Archive for March 2015

Bush > What to do with an IRS Audit

What to do with an IRS Audit st_via=ValdostaToday st_url= displayText=share> What to do with an IRS Audit st_via=ValdostaToday st_url= displayText=share> What to do with an IRS Audit st_via=ValdostaToday st_url= displayText=share> What to do with an IRS Audit st_via=ValdostaToday st_url= displayText=share>

Stacy Bush, Valdosta Today Business Contributor:

Few things strike fear into a taxpayer’s heart like a letter from the IRS. Fortunately, the odds of you ever being audited by the IRS are lower than ever. Recent budget cuts have reduced the number of IRS auditors, and last year the IRS audited less than one percent of the individual tax returns it received, the lowest level since 2004.

If you discover that you have been selected for an audit, don’t panic. While audits are stressful, there are several things you can do to get through as painlessly as possible.

Never ignore a notice

If you fail to respond by the given deadline, the IRS can automatically adjust your tax liability and send you the bill.

Call in the pros

If you’re being audited, the odds are already against you. Having a tax expert at hand to help you understand the process and handle the auditor’s requests can go a long way toward reducing your stress. The IRS can levy a wide range of penalties and professional advice may also help you minimize what you owe.

Keep good records and be ready to produce them

The IRS requires you to keep records to support any income or deduction that you claim on your return. Good organization will help you defend your position and may impress the auditor during any meetings. How long should you keep supporting documents on hand? Unfortunately, there’s no easy answer because it depends on your individual tax situation and the relevant statute of limitations. If you have questions about your personal record retention requirements, give us a call or speak to a qualified tax professional.

Be honest but be brief

Never lie to an auditor as that may be taken as evidence of fraud. The IRS treats suspicions of tax fraud very seriously and you want to reassure your auditor that you are being completely above-board in your dealings. But, don’t volunteer information or talk more than necessary. Don’t introduce prior year tax returns or any other documents unless the auditor specifically requests to see them.

Know your position and be prepared to defend it

Before responding to the audit request, read the Taxpayers’ Bill of Rights on to know your rights as a US taxpayer. Research any relevant deductions or tax issues and be prepared to negotiate your position with the auditor and his or her supervisor.

Stacy Bush has practiced independent financial advising in the Valdosta area for 14 years. Growing up on a farm in Donalsonville, Georgia, he is keen to the financial needs of South Georgia and North Florida families. Stacy and his wife, Carla, live in Valdosta with their four children. You can submit questions about this article to

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Job growth shifts to city centers

The trend of rapid urban sprawl has been in decline over the past few years, while job growth in city centers like New Haven has been on the rise, according to a new study by Urban Observatory, a think tank that presents statistics on international cities’ economies.

The Urban Observatory report, released last week, finds that job growth rates have historically been higher in suburban than in urban areas. However, the trend has reversed in recent years. Although Urban Observatory did not include New Haven in its analysis of 41 metropolitan areas, additional analysis by DataHaven — a local nonprofit that collects, analyzes and disseminates public data — showed that New Haven is experiencing a similar change. From 2007 to 2011, job growth within New Haven’s “city center,” defined as a three-mile radius around City Hall, has increased by 6.5 percent, while job growth in areas between three and 15 miles outside of City Hall has decreased by 4.7 percent, DataHaven found.

Ben Berkowitz, CEO and founder of SeeClickFix, a platform allowing citizens to communicate with their governments about non-emergency issues, said that although urban job growth is a net positive, it presents challenges.

“It’s great that the jobs are returning to the city, [but] it’s not great that jobs are going down overall in the region,” he said, in reference to the 9,000 job net increase in New Haven’s center matched by the 10,000 job net decrease in its suburban areas between 2000 and 2011.

Berkowitz pointed to lack of available housing and a qualified workforce as challenges to businesses interested in moving to downtown New Haven. He added that the city should build new infrastructure, such as modern office spaces and housing, to accommodate growing companies.

Still, Berkowitz noted that there has recently been development of office spaces. For example, Higher One, a financial advising company, is revitalizing the old Winchester Repeating Arms factory.

Like Berkowitz, Dwight Hall Executive Director Peter Crumlish DIV ’09 said new job growth is a positive development, but he warned that New Haven residents may not be the ones benefitting from the growth. Instead, he said, the new jobs may attract people who would have otherwise worked in other metropolitan areas.

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Editorial Board: Reworking and refinancing mental health resources at Stanford

From laundry to condoms, Stanford students have impressive access to a range of residential resources for free or at subsidized costs. A small army of professionals — academic directors, residence deans, program associates, dining staff and more — helps coordinate the dozens of programs geared towards students’ well-being, mental health and happiness. These resources are so pervasive, they’re often taken for granted. For most students, at most times, the system is working.

Partly because the system works for many, there is a campus ideal: that we are “geniuses who bathe in the sun, rip shots while coding… roll out of bed late and crush the McKinsey interview.” Freshmen who inexplicably take 22 units and seniors with job offers proudly brag about how they have sacrificed their bodies and sanities for “achievement.”

