banks

January 13, 2013April 18, 2020

Aaron Swartz Case Highlights Our Unbalanced Scales Of Justice

I didn’t know who Aaron Swartz was before hearing about his death this weekend. I realized I had heard of him once his biography was reported when the story of his death spread across the Internet. It seems Swartz committed suicide and that action might have been the result of stress due to his upcoming trial for computer fraud and abuse. If convicted he was looking at least 35 to 50 years in federal prison. What crime did he commit with his computer? He “stole” information from behind a paywall that he believed should be free to the public since we paid for the creation of the information. While his death is tragic for his friends and family, his case shows how unbalanced our justice system can be.

January 8, 2010April 18, 2020

Move Your Money

The Huffington Post is publishing articles asking people to move their money from the big banks that are too big to fail to smaller community based banks and credit unions. In my experience it is a good idea and I have few personal stories about it.

My College Loan Story

When I was getting ready to attend college, I needed to get a loan to pay for it. My local bank at the time was a branch of a larger bank. So I go to my branch and talked to one of the reps about college loan options.

I had been a member of the bank for many years. In fact it was my first bank. My mom had setup a kiddie savings account for me when I was like 10 years old and I had always used it for cashing pay checks and other checks.

The bank representative was nice and suggested a Guaranteed Student Loan. It was a product where the bank loaned me the money, the government paid the interest until I graduated, and if I defaulted the government would repay the bank and put me on the hook with them.

I applied and a few weeks later got a letter turning me down. I went back the branch and talked to the same woman. She said because my credit was bad I would need to have the amount of the loan IN my account before they would approve it.

Imagine that. In order to get a $2,500 loan for college I had to have $2,500 in the bank. Wow!

I ended up finding a bank in a nearby town that lent me the money and I closed my account with my bank soon after.

Check cashing problems

In college had two incidents cashing checks from other people. I had an account with another large bank since they had the bank concession at my college. One day I get a check from my Mom for spending money. I go to the branch and see a teller. She tells me if I cash it I had to deposit the full the amount and it wouldn’t be available until the check cleared since I didn’t have enough money in my account to cover the check.

“But the check is from my Mom, see the same last name…” I said.

I ended up getting $10 cash and having to wait for the rest.

A similar tune happened when my roommate wanted me to cash an American Express money order for him since he didn’t have an account. Same thing. No deal because I didn’t have the amount in my account.

“But it is an American Express money order…” It wasn’t like it was Fred’s Money Order or something dodgy like that.

Check card problem

I was at a different bank and out of school and check cards started to come on big. I had been at the bank for 6 years with checking and a savings account and hardly any issues except for an occasional bounced check but at the time I had been bounce free for about two years. I applied for a check card and a week or so later got a letter back turning me down.

I went to the branch to find out why and was told that on some occasions the card system might be down and they would honor transactions as a form of credit. Since my credit score was bad they turned me down. Six years as a customer with a decent record meant nothing for a card that was tied directly to a checking account. In fact any funny business with the card would have more legal problems since check fraud is worse than problems with credit cards not to mention the bounce fees they could make.

I even went to the manager and he put in a special request and I was still turned down. I left that bank after that for a credit union.

Bounce fee pile on

It was at the credit union that I had a bad experience after bouncing an electronic transaction.

I misfigured my account balance and missed it by $1. I then had seven consecutive transactions hit and bounce before they closed my account. I owed over $200 in fees and I was so mad they let six bounces go through I refused to pay the fees. They put me on the naughty list and I was not able to open another bank account – not even a savings account – anywhere.

After some study I would have to wait 5 years for me to drop off and then I might be able to at least open a savings account. So for 4 and 1/2 years I used check cashing places for pay checks and asked other people to give me cash or money orders rather than personal checks if they gave me money.

About six months before I would drop off the naughty list the credit union renewed my ding which started the clock all over again. UGH!

I gave up and decided to pay the fees and be done with it.

The ironic thing was when I went to pay it they had no current record of it since it had been so long. They had to add my account back into the system with the negative balance deposit the fees then close it again. Luckily they didn’t charge me a bounce fee for that.

Today

I am at another credit union now and love it. They don’t give me any flack if an occasional overdraft happens. They ding me the fee but cover the check – had it happen only twice so far. They don’t keep trying to pay it so I get multiple dings.

