GOOD NEWS ON
THE "WEALTH EFFECT"
The Fed Chairman, among others, continues to worry about the so-called "wealth effect" going on in our country. With good times and a good stock market over an extended period of time, people are feeling wealthier, therefore buying more and doing more things, and somehow the Fed and others are determined to regard that as bad. Well, like anything, nothing is all bad.
As example; the Foundation Center, a group that tracks foundation giving, says that last year foundations gave away an estimated 22.8 billion dollars to nonprofit organizations. It is a 17.2% increase over the previous year. According to the Foundation Center, the expanding economy, dramatic gains, the value of holdings of major foundations, and a record rise in the value of corporate foundations dominance propelled the growth in giving. Sara Engelhardt, president of the Foundation Center said "1999 was a watershed for corporate foundations. They have been building their assets for several years, and the impact of that trend is making itself felt in greatly increased giving."
By law, most foundations are required to donate at least 5% their assets each year. Much of the rise in foundation giving has resulted from the soaring value of their endowments. In 1998 the assets of all foundations were estimated to be about 385 billion dollars.
New foundations are also becoming a factor in the increasing tendency to make grants. The number of grant making foundations has more than doubled in the last two decades, so there is more money to go around, more institutions willing to give money to worthy efforts. The wealth effect is not only spreading, but doing good. One of the best examples might be the Bill and Melinda Gates Foundation. You know that name- Bill Gates? Remember? He runs that mean old company called Microsoft that the government is desperately trying to put out of business in one way or another. Well, the Gates Foundation has committed itself to providing 750 million dollars over five years to vaccinate children in developing countries. Additionally, the foundation is expected to give away about a billion dollars in grants this year. Maybe the government is right. Maybe that kind of viciousness has to be stamped out. Maybe Greenspan is right too. Maybe this Wealth Effect is just no good for our country. Then again . . .
Speaking of spreading the wealth, the House Banking Committee has finally approved legislation that will permit banks and thrifts to pay interest on business checking accounts. Although the depression era restrictions on paying interest on demand deposits no longer applied to most types of accounts, banks and thrifts are still prohibited from paying interest on bank checking accounts. Some large banks have figured out a way to dodge this restriction by setting up "sweep accounts," that move cash balances back and forth between checking accounts and interest bearing (?). However, that is expensive, and small business trade associations and some elements of the banking industry support the elimination of the prohibition on paying interest on business checking accounts. Curiously, the way the bill is written, the interest on business checking accounts can only be paid three years after the final passage of the bill. Why pass a bill and then make everybody wait three years to have it take effect? I am too humble to come up with an answer. Only the geniuses in Congress really know. In the meantime, to get around this foolishness, legislation will permit banks and thrifts to make up to 24 sweeps per month, which is effectively a daily sweep, until the prohibition is lifted in three years. Again, lifting it right now? Just too simple.
(Tom Butenhoff is a First Vice President with J. E.
Liss & Company in Milwaukee. The views are his and not necessarily
those of Liss Financial Services or the Job Connection/Hiring
Network.)