Elizabeth Warren is Awesome!

They were talking on the radio about the Wells Fargo CEO taking "responsibility" which, I thought, was odd, since, he still has the job, and all the money he's earned, and will continue to make lots of money and get a big bonus.  I'm not sure what kind of "responsibility" he is taking other than saying the words.  So Sen. Warren tore into him and I feel (somewhat) better about things.

I Hope This Conclusion is Right

This is a great tear-down of Timmy's play time at the Fed and Treasury.  It ends rather optimistically and I really hope that is correct.  It does seem that Democrats are moving away from corruption (while the GOP is ready to hop in and scoop up the leavings).  Still, one Senator Elizabeth Warren does not a movement make. The Democratic party (and, frankly, the US) needs more of her.

Could Have Gone Further

Timmy's book is out and from what I gather it's rather self-serving.  They saved the banks but ignored everyone else, and the economy continues to suffer as a result.  They could have seriously written down/off mortgages and student loans, but they didn't, and so people (even those with good jobs) are more financially constrained than they could have been and so the economy isn't not-sucky.

Another Must Read

Really, just about everything Matt Taibbi writes, but this one is the latest.  Depressing, but stuff that everyone needs to know if we're to have any hope of stopping the next global financial meltdown.

USPS Banking - I Like It

This is a great idea (it actually sounds familiar, but not so much that I'll admit to having heard it before).  Also, while payday lenders and the like would be the biggest losers, and while [big] banks mostly don't seem to want small depositors, I am most curious to know what the effect would be on banks.  There's a lot of inertia in banking, but the USPS has some serious advantages over the big banks even for people not in banking deserts.

People who currently have banks, but only a couple thousand $ in savings, at most, are mostly being screwed over if that money is in a bank.  Switching to credit unions broadly makes sense, but not all credit unions are equal, and many people who won't switch offer as reason credit unions' (and small banks') shortage of locations/ATMs.  USPS clearly doesn't have that issue.

American "Justice"

For sale to the highest bidder.

Keep Treating the Symptom, Ignore the Cause

At least that's what we're doing with the recession.  It isn't entirely inaction.  Any time a bank has problems all the gubments trip over themselves to make sure the banks get lots of money.  When it's people who are having the problems they don't care.  Unfortunately so long as people side isn't fixed, the banks will just keep turning up more problems. 

Bankers Should Go to Jail

Not all of them, certainly, but if you manage to arrest the CEO or board members of just one bank engaging in crap like this story I heard this morning, then I'll bet we would start to see a whole lot less of that type crap. Also, too, foreclosure fraud.

Seriously: just arrest a few of 'em and sentence them to 5 years--maybe start with Jaime Dimon? Not nearly enough of a penalty for the harm they have inflicted and are inflicting, but it would get the rest in line right quick. Either that or they would "go Galt" and we would still have a better society as a result.

Bad Settlement

From the "how does it affect me" files...

What should I do if I think I may qualify for a principal reduction or refinanced mortgage? Contact your lender/servicer and ask them to review your case.

So just ask [Wells Fargo} to review your case! And I'm sure they will be perfectly happy to help you and to get less money for themselves! Because banks aren't bad people!

I'm really not sure how it works that "depending on the banks that fucked everyone over to not continue fucking people over" constitutes a remotely sane idea. The banks must be laughing all the way to themselves.

Quick overview: if you're $50k underwater on your $175k mortgage but are up to date then you get a lower interest refi (iff the banks find you "worthy") but if you stopped paying a few months back, then you may get a $20k principal reduction, and if the bank illegally foreclosed on you--even if you were current and whether or not you were underwater...even had equity, even if you were in the last year of payments!--then you may get as much as $2k!

...So the people who got the best deal are those who are underwater and behind in payments, but haven't been foreclosed on yet? While those who had their houses stolen by the bank may get up to $2k, and those who are underwater but have managed to make ends meet get next to nothing? WTF?!?

Greece Should Default

Or at least threaten to. The part on this CNBC article where they say that Greek default would be worse than a deal for both the banks and Greece, is dubious at best and probably wrong. Greece defaulting would be bad, but it would be far better than a bad deal. For the banks (and for that matter the various countries that would have to bail them out as well), on the other hand, Greek default is a disaster, and even getting pennies on the euro is preferable (actually, there may be a higher threshold at which it doesn't matter, but that's impossible to know without knowing the banks' actual financial statuses).

The fact is that in the case of default, no matter how bad it may be for Greece, it would be worse for their creditors (banks, countries, citizens of those countries with money in those banks *cough* Germany *cough*). Austerity is destroying that country and its economy right now, so it's hard to imagine that default would actually be worse.

[Big] Banks...Still Evil

I hope that Occupy Wall Street is causing this change in bank behavior. But I would be much happier if this works:

...several companion movements, such as National Bank Transfer day...“revitalized a citizen’s movement to take money out of the large Wall Street banks and to put it into community banks or credit unions.”