In certain instances, however, the most challenging and dangerous cases fall through the cracks. When our environment’s unrelenting demand for success pushes students to compromise their mental health, the university’s considerable support system is too often caught off guard. When suicide happens at Stanford, every cog in this omnipresent network — coaches, administrators, advisors, teaching staff, dorm staff and friends — feels like it is somehow to blame.

Stanford is in such a position now, with two suicides on campus in the past nine months. Those with long memories will remember a similar unacknowledged period of campus mourning three years ago, when silent, downcast gazes replaced the regular buzz of Suites dining.

In times like these, access to private, confidential advice is more critical than ever. But, for the purposes of most students, there are only three confidential resources on campus: the Bridge, the Office of Religious Life and Counseling and Psychological Services (CAPS). If a scared, stigmatized student is looking for help but feels he will be judged by his peers, there aren’t that many places to turn.

Hence the overwhelming demand for psychological services. Preliminary results of the ASSU’s ongoing mental health survey indicate that about 80 percent of student respondents said they or their peers would benefit from counseling for stress, academic pressures, depression and anxiety. Over 60 percent reported that they or a friend had used CAPS and about three quarters reported the same about the dormitory-based Peer Health Educators (PHEs).

Yet in spite of the wide and continued use of CAPS, only 42 percent of those undergraduates who had used CAPS were satisfied with the number of appointments they received. A dismal 30 percent were satisfied with the wait time between appointments. Clearly, there is a demand for counseling that is not fully being met.

Our criticism of the University’s inability to keep up with mental health resource demand is not meant to be a criticism of the integral role that CAPS currently plays on campus: It remains an accessible, 24-hour resource that has helped thousands of Stanford students. The existing demand for CAPS is a testament to how important of a role CAPS plays in the Stanford community. At the same time, it remains true that Stanford’s mental health infrastructure can no longer fully meet demand. CAPS Director Ronald Albucher has said as much, requesting more money from the University Budget Committee to hire more staff.

CAPS’ budget falls within Vaden’s, and that within Student Affairs’.  In 2014-15, Vaden shared Student Affairs’ $64.3 million budget with institutions such as the Career Development Center, Office of Alcohol Policy and Education and the Haas Center for Public Service. The total budget for these various programs — all of them integral to student well-being — should be viewed in light of the University’s other expenses, such as the nearly third of a billion dollars we spend on maintaining our facilities and land each year.

Put simply: If the University can fundraise $928.5 million for various other important causes, surely they can also make students’ mental health one of those causes.

Increased funding is a necessary but insufficient condition. Numerous undergraduate Senate campaigns have made improving CAPS a campaign talking point. But money can’t solve all of the obstacles hindering people from getting care.

The problems are both large and small. Those whom CAPS have connected with long-term care need to balance their appointments with class schedules and practical realities. Assistance may require hours of commuting per week, a major deterrent to receiving help and yet another source of stigma.

Stanford must also build a broader culture of self-care, continuing to emphasize student wellness and de-stigmatize failure. In this regard, Stanford has been creative and decisive, rapidly expanding its academic course offerings in order to integrate wellness into everyday life. Events like Stanford, I Screwed Up! are worthy additions to a busy events calendar. Our first line of defense — dorm residential staff — can also be better equipped to head off and handle mental health crises. Formalizing an information sharing system with residence deans would facilitate regular updates on ongoing cases and provide specific guidance in case of crisis.

However, this Board is concerned about rumored proposals to weaken the residential Peer Health Educator (PHE) program in favor of health-trained RAs. While the move would allay concerns over the comparatively low-paid PHEs, we can’t forget that PHEs undergo specialized training especially relevant to sensitive, judgment-oriented mental health decisions. By design, PHEs prioritize wellness while RAs are trained with an eye on risk management; many would argue that Stanford needs more of the former and less of the latter. Any University commitment to improving mental health should also commit to strengthening, financially and otherwise, our PHEs; shrinking the program only puts a bigger burden on the overloaded CAPS system.

Finally, a reinvigorated and well-staffed CAPS must take on a prominent role in the life of the school. Too often, a CAPS presence sits silent on the periphery of major events or as a token phone number after a traumatic announcement. If Stanford is to truly become proactive on wellness, the fact that CAPS and mental health professionals in general have no public presence on campus needs to change.

Until we build a culture where mental health is urgently and openly discussed — and we are well on our way — the demand for CAPS will only grow. Students, accustomed to some of the best student services in the world, expect better from what is supposed to be the University’s last line of defense. For now, Stanford’s only option is to meaningfully raise the budget of the entire mental health resource system in order to meet demand. We are hopeful that they will.

