Posted by Ray on August 31, 2009 under Main | 
According to the New York Times the US taxpayer has profited from the bank bailouts, I am still waiting for my tax credit or dividend check, either is fine by me. However, I find this hard to believe since we really do not know the full extent of the bailouts given out by the Fed. Since we do not know the full extent of the bailout I think it is unrealistic to assume we made any money at all.
According to the article the taxpayer earned about $4B from the bailout, but CIT received some $2.2B which we are not likely to see any return of principal from at all. Not to mention that we do not know if any of the 84 bank failures received any Federal funds or not there is no way we can make the judgment that we made any money on anything. I am not saying that we definitely did not profit or will not profit, but I am saying that there are only a few instances that we know of that we can verify we made or lost anything.
Certainly we will suffer some losses on the AIG, Freddie and Fannie rescue which cost us hundreds of billions of dollars which would make a $4B gain seem truly insignificant. Not to mention that, supposedly, the Fed made some $12 trillion available to banks, but that money is completely unaccounted for. Based on just that evidence I find it extremely difficult to see what or where we stand and with the Fed blocking everyone’s view of who received what last fall we will likely never know exactly what we risked and what we own from these banks.
The article goes on to say that we should all breathe a sigh of relief that the government acted and no further catastrophe happened in the financial system. Of course, they must not remember the time between November and March where the S&P had a pretty steady decline to 666, ironic if I do say so myself. During that decline those who did not go out lost trillions on their investments and more than likely sold near the lows. If they did not then they are just about flat since that time frame. My point is that people did feel more pain as the banks received their bailouts and bonuses in most cases. I guess I just don’t feel as lucky as the expert’s claim I should.
The irony is that we are still owed some $6.2B from banks that have not paid their dividends yet to the government. It is unclear whether they were referring to the quarterly dividends or if the banks received a pass on interest payments because of their weakened state, I am betting on the latter. One must not forget that BoA and Citi are still deeply troubled, according to the Times, and we could still suffer substantial losses on those investments.
The complete irony to this whole situation is the fact that none of these institutions showed any sign of strength until the FASB curbed its mark-to-market rules. It is a very safe bet that if the mark-to-market rules were in effect we would still have tremendous problems with most of these banks, of course profits went through the roof upon the relaxing of these rules. The banks also survived the stress test which was nothing more than, in my opinion, propaganda as we are at the top end of the ‘rigorous’ parameters of that test as we speak. If things do get worse then it is safe to assume that the stress tests were, more or less, for show and confidence.
Considering the escalating rate of delinquencies across all types of credit lines these institutions are facing more trouble in the near future. If the FASB gets its way and banks have to mark loans-to-market then forget it as most banks would have to write down hundreds of billions more in bad loans. Because of that I do not think that the FASB will get its way, even though they should because it is honest accounting.
The bottom line seems to be that fancy accounting seemed to fix the problem, but that will not be the long-term solution. I am not rooting for bank failures, but I am rooting for full disclosure of bank assets, like SIV’s and other “off” balance sheet assets to be thrown into the mix. If you do not truly know what risk the bank has, on or off the balance sheet, then you cannot make an educated or informed decision. Without knowing exactly who and what the Fed did last year we have no idea if we are profitable or not on these bailouts, not that it matters because even though we put up the money we never get any of the return.
We simply cannot have the Fed printing and loaning out money to banks and not be told what is going on. This is our money that we are talking about and we deserve to know what exactly happened and who benefited. No one is talking about politicizing the Fed, but what we are asking for is transparency of what they are doing because at the end of the day we, the taxpayer, will either suffer from their mismanagement or benefit. Until we know what happened or who got what then there should not be any reports of a profit or loss because we just do not know. Government, under any circumstances, is not entitled to privacy, period.
Subscribe to Annuity IQ's Feed
LS Blogs
Sphere: Related Content
Posted by Ray on August 20, 2009 under Main |
The banking system has systematically taken advantage of the people whom they are supposed to serve. They either made very bad loans which have led to the foreclosures of many properties to charging excessive overdraft fees, which is my gripe. According to a report last month banks collected a record $38B in overdraft fees.