I once had an unauthorized withdraw. Called them. They sent me a form by fax, I signed it and faxed it back and the withdraw was put back.

I had a large check to deposit and even though it was more than my account balance they let me have $100 cash immediately.

So I agree with the Huffington Post. If you can move your money to a community based bank or credit union.

Move Your Money

February 26, 2009April 18, 2020

Zombie Banks Need to be Nationalized

One of the items mentioned in President Obama’s address to Congress was about the continued mess in the financial sector. Billions have been given to various banks yet the credit market is still too tight to help ease the economic mess we are in. If credit isn’t flowing then businesses have no way to buy new inventory or equipment and some may not be able to make payroll. Economist Paul Krugman makes the case that these “zombie” banks need to taken over and I agree.

Krugman writes:

Let’s be concrete here. There’s a reasonable chance — not a certainty — that Citi and BofA, together, will lose hundreds of billions over the next few years. And their capital, the excess of their assets over their liabilities, isn’t remotely large enough to cover those potential losses.
Arguably, the only reason they haven’t already failed is that the government is acting as a backstop, implicitly guaranteeing their obligations. But they’re zombie banks, unable to supply the credit the economy needs.
To end their zombiehood the banks need more capital. But they can’t raise more capital from private investors. So the government has to supply the necessary funds.
But here’s the thing: the funds needed to bring these banks fully back to life would greatly exceed what they’re currently worth.
Banking on the Brink

What has been happening is the previous administration as well as Obama’s have done everything short of taking over the essentially failed banks. What I don’t understand is the aversion to do it since it happens all the time.

During the Great Depression and earlier it was common to have bank panics. There would be some incident or economic downturn which then led to a “run” on banks – where depositors lose confidence in a bank and remove their money. If too many people did this the bank would close and go out of business. Generally banks didn’t keep enough cash on hand to pay out all the deposits so unless you got your money out early you would lose any money still at the bank.

In 1933, 4,004 banks closed putting thousands of people in a world of hurt. One of the ways bank runs were minimized and are rare today was the creation of the Federal Deposit Insurance Corporation (FDIC). It provides insurance for up to $250,000 of a person’s deposit at a member bank. In return FDIC has oversight on the bank. If the health of a bank reaches a certain point, FDIC moves in, removes the management, cleans up the books, and runs the bank for a short time before it either liquidates it slowly or sells the assets to private investors.

In 2008, 30 banks have been taken over in this way by FDIC.

It is clear that the recent bail outs provided to the various banks haven’t freed up the credit market and in some cases the banks have continued on as if nothing is wrong – like spending on lavish parties or using tax payer money to give out bonuses. The bad management needs to be removed and the banks made over.

I know some are saying “But Doug, you support a bail out of the auto industry. Why can’t we let those fail too?”

The simple fact is there is a program to allow a bank to be cleaned up and continue under new ownership. If an auto maker was allowed to fail, more than likely it would be liquidated meaning it would be gone along with the thousands of jobs they had and the ones at the associated suppliers on down the line.

The solutions can’t be the same since the problems are completely different and the outcome of not doing anything are completely different.

January 22, 2009April 18, 2020

America’s newest douchebag: John Thain

Most Americans may not know who John Thain is but what he did to tax payers and the Bank of America should be criminal. He got the compensation committee of Merrill Lynch to pay out $3 to 4 billion in bonuses a month ahead of the scheduled time right before Bank Of America closed a deal to buy the company. Merrill Lynch was one of the financial companies that was close to failing before the bail out program was started in the fall. John Thain

The Financial Times reports today that in early December, Merrill, which months earlier had agreed to be bought — rescued, really — by Bank of America, decided to pay out $3-4 billions in bonuses.
The bonuses were handed out on an accelerated schedule — at least a month earlier than in previous years. And they ere agreed to just days before Bank of America, realizing how much in toxic assets Merrill had on its books, went to the federal government asking for more taxpayer money to help it digest Merrill — money that was eventually forthcoming.
One equity analyst told MarketWatch that the move, apparently initiated by then-Merrill CEO John Thain, was “simply outrageous and one of the more extreme examples of poor corporate governance we can think of.”
Merrill Paid Billions In Bonuses, As New Owner Sought More Bailout Dollars

Once again….. [*sigh*] Me Special