Credit Default Swaps, AIG, and the Fed – Will $123 Billion Be Enough?

Update on the Fed’s $123 billion in emergency lending to AIG.

For those intrigued by my credit default swap post, there is a good article in yesterday’s New York Times. The article asks, “where are the funds being lent to AIG by the Fed going within the company”

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

The article goes on to describe that accounting for its derivatives trades, largely the selling of credit default swap protection, had been severely lacking oversight. As more attention was drawn to the activities of AIG’s Financial Products group, an alarming picture began to emerge.

It’s an Especially Good Year to Be a Wealthy High School Senior

How the Credit Crisis Will Make it Easier for Rich Kids to Get Into Their College of Choice

You may have heard that a male student interested in the humanities has a better chance of being accepted to a prestigious liberal arts college than a comparably qualified female candidate. How about the tale of the gifted athlete with sub-par grades who gets a full-ride to “State” on a football scholarship; everyone tells that story. Have you heard the one about the rich kid from the Upper West Side who gets in because his family is wealthy? This isn’t the kid whose family’s name is plastered all over the football stadium, dining hall, and library; he’s just your everyday, average, wealthy student who doesn’t need financial aid. The sad reality is that all but a select few of this country’s institutions of higher education take a student’s ability to pay into consideration when making an admissions decision.The economic realities of college admissions run deeper and darker than most people know.

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Answer to Yesterday’s Poll Question…

What was the top marginal federal tax rate for individuals in 1955?

And the correct answer to yesterday’s poll question is…

Discovering Buffett’s Edge – How Progressive is the U.S. Federal Income Tax?

An Examination of the Recent History of the Effective Tax Rates of the 400 Highest Income Filers

Part II of a multipart series

Read Part I

Warren Buffett has made a fortune through the shrewd allocation of capital. So far, no one has taken Warren’s million dollar challenge to his fellow dwellers in the penthouse of American wealth. Perhaps that’s because with a performance like this, it hasn’t paid to bet against Buffett. I am sure Buffett knew his proposed bet was likely to be a winning one.

I take a closer look at the data behind Warren Buffett’s challenge in the second installment of this series examining the progressiveness of the federal income tax.

Read on to learn Buffett’s edge and more…

Are you Paying a Higher Tax Rate than Warren Buffett?

Why America’s Richest Man Thinks He Should Pay More Taxes.

Part I of a multipart series

Warren Buffett, thinks the U.S. tax system is unfair. The $62 billion dollar man thinks he should pay more taxes, as a share of his income, than he does now. Buffett, know for his simple tastes (hamburgers and Cherry Coke) and frugal lifestyle, sticks out among his fellow billionaires; perhaps most famously for arguing that the tax system in the United States isn’t as progressive as one might think.

In an experiment of one, Buffet polled his coworkers to find out how their effective tax rate compared to his rate of 17.7%. The results of Warren’s poll: Buffett’s $60,000 a year secretary paid 30% of her income to the federal government and the average effective tax rate for the office mates who took the poll was 32.9%. Not one of the fifteen employees who took Warren’s poll paid a lower percentage of their income in taxes than Buffett’s 17.7% effective tax rate.

NBC’s Tom Brokaw interviewed Buffet about his informal office poll:

Of course, Warren is paying much more in absolute terms; he paid roughly $8 million in federal taxes last year. In a system that is supposed to be progressive, how can it be that the world’s richest man pays a lower tax rate than his receptionist? Is it just a fluke limited to Mr. Buffett and his coworkers, or is this a broader trend?

Read on, calculate your effective tax rate and take our poll.

McCain’s Economic Stimulus Plan – Give Millionaires a $75,000 Tax Break

In the wake of the current financial markets meltdown – and the meltdown of his own campaign – John McCain unveiled a set of initiatives aimed at stimulating the economy. The centerpiece of McCain’s proposal is a reduction of the capital gains and dividend tax rate from 15% to 7.5%.

McCain’s chief economic adviser, Douglas Holtz-Eakin described the proposal as being:

“targeted at people who have been hurt by the recent financial crisis — seniors, savers, workers, people who are trying to get to college.”

The Tax Policy Center fired up their computers to crunch some numbers on the McCain dividend and capital gains tax cut. The results are summarized below:

What do the Candidates’ Tax Plans Mean for Bangor, Maine? The Answer Might Surprise You.

Barak Obama Will Cut Taxes More than John McCain for 95.7% of Bangor Residents

John McCain and Barak Obama have both proposed tax plans that will cut income taxes for most Americans. The Tax Policy Institute has a very comprehensive analysis of the candidate’s plans, as well as some very informative projections available on its website. In this analysis I focus on the implications of each candidate’s plans for the working families of Bangor, ME.

Data from the U.S. Census Bureau’s American Community Survey of 2007 gives us a fairly detailed picture of the breakdown of household incomes in the Bangor, ME metropolitan statistical area (MSA). We see that, like much of the country, the vast majority of Bangor residents earn incomes of less than $200,000 per year. Nearly 50% of households in the Bangor MSA have annual incomes between $25,000 and $75,000, while 2.2% earn more than $200,000 per year.

(Click on chart for larger view)

For the data table behind the chart, click here.

There has been a lot of talk about tax relief for working Americans; just how much relief depends on your definition of “working Americans.”