Found this interesting article by David Paul:
Just imagine how angry the American public would be if they knew the whole story.
For months, we have listened to the whining from Wall Street. U.S. banks are having a record year, and they want to be paid a lot of money. Billions and billions of dollars.
Public indignation is deep. After all, over the past year, we have watched as hundreds of billions of dollars of public money has been poured into bank balance sheets. We have--we are assured--taken steps that were necessary to bring our financial system back from the brink. We may not have liked it, but we had no choice.
But now that we have stemmed the tide, now that the Great Panic of 2008 has abated, we have been forced to watch these same institutions moan about how bad they have it. Citigroup--the one that received $45 billion in taxpayer funds, plus a couple hundred billion extra in public underwriting of bad assets--wants to wipe the slate clean by paying the money back and calling it even. So they can pay themselves billions of dollars in bonuses.
Wells Fargo, the arriviste among the financial elite, is complaining about the competitive disadvantages that they face as a consequence of federal compensation constraints. Constraints that prevent them from paying themselves billions of dollars in bonuses.
Goldman Sachs--caught in a lie by a federal Inspector General who refuted Goldman's sanctimonious claim that even if the world had collapsed, they would have been fine--is trying to fend off accusations of unwarranted hubris and greed--which reached a pinnacle when they announced plans to pay themselves $21 billion in bonuses--by announcing that their senior partners will take their share of the billions in stock.
But what if the public understood the whole story? How is it that the banks are now having one of their most profitable years ever? Given that there is not much lending going on, and that the newly increased credit card fees have only just begun to flow into bank coffers, where is all that money coming from?
It is coming from proprietary trading. "Prop trading" is the kind of betting with the bank balance sheet that was made illegal for commercial banks back during the Great Depression, when the FDIC and deposit insurance was created. The price of having the federal government guarantee bank deposits was separating the lending and depositary functions of commercial banking from trading and risk activities of investment banking. Thus, in 1935, the commercial bank J.P. Morgan & Company was separated from the investment firm Morgan Stanley.
But this separation was undone in 1999 to facilitate the creation of the megabanks that we have today. However, the Financial Services Modernization Act of 1999 ended the separation of activities, FDIC deposit insurance remained in place. And this year, the elite of the financial world--JP, Citi, Wells, BofA, Goldman and Morgan Stanley--have finally emerged for what they are: Gigantic hedge funds backed up by the full faith and credit of the United States of America. Wall Street bankers making big bets with our money, content in the knowledge that if they win their bets, they will pocket the cash. And if they lose, we will all pick up the mess.
But it really does get better. So exactly how did they make all that money this year?
Well, the trade of the moment has been the U.S. dollar carry trade. A foreign currency carry trade is simple in concept. Borrow money where interest rates are low, and invest where interest rates are high. Or simply stated: Short the U.S. dollar. Buy the currency of a country where interest rates are higher. The beauty part is that by continually assuring the world that U.S. interest rates will remain near zero for the foreseeable future, the Federal Reserve has assured traders that they can keep the trade in place for some time.
So the Wall Street elite, just months removed from their near-death experience, are now making a fortune shorting the U.S. dollar. One year ago, faced with the greatest financial panic in generations, the American people swallowed hard and bailed out the banks. Today, the banks have moved on, and are tearing down the currency of the nation that saved them.
But it is nothing personal. It is strictly business.
And the carry trade will work out fine. Until it doesn't. Then the trade will unwind quickly, and those who do not get out in time will get hurt badly.
But the banks are not worried. If the unwinding of what NYU economist Nouriel Roubini has labeled "the mother of all carry trades" takes a bank or two down with it, everything will be all right. Because the bank deposits are still insured, and we now know to an absolute certainty that if one of the elite institutions fails, we will bail it out. Again.
It is time that we come to grips with the depravity of the current situation, and potential damage that continuing down this path may yet do to the financial system and to our economy.
Our commercial banks are not, and should not be, hedge funds. U.S. dollar carry trades and writing credit default swaps are not core commercial banking functions. They are not necessary to the efficient functioning of our financial system.
The U.S. dollar carry trade is destructive to our currency, and is creating asset bubbles across the world, as leverage is transferred from our markets into others. For their part, credit default swaps serve no useful purpose in proportion to the systemic risks they create.
