Tag: credit

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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Peter Schiff: Americans bought too much, with money they didn’t have

I don’t lend much credibility to information garnered from Comedy Central, but this one was good…

The Daily Show With Jon StewartMon – Thurs 11p / 10c
Peter Schiff
thedailyshow.com

I can’t say I agree with Mr. Schiff on hyper-inflation being right around the corner. I believe he is vastly underestimating how far Americans can and will go to reduce their standard of living. You need not concern yourself with how much credit is being poured into the system if there is no actual demand.

He’s certainly hit the bullseye on this though: stimulus, on credit, is having the opposite effect from what was intended. Look no further than the recent spike in oil prices to understand why. That alone could be the recovery’s undoing.

(h/t The Big Picture)

UPDATE: Arthur Laffer says get ready for inflation and higher interest rates. The latter isn’t going to do much for housing – driven by market expectation (i.e. the selling off of Treasuries we’ve seen as of late), it is leaving Bernanke & Co. in one hell of a quandary.

20% Of Valley Startups Can’t Get To Their Cash

I only shrug and nod compliantly when tech folks say the housing debacle, the credit crunch, the equity market gyrations, and other macroeconomic factors those very same tech folks proudly proclaim their ignorance of, does not effect them.

It does. And it will continue to do so.

Can swaps rescue subprime?

Solution? Or same speech, different day?

It’s a big market, and growing. Nevertheless, you have to be good at playing “Who’s Your Counterparty.”

Bailing out your neighbor

Alan Greenspan is now promoting a direct taxpayer-funded bailout of homeowners. Mr. Greenspan has been trying very hard to shift blame for the mortgage crisis, but this statement takes the cake. Begging for increased Fannie Mae, Freddie Mac, and FHA limits serves much the same purpose. It’s socializing losses.

Be forewarned – a direction is being drawn. A 600 FICO score and a pile of credit card debt is no problem – you are hereby authorized to sign any borrowing agreement you can get your hands on. You won’t need to return that widescreen TV that’s now a part of your HELOC. That leased car you’ve already missed two payments on? It’s yours – just keep it.

It’s not a liquidity issue, or one of solvency. It’s a government problem.

A solution for your debt overindulgence is close at hand – you’re neighbor will soon be bailing you out.

UPDATE: More support for subsidies, at the high end of the market. The high end hasn’t started getting whacked, yet.

UPDATE 2: Yet more on neighbors, including how some are being hurt by the questionable decisions of others.

UPDATE 3: And back to blaming the Fed.

The ugly, uglier, and ugliest in credit

Ugly – With financial services representing roughly a third of online ad spending, what happens to the Web 2.0 trend (so dependent on advertising revenue) if said cash flow disappears? It’s probably not going to be pretty.

Uglier – Investment banks are soon going to be pouncing on each other, trying to convince the markets as to which of them is the best shorting opportunity. I wonder if their in-house hedge funds will get in on the game.

Ugliest – Freddie Mac finally has its accounting errors behind it, but now it’s facing the reality of reserves for losses. Back up…maybe they still don’t have their act in gear – a $320 million reserve on roughly 3/4 of a trillion in loans is a drop in the bucket. Still, what a way to “limit your growth.”

Home prices, wages, and crap

Forbes just posted a graph showing the expanding gap between median home prices and median wages, based on data garnered from the National Association of Realtors and the Social Security Administration.

Now, a whizbang economist could probably enhance this analysis by commenting on the relative interest rates during the period (taken from Ibbotson), the rising mortgage and consumer credit levels (from the Federal Reserve), and even the balance of trade between the US and foreign countries (from the US Department of Commerce). He or she could go on and on about how the difference between the two elements means housing prices are primed for a severe downturn or we are headed for depression-era styled times. Others might expound upon the information as a sign that hard assets are the place to be, and the numbers reflect good times, particularly increasing wealth versus working hours.

I am no economist. I walk my dog around my neighborhood each morning and each evening. I see cars parked on the street in front of houses with large two car garages.

Based on my data I still thought the graph needed a little work:

garagecrap.gif

Humorous sign of the financial times

I didn’t get a chance to snap a pageview of the auction before it was taken down, but a person was attempting to flog their credit card debt on eBay. Despite the fact it wasn’t really their debt to sell, it gives you a pretty good idea of how seriously some folks take huge (in this case £22,000, or roughly $38,000) credit card debt.

I wouldn’t be surprised if the proud “owner” of this debt was driving a brand new Bimmer, living in a posh Thames view pad, and making only £50k. At least they are having a good time of it.

Credit Information Flow Should Be Regulated

Credit information services are just one more link in the chain, aggregating data in the name of X amount of efficiency, while sucking X + 1 of monetary value out. Who bears the burden of X + 1?
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My Data Feels Secure – Does Yours?

An interesting note was posted by Russell Beattie, entitled Mobile Security Thoughts. Getting some scoop on the Paris Hilton “My Phone Was Hacked Craze,” I think everyone will get the hint about mobile security after the read.

Unfortunately, CNN, in the tradition of mass media skewing the picture in a wide ranging attempt to scare the daylights out of everyone, posted their own version of how to protect yourself in: You and Paris Hilton can prevent identity theft. Sort of. – Feb. 22, 2005.

Sorry folks, but it isn’t going to work on its own.

While quoting some obscure security expert, CNN notes you should do things like shred your receipts before throwing them away. Hey, maybe we should stuff them in old mattresses until they fade!

The last check of my credit receipts showed a bunch of XXXX’s where the credit card number should be. And AMEX is happy to send me a new card every year, with a new account number, each time I “lose” it to kitchen scissors.

Yes, there are simpler (and some more complicated) ways you can protect your address book, your credit information, and your identity as a whole. And it doesn’t take a genius, as thieves are usually (I say USUALLY) pretty dumb to begin with.
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