Credit Program Utterly Failed as Economic Policy

In Praise of the Corporate Executor

From Canada's Financial Post: Choosing an executor is more than an honour.

Corporate executors can help the family cope with complex decisions and details reducing the potential for conflict. They could help reduce the liability that an executor may face for wrong decision, and provide access to a dedicated team of professionals for the efficient settlement of the estate, maximizing value for the beneficiaries – which in the end, is what you want most, isn’t it?

Thought For the Day

Robert Bridges, A Home Is a Lousy Investment:

The sanctity of mortgage obligations has become the rough moral equivalent of the 55-mile-per-hour speed limit.

Defining the 21st-Century Broker

Merrill Lynch's brokers aren't fiduciaries, but they should push fee-based accounts. Also, they should concentrate on affluent clients, excel at client retention, and cross sell like crazy.

So reports Jennifer Cummings at the Financial Adviser blog.

How to get around campaign finance laws

Pay a gift tax and a generation-skipping transfer tax on excess contributions. That's what Bunny Mellon did after she gave John Edwards $725,000 so that the press would stop harping on the price of his haircuts.  The WSJournal quotes an expert estimate of the combined tax burden at $799,000. 

According to the reports, the fact that Mellon reported the gift and paid the taxes on it may save Edwards in his upcoming trial on campaign finance law violations.  (She had to pay the GST because she's more than 37.5 years older than Edwards.)

Unearthing Buried Treasure

Dream of digging up Blackbeard's loot? Or gold left behind by a forgetful conquistador? If they exist, those treasures were buried a mere handful of centuries ago.

On the other side of the pond, Brits can hope for much older finds. This Telegraph slide show depicts some ancient wonders that have been unearthed, including the Roman silver plate below.

Buried treasure is an evocative metaphor. Back in the 20th century, Earl MacNeill wrote one of Merrill Anderson's best-selling booklets on estate-tax planning: "How to Find the Treasure Buried in Your Estate."

Who’s Stealthier?

Who disrespects the public more? The private sector or the politicians?

Private sector: Years ago an online brokerage operation promised me free trades for life. Cool! Despite mergers and management changes, I'm still getting commission-free trades. But I began to notice that each trade was costing me a $2 "fee" for processing or whatever. By last year the fee had doubled, to $4 per trade. This year? Six dollars.

Politicians. This morning's news tells us the Democrats still seek to phase out itemized deductions. Republicans will agree to this, the theory goes, because voters won't  notice that the phase-out increases some people's income taxes. The Wall Street Journal terms it A Stealth Tax Hike.

Can we trust anybody these days?

Unemployment is worse than we thought

Details here.

When did being a regulator become so profitable?

8 of the top 10 FINRA execs were paid more than $1 million last year, according to InvestmentNews.

Serious about referrals

According to this Forbes item, even the bussers have to refer customers at Las Vegas nightclubs.

I'm basing an optional Stay In Touch memo on this.

Fiduciary Thought For the Day

In a networked world, trust is the most important currency.

– Eric Schmidt, University of Pennsylvania Commencement Address, 2009

Who Was the Greatest Tax Cutter of Them All?

After reading Do Tax Cuts Ever Increase Government Revenues? my nominee is Andrew Mellon:

[B]ack in the 1920s, Treasury Secretary Andrew Mellon pushed Congress to enact a series of tax cuts. The U.S. dropped the top marginal income-tax rate from 73 percent to 25 percent. Tax receipts from the wealthiest Americans rose. According to Treasury data, income taxes paid by Americans making more than $100,000 per year increased from $302 million to $714 million between 1922 and 1928, with the rich's share of income taxes paid rising from 35 to 61 percent.

For good measure Mellon gave us the National Gallery of Art. Also, he told us how to be classy investors:

"Gentlemen prefer bonds."

Don't Count the Boomers Out

Think young entrepreneurs are the only successful entrepreneurs? Think again.