Contact the Editorial Board at 

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Ukraine Denouement

The fate of Ukraine is now shifting from the military battlefield back to the arena that counts most: that of international finance. Kiev is broke, having depleted its foreign reserves on waging war that has destroyed its industrial export and coal mining capacity in the Donbass (especially vis-à-vis Russia, which normally has bought 38 percent of Ukraine’s exports). Deeply in debt (with EUR3 billion falling due on December 20 to Russia), Ukraine faces insolvency if the IMF and Europe do not release new loans next month to pay for new imports as well as Russian and foreign bondholders.

Finance Minister Natalia Yaresko announced on Friday that she hopes to see the money begin to flow in by early March.[1] But Ukraine must meet conditions that seem almost impossible: It must implement an honest budget and start reforming its corrupt oligarchs (who dominate in the Rada and control the bureaucracy), implement more austerity, abolish its environmental protection, and make its industry “attractive” to foreign investors to buy Ukraine’s land, natural resources, monopolies and other assets, presumably at distress prices in view of the country’s recent devastation.

Looming over the IMF loan is the military situation. On January 28, Christine Lagarde said that the IMF would not release more money as long as Ukraine remains at war. Cessation of fighting was to begin Sunday morning. But Right Sector leader Dmytro Yarosh announced that his private army and that of the Azov Battalion will ignore the Minsk agreement and fight against Russian-speakers. He remains a major force within the Rada.

How much of Ukraine’s budget will be spent on arms? Germany and France made it clear that they oppose further US military adventurism in Ukraine, and also oppose NATO membership. But will Germany follow through on its threat to impose sanctions on Kiev in order to stop a renewal of the fighting? For the United States bringing Ukraine into NATO would be the coup de grace blocking creation of a Eurasian powerhouse integrating the Russian, German and other continental European economies.

The Obama administration is upping the ante and going for broke, hoping that Europe has no alternative but to keep acquiescing. But the strategy is threatening to backfire. Instead of making Russia “lose Europe,” the United States may have overplayed its hand so badly that one can now think about the opposite prospect. The Ukraine adventure turn out to be the first step in the United States losing Europe. It may end up splitting European economic interests away from NATO, if Russia can convince the world that the epoch of armed occupation of industrial nations is a thing of the past and hence no real military threat exists – except for Europe being caught in the middle of Cold War 2.0.

For the US geopolitical strategy to succeed, it would be necessary for Europe, Ukraine and Russia to act against their own potential economic self-interest. How long can they be expected to acquiesce in this sacrifice? At what point will economic interests lead to a reconsideration of old geo-military alliances and personal political loyalties?

The is becoming urgent because this is the first time that continental Europe has been faced with such war on its own borders (if we except Yugoslavia). Where is the advantage for Europe supporting one of the world’s most corrupt oligarchies north of the Equator?

America’s Ukrainian adventure by Hillary’s appointee Victoria Nuland (kept on and applauded by John Kerry), as well as by NATO, is forcing Europe to commit itself to the United States or pursue an independent line. George Soros (whose aggressive voice is emerging as the Democratic Party’s version of Sheldon Adelson) recently urged (in the newly neocon New York Review of Books) that the West give Ukraine $50 billion to re-arm, and to think of this as a down payment on military containment of Russia. The aim is old Brzezinski strategy: to foreclose Russian economic integration with Europe. The assumption is that economic alliances are at least potentially military, so that any power center raises the threat of economic and hence political independence.

The Financial Times quickly jumped on board for Soros’s $50 billion subsidy.[2] When President Obama promised that US military aid would be only for “defensive arms,” Kiev clarified that it intended to defend Ukraine all the way to Siberia to create a “sanitary cordon.”

First Confrontation: Will the IMF Loan Agreement try to stiff Russia?

The IMF has been drawn into US confrontation with Russia in its role as coordinating Kiev foreign debt refinancing. It has stated that private-sector creditors must take a haircut, given that Kiev can’t pay the money its oligarchs have either stolen or spent on war. But what of the EUR3 billion that Russia’s sovereign wealth fund loaned Ukraine, under London rules that prevent such haircuts? Russia has complained that Ukraine’s budget makes no provision for payment. Will the IMF accept this budget as qualifying for a bailout, treating Russia as an odious creditor? If so, what kind of legal precedent would this set for sovereign debt negotiations in years to come?

International debt settlement rules were thrown into a turmoil last year when US Judge Griesa gave a highly idiosyncratic interpretation of the pari passu clause with regard to Argentina’s sovereign debts. The clause states that all creditors must be treated equally. According to Griesa (uniquely), this means that if any creditor or vulture fund refuses to participate in a debt writedown, no such agreement can be reached and the sovereign government cannot pay any bondholders anywhere in the world, regardless of what foreign jurisdiction the bonds were issued under.

This bizarre interpretation of the “equal treatment” principle has never been strictly applied. Inter-governmental debts owed to the IMF, ECB and other international agencies have not been written down in keeping with private-sector debts. Russia’s loan was carefully framed in keeping with London rules. But US diplomats have been openly – indeed, noisily and publicly – discussing how to “stiff” Russia. They even have thought about claiming that Russia’s Ukraine loans (to help it pay for gas to operate its factories and heat its homes) are an odious debt, or a form of foreign aid, or subject to anti-Russian sanctions. The aim is to make Russia “less equal,” transforming the concept of pari passu as it applies to sovereign debt.