In full disclosure, I have had my fair share of overdraft fees this year and am admittedly against them. The banking system has changed to trap individuals through fees on their debit cards which explain the steep rise in fees collected as more Americans dump cash for plastic to access their money. A consumer cannot opt out of the ‘overdraft protection’ which is more like a license to steal from its depositors. I am not saying that people who overdraft their accounts not be punished somehow, but I am saying enough is enough with the current practice.
Here is how your bank maximizes their overdraft fees. Most banks run transactions from largest to smallest which maximize your costs if you bounce something versus running transactions from smallest to largest which would be much fairer. You may think, big deal, but it is to the tune of $38B a year in fee and no one can opt out of the ‘overdraft protection’ which technically is not overdraft.
Here is how it works, if you have $100 in your account and use your debit card to purchase $30, $10, and $75 your bank will debit largest to smallest which would cause the person to incur 2 overdraft charges at $35 a pop. So, in this case your account would be overdrawn $85 because they went largest to smallest.
However, if your bank has a conscience, haha, they will run transactions smallest to largest which mean you would incur, using the same example as above, 1 overdraft charge. So instead of your account being negative $85 you would be overdrawn by only $50. The bank clears all the transactions knowing that your account is overdrawn and you will incur fees, but they do it anyhow.
The banks claim that using the largest to smallest method of clearing transactions is more useful because a larger payment could be a mortgage payment in a foreclosure situation. That sounds all fine and dandy I mean hey they want people to stay in their house and the explanation sounds reasonable, right? Wrong. Remember, I said the bank will clear all the transactions, remember? That means regardless of how the transactions clear largest to smallest or visa versa all the transactions will clear.
Therefore, one must conclude that banks thought long and hard about how this system works, gaming the system in their favor. Worst of all this punishes people living paycheck to paycheck and the poor, 90% of all these fees come from the poorest bank customers, i.e. the least profitable until they use their debit card. Now, the least profitable customer becomes one of the most profitable customers which is why banks give away nice things to open up a free checking account.
Remember, I said people, me included, need to pay fees when we mess up, but banks can still collect fees doing it in a fair way to its customers. Not all banks do what I am talking about, but most banks do it which adds insult to injury as the banks take billions in federal aid and then charge the very people who bailed them out, through their taxes, and gouge them like this.
Ultimately, this system is unfair because of one reason, you and I cannot opt out of it. If we could opt out of it then I will let them have their nice and profitable system, but that is not the case. There is good news, Congress is trying to enact new regulations making this practice illegal if it there is not opt-out privilege. I suggest you contact your representatives in support of this measure, unless you hate poor people or like banks continuing to bilk billions out of all of us through admittedly unfair practices.
Subscribe to Annuity IQ's Feed
LS Blogs
Sphere: Related Content
Posted by Ray on July 10, 2009 under Main |
They aren’t, especially for the FDIC which handles failures on Friday nights. So far this year we have had 53 failures, and a small Wyoming bank failed tonight called the Bank of Wyoming, compared to only 25 banks last year. That is pretty surprising to many in America as the failure rate is up 110% in failures in 2009 and it is only July.
This is more embarrassing than anything else simply because we have thrown so much money at these banks and they are still failing. Most of the failing banks rely upon “hot money” which basically means they attract deposits through retail investment advisors through syndicated CD’s. This hot money pays more than typical CD’s and the broker or advisor also gets paid, depending on maturity it can be anywhere from $.50 – $5 per thousand or higher.
The hot money was then used to loan to construction loans or other higher returning loans because the money had such high carrying costs banks needed to take more risk to make this hot money growth plan work. As you already know real estate and the riskier loans basically all failed or had very high rates of failure. So, banks with high hot money flows are having a very bad time and are more likely to fail. I used to sell these products to investors and why not? They were FDIC insured and beat the banks rate by at least 50 bps or more.
There you have it, Fridays are fun for the FDIC, I guess, and failures are on the rise. Chances are we will see many more banks fail over the next 1-2 years. Like i said, this is more embarrassing than anything else, but still a problem to some extent.
Subscribe to Annuity IQ's Feed
LS Blogs
Sphere: Related Content