…the Kauffman Foundation conducted a survey of 549 startups operating in "high-growth" industries—including aerospace, defense, health care, and computer and electronics—and found that people over 55 are nearly twice as likely to launch startups in these industries.

Some Boomers dare to take the plunge because they have already achieved financial security. That makes them prospects for trust and investment services.

H/T to Randy Cassingham of This is True.

Summer Skiing, Anyone?

Fifty years ago, judging by this Chase nest egg ad, you had to be rich enough to travel to the Southern Hemisphere in order to spend the Fourth of July on the ski slopes.

This year? Forget the Andes! Just mush on over to Lake Tahoe or Snowbird.

Huguette Clark's Will

Huguette Clark, the wealthy recluse who died recently at age 104, left her Monet "Water Lily" painting, valued at $25 million, to the Corcoran Gallery of Art. The rest of her extensive art collection will be transferred to the Bellosguardo Foundation, to be established at her Santa Barbara estate.

In addition, Huguette's will leaves $34 million to the Brooklyn nurse who looked after her for the last 20 years.

Update: Read Clark's will here.

Finally!

House to Vote by Week's End on Bill Barring Tax Patents ($).

Only new tax patents would be affected.  The House version may protect 160 pending tax patents, the Senate version did not.  So the two bills will have to be reconciled.

Here's the proposition.  I know of a legal way for you to cut your taxes by $100, but before you do it you have to pay me $25 because I thought of it before you did. Why would we ever allow this?  Why would courts enforce my claim?  Worse, once this idiocy has been identified, why would it take so many years to undo it?

Why Is American Taxation Such a Mess?

Fifteen years ago John Steele Gordon explored that question in American Heritage. His leisurely trip through tax history is recommended summer reading. Little has happened since 1996 to invalidate Gordon's verdict on our attempts at taxation with representation:

[T]he means by which the federal government raises revenue violates every single principle of sound taxation developed over the more than five thousand years in which taxes have been collected. These principles are no great mystery. Adam Smith listed four of them in the Wealth of Nations more than two hundred years ago. “I. The subjects of every state ought to contribute towards the support of the government . . . in proportion to the revenue which they respectively enjoy under the protection of the state. . . . II. The tax which each individual is bound to pay ought to be certain, and not arbitrary. . . . III. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it. . . . IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state.”

Gordon explains the origin of such nuttiness as the double taxation of dividends. He also reminds us that the urge to tax the rich existed long before today's income multimillionaires. Back in the 19th century, "Felix Adler, the founder of the Ethical Culture movement, called for a 100 percent tax rate on incomes above the amount needed 'to supply all the comforts and true refinements of life.'”

Spotlight On Income Multimillionaires

Source: Washington Post

Prompted by new research, Americans with the highest incomes are receiving unusual, and certainly unsolicited, media coverage:

With executive pay, rich pull away from rest of America. The Washington Post features a study revealing that corporate CEOs are plentiful at the top of the income pyramid. In the 1970s the CEO of a major company might make a million or two in today's dollars. Today a CEO making less than $10 million per annum is the object of sympathy.

Paychecks as Big as Tajikistan. Gretchen Morgenson of the NY Times discusses a study comparing the compensation of CEOs and other top execs at S&P 500 companies to performance benchmarks and other company expenditures.

Total executive pay increased by 13.9 percent in 2010 among the 483 companies where data was available for the analysis. The total pay for those companies’ 2,591 named executives, before taxes, was $14.3 billion. *** …the total is almost equal to the gross domestic product of Tajikistan, which has a population of more than 7 million. 

Why the rich want to get richer. Once you're making a million or two a year (so I'm told) additional millions are almost more burden than boon. "People sometimes ask what CEOs need with all this money," writes The Washington Post's Ezra Klein. "The answer is they don't need it. But they need to not be making less money than other CEOs. If they are making less, then what does that say about them?"

After the Great Depression, conspicuous wealthiness became unseemly. (Never would Merrill Anderson's marketing materials have used such an arriviste term as "wealth management" in the 1960s or '70s.) Then Gordon Gecko declared, "Greed is good."

