Hating Politics, Revised

Yesterday I mentioned what a blatant mistake Minnesota Governor Tim Pawlenty made while speaking on behalf of the John McCain for President Campaign to Wolf Blitzer during Late Edition on CNN. I just found the transcript and wanted to post the exact text of that transcript (courtesy CNN transcripts):

Obama "also doesn't want to address, very clearly, the AMT, and he wants to boost capital gains taxes from 15 percent to almost double that. So if you have an IRA or a 401(k), which a lot of middle Americans do, and you go to retire or use that money, you're going to pay almost double the rate in taxation."

I encourage anyone with an interest in responsible media, responsible politicians and a well-informed American public to contact CNN's Late Edition by going to CNN.com/LateEdition and looking for "Contact Us" on the left side of the screen. Also, please contact the McCain campaign at JohnMcCain.com/contact, which lists a mailing address, phone number and email submission form. If you find any other ways to get in contact with the campaign, Pawlenty himself or CNN, please let me know.

This makes me hate politics

I consider myself something of a political junkie and I have enjoyed following the 2008 Presidential Campaign during the last several months. At the same time, I hate many parts of politics and political coverage. It pains me to hear cable news anchors claim one candidate is in some kind of elevated position over his opponent if he has a 2-point lead in a poll with a margin of error of 4.5%, with 10% still undecided and the election (the only poll that matters) several months away. It pains me when Hillary Clinton blatantly panders for votes by saying that the overwhelming consensus in the economic community is that suspending the federal gas tax will not lower gas prices is "elitist talk." It generally pains me when candidates in general pander to isolationist sentiments by blasting free trade agreements and globalization in general without acknowledging the wonderful effects of globalization for nearly every American.

I was watching CNN today and heard Minnesota Governor Tim Pawlenty, a national co-chairman for the McCain campaign, talking about John McCain's and Barack Obama's plans for taxes. He criticized Obama's plan to raise capital gains taxes, saying anyone with a 401(k) account or IRA would be negatively affected. This is simply not true, bull, crap, whatever you want to call it. The whole point of these accounts (as surely the governor of a state should know) is that they are tax deferred, with withdrawals after age 59 1/2 being taxed as regular income. Capital gains taxes in no way affect 401(k) accounts or IRAs, but Pawlenty's blatant lie only serves to breed fear about Obama's plan (which may actually be a worse plan, but it should be debated with actual facts).

Ed McMahon Could Lose his House

I was just watching Larry King and saw Ed McMahon talking about his struggles to save his home from foreclosure. I am definitely not interested in the "celebrity" aspect of this (the guy apparently lives near Britney Spears, whom I would not care less about) and I am far too young to remember McMahon's prime, but I thought his situation presented a telling look at the state of real estate in the United States. The above article mentions he took on a $4.8 million mortgage in 2005 and the same day took another $300,000 loan on the house. It also mentioned he bought the house in the early 1990s and that the home is on the market for $6.25 million, though on Larry King, they said the home was listed for around $5.75 million. Also on Larry King, McMahon mentioned that the house had not sold during the 1.5 years it has been on the market. Undoubtedly, the trouble getting the home sold is a function of at least: a)the tiny market for multimillion-dollar houses at anytime b)the poor market for real estate nationwide and c)the especially poor market in California.

Initially when I saw the mortgage value of $4.8 million and the list price at $5.75, I wondered why they wouldn't just lower the price closer to 4.8 to be able to pay off the loan. However, I think there are a few reasons it's not that simple. First, you have to figure real estate commissions and transaction costs. I have little knowledge in this area, especially when it comes to celebrity mansions, but I understand the typical seller's commission is 6%. Unfortunately for the McMahon's, 6% of $5.75 million is a whopping $345,000, not to mention other (huge) closing costs. Also, there was no mention of the $300,000 loan on Larry King. Additionally, there is a decent chance of capital gains on the house in excess of $500,000 (the exemption for married couples), considering he bought it in the early 90s. Perhaps unlike some others, McMahon's cashflow troubles does not surprise me that much. It doesn't matter the person or the situation- everyone is quite capable of spending more than they earn or have in the bank. Couple that with a huge financial liability (like a $5.1 million one) backed by a recently depreciating and illiquid asset, and you can have financial disaster, no matter who you are.

Next Greatest Thing in Home Entertainment?

Whenever I read personal finance blogs, people always seem willing to pay for some kind of televised entertainment, whether its cable, satellite, iTunes show downloads, in-store DVD rentals, or DVDs by mail. Some particularly value-conscious TV watchers have given up cable and satellite for free over-the-air analog and digital channels. Some simply watch free programming available from a number of sources, such as the major networks' (CBS, ABC, Fox, NBC) websites. Often, when I miss an episode of Lost , I'll watch it the following day from ABC.com. The quality is good, with streaming HD available on the most recent seasons, but I still prefer watching shows on my TV.
Netflix, though a partnership with a small company called Roku, is trying to bridge the gap between the computer and TV in a way that other devices like Apple TV have been unable to do on a mass scale.

Announced last week, the Netflix Player by Roku allows Netflix subscribers with plans costing at least $7.99 to stream an unlimited number of TV shows and movies from their PC to a TV connected to the player. The player connects to virtually any TV via HDMI, component cables, s-video or RCA ports (red, white, yellow). The box connects to your computer via ethernet or Wi-Fi, with a faster connection (read, ethernet) producing generally better picture quality. The box is value-priced at only $99 and simple to install and operate, according to news accounts.

The main drawbacks appear to be three-fold. First, the streaming Netflix library the device draws from, about 10,000 titles, is still fairly limited, especially with newer releases. I've heard most of the movie titles available were released 5 or more years ago. This is to be expected, since it would be hard to fathom Netflix offering unlimited viewing of the latest releases. Second, because the device only streams content from a computer (it has no hard drive), picture quality can be spotty and is limited by one's internet connection. Plus, movie viewing can be interrupted by the device having to buffer during times of slow internet connection. Obviously, a hi-speed internet connection is required and I think you need at least a 1 Mbps speed, but obviously, the higher the better. I read that the device offers three bit rates, with the highest at 2.2 Mbps, and that it automatically detects your connection speed. Lastly, though the box is capable of receiving and outputting an HD signal, Netflix does not currently offer any HD streaming content. Even if it did, the previous streaming speed problems would certainly come into play. In all likelihood, internet connections would have to see a big across-the-board jump in speed before streaming HD would be a viable option with the Roku box.

I don't subscribe to Netflix, but my girlfriend does, so this box, despite its flaws, seems like a welcome addition to her TV cabinet. It is fairly inexpensive (especially if you are already a Netflix subscriber and if you can use it to offset any other entertainment spending like cable TV altogether). It is easy to setup, which is a huge plus for her. She is like a lot of people in that she just wants devices to work without much fuss. She also is not such a stickler for video quality as much as I am. The biggest drawbacks for her, and I think for most people, are the limited content and the possibility of waiting for video to buffer. Still, for $99, this device sounds like a bargain worth investigating and I can only imagine what type of further innovation this device may bring.

Gas and hot air

While I don’t intend to weigh in on the mucky waters of politics in a personal finance blog, I was intrigued by Hillary Clinton’s Plan to temporarily suspend the federal gas tax of 16.5 cents during the summer driving season. John McCain proposed s similar plan, though Clinton said she would pay for the lost revenue through a tax on oil companies’ profits while McCain would not impose a new tax.

Like any other frugal, gas-paying American, the idea of saving a little bit at the pump interests me. But remembering back to Econ 101, this may not represent a wise or effective policy at this time. First, one of our nation’s greatest problems is our demand for oil/gas, and taking away the tax would only increase demand. If the tax is dropped and demand increases, prices will return pretty much where they stood with a tax. Assuming the lost tax revenue is not fully recovered, this is just another example of deficit spending to give Americans a little more money, on top of the $150 billion economic stimulus package. Though smart people can debate the principle of taxing profits (and the message it sends), Americans’ demand for gasoline is also relatively inelastic (remember back to Econ), which basically means any new tax on the oil companies could and would be directly passed onto consumers. And I’m not just making this up because I secretly want to pay more for gasoline. Thomas Friedman of The New York Times apparently has similar thoughts.

And the Rates go Down...

The Federal Reserve cut a key short term interest rate again yesterday by 1/4 point, marking the seventh cut in the last 8 months or so. The decision dropped the federal funds rate to 2.0% from 5.25% last September, and interest rates in most people's checking, savings and money market accounts have plummeted with the key rate. Two popular options for finding a decent savings rate include the ING Direct Orange Savings Account and E*Trade Complete Savings Account, both currently paying around 3%. This rate is several times larger than the average savings rate from a "brick and mortar" bank, which may currently pay .5-1%. I've tried both the ING and E*Trade accounts, and both seem to offer a good alternative to low rates at local banks. It is usually easy (and free) to transfer money between these accounts and your regular checking or savings account, making this a great option for an emergency savings fund.

However, I'd like to recommend another option I think people often overlook- credit unions. Credit unions are basically member-owned, non-profit banks. Because of this, they don't pay taxes and pay higher interest rates to their member-owners. Credit unions are generally set up to serve a specific group of people, so there are some requirements (such as being a government employee, living in a certain area, working in a certain field, etc.) to join one. However, most people would find they are eligible to join one near them if they did a little looking.

I’ve been a member of a credit union for about 5 years and have always been happy with it. While others are currently earning .5-1% interest or less, my money market account with the credit union is currently paying 3.25%, down from about 4.5% before the Fed started cutting rates. In other words, I get a better rate from my convenient “brick and mortar” bank, with access to ATMs, than I could get from many of the highest-yielding online banks.

To find a credit union near you, check out Credit Union National Association .