Bankers - America's New Thugs

It's true. The new wise guys in the neighborhood are the big banks. The thugs roughing us up, shaking us down, and stealing our hard-earned dollars (think fees, charges and soaring interest rates) are Wall Street Bankers. You know the names: Citi; JP Morgan Chase; Bank of America; Wells Fargo; and of course, Goldman Sachs. These are the guys who destroyed our gold-standard economy through wildly speculative investment instruments paired with aggressive marketing in an grossly under-regulated environment. The same ones. These arrogant, masters of the universe bet heavily against their own instruments and ultimately profited from our loss. That, after begging for and receiving the largest bailout in history. Our thanks for the material support we provided? Frozen credit, a refusal to loan, and, obscene bonuses. Uh-huh.

So it turns out this financial calamity was foreseen, predicted by presidents Thomas Jefferson and Abraham Lincoln. Just watch this blistering video and see what you think. Thanks, Air America, for the vid.


Technorati Tags: Banks, Finance, Economics

Credit Card Company Comeuppance

New Credit Card Laws - watch more funny videos

Technorati Tags: Credit, Banks, Finance

Bernanke Bet the Farm

Markets are still volatile, but a post rate-reduction rally buoyed investor's spirits and some recovery has resulted. Rather pressing questions remain. The sub-prime loan meltdown became a bigger problem when it began to involve a little-known segment of the insurance industry that provides protection for institutions against major loss. As mortgage losses mounted, so did claims and soon a couple of well-known insurance companies had significant loss problems. Suddenly, the problem had broken out from a single sector to involve the very core of the finance segment.

This resulted in a sort of institutional paranoia that threatened liquidity, as banks became wary of even lending to each other. Quite unheard of, that. Since economies in the developed world rely on the flow of currency; the constant, uninterrupted flow of money, the looming liquidity crisis was not tolerable. The down-side was just too great. So the Fed, in an extraordinary emergency intervention, lowered the rate by three-quarters of a percent, 75 basis points. First time that's happened in over 20 years. And it had an immediate effect. Whether it will be adequate to the task and thus promote lasting stability remains to be seen. And there's the rub.

Ben Bernanke has literally bet the farm. If this historic intervention fails, hyperinflation may follow and the Fed's basic tools to implement monetary policy will be viewed as broken and ineffective. And that, believe me, will be an entirely new world. Economists are already arguing about the decision. But for now, liquidity has been restored and the predicted rally ensued. All is well in Dodge. Ah, but how long will it last?

Point is: the fundamentals will determine the success or failure of this intervention, and forever color the tenure of this Fed Chair. I'm still parsing the entirety of it all, but several issues are clear. First, the depth of the crisis has yet to be accurately plumbed. We're just not sure how far these losses will extend, and just which companies and economies will be involved.

Now, we learn of a French, "rogue trader" at Societe Generale who, single-handed, amassed over $7 billion in losses. Read that story here. So we're also not sure where the crash will end. Will the credit card space collapse along with the mortgage loan sector? Will the losses suffered by cities, counties, pension funds, unions and non-profits with investment portfolios supercharge the collapse? Will our foreign bankers and underwriters cooperate with our efforts and collaborate on solutions, or will the rest of the world view this as an opportunity to eclipse our achievements and teach us a lesson? There are a lot of variables involved. How the chips fall will affect the outcome. Maybe it's time to consult the "long-wave" theorists and get out that old copy of Kondratieff from the bookshelf. Something tells me that John Maynard Keynes isn’t' going to cut it. If you've got an IRA or 401k plan, perhaps this is the time to increase your cash position and ratchet-back on all but recession-safe securities. If you're young, look into a good floor safe.

Second, the bi-partisan stimulus package is an exercise in feel-good politics that will have very little impact. What little impact it may have will also have to wait until May - arguably far too late to matter. In fact, the package will have the ironic effect of transferring more of our debt and our national assets off-shore. Sure, the pennies they throw my way will get spent, but the effort looks a lot like crumbs of cake for the peasants, and we all know what happened to Marie Antoinette.

Finally, it is striking that when faced with crisis, this administration hurries to bail-out the bankers, insurance companies and retailers in a big way - while throwing citizens a bone.

I've posted about the run-up to this crisis before: the looming recession in this post; blaming consumers for the sub-prime mortgage mess in this post; and, the prospect of our beloved country becomming a third-world nation in this article. I promise I'll get back to new music and the latest in technology very soon.

$$ & Banks Reeling - Recession Looms

I was sitting at lunch last Friday with a number of local bankers and lawyers. They were involved in an animated, half jocular, half serious conversation (as men are wont) about the country's current financial melt-down. Looking to place blame anywhere but in their own policies and practices, most were disparaging stupid consumers who succumbed to "have it all and have it now" messages and the many loan and credit solicitations they've been receiving almost non-stop for a over a decade. Uh huh, that's right. Blame us for your preditory business practices. Typical.

