Banking's Deaf

In today's New York Times is an article about pre-paid debit cards, or cash cards. How this is the new way for banks and the financial industry to ding owners of these cards (and oh, surprise, surprise, surprise, most people who have these cards are unable to open accounts at banks and are usually poor!). Activation fees, monthly fees, fees for using ATMs, fees if they go over the amounts on their cards. Yikes!

The financial industry is deaf. They clearly can not hear that we are more than fed up. Or maybe the problem is we're not mad enough.

Stop the Madness

I swear if I hear the line "we need to give this compensation or bonus in order to keep good people," one more time I am going to keel over laughing. Are these the same Lords of Wall Street who drove us into what is now being called The Great Recession? Wow. I really think we need to keep these people in the same jobs, because, who knows, we may dig ourselves into even deeper holes!

And keep them from what? Apparently banks, you know, the places where you deposit money, they lend it, making you some interest and giving themselves a little profit, well banks also invest their own money. These bonuses and fat compensation packages are going to the traders, the folks who are making trades on Wall Street, investing dollars in all sorts of exotic financial instruments. Frankly, if they leave the banks and the Glass-Stengal Act which prohibited banks from trading, is re-instituted, we could solve many many problems.

But we all know that isn't going to happen. The huge compensations are also not going to be trimmed. This Administration and Congress lost their window of opportunity to change and reform America's financial institutions. Now we're getting lame credit card regulation, which gave the credit card companies a year running start to up interest rates, change late fees, and reduce credit limits. A consumer credit agency that will, what, monitor how these credit card companies are doing, and no further regulation on banks or Wall Street.

We had a chance to stop the madness. Now we're just getting business as usual. Except for this one case, where a judge is actually questioning the cozy relationship between Bank of America and the Securities and Exchange Commission. Count to ten and wait for someone to label him the new judge slime word: activist. I'd call him a hero.

After Madoff

The catharsis of Bernie Madoff's sentence was short lived. It didn't take long for the victims to swing into action, commenting on every news article about Ruth Madoff or their sons that they too should be put into prison. But really, what is going on here, according to Frank Rich's fabulous op-ed piece in the 5 July 2009 New York Times, is that we are hungering for something to be done to the wizards of Wall Street who keep gyrating the world's economy and particularly ours, through these boom and busts.

Yet, nothing happens. In fact, banks and financial institutions have increased their lobbying capacities in Washington, DC, watering down any possible legislation that may regulate their secretive and outlandish practices. Meanwhile, in anticipation of even the minor tweaking the Obama Administration has done to these institutions, banks are raising rates on credit cards, fees for accounts, and even the privilege to withdraw your own money. Think about that. You have to pay to get your money!

Henry Blodget, a former securities analyst on Wall Street, made millions during the last bubble induced by the financial industry, the dot.com era. His analysis caused stock brokers to recommend a feeding frenzy for small start ups, and when the dust settled and there was no "there there," Blodget was charged by the New York Attorney General for stock manipulation because he, among other stock analysts, didn't believe in the hype they were selling. He settled the civil case. However, the irony is, Henry Blodget is a talk-head analyst for NPR. NPR! Explaining how the financial industry is creating bubbles, again!

It seems we can not quite clean our closets. The next thing you know we'll have Enron executives on NPR giving us advice on how to speculate on commodities.

So it seems that as each day passes from the Obama inauguration, nothing happens to prevent these kinds of bubbles from happening again. Frank Rich is right, we would probably cheer for a John Dillinger these days, just as much as people did in the 1930s. Someone who had the guts to take it to the banks just as much as the banks and financial industry continue to take it to us.

Another article which demonstrates that nothing has changed is a fascinating account of how Goldman Sachs has been at the bottom of every bubble we have recently experienced. Yet the company and their executives (the roll call of former Goldman Sachs execuitves who have gone on into powerful government positions is breathtaking: Jon Corzine, Governor of New Jersey and former US Senator, Robert Rubin and Henry Paulson, Secretaries of Treasury...). Why would we regulate a cash cow for the powerful?

Ever get that sinking feeling that nothing will change? Remember, unemployment is rising, foreclosures are rising, your bank is charging you more for less....

Fear Itself

I thought this piece in today's New York Times was perfect. Obama is not Franklin Roosevelt. The President's financial overhaul proposals reek of compromise and caving in to the banking industry.

The barn door was shut months ago and the cows and horses are laughing all the way to the fields.

It seems the Obama Administration is fearing the worst thing for a "change" politician. Getting re-elected.

Trying to Close the Barn Door When the Cow Has Already Left

Well, it seems to me that the proposed legislation and subsequent regulation on the financial industry is like trying to close the barn door once the cow left. And it seems that the financial industry is winning this battle.

Tear 'Em Up

So the credit card industry, angry that Congress is even attempting to reign them in, just a tish, is reacting like a child.  The temper tantrum?  Going after every one who pays off their credit cards on time.  No more rewards, re-instituting annual fees, charging interest from the moment of purchase.