It is time to go back to basics. Commercial banks provide essential services in our economy. They enable the Fed to control the distribution and pricing of capital to the productive sectors of the economy. They provide secure depositary and asset management services.
Unfortunately, pending Congressional legislation has done nothing to address the central risks that the new financial landscape presents to our economy. Rather than reinstitute restrictions on bank activities or restrain institution size, Congress is looking to regulatory solutions that hold little promise of success when the next crisis emerges. And rather than recognizing the problem of moral hazard, this week Congress took the first step of embracing it in statute.
This year, Wall Street has shown its true colors, but the public has yet to understand the depth of the betrayal. It is not the continuing absence of lending, or jacking up credit card fees, or hiking consumer interest rates, or even the constant refrain of complaints about limitations on executive compensation. No, the greatest betrayal is that with the American economy as weak as it has been in years, with the dollar weakness threatening to unravel the international commitment to the role of the dollar as the reserve currency, Wall Street has shown no shame about attacking the currency of the nation that came to its aid.
If this is the path that the elite commercial banks have chosen, if they have been fully seduced by the lucre of trading, Congress needs to revisit the fundamental rules of the game, and revisit the central rationale for deposit insurance and the structure of the commercial banking system
By all media accounts the recession is over.................for the fat cats on Wall Street maybe. Check out this interesting quote from the Institute for Policy studies:
The top five executives at 10 financial institutions that took some of the biggest taxpayer bailouts have seen a combined increase in the value of their stock options of nearly $90 million, the report by the Washington-based Institute for Policy Studies said. "Not only are these executives not hurting very much from the crisis, but they might get big windfalls because of the surge in the value of some of their shares," said Sarah Anderson, lead author of the report, "America's Bailout Barons," the 16th in an annual series on executive excess. Hmmmmmm. Makes you wonder, where is your bailout? Do not reward bad behavior, support your local businesses
The top five executives at 10 financial institutions that took some of the biggest taxpayer bailouts have seen a combined increase in the value of their stock options of nearly $90 million, the report by the Washington-based Institute for Policy Studies said.
"Not only are these executives not hurting very much from the crisis, but they might get big windfalls because of the surge in the value of some of their shares," said Sarah Anderson, lead author of the report, "America's Bailout Barons," the 16th in an annual series on executive excess.
Hmmmmmm. Makes you wonder, where is your bailout?
Do not reward bad behavior, support your local businesses
Once again, the Banks are receiving the spoils while the taxpayer are bearing the burden for failure.
The FDIC, whose funds are already being stretched, are guaranteeing massive amounts of money to banks that are buying the failed assets of their once competitors. As banks are being shut down by the feds, the FDIC is enticing the purchase buy guaranteeing 80% against any loss by the buying entity. According to today's Wall Street Journal:
"The FDIC, assuming its traditional role, brokered a sale of the bank's deposits to BB&T Corp., ensuring that customers wouldn't see any interruption. It also agreed to help BB&T buy a $15 billion portfolio of Colonial's loans and other assets by agreeing to absorb more than 80% of future losses. Under the deal, the most BB&T can lose is $500 million, the bank says, and that is only in the unlikely event that the entire portfolio becomes worthless. The FDIC is on the hook to cover the rest." In other words, we the taxpayer are putting OUR tax dollars on the line.We get to have all the risk of a majority shareholder, yet receive none of the benefits.
"The FDIC, assuming its traditional role, brokered a sale of the bank's deposits to BB&T Corp., ensuring that customers wouldn't see any interruption. It also agreed to help BB&T buy a $15 billion portfolio of Colonial's loans and other assets by agreeing to absorb more than 80% of future losses. Under the deal, the most BB&T can lose is $500 million, the bank says, and that is only in the unlikely event that the entire portfolio becomes worthless. The FDIC is on the hook to cover the rest."
In other words, we the taxpayer are putting OUR tax dollars on the line.We get to have all the risk of a majority shareholder, yet receive none of the benefits.
Read the whole story here:
http://online.wsj.com/article/SB125166830374670517.html
To anyone who has had a home not appraise recently, the most likely reason is a hastily passed law that have mandated the use of appraisal management companies. This has resulted in higher costs & substandard appraisals. Originally designed to be a buffer between Banks & appraisal companies, it has actually turned out to be a profit center for the very banks that caused the issue in the first place!
