Growth5 Blog

Monday, March 23, 2009

Fed Agenda: 1) Save the Rich, Now! 2) Taxpayers & Non-Profits to be addressed ONLY in Support of Agenda item #1

I suspect you've heard of the little AIG bonus mess? Come to find out, AIG & other firms took federal bailout money and used it to pay "bonuses" to employees who lost billions for their firms. These are the folks that helped bring the economy to its knees. If none of this rings a bell, here are 20,000 articles to get you up to speed.

You probably have also heard of the Madoff scandal (thousands of articles to enlighten).

Amidst the noise surrounding AIG & Madoff going to jail, our Chief Marketing Officer, Greg Conderacci emailed me this article from Bloomberg. The article explains the plan the IRS has come up with to bail out the wealthy investors who lost money with Madoff via refunds and theft loss deductions on their tax returns. The IRS has designated these as "theft losses" vs. "capital losses" so more can be deducted.

"The IRS guidance says defrauded investors can claim theft losses not only for amounts originally invested, but also for fictitious income. The IRS stands to refund as much as 35 percent of Madoff’s $60 billion fraud, or about $21 billion, although actual refunds will be much smaller because money lost by charities and retirement accounts won’t benefit from deductions.

Are you kidding me? We're really going to bailout more rich people (remember the bonuses paid with bailout money) at the expense of the taxpayers, and the Madoff non-profits get nothing?

This is so absurd it's almost not believable. Deductions based on fictitious income? Now I wish I had invested with Madoff thirteen years ago. My real investments are so far down that whatever fictitious Madoff returns used to calculate my refund & deductions would cover my real losses.

Maybe Mrs. Madoff could go and run some final statements adding $1 billion in further fictitious gains to each investor and then we could rest comfortably that they would all be made whole.

Don't get me wrong, I feel badly for the individual Madoff investors (even worse for the non-profits). It must be difficult dealing with the fact that you no longer have what you thought you would retire on. I feel the same way for investors that have lost their full investments with the institutions that have failed recently. Six months ago their gains were not fictitious, they were real, but unlike Madoff victims, they will get nothing.

You didn't need to be an accredited investor to invest in Bear Stearns, but you did have to be to invest with Madoff, which is what makes the Madoff bailout even more incomprehensible.

If you are an individual, the SEC defines you as an accredited investor if you are:
  • a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase
  • a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
Accredited investors have to meet these criteria because investments in hedge funds (like Madoff's) are a lot more risky and these investments don't have as much regulation (apparently none) by the SEC. The idea is that these accredited investors have to prove that they can afford to lose the investment entirely in order to have the right to less regulation. The investor needs to perform their own due diligence on the hedge fund, or not.

Congress wants to unconstitutionlly tax the AIG bonuses 90% so the govt can get most of that money back. So while our govt is completely out of its mind, perhaps Congress can be convinced to mandate that whatever Madoff investors get back via refunds and deductions has to be donated to the Madoff non-profits until they are made whole, including fictitious gains. Certainly Congress has more rage towards Madoff than AIG employees, or not.

Looks like we need to add the IRS to Greg's list. Congress is already on it.

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