Just as hedge funds jumped into the fray to complicate Argentina’s debt settlement, so speculators are trying to make a killing off Ukraine’s financial corpse, seeing this gray area opened up. The Financial Times reports that one American investor, Michael Hasenstab, has $7 billion of Ukraine debts, along with Templeton Global Bond Fund.[3] New speculators may be buying Ukrainian debt at half its face value, hoping to collect in full if Russia is paid in full – or at least settle for a few points’ quick run-up.

The US-sponsored confusion may tie up Russia’s financial claims in court for years, just as has been the case with Argentina’s debt. At stake is the IMF’s role as debt coordinator: Will it insist that Russia take the same haircut that it’s imposing on private hedge funds?

This financial conflict is becoming a new mode of warfare. Lending terms are falling subject to New Cold War geopolitics. This battlefield has been opened up by US refusal in recent decades to endorse the creation of any international body empowered to judge the debt-paying capacity of countries. This makes every sovereign debt crisis a grab bag that the US Treasury can step in to dominate. It endorses keeping countries in the US diplomatic orbit afloat (although on a short leash), but not countries that maintain an independence from US policies (eg, Argentina and BRICS members).

Looking forward, this position threatens to fracture global finance into a US currency sphere and a BRICS sphere. The US has opposed creation of any international venue to adjudicate the debt-paying capacity of debtor nations. Other countries are pressing for such a venue in order to save their economies from the present anarchy. US diplomats see anarchy as offering an opportunity to bring US diplomacy to bear to reward friends and punish non-friends and “independents.” The resulting financial anarchy is becoming untenable in the wake of Argentina, Greece, Ireland, Spain, Portugal, Italy and other sovereign debtors whose obligations are unpayably high.

The IMF’s One-Two Punch leading to privatization sell-offs to rent extractors            

IMF loans are made mainly to enable governments to pay foreign bondholders and bankers, not spend on social programs or domestic economic recovery. Sovereign debtors must agree to IMF “conditionalities” in order to get enough credit to enable bondholders to take their money and run, avoiding haircuts and leaving “taxpayers” to bear the cost of capital flight and corruption.

The first conditionality is the guiding principle of neoliberal economics: that foreign debts can be paid by squeezing out a domestic budget surplus. The myth is that austerity programs and cuts in public spending will enable governments to pay foreign-currency debts – as if there is no “transfer problem.”

The reality is that austerity causes deeper economic shrinkage and widens the budget deficit. And no matter how much domestic revenue the government squeezes out of the economy, it can pay foreign debts only in two ways: by exporting more, or by selling its public domain to foreign investors. The latter option leads to privatizing public infrastructure, replacing subsidized basic services with rent-extraction and future capital flight. So the IMF’s “solution” to the deb problem has the effect of making it worse – requiring yet further privatization sell-offs.

This is why the IMF has been wrong in its economic forecasts for Ukraine year after year, just as its prescriptions have devastated Ireland and Greece, and Third World economies from the 1970s onward. Its destructive financial policy must be seen as deliberate, not an innocent forecasting error. But the penalty for following this junk economics must be paid by the indebted victim.

In the wake of austerity, the IMF throws its Number Two punch. The debtor economy must pay by selling off whatever assets the government can find that foreign investors want. For Ukraine, investors want its rich farmland. Monsanto has been leasing its land and would like to buy. But Ukraine has a law against alienating its farmland and agricultural land to foreigners. The IMF no doubt will insist on repeal of this law, along with Ukraine’s dismantling of public regulations against foreign investment.

International finance as war

The Ukraine-IMF debt negotiation shows is why finance has become the preferred mode of geopolitical warfare. Its objectives are the same as war: appropriation of land, raw materials (Ukraine’s gas rights in the Black Sea) and infrastructure (for rent-extracting opportunities) as well as the purchase of banks.

The IMF has begun to look like an office situated in the Pentagon, renting a branch office on Wall Street from Democratic Party headquarters, with the rent paid by Soros. His funds are drawing up a list of assets that he and his colleagues would like to buy from Ukrainian oligarchs and the government they control. The buyout payments for partnership with the oligarchs will not stay in Ukraine, but will be moved quickly to London, Switzerland and New York. The Ukrainian economy will lose the national patrimony with which it emerged from the Soviet Union in 1991, still deeply in debt (mainly to its own oligarchs operating out of offshore banking centers).

Where does this leave European relations with the United States and NATO?

The two futures

A generation ago the logical future for Ukraine and other post-Soviet states promised to be an integration into the German and other West European economies. This seemingly natural complementarity would see the West modernize Russian and other post-Soviet industry and agriculture (and construction as well) to create a self-sufficient and prosperous Eurasian regional power. Foreign Minister Lavrov recently voiced Russia’s hope at the Munich Security Conference for a common Eurasian Union with the European Union extending from Lisbon to Vladivostok. German and other European policy looked Eastward to invest its savings in the post-Soviet states.

