Sunday, May 02, 2010

Greece gets a bailout! No this isn't a repeat of the past 4 weekends.

I think the $160 billion Greek Bailout will certain calm some fears in the market but think of how fast this has evolved. A couple of weeks ago the bailout was pegged at $30 billion. Today, it's $160 bil and I've seen numbers that suggest the ultimate tab could be 3 - 4 times this number. The problem that the Eurozone now faces is that they've set a precedent that they will bailout any country that is getting attacked in the markets. Next up, Portugal, Spain, Ireland and maybe France. The German backlash against this decision will be interesting to watch.

There was a decent amount of coverage of Warren Buffett's comments over the weekend. Mr. Buffett said he sees the economy picking up steam. Here's the problem with that idea: Think about Mr. Buffett's biggest business interests - financial firms, energy and railroads.
Well, the financials have been killing it this year as they borrowed from the Fed at next to nothing and traded their way to profitability. Energy firms have benefited from higher commodity prices and railroads have seen a slight uptick in traffic tied to the peak of stimulus spending. I don't think Mr. Buffett is a perfect indicator on the US economy, but it won't matter on CNBC tomorrow as they'll run his comments in perpetual loop :)

I really had to make sure I read this right when I saw this article in the WSJ...

"Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance."

Without Fannie, Freddie, and Ginnie Mae there would be almost no mortgage market.

I'm looking for some more independent verification of the 1099 debacle that appears to be in the health care bill. So far most of the websites highlighting this story seem to be right wing think tanks, but there are links with the actually language from the bill so it seems pretty legit.

Anyway here's the deal... Historically, a 1099 has been used to report "other income" - interest (yeah, remember the good old days when banks paid YOU), independent contractors, winnings from your week in Vegas, etc. Basically, it helps to keep you honest since you know the IRS knows about your income.

Well, I'll defer to the slightly greater tax mind in my household to interpret this section of code:

"The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services."

Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year.

Buy $600 worth of paper from Staples? Issue them a 1099. Buy $600 of flour from Sam's Club? Issue them a 1099. Sell $600 of pizza to the high school for homecoming? Expect a 1099 in the mail.

I know why this was written into the bill - to help track down additional tax revenues that fall through the cracks at cash based businesses - but this could be a disaster trying to manage. Hopefully cooler heads will prevail and this will get pulled before implementation.


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