I've posted before about preditory business practices here, and here. The subject is not unfamiliar to me and Pop Impulse readers. It was only a matter of time before the proverbial feces hit the fan in these scenarios, and it has now. Big time. I was struck by a point-on article I recently read in the Asia Times. Doug Noland, who does a weekly financial round-up for the publication, offered some truely alarming predictions - based on some good data and analysis. Read the article here. So let's quickly review.

The sub-prime loan crisis, now well documented and widely understood, is just the tip of the iceberg. Because banks and loan originators got involved in a classic, greed-fueled feeding frenzy they started securitizing their loan portfolios and selling these collateralized debt obgliations to large investors including but not limited to pension funds, school district investment pools, hedge funds and money-market funds. And we sold these mortgage-backed securities worldwide. Now, these securities have gone from an AAA rating to JUNK. That's right, worthless junk. This predictable turn of events has created massive losses in the financial sector that are now spilling over to other sectors, threatening market liquidity itself. This has lead some key financial observers to worry about a system shock to world markets.

Just today, I read in my local daily paper that the auto industry is now threatened by a dramatically rising rate of delinquency and default on auto loans. Makes sense to me as unemployment rises and families struggle to meet higher adjustable rate mortages on their homes. But there's yet another tie-in. Turns out that Chrysler's new owner, Cerebrus (you know, the three-headed dog that guards the gates of hell) Capital Management is also an partner with GMAC in Recap, one of the nation's largest mortgate loan origination and service companies. We're all way too familiar with their subsidiary, DiTech. Could Chrysler be in danger from the sub-prime crisis? Could we all?

The world is watching as we melt-down. And it's not a pretty sight. Vocal critics of US policies like Venezuela's Chavez and Iran's Ahmadinejad have loudly questioned the US dollar's continuing relevance to the world economy. And China, which funds much of our debt, is also re-evaluating its large dollar reserves. Even our allies like the United Arab Emirates are contemplating pegging their currency to a basket of other currencies - rather than directly to our dollar as in the past. Look, I'm not being paranoid here. There's plenty of reason for concern. By this time next year, deep into the presidential election race, I have a sense that the issue will again be: The economy, stupid.

Predatory Business - When Capitalism Fails Consumers

I've posted about predatory business practices before, here. With the sub-prime loan scandal - and it is a scandal - in full swing, my concern seems to be justified - echoed by media and financial pundits across the globe. That's because in previous financial scandals and crises, there has been a single or very few institutions involved. Central bankers and regulators could deal with that kind of scenario. Even the fabled Savings & Loan meltdown decades ago involved a single category of institutions and was more easily addressed than the current economic imbroglio - which is reaching out and touching many. No, we're in for some serious grief behind this busted bubble. And it's all because business got way greedy, and herd mentality took over.

What's it really going to cost us all? We're just getting a sense of that now, and it is a staggering toll. Everybody needs to pay attention. There are, of course, the homeowners and speculators that will loose their properties and a hefty chunk of their worth. But there are many cities, counties and states that rely on property- and development-based tax revenues that will suffer. And when our governments suffer, ultimately we suffer even more as vital services are pared to the bone or eliminated completely. I should know. The county library system where I live in Jackson County, Oregon shut down entirely for six months before we were bailed out by a pittance from the federal government. Now the libraries are open half-time. Law enforcement and health and human services are also suffering. So the safety and health of our communities and families are at risk. Just when a host of superbugs is coming out of the closet.

The thing is: this kind of behavior is not limited to home loans. Credit card providers are spending billions on ads luring new customers with the promise of plastic wealth. Our regional university, in close-by Ashland, even uses credit cards to dispense student grants and loans. What are we going to do when that bubble bursts? Europe is grappling with the problem of the credit culture right now, read about it here. Then there are the "payday loan" or "quick loan against your vehicle title" outfits that can have clients paying up to 375% interest. That's right. We've understood that this is a bad practice for individuals, businesses and for societies since biblical times. Think about it.

In fact, most states have Usury laws, governing legal rates of interest. A quick search of interest rates legal in the 50 states reveals that the average American state has laws on the books making interest above 10 - 12 percent illegal. But of course, many consumers are paying much higher rates than that on a variety of credit cards and loans. That's because the federal government exempted the banks, commercial loan vendors and savings institutions. Uh huh.

Adding insult to injury, large drug companies have suspended research into many needed drugs - to focus on high-margin lines of pharmaceuticals that must be taken daily for life. With Methecillin-resistant Staph Aureus (MRSA) poised to move from hospitals and institutional settings to our communities at large, we can't get Big Pharma to develop any new antibiotics. There's just no real money in it. And then there are the drug recalls...new patent remedies that are released long before they are proven definitively to be safe. Can you say Celebrex? We've even put private physicians, our family doctors, on the market-model; and as a result they are becoming focused on higher profit procedures, treatments and specialties. The same is true for our community hospitals, even the non-profits. They can't afford not to compete. Competition focuses on the bottom line, not on comprehensive prevention, quality care and patient needs. Does anybody have the brains, vision and guts to say: The for-profit, market model doesn't work well for every situation. It is not a universal solution or panacea.