This hope was anathema to US neocons, who retain British Victorian geopolitics opposing the creation of any economic power center in Eurasia. That was Britain’s nightmare prior to World War I, and led it to pursue a diplomacy aimed at dividing and conquering continental Europe to prevent any dominant power or axis from emerging.

America started its Ukrainian strategy with the idea of splitting Russia off from Europe, and above all from Germany. In the US playbook is simple: Any economic power is potentially military; and any military power may enable other countries to pursue their own interest rather than subordinating their policy to US political, economic and financial aims. Therefore, US geostrategists view any foreign economic power as a potentially military threat, to be countered before it can gain steam.

We can now see why the EU/IMF austerity plan that Yanukovich rejected made it clear why the United States sponsored last February’s coup in Kiev. The austerity that was called for, the removal of consumer subsidies and dismantling of public services would have led to an anti-West reaction turning Ukraine strongly back toward Russia. The Maidan coup sought to prevent this by making a war scar separating Western Ukraine from the East, leaving the country seemingly no choice but to turn West and lose its infrastructure to the privatizers and neo-rentiers.

But the US plan may lead Europe to seek an economic bridge to Russia and the BRICS, away from the US orbit. That is the diplomatic risk when a great power forces other nations to choose one side or the other.

The silence from Hillary

Having appointed Valery Nuland as a holdover from the Cheney administration, Secretary of State Hillary Clinton joined the hawks by likening Putin to Hitler. Meanwhile, Soros’s $10 million on donations to the Democratic Party makes him one of its largest donors. The party thus seems set to throw down the gauntlet with Europe over the shape of future geopolitical diplomacy, pressing for a New Cold War.

Hillary’s silence suggests that she knows how unpopular her neocon policy is with voters – but how popular it is with her donors. The question is, will the Republicans agree to not avoid discussing this during the 2016 presidential campaign? If so, what alternative will voters have next year?

This prospect should send shivers down Europe’s back. There are reports that Putin told Merkel and Holland in Minsk last week that Western Europe has two choices. On the one hand, it and Russia can create a prosperous economic zone based on Russias raw materials and European technology. Or, Europe can back NATO’s expansion and draw Russia into war that will wipe it out.

German officials have discussed bringing sanctions against Ukraine, not Russia, if it renews the ethnic warfare in its evident attempt to draw Russia in. Could Obama’s neocon strategy backfire, and lose Europe? Will future American historians talk of who lost Europe rather than who lost Russia?

Michael Hudson’s book summarizing his economic theories, “The Bubble and Beyond,” is now available in a new edition with two bonus chapters on Amazon. His latest book is Finance Capitalism and Its Discontents.  He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. He can be reached via his website,


[1] Fin min hopes Ukraine will get new IMF aid in early March – Interfax,

5:40AM ET on Friday Feb 13, 2015 by Thomson Reuters

[2] “The west needs to rescue the Ukrainian economy,” Financial Times editorial, February 12, 2015.

[3] Elaine Moore, “Contrarian US investor with $7bn of debt stands to lose most if Kiev imposes haircut,” Financial Times, February 12, 2015.

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Young people embrace financial literacy; learn ins and outs of adult …

Prior to her “shopping expedition,” Penny sat around a table with fellow seventh- and eighth-graders from Friendship Blow Pierce Public Charter School in Southeast staring intently – frowning at times – at a Samsung Galaxy tablet trying to figure out how to make her modest salary stretch. The students, divided into several smaller groups, received instructions, researched a family budget and then wrestled with how best to spend their money.

One instruction adult volunteers gave the group was to spend or save all of their income.

Penny, a 13-year-old eighth-grader, said after participating in a four-hour financial literacy simulation that the experience gave her a better appreciation for the sacrifices and challenges her parents make in caring for her and her siblings.

For this exercise, Penny played a butcher with no children, making $30,000 a year before taxes and operating with a $2,500-a-month budget. She, unlike several others, didn’t have a spouse to share the financial load.

“I’m budgeting and saving, and I have to stick to the budget. I have to stay within my budget or end up with a small amount of money,” she said with a smile. “The first time I came, I didn’t apply what I learned, but now I will because it has an impact on your life.”

Ed Grenier III, president and CEO of Junior Achievement of Greater Washington, said that that’s his organization’s goal. In a society that has seen widespread economic and financial turmoil not seen in decades, Grenier explained, financial literacy has gained added currency.

“Junior Achievement was founded in 1919 to teach kids how business works,” he said. “It evolved into financial literacy, entrepreneurship and work readiness for middle and high school kids. “We’ve broadened the focus. We give them the fundamental basis to be successful in a global economy.