In the wake of the Great Recession, could attitudes be shifting again?

Spanish Banker's Taxing Inheritance

When a former IT specialist at HSBC revealed a list of undeclared Swiss bank accounts, he shook a lot of money trees. Among those now under investigation for tax evasion, the NY Times reports, is Spain's most prominent banker, Emilio Botin of Banco Santander.

Botin and his family apparently inherited their tax problems from accounts that date back to the days of For Whom the Bell Tolls.

Mr. Botín’s father, Emilio, opened an account in Switzerland after the start of the Spanish Civil War when he left Spain for London. The elder Mr. Botín died in 1993 … his son and other heirs were told only last year by the Spanish authorities of the money kept in Switzerland.

"Switzerland is a small, steep country," Hemingway once wrote, "much more up and down than sideways, and is all stuck over with large brown hotels…." Far as I know, he didn't mention the banks.

Best Investment Move? Take the Summer Off

A few months ago things seemed to be looking up. What happened? According to a new CNN/Opinion Research poll, roughly five out of ten respondents expect 25% unemployment within a year. Widespread bank failures. Millions of Americans without food or shelter. In short, another Great Depression!

Given the public mood, maybe "Sell in May and go away" was this spring's best investment idea. Long-term investors don't even need to sell. Just grab their nest eggs and go cruise for the summer. The world and its worries will still be here when they return in the fall.

Chase Manhattan ad, 1961

Just Enough Rich People

Spelling mansion

Robert Frank wonders, Does America Have Too Many Rich People? Not according to a Gallup poll on wealth. As Frank notes, only about 1% of Americans are millionaires, and mere millionaires are a long way from rich.

Millionaires are more prevalent in Congress. Among the 87 new Republican members, The Washington Post reports, at least 24 are millionaires.

Even so, have-nots outnumber haves: "At least 30 had liabilities [other than home mortgage debt] totaling $50,000 or more in 2010."

The U.S. probably does have enough rich people. But I wish many more Boomers were going to retire as millionaires.

No Estate Tax Repeal, Exemption Stays At $5 Million?

Just noticed this item from The New York Post:

Senate eyes compromise on estate tax.

A Dark View of Estate Planning

Where Have All the Estate Planning Lawyers Gone? Stephen Dunn believes they've turned to protecting doctors' assets or sunk to fleecing old folks: "… I would say that planning to qualify clients for Medicaid coverage of nursing home care has surpassed estate tax avoidance as an objective of estate planning."

He's wrong, I hope. Isn't he?

Update. For her hopeful heirs, any old Medicaid nursing home sounds fine for Grandma. The reality? See Gerry Beyer's post: Nursing Home Statistics. (The statistics don't take deficit-reducing cuts in Medicaid into account. Sorry, Grandma.)

Video plugs “Inheritance Trusts”

Check out this video from SmartMoney. Almost sprightly, compared to most primers on trusts. Includes a plug for a bank as co-trustee.

Does Taxing Inheritance Harm Growth?

The Atlantic's Megan McArdle pondered the question, Why Not End Inheritance? Her colleague Daniel Indiviglio discusses the alternative, Tim Pawlenty's proposal for ending the estate tax.

How Individual Trustees Botch Things Up

Barron's generously let me read this article for free. Maybe they'll do the same for you. See The Five Biggest Ways To Bungle a Trust.

The five ways?

Three failures:
   …to keep records
   …to diversify
   …to treat current beneficiaries and remaindermen fairly

And two unreasonable expectations::
   The family won't mind if I take a fee
   Nobody will sue me

Marketing trustee services for a bank or trust company? Add this article to your tool kit.

If You’d Like Another Good Scare . . .

Don't let catastrophic floods be your only worry. The troubled housing market could be much, much sicker than we've been allowed to believe:

Consumer borrowing is so rampant in America that most people who took out a mortgage last year to buy a home ended up spending more than a third of their income to pay that loan and other debts.