Category: Money

This morning I decided to take a look at some bills that have been repeatedly introduced in Congress that have not gotten support primarily because of the continuing Bush/Neocon economic agenda. One of these is House Resolution 946, The Consumer Overdraft Fair Practices Act, introduced a couple of times by Rep. Carolyn Maloney of New York. It’s essentially stalled for now, referred to the subcommittee on Financial Institutions and Consumer Credit, a subcommittee far more tainted by the evils of the bank lobby than any in government history. I’m not holding my breath for anything fast.

While researching this bills status I noticed many posts on the Internet that indicate most Americans are not aware of the breadth of this problem. Most topics and discussions around excessive overdraft fees go something like this “I hate Bank of America” or “Screw Wachovia”. Followed by rantings of account holders about how their bank processes transactions from highest to lowest and creates excessive fees of $33 to $35 per transaction for the lowest cost transactions, usually a “cup of coffee”. Why it’s always a cup of coffee in these posts I do not understand.

Anyway, my point is that it needs to be recognized that these are industry standard practices, not bank specific. Many people make comments like “I’m firing them and switching banks”. Well that won’t do you much good. All banks follow the same practice of imposing fees as soon as they learn another banks lawyers have found them a loophole to create said fee. They also standardize on close to the same amount for these fees once the amount is established as acceptable by the industry. The common overdraft fee seems to be $35.00 today.

Most complaints are that this overdraft fee amount is excessive. That’s not really the problem I’m hoping legislators address in H.R. 946. While getting charged $35 for a $2.50 overdraft is in fact excessive and needs to be lowered, the real problem is that by willingly allowing customers to overdraft their accounts in the first place, through approving the transaction and then charging these excessive fees, the banks are, as a point of fact, loaning the money to cover the transactions and then charging the fees for the loan.  For now this is skirting existing lending laws, barely.

Add to this that banks do not have an opt out policy on “overdraft protection” and you have a forced lending scenario. Once it is agreed that this is a lending practice, not consumer “protection”, we can start looking at the other immoral practices the banks instituted such as ordering transactions from highest to lowest (to maximize the number of overdraft fees). Most banks cap the number of overdrawn transactions the fees can be applied to at five or seven per day. That could mean as much as $245 for overdrafts totaling as low as $10 to $15 dollars. That’s a lot of interest for this loan to cover the account holders unfunded expenditures for less than 2 weeks.

Just how do banks insure they are going to collect this money? By requiring direct deposit on the account to avoid checking account fees. You see, the banks are going to get theirs or they are going to get theirs. It’s a systematically formulated revenue scam against banking customers.

I blog on this exact issue and legislative bill frequently. By now most probably think its because I bounce transactions left and right. That’s not true and it matters to me that people know that. Not because I’m worried readers think I can’t manage my personal finances but because I feel the reason this issue doesn’t get more traction is because people who have well padded checking accounts don’t see the problem for what it is: essentially an industry tax levied on the working poor. It’s an attack by an industry on those who can least afford it.  Historically this is not where banks obtained the bulk of their revenue.  It was through investment dollars and commercial loans which have dried up.

Who thinks banks make money by loaning to the rich these days? Of course not. Those with substantial cash flow can afford to pay their bills on time, at low interest rates, generating very little revenue for banks. So the banks have to go after those who can’t afford to their products. Higher interest rates on credit cards, mortgage loans, check casing fees and overdraft “protection” fees are just some of the utilities they’ve formulated to achieve this. It is a hard truth that no one can afford to be poor in America. Those who are will pay a higher premium for everything.

This is why Paulson is fighting to eliminate the “credit freeze” that has the financial industry in turmoil. I’ve never doubted it’s existence but I firmly believe it is a well earned “freeze” and the banks should spend some time suffering losses through a lack of lending capability. What Paulson is trying to do is get banks to begin lending to higher risk borrowers again, like the middle class and working poor. That way they can resume increasing their revenue through higher interest rates and credit fees. Simply translated: The Federal government wants to pad the banks so that they can accept losses once they resume their attacks on those who can least afford to borrow.

Don’t doubt for a second that banks are still lending. If a company has the highest of D&B ratings or a consumer has a FICO above 740 they’ll lend. They simply don’t want to accept losses on defaulted loans anymore. They want to run the gamble of lending to high risk while avoiding any actual risk. If the loans succeed they win and if they fail they win.  I say let them burn.