“We recruit adult volunteers from companies or individuals. We teach our program through adult role models who bring their own experiences. The kids learn personal budgeting, lessons on transportation, health care, recreation, dining out. Teaching and training is a big part of what we do.”

About 53,000 teens in the Washington metropolitan region have gone through the Junior Achievement program, and 4 million young people in total have been served. The financial literacy program is available in 125 countries, where 10 million children enjoy the program. In the US, 120 chapters are devoted to teaching young people to become comfortable and proficient with budgeting and finance, debit and credit, compound interest, taxes and investment portfolios.

After the welcome and introductions by Junior Achievement staff in the auditorium, the big reveal turned out to be opening two large wooden sliding doors to the mall populated with storefronts of some of the region and country’s most recognized businesses. Some of them include Clark Construction, CVS, Omega World Travel, Volkswagen, Goodwill, Dominion Light, Northern Virginia Community College and Monumental Sports Entertainment.

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UPDATE 1-New Ally CEO eyes expansion in subprime auto loans, retail banking

(Adds details on Allys stock price, retail banking focus)

By Peter Rudegeair

NEW YORK Feb 5 (Reuters) – Ally Financial Incs
new chief executive said on Thursday that the auto lender plans
to boost its revenue through steps including making more loans
to riskier borrowers and offering more retail banking products.

Jeffrey Brown, in his first public remarks as Allys top
boss, said that over the past few years the company has fallen
short of subprime auto lending targets set by the board and that
it was an area he was looking at to grow.

Brown, speaking on a conference call with analysts, said
that over time he expects subprime borrowers to account for
somewhere between 12 to 15 percent of the loans Ally makes, from
its current level of around 9 percent.

Much of the growth will come from Allys increased focus on
used car lending, which is particularly important after the
company lost an exclusive lease agreement in January with
General Motors Co. Used car borrowers
tend to be less creditworthy than new car borrowers, but the
market is two times larger, Brown said.

The company, the largest US auto lender, is ramping up its
risk-taking even as some government officials grow increasingly
concerned about the area. Ally is one of several auto lenders
that have received subpoenas in recent months from the US
Department of Justice over subprime lending practices, an area
that prosecutors are examining for fraud and other abuses using
lessons they learned from crisis-era cases.

Unlike other lenders, Ally had been prohibited from using
deposits at its bank to fund subprime auto loans because it was
still under partial government ownership. But after fully
repaying taxpayers in December, Ally can now make the loans
through its bank, cutting its funding costs by around 45
percent, Brown said.

Brown said Ally may expand the number of retail banking
products it offers beyond its online deposit-taking platform,
though he did not give any specifics. Unlike many of its
competitors of similar size, Ally does not offer credit cards,
home equity loans or mortgages.

We havent scratched the surface in retail banking, Brown

Allys shares were up 2.5 percent in morning trading. Since
it went public last April, Allys shares have fallen around 17
percent compared to a roughly 1 percent fall in the KBW index of
bank stocks.

Brown said he was disappointed in the recent share
performance, adding that some people are underestimating the
power of this franchise.

(Reporting by Peter Rudegeair; Editing by Meredith Mazzilli)

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WB mayor touts savings from bond refinancing

WILKES-BARRE While he didnt have the overall debt owed by the city at hand Thursday night, Mayor Thomas Leighton had the savings from a recent bond refinancing committed to memory.

The city saved $1.8 million in the sale of $30 million in bonds to refinance those issued in 2005 and 2007, he told city council at its regularly scheduled meeting.

Just to give you an example of where we are and where we were, that money we had to use back in 2005, we had no credit rating. The bond insurance cost $1,376,300. The bond insurance on this recent issue $47,602. That tells you how important your credit rating is, he said.

Leighton, as he has done before, touted the value of the A- with a positive outlook from Standard Poors Credit Rating Services. An obvious benefit is the ability to borrow money at a lower interest rate, he noted.

Thats something Ive been stressing for the last 11 years as mayor that we would restore our credit rating so we could restructure our debt and save the taxpayers money, he said.

Councilman Tony George, who was excused from the meeting, voted against the refinancing last year. Leighton did not include him in his praise for the others who voted for it Vice Chairman Bill Barrett, George Brown, Chairman Mike Merritt and Maureen Lavelle.

You just saved the taxpayers $1.8 million and I want to personally and publicly thank you, he said.

City resident Sam Troys disagreed with the mayors approach.

I think generally speaking taxpayer accountability has been totally lacking on the part of council members here. Theres no commitment to trying to cut expenses to pay down that debt. It does exist, mayor. Maybe youll tell me there is no debt. I dont know, Troy said

Leighton did not answer Troys question about the extent of the debt.

If youre disappointed that this administration, this mayor, this council just saved the taxpayers $1.8 million, Leighton said, I dont understand what youre missing there.

Thats what you say, Troy said.

He was more receptive to assistant city attorney Bill Vinskos report that there is movement on the citys being able to recoup the $575,000 it cost to secure and later demolish the Hotel Sterling in 2013.