People should drop Bank of America like the bad bet they are. Here are current BofA rates of return for money market accounts:
Ponder, for a second, that they have a bracket for people with $2.5 million stashed in a money market fund. Then ponder that the rates are, across the board, abysmal. Now look at my little, local credit union rates:
The $5 to open share account returns the best rate possible from BofA. Even better, the rates at the other credit union where I am a member:
I get a better rate of return on $30 than someone at BofA with $30 million. Why the hell would anyone keep their money in a big bank? Back in the day--the '30's?--you may have had more security, but the share accounts at (these and most) credit unions are FDIC insured so there is no more risk here than at BofA. Also, too, these credit unions didn't need bailing out so what risk is present is, if anything, lower.

The 99% Wants a Fair Country

It's remarkable how stupid the financial industry defenders are, but Matt Taibbi, once again, hammers on how remarkably unfair the beneficial treatment of Wall Street and bankers has been while normal people suffer for these financial "wizards" misguided, and likely criminal, actions.

5 Demands

Matt Taibbi has a great list of demands. The whole article can be found here but the demands are:

1. Break up the monopolies. The so-called "Too Big to Fail" financial companies – now sometimes called by the more accurate term "Systemically Dangerous Institutions" – are a direct threat to national security. They are above the law and above market consequence, making them more dangerous and unaccountable than a thousand mafias combined. There are about 20 such firms in America, and they need to be dismantled; a good start would be to repeal the Gramm-Leach-Bliley Act and mandate the separation of insurance companies, investment banks and commercial banks.

2. Pay for your own bailouts. A tax of 0.1 percent on all trades of stocks and bonds and a 0.01 percent tax on all trades of derivatives would generate enough revenue to pay us back for the bailouts, and still have plenty left over to fight the deficits the banks claim to be so worried about. It would also deter the endless chase for instant profits through computerized insider-trading schemes like High Frequency Trading, and force Wall Street to go back to the job it's supposed to be doing, i.e., making sober investments in job-creating businesses and watching them grow.

3. No public money for private lobbying. A company that receives a public bailout should not be allowed to use the taxpayer's own money to lobby against him. You can either suck on the public teat or influence the next presidential race, but you can't do both. Butt out for once and let the people choose the next president and Congress.

4. Tax hedge-fund gamblers. For starters, we need an immediate repeal of the preposterous and indefensible carried-interest tax break, which allows hedge-fund titans like Stevie Cohen and John Paulson to pay taxes of only 15 percent on their billions in gambling income, while ordinary Americans pay twice that for teaching kids and putting out fires. I defy any politician to stand up and defend that loophole during an election year.

5. Change the way bankers get paid. We need new laws preventing Wall Street executives from getting bonuses upfront for deals that might blow up in all of our faces later. It should be: You make a deal today, you get company stock you can redeem two or three years from now. That forces everyone to be invested in his own company's long-term health – no more Joe Cassanos pocketing multimillion-dollar bonuses for destroying the AIGs of the world.

I like all these.

Rogue Trading

Done right it would involve some of these:
Done the way it happened for UBS it really demonstrates the importance of getting something like Glass-Steagall back on the books.

Sarcasm From CNN Money???

Hard to believe but here it is. Bankers are back to being masters of the universe it seems in most places, so it's nice to see this article.

It also includes a link to this older winner back when it was still very acceptable to bash bankers. Very refreshing...until I realize that nothing will come of this. Banksters rule our petty little lives.

More on Banking

As much as I tend to hate on banks, I feel like I should occasionally say, "Banking is a necessity in our (indeed in any successful) economy."

We need banks and banking. What we do not need is a financial industry with so much clout and, one could argue, collusion that it becomes the massive GDP machine that it is. The large number of banks combined with the relatively do-little approach to earning money that they operate on should mean that profits are razor thin.

The basic principle is: take money from one person/group, lend it to another, charge interest on the loan, get profit in the form of interest. This is such an easy way to make money that the field should be packed...and it is! Now, I'll grant that figuring out how much to keep vs. lend out and the need to determine whether a borrower is worthy of credit are somewhat more complex, but by this point in time those calculations have been done over and over (not that they are spot on, see the financial crisis), and any new entrant banker can just take the safest approach to start.

The fact that there are many banking options out there and that banking is very profitable are at odds, and the resolution of these two things is that banks are evil...despite the fact that they are necessary and, in fact, good for the economy as a whole.

How to fix the mortgage mess?

If you are John Stumpf of Wells Fargo the answer is: well, never actually given, despite that being, you know, the title of the piece.

He talks around why you can't just hop back to the way things were done 30+ years ago, but that's it. He says government should do something. OK...like what? And that banks and homebuyers should all have more "skin in the game"...probably, but he won't actually say to what extent.

20% Down on a House?