In the transportation sector, a little more competition might be in order. Predatory American airlines force customers to put up with delays, cancellations, gate changes and surly and uninformed staff when they travel. I can't think of another industry that I spend almost ten grand a year with that treats me that way. Well, maybe my health insurance provider. I'd sure like to see Singapore Airlines, Emirates, Quantas, Lufthansa or KLM serving more U.S. airports. Anything but United, please.

And lately, there have been a spate of companies charged with endangering consumer health and well-being due to lack of quality control and product assurance. Take large Agri-Business and the frightening recalls of tainted food - both fresh and processed - from grocery shelves in your neighborhood. Or toy companies apologizing and recalling millions of potentially harmful dolls, masks and other children’s' items. How about the recent pet-food contamination scandal? From my point of view, these all constitute predatory business practices.

The shrill advocates of unbridled, unregulated capitalism and corporate globalization have a lot to answer for. As a small businessperson, I count on the market and fair competition for my own income. How radical could I be? I'm a Rotarian. But hey, the purists are wrong (again). We need a hybrid system that promotes the low-end of free enterprise and entrepreneurial development, and controls and regulates the means of production; our vital infrastructure system including transportation and communications; education, and the provision of health care. That's pretty close to the European model of "social democracy," and it works a hell of a lot better than the cut-and-run, exploitative capitalism of Reagan neo-liberalism, the current neo-cons and the Bush Administration. That approach, as recent history clearly demonstrates, is turning us into a third-world country in all but appearance. I'll be fleshing-out that assertion in a future post. So stay tuned for the occasional angry rant. Apologies to my readers who prefer posts on music, travel and pop culture.

Predatory Business Practices

Did you know that almost one-half of the profits made by banks and wireless cell-phone carriers come from fees and penalties? Surprised? I didn't think so. But a recent study by two Harvard Business School professors confirms our worst nightmare. It's not big brother that's out to get us, it's big business. And they are getting us, in case you haven't already noticed. Fleecing us good, robbing us blind. SFGate.com and San Francisco Chron columnist David Lazarus writes about the abuse here. Thank you David.

It wasn't long ago that the customer was king. Now, we're told (when we can get a real human to talk to us) to shut-up and consume. Buy now, and buy big. There's always plastic. You know the story, it goes something like this: "...and for everything else there's Mastercard." Or, "Visa...everywhere you want to be." The message is clear: don't hesitate, you can have it now. But make one late payment, on any card you may own, and you'll pay a steep price. Forever. These predatory business want to own your soul, and that of your spouse, children and living relatives. Just look at the recent sub-prime housing mortgage scandal if you need more proof than your monthly credit-card statement.

First, the banks float the idea that anybody can own a home. Anybody. Doesn't matter if your credit score is below 650 and you're barely scraping by. No, "buy now" was the message. You can always sell for a profit later. Now, the American dream has been lost for a huge number of well-meaning, working-class folks who trusted their banks. Hey, how many of *you* read every word in your home mortgage agreement and did all the math?

And cell-phone companies are habitual offenders. Like insects sucking the blood of their customers with fees, charges and penalties; they actually design their programs to confuse their customers and increase their profit potentials in the process according to the Harvard report. That's what I'm talking about: Predatory business practices that seek to dupe trusting customers with disingenuous products and services that are actually designed to rip us off. This kind of corporate behavior is now the rule, rather than the exception. And we tolerate it. We hold for hours; patiently negotiate online forms; and submit multiple inquiries, requests and volumes of documentation to no avail. Give me a break. This model, as the academics correctly note, is not going to win friends and create loyal customers in the long run. But we're talking a feeding fenzy here. I can find no evidence of any long-term planning at all, just a wild, greedy rush to profit in any way possible.

This is a long rant, but there are so many examples that beg attention. Large Pharma refusing to develop new antibiotics because they're concentrating on drugs that people need to take every day. It's a profit thing, after all. What an excellent argument for nationalized, single-payer health coverage. Airlines devaluing their frequent flier programs, overbooking to excess and then tolerating delay rates approaching 70 percent. And don't even get me started on the insurance industry. When you have to sue your provider to recover from a hurricane, you're not in good hands.

I think we need a good, old-fashioned consumer revolt sometime soon. Buy local, support only ethical businesses, and vote with your wallet or pocketbook. It's time to heat up the tar and start collecting feathers. No wonder Halliburton moved its corporate headquarters out of the country to Dubai. Angry consumers (like this one) are spoiling for a fight. We could use a sympathetic big brother to watch our backs. So let's make sure to elect one next time around.