Money Blue Book

In response to heightened concerns surrounding recent plunges in world stock markets and fears of an imminent economic recession, the U.S. Federal Reserve made a surprising rate cut on Tuesday, January 22, 2008, days before its next official meeting when it is expected to cut rates further. In the daring move, the Fed slashed the federal funds rate from 4.25% to 3.50%, an astonishingly huge drop. In response, numerous online banks have already dropped their interest rate offerings to match – Take a look at my updated list of the top High Yield Savings Accounts.

Countrywide Bank continues to reign at the top with a tiered rate offering of (3.92% – 5.00% APY). I hope a few of my long time saving favorites like Washington Mutual and Etrade Bank will hold rates steady and high but they are likely to be influenced by the trend as well. Among the online banks, a few more major interest rate reshufflings are likely to occur again in the next few weeks.

Note: If you wish to understand more about the the 2008 Economic Stimulus Package, please read my entry regarding the tax stimulus rebate payments. I have also updated the subject with an entry discussing the possibilities of a 2009 economic stimulus check as well.

In response to the dramatic drag on the economy caused by the developing housing crisis and mortgage meltdown, the federal government has finally stopped dragging its knuckles on the ground and sprung to action – proposing to send taxpayers rebate checks in an effort to jump start the economy. Under the current bipartisan proposal, most taxpayers would be eligible, with $600 checks going towards individuals who pay taxes, $1,200 going towards working couples with an additional $300 for each children, and even $300 going towards anyone who earned a paycheck even if they made too little to pay income taxes. Many details in the package have yet to be hammered out including the business stimulus portion that provides additional tax breaks for businesses that purchase capital equipment as well as the housing assistance portion that helps riskier borrowers, who have been shut out of the tanking subprime mortgage market, qualify for Federal Housing Administration (FHA) loans.

The current tentative proposal still needs to be be rammed through the House of Representatives, the Senate, and ultimately approved by the President to be made official, but so far the likelihood of it happening looks very promising. There is great congressional and presidential pressure to speed this through the system and officials have indicated that the government may start sending checks out as soon as 60 days after the measure has been passed, which could happen in the next few weeks. Of course this economic stimulus is going to come at a hefty cost of $150 billion – nearly 1% of the value of the nation’s entire economic activity for one year. How the U.S. can afford this type of price tag, with additional tax cuts on the way, while at the same time waging expensive wars in the Middle East and maintaining our military bases in other parts of the world is beyond me.

I Am Eagerly Awaiting My Rebate Check – Although I Don’t Think It Was Designed For Me

I am excited at the prospect of having free money land into my grubby paws. I’m always on the lookout for ways to earn and generate additional streams of income, so financial windfalls certainly don’t hurt! Of course, my rebate check may not be as high as I would like because under the current proposal, there is an exemption for individuals who earn more than $75,000 a year, or couples making $150,000 or more. Higher income taxpayers are likely to get reduced rebate checks or none at all. Rats.

But truth be told, the check isn’t going to help the economy much if it falls into the hands of people like me. It’s being proposed as a Band Aid measure to rescue the economy from a possible recession by pumping money back into the American marketplace as quickly as possible to spark fiscal activity. The idea is to get cash into the hands of lower and middle income people because they are more likely to quickly spend it out of financial necessity thus creating a greater and more immediate impact on the economy. Unfortunately for the plan, those with comparatively higher incomes such as myself are more likely than not to stash it away and save the windfall funds in some online savings account or use whatever rebate checks we get to pay off debt. There’s nothing wrong with saving or paying off debt, except that’s not what the government had in mind. It’s going to be a disappointment for the government and the economy, but I personally don’t plan to spend whatever windfall amount I receive – I plan to save it!

Back in the day, when you wanted to listen to music, you either had to listen to the song off the radio, or you had to visit your nearby record store to buy the artist’s compact disc. Each CD usually went for $12-18 depending on the album’s popularity and you had to store your music CD collection in a plastic shelf case. As your CD collection grew you usually had to buy more cumbersome storage. Because the CD surface was itself easy scratched, you always had to take great care when handling the discs to minimize damage.