Here is a call to action letter I received today:
HVCC Continues to devastate home values across the US. We fear that with higher Fannie and Freddie loan limits it will carry through to our former “jumbo” markets, leading the country even further into recession. As we’ve shared, Representatives Childers (D-MS) and Miller (R-CA) introduced legislation (H.R. 3044) requesting an 18 month moratorium on the Home Valuation Code of Conduct (HVCC). H.R. 3044 now has over 54 co-sponsors and now is the time to forward our petition to every person you know and every representative in the country. Read some of the comments in the petition and you will soon understand the harmful nature of this horribly misguided code.
ThinkBigWorkSmall applauds the introduction of H.R. 3044 and would like to thank Representative Childers (D-MS) and Representative Miller (R-CA) for their continued efforts and leadership on this issue but it is not enough. Tens of thousands of consumers have already been robbed of their opportunity to enjoy historically low rates by Attorney General Andrew Cuomo’s rule. HVCC needs to be permanently reversed in order to restore lower costs to the consumer and to protect the thousands of real estate transactions stalled by this horribly misguided code.
Please sign and forward the following petition and forward to everyone you know and ask them to forward to their representatives:
www.hvccpetition.com
Wow, it is great that some banks that received taxpayer money from the TARP (trouble asset relief program) have been granted permission to pay the funds back early. What good news.....OR is it??
To get TARP funds, the banks had to issue NEW stock to the US treasury.This new issuance in its own right caused many bank officers to profit under "stock dilution clauses" but that is another story for another day.
So when you hear that such & such bank has paid the TARP money back early, what has really happened is the bank REPURCHASED the stocks & warrants it had issued to get the funds in the first place.
But, have you checked out bank stock prices lately??? The Bank gets to pay TODAYS share price, not the price that the shares were issued at! Surprise! The taxpayer once again takes all the risk of a majority shareholder, yet receives none of the rewards. The Bank gets to shore up its bottom line, get rid of its troubled assets & pay us back with deflated stock prices.
According to a recent Time Magazine article:
Banks exiting the TARP program are also looking to buy back the warrants they issued to the government in order to receive TARP funds. David Hendler, an analyst at CreditSights, "Banks may have to spend substantial sums to pay back their TARP warrants," says Hendler. . What's more, if the banks buy back the warrants now, while bank stocks are still relatively low, it could be much cheaper than waiting to do it once the share prices have recovered."
Such a deal! for more on this issue , try the following links:
http://www.time.com/time/business/article/0,8599,1900049,00.html
http://www.businessweek.com/investing/wall_street_news_blog/archives/2009/06/big_banks_pay_b.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5XKm1xjWNfI
In times like these, we all need all the help we can get, but its seems like wall street keeps getting the bailouts while main street has to fend for itself.
What can you do? Support small business. As the BIG guys get money for free, the rest of us have to not only carry our own load, but we now foot the bill for this corporate welfare. You can make a difference, patronize your local small business.
Have you received the "your loan is eligible for a modification" e mail or direct mail piece yet? My Attorney sent one to me this week that looked like it was sent by Loanquick to him as a Loansquick customer. Of course the deceitful advertising did not originate from our office. It claimed for a mere $3000 he could save thousands by modifying his loan.
While he may indeed have been eligible to have his loan modified, he doesn't have to pay all that money to find out. You can do exactly what the so called loan mod expert does, contact your lender & wait the weeks for them to reply.
Most of these scam artists prey on the people who need the most help, those who are behind on their payments or are unable to refinance. So when you need that extra bit of money the most, they have you pay them thousands, when you can least afford to. DO NOT DO IT!
If you are losing your home to foreclosure, and you have exhausted your options speaking directly to the lender, then your only hope is to consult an attorney who specializes in bankruptcy or contact a consumer advocacy group
Do not fall for the loan modification scam. Loan mods are possible, but you need not pay some outside agent to get one done.
This post is for those who have Adjustable rate mortgage, either government backed or subprime, Regardless of your credit standing this program is cheap and effective way to make sure you are getting your moneys worth.
Go to www.armaudit.com for more info
Wholesale banks are still clogged with applications, so rates are still artificially high, hopefully now that the holidays are over ,turn times might get back to normal. My suggestion is to get you application & documents in now & wait for the rate you want.
Here is a great article in today's NYT that explains a piece of the credit crunch that most do not understand.
http://www.nytimes.com:80/2009/01/20/business/economy/20builders.html?emc=eta1
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