Tag: banking

Banks are too big NOT to fail

It’s dinner party fodder, big banks and the too big to fail label they’ve procured. Stick around for a nightcap and you may get the dirt – big banks doing dumb things, and why, frankly, they deserve to fail.

Case in point

A friend tells me they recently applied for a loan, only to find out their credit score was not what they thought it was, instead really low. They pull their reports and find a Bank of America credit card they hold is the problem. They’ve had this card, along with other accounts at the same “institution”, for years, and rarely use it. They actually had a negative balance on the account a few months back too.

Bank of America didn’t like owing their customer money, so they transferred that credit into a savings account. The account holder eventually went to use this credit, but instead put a balance on the account…of roughly $25. They used online statements, and took care to keep track of all expenditures, so they didn’t think to check. The account went past due a few months, and the bank slaughtered their credit scores. This person will never do business with the bank again.

Bank of AmericaI had a B of A credit card, along with paperless statements, too. But I never carried the card – it was a credit line kept for special occasions – and I let the issue slide.

Here a fee, there a fee, everywhere a fee fee

Fast forward, I see B of A is about to start charging new fees for accounts, resetting their entire product line so to speak. The changes center on checking and such, with the goal to reduce face-to-face transactions (i.e. shut branches and teller services) down the road. Management points the finger at financial reforms, that, by the way, were pitched as a way to stop banks from ripping off their customers.

I once heard someone say “banks don’t want you to save…they are built to make it easier for you to spend.” A dearth of deposit slips in those checkbooks you pay for was the reasoning; still, they certainly loved handing out those credit lines, didn’t they?

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“I didn’t open my browser all weekend” Monday

Cycled and fished instead – not regretting it either

  • Sam Zell “bought a terrible business” – newspapers. I think Zell has it right when he says newspapers have to give customers what they want, not what some internal agenda prescribes. As a result, I admire the man, and hope he doesn’t wind up paying a terrible price.
  • Is Yahoo! manipulating bloggers? Doubtful – such action would create even more of a black purple eye. If anything, it’s more likely a renegade faction within. Then again, blog manipulation (i.e. shutting them down) seems to have found its way into the political process. Quelling discontent, or just one more way of saying blogs are really starting to matter?
  • Should Congress let home prices fall? You’ll get a resounding “yes” out of me – propping up asset classes, particularly right before elections, is a way for politicians to feign working for the better good. Unfortunately, situations generally wind up worse as a result, and history has a way of repeating itself. You’ve been hearing about government’s plans for saving the housing market going on a year now – nothing seems to be sticking, and maybe that is the best possible outcome.
  • And my prediction for the week…

  • Citadel Investment Group will soon make an offer to purchase the country of Iceland. Citadel bought multi-strategy fund Amaranth Advisors when it made bad bets on natural gas. It bought Sowood and portions of E*Trade after their sub-prime dice rolls. Now banking is melting down, and the volcanic island of Iceland is going with it. Why not?

UPDATE: Via Steven Pearlstein

Since last June, we’ve seen a fairly consistent pattern to the economic mood swings. Every three months or so, there’s a round of bad news about housing, followed by warnings of more bank write-offs and then a string of disappointing corporate earnings reports.

Let’s not forget the government announcements of salvation immediately thereafter. Me thinks Mr. Pearlstein is spot on, and you should read the whole thing.

Single (mixed) post for the week

Light on thought.

  • Check out today’s shocking level of discount window borrowing. Who wants to start a bank?
  • A crank Craigslist posting led to a run on an Oregon man’s possessions. Henry Blodget wonders who’s responsible (i.e. who should pay for the ransacking). I’m wondering when the copycats are going to arrive.
  • Luxury car sales are on the decline, and Ford is selling Jaguar and Land Rover as a result. Not too long ago luxury goods sales were being touted as a mainstay. What changed all of a sudden? Failing hedge funds?
  • New home sales fell to a 13-year low. You wouldn’t know it if all you were listening to was the National Association of Realtor’s counter-productive spin.

Commentary will remain light around here for the next few months…until the project I am working on has reached its next milestone or I catch a ten pound trout, whichever comes first.

China to Decide Agricultural Bank Restructure ‘Soon’

Western banks aren’t the only ones:

Agricultural Bank of China, saddled with $100 billion of bad loans, may receive regulatory approval for its restructuring plan “soon”, a sign the government is nearing completion of a decade-long industry cleanup.

A hundred billion in bad debts would sink many US financial institutions. But in China “restructuring” means the Industrial Bank and the Communications bank owe the Agricultural Bank the money, and the lender will just take more equity instead.

Companies CAN stop data thefts

I think the statement that “Companies Can’t Put A Stop To Data Thefts” is more than a bit misleading. They could, and likely can, but it isn’t in their economic best interests to do so. Leaving the hapless customer to deal with recovering their funds, and their identity, seems to be the modus operandi. “Here’s a free credit report” is the spokesperson’s statement of choice nowadays.

The data companies are entrusted with (with or without our permission) is extremely valuable – worth billions if not trillions. There should be more accountabillity.

As a free markets believer, I like competition that drives consumer costs down. But, the telco industry continues to sell broadband for ever cheaper prices (disregarding all the strings attached) while complaining they can’t recover bandwidth costs, and pointing fingers at content providers. Financial services players (and big data brokers) seem to take on the same line of thinking – create ever cheaper services for consumers, and if they are thwarted by hackers, garbage bin divers, or even their own stupidity, point the finger at someone else.

Something has to change, and I for one wouldn’t mind paying a little more for that change.
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Nine out of ten Americans need to think twice

And, possibly hire a financial advisor and/or just get off the “lazy American” kick. When 9 of 10 say they’d like their bank to monitor their online accounts for them, I say be extremely careful of what you wish for.

Bank regulators give spyware hints

The Federal Deposit Insurance Corporation is now warning banks to beware of spyware. Of course, Reuters just had to reach by comparing spyware data theft to the CardSystems data theft, which just keeps getting bigger.

Lets first set the record straight by saying that a data intermediary storing information in reckless disregard of its customers retention policies, and then having that data swiped, has absolutely nothing to do with spyware.

Yes – spyware can be a menace to banking transactions, and the warning is justified. But banks can do little to stem the tide when it is consumers that are downloading spyware-laden software. Having banks provide specific warnings directly to consumers (and maybe even give away some solid anti-spyware software to their online banking customers), would be a good logical next step.