As a result of the demolition, the city positioned itself ahead of all other lien holders, Vinsko said.

I will tell you that the results of that first lien position are going to be something that youre going to be proud of very shortly. I cant go into any more detail on it at this time, Vinsko said.

Council voted unanimously to approve four resolutions on the agenda, including:

The sale of vacant land at the rear of 36 S. Grant St. to Charles Crumbley for $500

The purchase of a recycling packer truck for $164,000. The cost to the city is $16,400 from the Liquid Fuels account

Designating Wilkes-Barre Township police as the first responder department to the city in the event of an emergency.

Reach Jerry Lynott at 570 991-6120 or on Twitter @TLJerryLynott

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Clarion takes first in FASTech competition

Clarion University students won the second annual FASTech Competition at the Technology
Tools for Today conference in Dallas.

John Owens of Nesquehoning, Chelsea Zola of Pittsburgh, and Zack Horner and Mike Smith,
both of Clarion, participated in this years event. They won the most difficult portion
of the competition, the case study competition.

For the case study, students were asked to create a fictional financial advising firm
to assist in financial planning for a couple using MoneyGuide Pro tools, which is
a partnering company for the competition. They then had to create a brand for the
firm, including core values and a mission statement.

At the conference, the students met face-to-face with judges who interviewed them
about the firm they created. The Clarion students firm won first place, earning them
a $5,000 prize for the university and a trophy that will be presented during an upcoming

We did not place last year in the case study portion of the competition, said Jeffrey
Eicher, professor of finance, advisor to the students. The students worked on creating
their firm during the fall semester and into their winter break and their hard work
paid off.

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Obama strikes important blow for retirement savers

Illustration: Lu Ting/GT

For the past six years, US President Barack Obamas administration has, more often than not, sided with the interests of big banks on financial-sector policy. But last month, announcing a new proposal to prevent conflicts of interest in financial advising, Obama seemed to turn an important corner.

From the outset of his first presidential term, Obama maintained the approach taken by George W. Bushs administration. Large financial firms benefited from the provision of massive government support in early 2009, and their executives and shareholders received generous terms. Citigroup, in particular, benefited from this approach, which allowed it to carry on with substantially the same business model and management team. And the Dodd-Frank financial-reform legislation of 2010 could have done much more to curtail large banks power and limit the damage they can cause.

Most recently, in December 2014, the administration abandoned an important part of the Dodd-Frank reforms – a move that directly benefited Citigroup by allowing its management team to take on more risk (of the kind that almost broke the financial system in 2007-08). Among financial-industry lobbyists and House Republicans, the knives are out to roll back more of the constraints imposed on Citigroup and other big banks.

But now, in an abrupt and commendable turnabout, the Obama administration put the issue of conflicts of interest in the financial sector firmly on the table.

The specific context involves the investment advice given to people saving for retirement.

The decisions these savers must make are complex and can have profound consequences. Getting it right is difficult even under the best of circumstances. What will interest rates be? How long will you and your spouse live? What will your commitments to your children be, and for how long?

But perhaps the most important question is whether you can trust your financial adviser. Some financial advisers in the US are paid not on the basis of how their clients do, but according to what financial products they persuade them to buy. Dennis Kelleher of Better Markets, a pro-reform group, recently summed up the current situation well: Advisers can recommend investments that generate lucrative commissions for them, even though their clients get stuck with high fees, subpar performance and unacceptably risky products.

Kelleher has been an effective critic of the administration in recent years, pushing long and hard to address all potential conflicts of interest in finance. And now his analysis and recommendations are being echoed in a new report issued by the Council of Economic Advisers (CEA). Such fee structures, the CEA warns, generate acute conflicts of interest: the best recommendation for the saver may not be the best recommendation for the advisers bottom line.

And the CEA goes further, estimating that conflicted investment advice leads to a one-percentage-point drop in return. In todays low-interest-rate environment, thats a huge potential loss. (The actual impact will also depend on what happens to equity prices in the coming years.)

The CEA report provides a useful primer on the issues and data. I wish they weighed in more frequently on finance-related issues, rather than deferring to the US Treasury. Or they could just listen to Senator Elizabeth Warren as she speaks out repeatedly on a broad range of financial-reform issues. (Warren joined Obama in unveiling the proposal to protect retirement savers.)

Not surprisingly, at least some people at the US Securities and Exchange Commission have reacted negatively – this is stepping onto their turf, after all. And the lobbyists are, naturally, out in full force.

But with sufficient White House willpower, the administration can see this through. What is needed is a change in the rules set by the Department of Labor, which has jurisdiction over retirement-related issues.

No doubt industry defenders will claim that current practices benefit small investors – a point disputed directly by the CEA. The broader and more interesting question is: where are the statesmen in the financial industry? Where are the leaders who push for a race to the top, by better serving their clients best interests?

Jack Bogle, who built his investment-management company, the Vanguard Group, on exactly this principle, with a clear focus on lower fees at every opportunity, has come out strongly in favor of the administrations proposal. Unfortunately, his remains a lonely voice.