Tear 'em up.  The let them figure out how to make money.

Salaries and Bonuses? What?

Yesterday, the New York Times reported that banks and other financial institutions are returning to salary and bonus levels found in 2007.  Apparently, these institutions feel they are out of the financial mess they created!

Being blunt about this, this news is like hearing people on welfare get to set their own monthly payments.  While some of these financial institutions may be beginning to do well, they are certainly making profits only because of federal assistance whether it is Troubled Asset Relief Program money, the zero percent interest they are paying for borrowing money from the Federal Reserve or the reluctance by Congress to pass legislation which will restrict the usurious interest rates and lending practices established by banks.  Our financial institutions are the 21st Century version of welfare queens.

Apparently tomorrow there are going to be protests at Bank of America branches through out the country, asking for Ken Lewis's resignation.  We need more than that.  Congress has got to step up and enact legislation that regulates this industry and stand strong against their numerous lobbyists trying to quash the cram down revisions to the Bankruptcy laws.  Enough is enough.  

And what, just what are these salaries going for?

Again, the Economy

Yesterday, President Obama gave what was billed as a major economic speech.  He said, in my opinion, all the right things.  But the problems remain horrific.  While Wells-Fargo reported "record earnings," it is highly probable that those earnings were based on the accounting changes recently made so that the so-called toxic assets are not valued at fair market value.  And the unemployment rates continue to rise, causing hardship unknown to many in recent history.

Truly, this country must change in fundamental ways.  

Hopefully, policy makers are listening to what the President said.  And that they are asking what they can do, now, to continue making the changes necessary to guard against this financial shenanigans from happening again.

But on the ground, I don't think change is really happening.  Lenders are jacking up interest rates making enormous profits on the spreads.  They continue to foreclose, to  to negotiate mortgages that will ultimately fail, and to lobby against provisions in the bankruptcy code which will actually help homeowners and debtors in trouble.  Meanwhile, Wall Street complains that they have become the victim!

Layoffs continue.  Hallmark announced massive layoffs.  John Deere.  The list of American companies goes on and on.  

We need change.

We Don't Need No Stinking Regulation!

We just knew this would happen.  I'm not talking about President Obama's concerns over international regulations on financial institutions (although we'll get to that).  I am talking about something that usually makes normal people doze off: accounting rules.  Accounting rules, when it comes to corporations, are controlled by the Financial Accounting Standards Board (FASB).  For years, they had a rule called "mark-to-market" which means that assets on corporate ledger sheets had to be valued at what market, the least best market, would pay.  

Banks have been having fits over this rule recently, because it has meant that the so-called "toxic assets" were valued as, well, toxic.  Rather, banks wanted to value those assets at mark rather than market.  In other words, what they paid for those assets or what they think, in best case scenario, they could get in the market.  The old FASB rules were essentially realistic, but required banks, therefore, to beef up collateral for Federal regulatory requirements.  If an asset is only worth $100 and the federal regulators require $1000 of collateral, there was a $900 deficit that banks had to find in order to stay in business.  

Today, under enormous pressure from financial institutions and policy makers (read: politicians) who want magic dust spread over this economic and financial mess to make it go away, FASB changed the mark-to-market rules, allowing financial institutions to mark the assets with pie-in-the-sky values.  Voila, an insolvent bank suddenly becomes solvent.  It's like saying a debt you know you will never collect on suddenly looks valuable!  Overnight!  It's magic!  

And dangerous.  It's breathing life into dead bank walking.  But, I guess, those banks don't care because they know (speaking of moral hazard) that the taxpayers will continue to bail them out.  Why?  Because they are "too big to fail!"

Meanwhile, President Obama, at the Group of 20 (G-20) meeting in London, refuses to accede to German and French requests that global leaders begin to think of ways to internationalize regulation of financial institutions.  While President Obama certainly has justifiable concerns about sovereignty issues, it seems to be the failure to institute international regulations defies the "globalized" economy.  

These "too big to fail banks," and even AIG, are all international in scope.  Their tentacles reach into almost every country (isn't there a Citibank branch in Tibet doing sub-prime loans for a yurt?).  AIG's division that created the insurance on the mortgage backed securities (still following me, here?) was based in London.  And then there are the issues of the "off-shore" hedge funds and countries amenable to lax banking regulations which drive business away from prying eyes an into these havens, meanwhile, they fail and cause the same problems we have now.  

I think the Germans and French leaders have justifiable concerns which Americans should not dismiss because of our anathema to international regulation.  Surely there must be ways to address these concerns.

On the other hand, we're still not doing such a great job figuring out how to reign in the financial institutions on our own soil, so maybe we still need to focus on that for awhile.

Note:  Since I wrote this piece Thursday morning, the stock market went up to over 8,000 points before settling in just below that mark.  The reason?  Elation over the new mark-to-market rules.  No offense, but when Wall Street goes ga-ga over an accounting rule, you know it smells bad...right?