Tag: zombie bank

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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
 
 

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Bail Outs Revisited

In previous posts, I have supported bail outs for our banking system and auto makers because of the fried economy. I still think government intervention is a good emergency tool to use to prevent a complete collapse, but because of politics, the bail outs turned out to be a bad idea. It reminds me of a panhandler asking for a couple of bucks to “get something to eat” but you know he or she is just going to use to buy a 40 oz. At some point you have to say no.

I think the factors that play into a decision for government intervention should be based on the national interest. It’s like the old moral situation that if you knew something bad was going to happen and could prevent it, but it might lead to your death, would you still act?

There really is no debate that the economy is a foundation of a peaceable livable society. Look at all the countries that have poor economies – they tend to have bad political and social situations.

The banks need some infusion of cash to keep them open because it might have led to a domino effect – one fails then they take others with them. Part of that is confidence. The reason the Great Depression was so “great” was because of a lack of confidence and government intervention at the time helped restore some confidence.

The auto industry is a different interest based on the number of people employed not only making the cars but those who supply the makers and the subsidiary economy dependent on the industry. For 2 or more of those companies to fail would hurt big time. Probably as bad as the rust belt era of the 1970’s when dozens of steel makers and other heavy industries went bust putting millions out of work.

The problem I see is that once the money came in nobody seemed to work on changing or saving their business. AIG and the banks still paid their bonuses, had their lavish parties, and held on to the money for mergers. The auto makers just kept up their business as usual while Senators and Congress critters insisted that Unions take all the lumps.

So while I still think the bail outs were a good idea – I admit they didn’t work out like they were sold to us. But that’s what happens when you give away money without strings attached.

What should have happened was the large banks and AIG who were failing should have been broken up and those struggling with toxic assets should have had those assets taken off the books at their current value – why should the bank profit from their own bad decision. Bonuses should have been stopped as well as any spending not directly connected to doing their core business – like office redecoration, parties, or lobbying.

Then there would be a follow up with a review and changes, if needed, in government banking regulations to try and prevent this problem from happening again.

The auto makers should have presented a plan about how they will change their product mix and business model to reduce expenses while moving toward more energy efficient cars and trucks, as well as those that use alternative fuels. The goal is moving to a leaner business and one that will be able to compete and contribute to the move off our oil dependency.

It’s not any different than when a person asks for a business loan – you have to show a viable business plan – or you have investors who can kick you to the curb if you endanger their return on their investment through bad decisions.

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Tough Love for Auto Makers but not for the Banks

On Monday President Obama basically threw two of the three US auto makers under a bus when he announced that GM and Chrysler were at the end of their credit line from the US Treasury. It just seemed off to me that the Wall Street con-men who fried the economy, still got billions in bonuses, and whose CEOs hardly got shoved around, got better treatment than the auto makers. Maybe I am not understanding this “tough love” concept I keep hearing about.

I do understand that there needs to be a systematic change in how the auto makers operate as a condition for help but I also believe there needs to be the same kind of changes to the banking industry that actually got us into this mess – like a return to some form of The Glass-Steagall Act and reform in the bank regulatory agencies to enforce existing laws. Also the leadership of the banks that approved the actions that led to the bust should be removed and in some cases the bad banks and AIG need to be wind down and broken up.

Instead we get the removal of the GM CEO and calls for Unions to trash their contracts in an effort to reduce their wages to the same level as workers at foreign owned factories in the US. GM was given 60 days to change and Chrysler was given 30 days to merge with another company.

I just don’t see the fairness of the treatment and yes I know the businesses aren’t the same, but seems to me to be like the guy who held and fired the gun is getting a special deal while the guy driving the get away car is getting the death sentence.

I subscribe to the John Rawls concept of justice – “According to Rawls, ignorance of these details about oneself will lead to principles that are fair to all. If an individual does not know how he will end up in his own conceived society, he is likely not going to privilege any one class of people, but rather develop a scheme of justice that treats all fairly.”

As Eugene Robinson wrote in his column:

Both the credit crunch and the reluctance of consumers to spend what money they have left are the direct result of Wall Street’s atrocious misbehavior. Yet the administration’s plan for rescuing the banking sector involves generous inducements, big subsidies and the opportunity for wealthy investors to become much wealthier while assuming very little risk. There are reasons for structuring the bank bailout this way, and there are reasons to take a get-tough attitude with the auto companies. But the juxtaposition is galling — and, for many autoworkers, potentially devastating. 

Detroit Dissonance

So where is the fairness in treatment? Where is the justice? 

Maybe I’m missing something?

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Brit Hume has a hissy about his friends who stole all the money

Brit Hume was upset Sunday because President Obama plans to raise taxes on those who make more than $250,000 a year. Well, I would be upset too if my whole world view was trashed in the course of a couple years as my house of cards came crashing down. The problem for people like Hume is they have no idea they did anything wrong. I have only a few words to say about that….

And the idea that you’re going to be able to squeeze out of the rich, who will move their money around and invest in such a way to avoid it as much as they can, this much money in tax receipts is crazy. There’s only one way to get a big gusher of tax receipts out of the wealthy and everybody else and that is with an extraordinarily booming economy. And normally what happens is you get that when tax rates, which he proposes to allow to increase here go down. Not up.

Williams: Let me give you an alternative point of view. An alternative point of view is that 40% that you’re talking about, those people earn about half of all the money that’s earned in America. They’re blessed to be in this country and to have the opportunity and why shouldn’t they be responsible and pay their fair share of taxes?

Brit Hume Has a Snit Over Obama’s Tax Plan “Squeezing the Rich”

See it’s like this Brit:

YOUR FRIENDS STOLE ALL THE FUCKING MONEY AND IF NO ONE IS GOING TO JAIL THEN THEY OWE RESTITUTION.

GET OVER IT!

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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.

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