Here’s how consumers can fight back against the banks and bring them to a realization that they must change their business model to offer products and services people want to buy or become reduced to an industry which the government cannot even help:

1. Never overdraw your checking account. As hard as this may be for some find the discipline to keep a separate register from the web banking sites, use cash, whatever it takes but don’t give them the satisfaction of the overdraft fees.
2. Don’t use consumer credit or consumer credit cards. Need a new washer and dryer? Find a way to pay cash, fix your old one, anything but that consumer line of credit at Lowes or Home Depot. At Christmas don’t spend above the cash you have on hand. Set aside some of your paychecks over the year and pay cash in December, not interest later. Find a way to become a cash and carry consumer. And the new 42″ flat panel can wait until you save the cash too. It’s really not that important.
3. Avoid bling. All that crap you think you need to put on a credit card so that you’ll look wonderful, guess what? Nobody gives a damn. Got a new iPhone you paid for on a Discover card? So what. You’re pretend rich.

Ever wonder how different the world would look if everyone wore cloths, drove cars, carried cell phones and lived in houses that displayed their actual income instead of their credit score? This is where we need to get for the US economy to survive. The banks hate this idea and they will use every lobby they can afford in Washington to stop it.

This is clearly an uphill battle because Americans judge one another based upon perceived material wealth and possessions. Any method Americans can use to fake their material wealth will be used to try to portray affluence where there is none. I hope that at least some will join me in the fight to put banks back in their place and stop their attacks on the working poor. The only way we will achieve this is far each of us to begin living within the means of our paychecks.  Not off the banks line of credit.

AIG sold credit default swaps they did not have the money to repay to all of those who purchased them.  A credit default swap is basically investment insurance that can be bought by any savvy investor who does not even need to own the underlying security or credit instrument it is insuring.  So for the buyer it’s betting that a certain loan instrument or security will default and the owner of the CDS will get a payout.  AIG sold them to almost any investor as they backed speculative hedge funds.  For AIG it’s gambling that mortgage backed securities would not fail and they would reap the rewards of credit default swap payments for years to come.

Then the foreclosure crisis emerged.   Bearers of credit default swaps came to AIG to collect their insurance (or spread) on the defaulted loan instruments.  Most of these collectors did not even have a stake or vested interest in the failed instrument they were collecting on because they were buying through specualtive hedge funds.  AIG went bust.  They can’t pay out on all of the default swaps.  Hell, they couldn’t even pay out the spread on securities deamed least likely to default.  Whoever will save failed AIG from their stupid mistake spurred by greed?

Enter Henry Paulson.  “Don’t worry”, he says “We’ll use the tax payers money”.  And summarily hands AIG over $130 billion dollars.  Ah the luxury of being a financial institution in America.  You can get so big through moral and financial negligence that when it comes time to pay up you can put a political crony in your pocket and use tax payer dollars for decades to come to keep your employees happy.

What a damned scam.  And the real problem is most Americans don’t understand one bit of this even as it’s spelled out in this post.  All they hear is their “trusted” politicians telling them they are working to make everything alright.  As far as I’m concerned Henry Paulson is the most corrupt human to ever walk the face of the earth.  He professes his concern for the economy while his only real objective is saving banks through hard times and wealthy investors.  The rest of us be damned.

Henry Paulson will be one of the greatest skid marks in the Bush administration legacy.  Possibly even greater than Iraq.  He is a man who cares nothing about creating jobs (oh yes Henry, please tell us more about how giving billions to banks helps create jobs) and feels the road to our economic salvation is for banks to start lending?  Is that really what we need Mr. Asshat?  More consumer debt?  I thought that’s exactly what got us hear in the first place.

WE DON”T NEED MORE CONSUMER DEBT.  We need an increase in wages and job creation, through realistic means, so that people can pay the debts they already have.  Until this fundamental fact is addressed this economy will struggle until death.  This is not a rainy day we’re heading into.  Through his continued misuse of tax payer dollars and the manipulation of Congress, Henry Paulson and his political cronies are driving us into a class 5 fire tornado full of dead cats and razor blades.  We’re all going down.  How well do you bounce?

Let’s recap on Americas recent conversations with Henry Paulson regarding the $700+ billion dollars we’ve given him.

(Transcript started September 22, 2008…)

America: Good morning Henry.

Paulson: The sky is falling.  Give me $700 billion dollars immediately or we won’t have an economy tomorrow.

America: Wait, what?

Paulson:  Yes, the end is near and unless you give me this money no questions asked it’s over for all of us.

America: This sounds serious.  What are you going to do with the money?

Paulson: Buy toxic debts from the banks to help stabilize the banks and keep people in their homes.

America: So you’re doing this for us, not your friends on Wall Street and bankers in Charlotte right?  You want to help all Americans?

Paulson: Yes.  No more questions.  Write the check.

America:  Alright Henry.  Do right with our money.

(Jump to 11/13/08…)

Paulson: You remember those toxic assets I was going to buy to help you and the banks?

America: Yes.

Paulson: Forget it.  I’m giving it all to the banks.

America: What?  Why?