Everything all changed during my last few years of high school when the internet arrived to the scene. At first it was only seen as a novelty and used by a handful of people, but gradually the mainstream began to adopt it, recognizing its information potential. The technology started out slow, bumbling along at 56k modem speed on the average home computer. Faster broadband technology was out of the question at the time due to the prohibitive cost. But when I entered college and became introduced to T-1 broadband technology, I knew the age of file sharing had arrived. By then music sharing had become full blown as every campus student had ready access to super fast download technology at their fingertips from on-campus computer labs to broadband enabled dorm room connections.

What Is Online Music File Sharing and How Did It Start?

Napster was the first and biggest free centralized peer-to-peer (p2p) file sharing program during my early college years. The downloadable program allowed users to connect to each other online using their computers and swap primarily MP3 music files, ripped from store bought CD’s. With the ability to download free songs from Napster, many people started burning their own compilation albums without paying any royalties to the music company or the artist. The popularity of Napster peaked in early 2001 until the company was finally brought down by the music industry through a series of critical lawsuits that successfully proved Napster knowingly committed copyright infringement.

However, since the demise of the free music days of Napster, numerous improved variations have since spawned, including Limewire, Kazaa, Morpheus, and BitTorrent. One of the programs that is still enjoying continued success today as a contributer to free music downloads is the Gnutella-technology based Limwire program. Many people still use Limewire to download free copyrighted songs and videos clips. Suffering continued financial losses from dwindling music sales, the music industry has been trying to go after those who share copyrighted music files. But Limewire has proven to be very difficult to stop due to the program’s network architecture. Unlike Napster which utilized a central server, Limewire is very decentralized, and since the program’s operated by individual sharers, this makes it extra difficult for any one company to shut the whole system down or limit the flow of its contents. The record publishers have tried to flood the system with dummy files and corrupted fakes to discourage downloads, but their tactic has been met with little success.

The Music Industry and The RIAA Are Making A Big Mistake By Going After College Students For Alleged Music File Sharing

The Recording Industry Association of America (RIAA) represents many of the big music publishing companies and is the face of the music industry’s movement to crush those who share copyrighted music files. For the last few years they’ve focussed much of their efforts towards stopping young individuals from alleged sharing activity, filing lawsuits against college students as well as their schools, demanding that the institution turn over the offending sharer. The RIAA has enjoyed some limited pockets of success with tracking down the identities of some college students and forcing them to pay hefty settlement fees, but on the whole they’ve not been able to put much of a dent in overall downloading activity. Meanwhile the music industry continues to lose millionaires of dollars in legal fees trying to pursue the endless leads.

The difficulty comes from the nature of the underlying technology. The RIAA can track down individual IP addresses and usernames, as well as where the offending activity originated from, but they are unable to ascertain specific names. Despite the RIAA’s continued demands, many universities are refusing to turn over student identification information, claiming that the demands place undue burdens on them to locate the specific offender. Particularly due to the growth of campus wireless networks and the shared nature of dorm rooms, it’s hard to pinpoint exactly who performed the alleged sharing activity.

Personally, I think the RIAA and the music industry is making a huge mistake by continuously going after file sharers. I understand they are losing millions every year to this but this is a landmark opportunity that happens every so often that ought to spur companies to innovate. When the Beta and VHS video tapes and later DVD technologies first came out, the movie industry claimed that this would be the end of the film industry. It didn’t happen – people started buying the new improved products because they made their lives better. Rather than trying to hold back progress, the RIAA and the music industry need to come up with a more comprehensive and cost-effective way to embrace this new medium of music enjoyment. Like it or not, the music industry will continue to fight a losing battle as music sharing technology continues to improve and become even more elusive. Rather than kicking and screaming about their lost revenue streams, they need to improve and find a way to stop alienating their fans and make music more affordable.

As a side note, I think it’s prudent to point out to readers that the RIAA is watching and continues to scope out file sharing networks. However, most of their attention and efforts are aimed at those who share large quantities of files rather than those that download one or two songs here and there.

I have this policy for myself where I refuse to pay someone for a service I can easily perform myself with reasonable effort. For example, if I lived in a house with a front and backyard lawn, rather than pay someone to handle the landscaping, I’d rather mow the grass and trim the hedges on my own, so long as the time and effort spent aren’t too prohibitive.

