Laws and Deregulation

 Much of the writings on this web site are based on the perception that you can create more wealth in your life by holding onto and controlling the cash that flows through your hands than by buying investment and savings vehicles and letting the money work by accumulation theory. Knowing some history of how financial institutions create wealth is, in my opinion, imperative to financial success. The basic foundation of knowledge needed is to understand why we have the complex exotic products in our financial world today. Are they in your best interest or are they in the best interest of the financial institutions?

Controlling the cash flow is how the financial institutions make money, and profit most when they are in complete control of the money, hence the four rules are they want all your money, more ongoing, keep it forever, and give back none. The purpose of the site is to help you gain control over more of the process by providing education and principals that are simple understand and maximize your control over your own financial life by sometimes acting like a bank.

My perception has been for some time that the financial institutions (Banks, Insurance Companies, Corporations, and individuals in various countries) control or work at controlling the finite supply of money in our society to their maximum benefit. It's like a big game and the winner is the one who controls more cash flow than the other players. An example of this is shown in the power point presentation. Showing, I believe the four main parts to the game board to be Commercial Banks, Investment Banks, Insurance Companies, and the S&Ls and Credit Unions (which are becoming banks daily).

As the story unfolds, we find ourselves in the late 60's and we're coming out of the industrial/manufacturing period of our society. The Club of Rome in 1960 predicted that we only had about 33 years of oil left and we needed a policy of conservation before we deplete the reserves. Gasoline in 1968 was 29.9/10 cents a gallon and oil was 1.29 cents a barrel. The computer chip was created in 1959 and nobody really knew what that would mean. And the information age of today still wasn't imagined. In 1969 OPEC was formed and they believed that by controlling the production of oil would make them very rich. Of course that idea came from the Railroad Commission of Texas who controlled the production of oil in the US. This was passed to the Arabs by a man named Peres from Argentina as a world oil broker and he did business with both parties. It is believed that OPEC controlls about 70 % of the world oil supply and today 40 % of all production. By 1972 oil had reached $13 dollars a barrel and Nixon was forced to remove us from the Gold Standard.

1970 and the first major change occurred when the Federal Reserve allowed banks for the first time to pay interest on checking accounts. Those first accounts were called NOW ACCOUNTS and SUPER NOW ACCOUNTS. Think of a table level and the bubble is the money in society. The money now moves towards the commercial banks. They said, "Just leave your money here and we'll pay you interest and give you free checking". It now appeared that the banks would control more of the pool of capital.

In 1974 the Insurance Companies reacted by creating what became known as the Flex Annuity. The Flex Annuity gave the consumer a place to save money in a tax deferred account. You could start and stop payments when you wanted to and you could withdraw the money out FIFO which is First In First Out and your interest is deferred so you pay no tax. The interest is deferred; it was like savings and tax deferral at the same time. Prior to this the Annuity was for retirement and the payment was rigid with a penalty for stopping the payments.

In 1977 the E. F. Hutton Investment banking firm created the Universal Life Insurance Policy and it rocked the insurance industry so much that they have steadily been in a mode of almost self-destruction. The first Universal Life Policies were great savings accounts that had very little life insurance death benefit and were viewed almost as a CD that was tax deferred with a tax-free death benefit. They had guarantees like CD's and were advertised as the new kind of Life Insurance, the unbundling of Whole Life Insurance. The public was led to believe that the insurance companies had been ripping them off by selling Whole Life Insurance.

By 1982 the government figured out what was going on and changed the laws regarding annuities and how they are taxed. The FIFO rule was changed to LIFO, which means your now taxed on any distribution as interest out first and therefore taxable. (Last In First Out means interest in Last therefore out first and taxable) The government also added a 10 percent early withdrawal penalty like an IRA has. If you take money out before age 59 ½ you pay tax and a 10 percent penalty on the gain. I remember when this product was advertised as the last great tax shelter. You could put in a sum of money withdrawal 10 percent a year and at ten years out you had received all your deposit with no tax and the interest stayed sheltered tax deferred. This tax law caused a big movement of money cash flow from the Insurance Companies.

In 1984 the DEFRA act was passed. Remember that great product called Universal Life Insurance? Now the government had the tax laws changed to include a definition of Life Insurance. This created the Premium test and Corridor test which, if not in tax compliance, could make your life insurance into a modified endowment policy and treated like an annuity for tax treatment of the cash value. The powerpoint presentation below will show the effect of this law as to how well the policy holds up in old age and how you may lose the benefits you were paying for.

In 1986 the tax code changed more than in any year since the 1920's. We went from a progressive tax that had 13 corporate rate levels and 15 personal levels and was known as bracket creep. That was when you got a raise at work and probably took home less money. The higher paid people had their attorneys find tax loopholes to hide income since they really didn't need more cash flow. Out of that was born the marketing of products for savings that now became outdated. Today I still find people making money decisions as if we had the old tax code. The "Summary of Federal Tax Legislation..." link below displays a tax history chart that shows that there was a 90 percent marginal rate from about 1946 until 1964.

I think you are starting to get the idea as to how this system may work. The products created in the marketplace are created for marketability and not necessarily for your best interest.

Powerpoint Slideshow:

To preview Power Point slide show click link. Slides will change when you click your mouse pointer on the screen.

DeregulationJan04.ppt

Tax History | Tax Information | Stealth Tax/Inflation