I don't know whether or not home ownership should be part of the "American Dream" but there is quite a bit of talk about getting back to the 20% down model for home buying. I don't think it's as neat as it seems. First let's look at this in a market without securitization...

Buyer's putting at least 20% down have more "skin" in the game. That is: if the house purchase goes south they are out a good chunk of their own money, so they are less likely to make a bad buy or to stop payment if house values collapse. Of course, if banks were to do their job properly then those risks should be mitigated anyway. That is: the lender, having lots of skin in the game themselves, should be unlikely to lend to someone who won't be able to pay or to lend for the purchase of a house with an inflated value. The caveat is that if a house goes into foreclosure then the lender gets a better upside (up to the loan balance), and is, in theory, less likely to lose as much as the borrower. So the house purchase is a lower risk to banks...and gets lower still as the buyer makes a larger down payment. In this market banks like buyers with more money down.

When securitizing loans becomes the norm, however, things flip. Now banks make a loan then turn around and sell it off to others. Banks are middle-men (middle-people?) who effectively make money proportional to the size of the loan (and the interest rate). In this market, more money down means smaller loan values, and more money down requirement means fewer potential buyers. Moreover, it is even possible for banks to make extra profits off the foreclosure. In this market banks have very little interest in making sure that the house value is appropriate or that the buyer can afford the loan...they have next to zero downside risk (compared with above). The buyer in this market (which is what we have now) is better off putting as little as possible down, since any investment they put in is risked and banks are not well incentivized to make sure the house is worth the "assessed" value.

Changing the requirements for securitization nominally protects everyone. People putting down 20% are less likely to buy recklessly. Banks loaning to people putting down less, when they cannot securitize them, are more likely to do their due diligence. So securities become safer, house prices come down, and people get mortgages they can afford. Banks don't like this model, and I'm not sure I do either.

Banks don't like it because they will need to do more work and take on more risk for less money.

I'm not sure because, while I like a more stable housing market, and lower priced homes, and safer investment opportunities, I don't like the barrier for entry. Now things could work out well in that low/zero money down options will still be available through mostly huge banks, and at higher interest rates--the latter of which I have no problem with--and the house prices should eventually adjust to the new reality and all would be well. I worry that banks will, instead, pretty much stop lending to 0/low down buyers.

I'm not too worried about this crippling the market (it might, I just don't care), but I am very worried about it pushing the wealthy and everyone else further apart. The median home price is ~$200k. For an average person to save up $40,000 for a down payment (never minding other closing costs) is, to say the least, hard. It is proportionally harder still in "affordable" markets (i.e. markets where the rental rates are about the same as the mortgage+tax+ins payment on the same dwelling). In essence the easiest way to get that type of down payment is to already have a house you can sell that yields enough extra to cover it--getting into the market becomes hard.

A housing market that really benefits cash buyers is a bad market for most people.

Not a Great Article

Kind of as a follow-up, I was reading this article on how bank and interchange fees are levied against the poor and pay up to the rich. I kind of get it, but there are a couple things that make the argument fall apart.

1. Banks make money by having money. When a well off person has $10k in a checking account then the bank invests that (nominally by loaning it out, though more recently by gambling on Wall Street) earning a return and, possibly, paying a pittance to the account holder. A 5% return generates $500 for the bank on that account. If they pay 0.25% to the account holder (common) then they are out $25 of that and only make $475 on the account--enough to service the account, and still profit. When a lower income person who has an average of $25 in their account, then the investment return to the bank likely doesn't even cover the cost to service the account. Yes, overdraft fees more heavily impact people with less money, but in the balance it is people with lots of $ deposited that pay for people with little...not the other way around.

2. If you really believe that evil banks are robbing the poor to give to the rich then the argument isn't that everyone needs to pay for checking, but that people should get the hell out of the worst offending banks. Might I suggest credit unions?

Banks are for-profit institutions. They profit from wealthier people by investing that money. They can't do that for the poor so they profit from fees. Credit unions are similar, but with the important note: they do not profit! Therefore their fees can be lower, and their returns often higher.

Interchange Fees

I know I repeatedly post here about banks being evil. I don't have as strong an opinion on the interchange fees charged for use of credit/debit cards though.

In general it seems that the duopoly of Visa/MC is a problem, and that AmEx/Novus (Discover) aren't really angling to beat them, but to ride their dominance...maybe because they don't service banks that stamp their network logo onto cards. But a federal limit to how much they can charge has the potential to damage the business in an unfair manner...one that will lead to my credit/debit cards being less useful in the future.

Maybe I feel this way, because I see a lot of cash only places around me. They are notably cheaper than places that take credit/debit. Now, they don't get as much of my business because I am less likely to have cash than I once was, but when I do, and when I need to get [food] then I certainly appreciate the lower cost.

Honestly I wish that a credit union like group would figure out how to push into the market as a non-profit competitor to Visa/MC, which I think could have a real impact on competitiveness.