Everyone who provides investment advice to retirement savers should act solely in their clients best interests. And, judging by the high number of distinguished and honorable professionals in the industry, many advisers, if not most, already do.

But there also are too many people being exploited, which harms them individually and discourages savings more broadly. That is why the law should be amended to eliminate as many potential conflicts of interest as possible, by requiring all retirement advisers to act in their clients best interests at all times.

Such a requirement would be a promising start, but there is still a long way to go. All retail investors, not just retirement savers, deserve the same legal protection. Until they get it, the best investment advice may be to assess your adviser carefully, bearing in mind a well-tested performance metric: where are the customers yachts?

The author is a professor at MITs Sloan School of Management.

Copyright: Project Syndicate, 2015.

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Financial Advisors Haven’t Bridged The Gender Wage Gap

By Cyril Tuohy

The worst-paying job for women in the US is that of financial advisor. Lets just repeat that and let it sink in: The worst-paying job for women in the US is that of financial advisor.

Before heading for the exits to wage another skirmish in the gender wars, perhaps we should qualify that statement.

The financial advisory profession is the worst-paying job for women when compared with what men earn in the same position, according to 24/7 Wall Street, using the most recent data based on the Current Population Survey from the Bureau of Labor Statistics (BLS).

So, yes, the financial advisory profession is the worst-paying job for women but only in relative terms, not absolute terms.

Among financial advisors, women earned only 61.3 percent of what men earned last year, according to the 24/7 Wall Street analysis, a disparity that that harks back to levels last seen in the 1970s.

On average, the wage gap for all occupations was much narrower as women made 82.5 percent of what men earned in 2014, according to the findings.

Ariane Hegewisch, a study director at the Institute for Womens Policy Research, which was not involved in the latest 24/7 Wall Street research, said that when it comes to income, women financial advisors trail their male counterparts to an extent.

Among financial advisors, the earnings ratio between men and women often fluctuates from one year to the next, but in 2014 the earnings gap for financial advisors was especially low, she said.

Its staggering that (the wage gap) is changing so slowly, especially because there have been attempts to deal with bias in the distribution of accounts, Hegewisch told InsuranceNewsNet.

We were pretty taken aback and if you look at class actions, youd think it would change because large firms were involved, she added.

BLS data indicate there were 335,000 workers employed in the financial advisor profession with median weekly earnings of $1,337, a figure that doesnt include self-employment.

Male financial advisors, of which there were 201,000 in 2014, earned $1,637 a week. Women, of which there were 134,000 in 2014, collected $1,004 a week.

Hegewisch said the financial advisory profession has always been an occupation with one of the widest wage gaps. Previous surveys have shown women earning 65 percent or even 67 percent of what men make, but its always below 70 (percent), she said.

Still, this year its particularly low, Hegewisch added.

Susan L. Combs, president of Women in Insurance and Financial Services (WIFS), said the results were unexpected.

I was surprised by that but Im also wondering what the pool was, Combs said in an interview with InsuranceNewsNet.

Outcomes could have been skewed, she said, particularly if they measured income generated by women who find themselves in administrative and support roles.

Those roles, while they may qualify as financial advising for statistical purposes in the eyes of the Labor Department, dont really qualify as a financial advisor or producer, she said.

Women financial advisors make a heck of a lot more than the $1,004 a week indicated in the survey, said Combs, president of the insurance brokerage Combs amp; Co. in New York City.

If youre earning $52,000 in Missouri, youre doing all right, but in New York City $52,000 puts you in a support role, not a production role

Pay gaps generally are wider in traditionally high-paying occupations. Similar to those occupations, revenue generated by a financial advisor is contingent on commissions, bonuses and merit pay, and sometimes all three.

But with commission rates for financial advisors more or less equal, whether men or a women close the sale, the wage differential between the sexes in the financial advisor profession is still very high.

Karen Roberts, former WIFS president and financial advisor with Emerald Financial Group in Deerfield Beach, Fla., called the differential a ridiculous number considering that we all have the potential to make the same amount of money.

I wonder if the difference is that more women work in corporate and men are more independent and get higher payouts because men want to be entrepreneurial and women are scared, Roberts said.

If I sell a product, I get paid the same (as a man). But depending on who I work for, that changes the percentage payout.

Roberts also said the earnings gap could be due to women not working as much as men because of family obligations such as children or elderly parents. It also could be due to the fact that women still dont negotiate contracts for themselves as favorably as men do, which means women often settle for less.

Still, a nearly 40 percent difference between what women and men make is a big difference, no matter how commissions, bonuses and merit pay are calculated.

Women need to become better negotiators and pay attention to what they are making or not making, Roberts said.

Despite the horrible gender gap numbers, Roberts said the financial advisory profession remains as good a match as any for women because the profession ultimately rewards hard work, yet allows for the flexibility that many women look for in life.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email#160;protected].

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