Paulson: Because the situation has changed.

America: In what way?

Paulson: Quit asking questions.  The situation changed and I’m adapting.  That’s it.  And I’m not apologizing.

America: By changed you mean the toxic mortgages were bundled into securities too complex to sort out for government acquisition, as you were warned?

Paulson: No.  The situations changed.  What did I tell you about the questions?

America: So exactly what are you going to do with our money?

Paulson: Ah, another question.  I see you’re paying attention.  Like I said, I’m giving it to the banks.

America: Sorry but this is $700 billion we’re talking about.  We’re asking questions.  Why are you giving it to the banks?

Paulson: So they’ll start lending again.

America: But few of us have any money.  We Americans can’t afford to pay the debts we have.  Why would we want to borrow more money?

Paulson: Because it creates jobs.

America: So consumers borrowing money they can’t afford to repay creates jobs?

Paulson: Yes.  You and you’re incessant questions…

America: Well maybe bank jobs and collections jobs but what about other struggling industries?  Like auto?

Paulson: No.  Nothing for them.  They were mismanaged and need to regroup on their own or fail.

America: By mismanaged you mean like the bank officers who loaned money to people who couldn’t pay it back?  Or companies who over sold credit default swaps and could not meet obligations on even the lowest spreads?

Paulson: No.  Nothing like that.  Enough with your questions.  The Federal government is buying shares in these banks and that’s the end of it.  We don’t have to answer to you.  Haven’t I explained that?

America: Well, isn’t this like starting socialism?

Paulson: No, it’s supporting the free market.  Now go away, you’re starting to annoy me.

America: The land of the free, owned by the banks and their political cronies who are ruining the world in the name of wealthy shareholders everywhere.

This Bloomberg article uses the headline phrase a couple of times to detail the economic woes of General Motors. Here’s the deal: If they manufacture unattractive, over priced cars no one wants to buy then the company will fail regardless of another government bailout. The big question is: How is bailing out GM, using tax payer dollars, going to make people want to buy their unfordable autos in a time people are struggling and can’t assume a new car payment even if they qualify for an elusive loan? Simple, it won’t.

Enough with the bailouts. STOP THE MADNESS. No company is “too big to fail”.

On another note related to this article: Obama I like. Pelosi can burn. Don’t be surprised if they do not get along.

David Kelly, chief market strategist for JPMorgan Funds is proof positive that the guys in the best paying chairs at investment banks are out of touch. He was quoted this morning as saying “The market is in a manic phase…It’s like a kid throwing a tantrum. At some point you have to let them cry themselves out because there’s no reasoning with them. Eventually, the market will respond more to fundamentals.”

Uh, David, the market is responding to fundamentals. Low and stagnant wages, growing unemployment, the rising costs of goods and services. Does any of this sound familiar? David must be talking about the same “strong fundamentals” McCain was preaching about as late as September. His statement personifies the main problem our country faces finding a consensus agreement on fixing this economy. The rich want to fix the problems effecting their precious portfolios but fail to realize it won’t happen until the micro economy is repaired first. But creating jobs and wages is a more complicated problem than analyzing stock values so the mighty trust and hedge fund managers don’t want to go there. Furthermore, God forbid, it might cost money.

Wall Street pundits haven’t hit the point of not being able to afford Doctor’s visits or put gas in their $50K SUV’s. They are so far insulated from the financial crisis on Main Street that they turn their heads as if to keep from watching a bloated African kid eat dirt and swat flies. They stay in denial using Wedgwood china to create a happy place. Retail sales are going to be real bad around the holiday’s this year. People could start losing their very ability to take care of their families day to day. Meanwhile a segment of trust fund honchos will continue to sit around debating whether or not we’re in a recession. John McCain should be flat out embarrassed that he endorses this Save the Yacht Club through his campaign.

Understand this Senator McCain: Main Street is not concerned about making sure you and your rich friends continue to prosper. Your prosperity is not helping the MAJORITY of Americans who do not share in your wealth. Many struggle day to day and week to week. And this word “struggle” is not just feel good campaign jargon. For you to argue that it’s “wrong” to “spread the wealth” because so many wealthy Americans “worked hard” for all they’ve accumulated is bullshit sir. To this end I will challenge you to provide provide me one example of truly “hard work” your wife performed that is deserving of her wealth during her tenure on this planet. I will counter with an offering of a day labor job that would probably kill her. That’s right, I brought your Beer Heiress wife into it.

Nobody’s asking for a handout John. People are demanding fair pay for a fair days work. The “take it or leave it” offer of low wages for serious labor is no good for the working men and women of America. Like so many other wealthy Americans the trust funds your children will inherit are the benefit of your wife’s good fortune – not her hard work.