Online and Software Tax Preparation Programs Make It Easy To Do Your Own Taxes

When it comes to taxes, I’ve traditionally done my own tax preparation work. Ever since I started working and generating income, I’ve always filed my own tax return. Initially before I gained a better understanding of tax matters, performing my own tax accounting work was difficult. But then along came extremely useful online and software tax preparation programs like Intuit’s TurboTax and H&R Block’s TaxCut. With the assistance of software based tax preparation programs, I was able to easily complete my own taxes with comparative ease. The advantages of using tax preparation programs are obvious – you simply compile all of your tax papers and respond to the series of tax related questions proposed to you by the program of your choice. The software asks you a whole slew of questions to determine what category you fall under and what type of tax deductions you qualify for. For those that have easy tax returns, I recommend using TurboTax or TaxCut to not only help you save money but to help you get educated and empowered.

Learn More About Your Own Finances And Become Better Educated On Important Money Matters

I think the vast majority of people are intimidated by the IRS and the voluminous tax laws that surround its presence. Most people have a general and basic understanding of the tax code and understand that income is taxed and that there are such things as deductions that help to reduce your tax liability. But beyond that, most layman don’t know the specifics – and tend to avoid anything to do with taxes like the plague – even lawyers. When I attended law school, the massive majority of students avoided tax law courses. Bucking the trend, a small group of students including myself embraced tax and went on to take most of the complicated tax law courses available – everything from individual, to corporate, to partnership tax. Of course, after taking all of those courses, I later realized why even studious individuals avoided the subject – there are a lot of numbers involved and sometimes for more complex transactions, calculations can get somewhat daunting.

However, with the wealth of information available on the internet and the ability to utilize tax preparation software today, regular individuals don’t need to remain in the dark on such an important matter. Rather than diligently gathering all of your assorted tax receipts together and driving them down to your certified public accountant with a big check, why not consider filing your own taxes? Of course, this is only advisable to tax novices who have relatively simple tax issues. If your income sources are straight forward and you don’t run your own home business or otherwise own complex financial investments, you’re likely a good candidate to file your own tax return.

There Is No Magic Involved – Just Self Financial-Empowerment

The biggest problem with outsourcing your tax preparation work out to someone else is that you are kept in the dark and remain clueless about a very important document in your financial life. If you spent just a few moments doing it yourself with the assistance of tax preparation software, you’ll gain a needed appreciation of your financial status as well as learn how to better improve your tax situation in the future. Most people seem to think professional tax preparers are some sort of magicians who possess the ability to make financial sense out of chaos. If you put a bit of extra effort into trying to understand your own tax numbers better, you’ll see that there is no magic involved. You might also come to realize that you’ve been wasting your money on expensive professional accountants all this time. Remember, it’s in your tax preparer’s own financial interest to leave you in the dark about specific tax issues to keep you dependent on them continuously for the service they provide.

Along the same lines, I always find it remarkable when people say that they don’t mind paying their accountants the hefty tax preparations fees to do their personal tax returns because the fees are tax deductible, and using this self proclaimed fact to support their decision to outsource the work. Now where did they get this information – their self serving accountant? Yes there is a place for tax preparation fees under Miscellaneous Expenses on Schedule A, however only the amount that exceeds 2% of the tax filer’s adjusted gross income is deductible. Unless their tax preparation was exceedingly complex and very expensive, most ordinary people would not be able to qualify for this itemized deduction to reduce their taxes.

When you don’t try to understand your own personal tax return and instead depend on someone else’s knowledge, you grow dependent on them and give them more credit than they deserve. For example, when someone hands their accountant a stack of medical bills thinking that the accountant will process the bills and deduct everything to reduce the overall tax liability, would it surprise you if the accountant chose not to do anything with these bills? That’s because you would have needed to have suffered a major illness or medical condition to have accumulated sufficient medical expenses to make it tax deductible. Only medical expenses in excess of over 7.5% of the adjusted gross is deductible. Of course your accountant likely may not tell you all that – preferring to keep you mesmerized and dependent on his or her magical tax preparations skills.

If some strange auto mechanic told you to come back with your car and get an oil change every 3,000 miles, should you trust him right off the bat? Of course not. You would either get a second opinion or go perform some online research to verify that you’re not being taken for a ride. Doing your own personal tax return works in the same way. Remember, knowledge is power, so please empower yourself.