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Please continue below to view the "From the Portfolio Manager" and "Financial Planning Corner" segments in this month's issue.

 

 

The U.S. financial system faces the biggest overhaul since the Great Depression, as officials aim to learn the lessons from the latest credit crisis and the near collapse of Bear Stearns.  The Fed is taking almost $30 billion in assets off Bear Stearns’s balance sheet in order to encourage JP Morgan Chase to buy the firm – an unprecedented move.  For the first time since the 1930s, the Fed extended credit to non-bank corporations, lending $28.8 billion to bond dealers including Morgan Stanley and Goldman Sachs.  The Fed said on March 16 that the facility will be available for at least six months.

 

Federal Reserve policy makers are redefining which companies are vital to the flow of credit, an area once the sole domain of commercial banks, and which institutions pose risks to the entire economy if they fail.  Treasury Secretary Henry Paulson has stated that the Fed should broaden its oversight to include Wall Street investment firms, now regulated by the Securities and Exchange Commission.  Banks and securities firms began competing more directly nine years ago after the repeal of the 1933 Glass-Steagall Act, which separated commercial and investment banking.  Because of financial innovation, a lot of investment banks started to look more like traditional banks in recent years.

 

Many predict the changes will see the Fed gain influence at the expense of the SEC, which was created by President Franklin Roosevelt to make rules for dealers and stock exchanges.  The SEC was created to restore confidence in markets after the 1929 stock market crash and the Depression.  The agency’s mandate is to make sure investors are treated fairly, and it enforces rules for both companies that sell stock to the public and people who sell and trade securities.

 

 

 

While most investors are busy finalizing their 2007 tax returns, please be aware of an interesting tax planning opportunity for 2008 and beyond regarding capital gains.  Since 2003, most investors realized a maximum capital gain tax on their stock or home sales of 15% or 5% for lower income taxpayers.  In an effort to reduce the burden on lower tax bracket investors, the long-term capital gains tax rate temporarily drops to 0% in 2008, 2009, and 2010 (in 2011, this rate reverts to 10%).  The income limit for these brackets in 2008 is $65,100 for joint filers, $43,650 for heads of household, and $32,550 for single filers and married persons filing separately.

 

 

 

In an effort to stimulate the lagging economy, President Bush signed into law The Economic Stimulus Act of 2008 on February 13, 2008.  The primary purpose of the Act is to give the economy a boost by sending taxpayers a one-time tax rebate this year.  The government anticipates that a fair portion of the rebate checks will be used to increase consumer spending and enhance the economy.  The rebates are $600 for individuals and $1200 for joint filers.  In addition, parents can expect $300 per child.  To be eligible for the rebate, taxpayers must have earned income above $3000, but the amount of the rebate phases out at a rate of 5% of AGI from $75,000 - $87,000 for individuals and $150,000 - $174,000 for joint filers.