And now the US government is encouraging mergers between institutions that have been deemed “too large to fail”.  Once upon a time we relied on things known as antitrust laws to prevent this.  These were not only meant to make companies spur competition and diversity, keep them from growing so large that their failure would be detrimental to the economy as a whole but also keep them from gaining too much political power and influence. Just listen to the Republicans rant about the “average Joes”, who are nowhere near average with incomes above $250K per year, and you can understand where the current complacency regarding the aggregation and concentration of wealth comes from.

This excessive greed and sense of entitlement on the part of the wealthy in America is specifically what got us into our current economic crisis.  The argument from the wealthy is that anything less is “socialism”.  This is far from the truth.  For every law that has been passed in the name of consumer protection or to stop the aggregation of companies beyond a level considered tolerable to maintain a functional economy there has been an army of lawyers ready to find the loopholes in these laws so that powerhouse mergers can continue.  Large corporations like the idea of being able to buy the competition instead of actually competing against them with superior products and services.  It’s become the Corporate American standard.

And now the government has entered the business of negotiating and mandating these mergers through the Federal Reserve.  They are also funding non-financial companies deemed “too large to fail”, which did anyway.   This is not just a slippery slope.   It’s a triple diamond run covered in Crisco.  There’s a real problem on the horizon here.  In the case of a fine, fee or public protection issue from these institutions who do we think is going to protect the consumer?  Regardless of how damaging one of these institutions actions may be for many Americans the government will let them press ahead if it means a “return for the tax payer”, which sounds a lot like “return for the share holder”.  And we all know share holder returns trump everything when it comes to corporate policy.

I’d like to know exactly how spending the tax dollars of future generations to bail out companies, that may or may not result in a return, benefits the tax payer at all.  In the future it will help build more military equipment?  Will it help build more highways?  I got news:  Those things would be done anyway using the same pretend money that was used to bail out the institutions that were “too big to fail” in the first place.  Sucker.

And his continued attack was that Obama plans to “redistribute wealth” by raising taxes on those making more than $250,000 a year and lower them on those making less.  Good.  If you’re rich be weary because your wealth does not mean you should pay a lower percentage of your income in taxes than the rest of us.

And the ultimate hipocracy: Many, many McCain supporters are flat and fair tax supporters.  Yet they are on McCain’s bandwagon attacking this “redistribution of wealth”.  Do they have any idea at all that a fair tax would make those earning over $250K a year pay a lot more in taxes than either Obama or McCains current plans?  Chew on that.

I think that’s what made my decision.  Going down the list I see a lot less hipocracy in Obama’s statements than McCain’s.  And then of course there’s Caribou Barbie.

And do you know what’s sad for Senator McCain?  Even if everything he said in last night’s debate were accurate I still wouldn’t vote for him.  It’s not only the message, it’s the delivery.  The way a candidate delivers the message says a lot about the person.  John McCain comes across as cranky, arrogant, condescending and worst of all spiteful.  This is not the type of leader I want running our country.  And regardless of his delivery last night (or should I say intentional aggression) his message was still off.

McCain claims Obama’s trying to “spread around the wealth”.  Well that’s a hell of a lot better than the extreme concentration of wealth that’s gone on recently.   And I’d say a majority of this concentration of wealth has nothing to do with people’s “hard work that should be rewarded”.  That’s the fallacy.  McCain made a big deal about “Joe the plumber” who can’t buy his business under Obama’s tax plan.  Boo, hoo Joe.  Like many American’s I’m trying to find money to pay for my car right now.  Why do I give one rat’s ass that you can’t buy a business?  That’s your problem Joe.

McCain’s economic attack amounted to going after the fact that Obama doesn’t support trickle down or “piss on the people” economics.  Good for Obama.  The idea that giving rich people more “incentives” and “financial breaks” means they go out and create high paying jobs has been catagorically denounced by a mojority of economic scholars as a a fairy tale.  It doesn’t happen.  People sit on the money or spend it on exclusive, luxury goods for themselves.  This benefits no one but a small handful of exclusive retailers and manufacturers of European sports sedans.  Yay for them.  McCains economic plan = Save the Yachts.

Don’t even get me started with McCain’s health plan.  The only things he’s right about is the cost of health services is too high.  The idea of taxing employer sponsored health plans is a joke and this is the type of arm’s reach regulation small businesses should be worried about.  I am no fan of Corporatist America and that is exactly what McCain supports.  More power to corporations, indemnification and buyer beware.  Modern corporations are too large and legally defended for it to be them against consumers.  Like it or not corporations need outside regulation and oversight.  They cannot be allowed to police themselves. Their motivations are not in the consumers best interest.

Round three Obama as far as I’m concerned.  The more I listened to McCain, the less likely I was to vote for him.  His fate is sealed on my ballot.