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Why You Should Care
The SEC, while under fire from Congress and the general public, plays a vital role in ensuring the safety and integrity of your investments. It’s helpful to know what the SEC does, and how your key investments and “nest egg” are protected. It is also important to know that the SEC won’t—and shouldn’t—prevent you from losing money in the securities markets, so long as everything that happens is within the law.
45. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)
The banking collapse in the Great Depression, during which some 20 percent of all banks failed and their customer deposits were gone forever, led to new protections of deposits. As part of the Glass-Steagall Act of 1933, the Federal Deposit Insurance Corporation was set up within the government to guarantee deposits meeting certain criteria. As a bank depositor, your deposits are most likely covered, and would be paid back in the event of a bank failure, but it’s worth reviewing the rules.
What You Should Know
Today, deposits are covered up to $250,000 per depositor per bank for most types of checking and savings accounts. This amount was raised from $100,000 during the 2008 banking crisis. The “per depositor per bank” rule makes it fairly easy to achieve greater levels of coverage; you can have one account and your spouse can have another at the same bank, and both are covered. Or you can have joint accounts at two separate banks (they must be completely separate—not Wells Fargo and subsidiary Wachovia, for example). If you have several accounts at one bank, the coverage considers the total, not each account separately.
If you have millions, there are ways to extend this coverage further by having an intermediary spread your accounts through the Certificate of Deposit Account Registry Service (CDARS). If you have millions in savings, check out www.cdars.com. If you’re more like the rest of us, with a few accounts, the FDIC ownership and coverage rules can be found at the FDIC’s website: www.fdic.gov/deposit/deposits/insured/ownership.html.
One thing to remember: FDIC does not cover investment accounts. The most common example used for savings is money market funds (not to be confused with so-called money market accounts, a product offered by some banks that is covered.). Some funds, however, might be covered by optional insurance offered by the U.S. Treasury in the wake of the 2008 banking crisis. The FDIC doesn’t cover credit union accounts per se, but the National Credit Union Share Insurance Fund (NCUSIF) offers nearly identical coverage.
Investment accounts are covered by SIPC (Securities Investor Protection Corporation) for up to $500,000, but this coverage is against failure of the broker, not investment losses, and so rarely applies.
Why You Should Care
It is very important, especially in this day and age of financial volatility, to have at least some security for your savings. You should ask questions and take the necessary steps to ensure that your core savings are covered. It’s worth keeping track of changes in the laws too.
46. GOVERNMENT-SPONSORED ENTERPRISES (GSES)
Government-sponsored enterprises have been created by Congress over the years, starting during the Depression-era New Deal, to provide credit to targeted sectors of the economy like farming, housing, and education. The most visible GSEs today are Fa
What You Should Know
For almost all of us, the two mortgage finance GSEs and the twelve additional Federal Home Loan Banks are most important. These institutions have created what’s known as the secondary mortgage market, buying mortgages from mortgage bankers and other lenders, and repackaging and selling them as mortgage-backed securities into the financial markets. This activity provides greatly expanded liquidity in the mortgage markets and thus makes mortgages much more “available” and affordable for all of us. These institutions also “guarantee” certain loans, making them more attractive to investors, and thus lowering the interest rates and qualification requirements.
Before the 2008 financial crisis, the GSEs were pressured by policymakers to make more loans more affordable for more people to accomplish stated federal government goals to expand U.S. home ownership. This led to deterioration in credit quality requirements (that is, the standards applied to borrowers for income, credit ratings, and general ability to pay). This relaxation in standards expanded the market for so-called subprime mortgages; the GSEs and many institutions they sold to took a big hit when these mortgages started to fail. The GSEs, most of which had existed since the late 1960s as standalone publicly traded stock companies, had to be largely taken over and “bailed out” by the federal government, an act consistent with their original GSE charters, but something of a shock to the financial markets.
GSEs, specifically Fa
Why You Should Care
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47. TAX POLICY AND INCOME TAXATION
The proper coverage of the subject of taxation obviously would take more than a single entry. The Government Printing Office reported in 2006 that the U.S. Income Tax Code, the body of law administered by the Internal Revenue Service, was 13,548 pages in length. Additional rulings, opinions, and supplemental documents run the total up to about 44,000. And that’s just U.S. income taxes—there are other kinds of taxes like sales (consumption), excise, estate, and many others. It’s a complex subject.
What You Should Know
Taxation is obviously designed to raise revenue for governments and public entities to fund their operations and for redistribution—that is, to move money to needy parts of society in the form of entitlements like Social Security and Medicare and other direct and indirect aid programs (see #50 Entitlements). Considerable debate has occurred over how much of this is appropriate.
Income taxation began in 1861 in the United States to pay for the Civil War—the rate was a flat 3 percent on incomes exceeding $800. It went away after the war but returned briefly in 1894, and more permanently in 1913 as the Sixteenth Amendment. It’s been with us, with much change and increased complexity, ever since. Regarding income taxation and tax policy, a few fundamental principles are important: