Tag: bailouts

Bank of America isn’t going to get out of trouble by making trouble for its customers

bofaYou would think that a bank that has received tens of billions in taxpayer funds to avoid death would learn from their mistakes. Not Bank of America. Like the rest, they are not only suffering from the housing debacle, but they’ve now got the issue of revolving credit defaults sucking life out of them. Their solution? Raise rates, and obscure credit terms as much as possible.

I received some of those ‘balance transfer’ check thingies the other day. I have a credit line at B of A, but I barely use it. It’s kept primarily to cover the medical deductible after I break a leg fly fishing. I don’t have balances on any other cards because those other cards are American Express – you pay that off monthly or you don’t get to use it anymore. I can’t use these checks, and in fact I’ve requested that they don’t send them to me at all. Those requests have not been honored.

Nonetheless, what bothers me about these balance transfer devices isn’t that someone could nab them from my mailbox and transfer their balance to me (the reason I don’t want to receive them to begin with), it’s the terms within. They suck. The form they come attached to is labeled with “Promotional Offer 0.99%” in big bold letters, but as everyone probably knows by now it’s the fine print you have to worry about. Unfortunately, B of A screws that up as well. The bank spits out the standard jargon regarding balance transfers…

* Promotional Offer ID FXNH-ZKJDR: The Annual Percentage Rate (APR) for this offer is a promotional corresponding ANNUAL PERCENTAGE RATE of 0.99% (.002712% Daily Periodic Rate (“DPR”)) and applies only to new Balance Transfers, Direct Deposit Cash Advances and Check Cash Advances bearing this Offer ID (each an “eligible transaction” for this offer)…

It goes on to say that if you are late paying, or if your balance exceeds your credit line, that the offer ends immediately and an APR of 9.9% kicks in immediately. Pretty typical. But then, after all the normal legalese is spewed, the terms stop, a line is printed across the page to separate the next set of paragraphs, which continue as follows…

Non-promotional Check Cash Advances and non-promotional Direct Deposit Cash Advances are subject to the variable APR for Cash Advances, which as of March 31, 2009, this APR is 19.99% (.054767% DPR). In addition, we may increase the APRs on your account up to the Default Rate without giving you notice. As of March 31, 2009, the variable Default Rate is 27.24%.

The average person without a law degree immediately assumes that ‘non-promotional’ label means the following terms don’t apply to the ‘check’ they are about to write to themselves. Then they sneak this in…

The standard transaction fee for Check Cash Advances, Balance Transfers and Direct Deposit Cash Advances is 3% of each transaction, Min. $10. Effective as of June 1, 2009, the standard transaction fee will be 4% of each transaction, Min. $10.

So it’s really not a 0.99% APR – it’s a little over 4% (or 5%, depending on when you write your ‘check’) after tacking on the upfront fee and compounding it.

Again, all this comes from a bank that has taken tens of billions of taxpayer funds to stay afloat, and is going to need billions more to stay that way. But I guess when you have the government perpetually covering your behind it doesn’t matter if your revolving credit portfolio falls further in the tank. We can’t subsidize the banks forever, but B of A clearly has other ideas.

And by the way…

We will allocate your payments to balances (including new transactions) with lower Annual Percentage Rates (APRs) before balances with higher APRs.

That’ll be trouble for B of A soon too.

MG signing off (to shred those ‘checks’)

News you probably can’t use – 4/30/09

    Technology

  • Apple to introduce more affordable Macs – it’s always those pesky ‘sources’ you have to wonder about. Unless Apple drops their prices by 50% or more (and without handicapping existing systems), I don’t think they are going to make any significant market share gains in this economic environment.
  • Another phishing scam hit Facebook – I’d like to worry about the phishing issue, but I’m not on Facebook. No…I’m more worried about the catfish noodlers depicted in the news encroaching on my territory.
  • Twitter’s reach is limited – It’s part of the meme that Twitter can’t keep users on board. Part of this may result from Twitter syntax (i.e. direct message versus replies versus retweets) being a little tough to grasp, or it may just be that Oprah hasn’t started pumping the service full of feel-good self-helpedness yet.
  • Finance

  • Comcast is cranking up the cash flow – And I’ll tell you how. My Comcast internet is down today, and when I called tech support they offered to send support out. Great…except they also said it’ll cost me $27, unless I want to pay money for ‘service assurance.’ So I’m supposed to a monthly rate for broadband, and pay extra to keep the service up? The moment I mentioned pro-rating my bill for all the time service is down, the tone changed.
  • Chrysler is headed for bankruptcy – Last minute negotiations with creditors don’t pan out, but thankfully the government sweetener (i.e. more taxpayer dollars) doesn’t pan out either.
  • Continuing US jobless claims at fresh record high – The meme tossed around here is that things are turning around because new claims for unemployment have slowed. Can’t go into the numerous factors that may have caused that, because I hardly trust the government estimates to begin with. What I can say is that the powers that be have a lot of motivation to convince you to spend, even if it does mean stretching the truth.
  • Fly Fishing

  • California Legislator Wants Striped Bass Eradicated – The striped bass are always in trouble, particular on the East Coast. But hearing that a Californian doesn’t give a damn about protecting wildlife is just too much.
  • If you teach a man to bonefish – Well he might still go a little hungry (I’m not sure how tasty bonefish are but I have heard they’re edible). But he will have a hell of a lot of fun.
  • What…three tidbits on technology and finance, and only two on fly fishing? Yep, I think you’ve had enough this month already.

MG signing off (to find some news you can actually use)

A ponzi a day keeps the doctor away

The Madoff scandal put the phrase ‘ponzi scheme’ back on the tips of everyone’s tongues, and the concept of stealing/losing/burning gargantuan sums of money in everyone’s mind. Since that time we’ve seen…

  • A Florida-based money manager who travels in ‘elite’ circles disappear, leaving only a note and a Subaru – monies in the sum of an estimated $350 million vanished along with him;
  • A hedge fund manager jump out of a moving plane (that seconds before he was piloting) to avoid capture for possible theft of his clients’ money – he’s busted after ditching his second internal combustion powered machine, a bright red motorcycle;
  • And now a guy supposedly syndicating ‘bridge loans’ is busted for mail fraud – his name is Cosmo and his company is Agape World (which sounds more like a fruit stand you’d find off US-1 in Homestead).
  • Who cares about the fraud, the deceit, the disappearing millions billions trillions. If anyone was really concerned about that, all they’d have to do is check out the latest bailout plan. Or better yet, take a gander at their annual Social Security statement. I mean the [taxpayer] money given to banks, to keep them from falling face first into some supposed abyss, is being managed prudently as ever – they’re buying $50 million corporate jets with it.

    It’s all good. So sit back, relax, and enjoy the show.

    The day after ‘Brown Monday’

    After a chaotic weekend, Lehman filed for bankruptcy and Merrill sold itself to Bank of America. The Dow Jones Industrial Average plunged 504 points on the news (and roughly 20% of that loss occurred in the last hour or so of trading). It will forever be referred to here as “Brown Monday”. And the news is still coming.

    Today we find…

    Adieu.

    UPDATE: Almost forgot…folks are wondering whether Blackberry subscriptions will take a hit now that Wall Street has been bludgeoned. Maybe those Blackberry addicts will go back to loving their spouses?

    US Financial Sector Bailing Without Big Pail (UPDATED)

    No government assistance this weekend

    As Lehman Brothers, one of oldest names on Wall Street, appeared to unravel on Sunday, anxiety over the bank’s fate — and over what might happen next — gripped the nation’s financial industry. By late afternoon, Merrill Lynch, under mounting pressure, entered into talks to sell itself to Bank of America.

    While the New York Times waxed on about spoiled cocktail parties and canceled weekends in the Hamptons, Bloomberg noted that Lehman’s lawyers were prepping Chapter 7 paperwork and the Wall Street Journal said the Merrill Lynch board was nearing a vote on a $29/share sale to Bank of America.

    After reviewing chatter around the web, I’ll say the consensus expectation is that Washington Mutual is a foregone conclusion, and that Wachovia and AIG are not far behind.

    I guess the powers that be in the United Socialist State Republic of America figured they’ve already bitten off a century’s worth of meals with Fannie and Freddie.

    UPDATE: The Fed has been clocking some overtime – according to their now regular Sunday press release, they are “broadening” the Primary Dealer Credit Facility and the Term Securities Lending Facility (i.e. the emergency conduits for the printing of money in return for collateral of declining value). In particular…

    The collateral eligible to be pledged at the Primary Dealer Credit Facility (PDCF) has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks. Previously, PDCF collateral had been limited to investment-grade debt securities.

    Unless I am completely off base, this means that the PDCF will now accept equity securities in return for short-term loans. The tri-party repo system is run primarily by Bank of New York and JP Morgan Chase – this is the kind of move that would reflect either 1) declining confidence in their ability to continue clearing the transactions or 2) something done with their prodding in order to reduce their own counterparty risk.

    Big stuff.

    UPDATE 2: Lehman files Chapter 11.

    Are U.S. banks too big to fail, or too big to save?

    Derivative headline for a derivative world.

    Was discussing the same idea with a colleague just this morning…

    And if another investment bank were to fall like Bear Stearns, there are no more J.P. Morgans to pick up the pieces. In addition, counting on foreign countries’ investment funds may be problematic, as many politicians balk at the fact that all but one sovereign wealth funds are from countries without a democratic system.

    For the better part of a year there’s been play with banking shorts. Now there seems to be a lot of money sitting on the sidelines, persistent chatter that the bottom has been reached, and yet continued resistance towards the upside. Uncertainty is the prevailing wind.

    The take over here is there are still a lot of writedowns left to go, and even more balance sheet games which will eventually exacerbate the situation. The Fed and the Treasury seem to have “blown their wads” too early. More obvious taxpayer funded/direct bailouts could create downright insurrection (or at least there are going to be a lot of pissed off renters rioting in the streets). The WSJ is correct in their assumption – there just aren’t many J.P. Morgans left to do the bailing. Then there is the offshore money. Politics aside, you have to wonder how much of it will be willing to chase financial assets of a dollar denominated nature – said assets may look cheap to them now, but may get a hell of a lot cheaper in the year to come too.

    At the very least I suspect it is going to be an interesting summer.