Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Move Your MoneyThis is from the Feb. 1st issue of The Nation; here's the link to the Move Your Money campaign, which Arianna Huffington and Rob Johnson of the Roosevelt Institute started. It sounds like a worthy campaign; if I had any savings I would move them (except I have never given the big banks my business, at least when I've been able to avoid it).Are you angry about Wall Street's reckless excesses? Are you disappointed with President Obama's limp approach to reform? You can change this, acting individually and collectively. Withdraw your deposit and savings accounts from the large banks that brought the system to ruin and were subsequently rescued with billions in government bailouts. Put your money instead in smaller, safer banks or credit unions closer to home--the thousands of community institutions that do not harvest their profits from greed and recklessness. "Move Your Money" is an electrifying slogan that's lighting up the Internet because it shows people how they can push back against the big dogs of banking. The concept is simple, but this is a big idea that could alter the timid direction of financial reform. This campaign is potentially more than a feel-good gesture. If coordinated with institutional reform efforts, it could lead to a broad rebellion against the financial system, with citizens reclaiming the power to act directly when politicians are too intimidated by moneyed interests to act in the public interest. Economist Jane D'Arista put it crisply: "We are not a nation of widows and orphans. We have quite a lot of money, and people control some of it. They might ask why they don't control more of it." The campaign was launched just before New Year's Eve by Arianna Huffington of the Huffington Post and Rob Johnson of the Roosevelt Institute. An influential bank-rating firm, Institutional Risk Analytics, donated a website window (moveyourmoney.info/find-a-bank), where citizens can find banks in their ZIP code that IRA certifies as safe and sound. In the first forty-eight hours more than 100,000 responded with inquiries. Within a week, people had searched for good banks in 16,631 ZIP codes--nearly 40 percent of the nation. The search tool is now getting 45,000 users a day. Naturally, the corporate media promptly assured readers that "ordinary Americans lack the power to hurt the big banks," as a Washington Post headline put it. Wrong. The cynics either do not understand banking or misunderstand the widespread public anger. Dennis Santiago, IRA's CEO and managing director, explained that banks compete fiercely for the "core deposits" provided by individual and small business accounts--this stable money is their preferred base for profitable lending. Take away core deposits, and bankers feel immediate balance-sheet stress. Expand the account base for community banks, and they gain greater stability and greater lending power. "Will moving your money have an effect?" Santiago asked. "And by effect, I don't mean making a momentary political statement. I mean making a structural difference to the country's financial system. The answer is yes." Structural change ought to be the primary goal of financial reform--breaking up the concentrated power held by mega-banks and creating a balanced system of smaller, more diverse lending institutions that thrive by serving local credit needs. Alas, the Obama administration and Congress are pursuing the opposite goal--rescuing the behemoths that failed and encouraging even greater financial concentration. This will lead to more reckless adventures, more "too big to fail" bailouts. "Move Your Money" is an important model for teaching people how to change a dysfunctional system. The same principle of taking control of your own money is at work in related reform movements. A campaign launched by faith-based community organizations associated with the Industrial Areas Foundation identifies sky-high interest rates on credit cards and other lending as the ancient sin of usury. IAF groups are asking churches, foundations and local governments to withdraw funds from the usurious banks that profit by destroying borrowers. Organized labor, likewise, has launched an aggressive movement to insist on responsible investing values for the pension-fund wealth of working people, urging state treasurers and fund managers to invest for society's interests as well as good returns. Changing the nature of finance capitalism is a long road, to be sure, and the industry will resist change every step of the way. But the fight begins in earnest when people decide to move their money. Labels: Arianna Huffington, Bank of America, banking industry, banking system, Move Your Money, Too Big to Fail Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nonperforming Loans To Assets Above ThresholdFrom BloombergToxic Loans Topping 5% May Push 150 Banks to Point of No Return By Ari Levy Aug. 14 (Bloomberg) More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank's equity and threaten its survival. The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full. The biggest banks with nonperforming loans of at least 5 percent include Wisconsin's Marshall & Ilsley Corp. and Georgia's Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan's Flagstar Bancorp. All said in second-quarter filings they're "well-capitalized" by regulatory standards, which means they're considered financially sound. "At a 3 percent level, I'd be concerned that there's some underlying issue, and if they're at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition," said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn't commenting on any specific banks. Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of "problem banks," which stood at 305 in the first quarter. Read the rest of the article Read the rest of the article Labels: bailout, banking industry, financial crisis, nonperforming loans, toxic assets Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Looming Disaster of Credit Card DebtFrom The Financial Times:How the cards are cut By Patrick Jenkins,Francesco Guerrera and Saskia Scholtes Financial Times Published: July 27 2009 03:00 | Last updated: July 27 2009 03:00 Mick Longfellow is teetering on the edge of financial chaos. A dedicated teacher married to an equally hard-working nurse, living in a modest house in Newcastle in the north-east of England, the pair spent the past decade treating themselves to gadgets, gizmos and home upgrades. They put in new windows. They bought the biggest television and sound system their living room could accommodate. They changed their cars every year or two. With two children to spoil as well, they were living on credit - lots of it. There were store cards, car loans, personal loans and credit cards. Now, amid the recession, those lenders want their money back. "The bank just closed down our overdraft. That was the killer blow," says Mr Longfellow. But with the family's debts running to 30,000 pounds ($49,200, 34,600 euros), far more than their annual disposable income, repayment is going to take a very long time. It is a sad blow for the Longfellows. But multiply one family's debts by the millions of people across the world who are in an even worse state, losing jobs and homes, and the scale of the problem is clear. Estimates from the International Monetary Fund say that of US consumer debt totalling $1,914bn (1,166bn pounds, 1,346bn euros), 14 per cent will turn bad. For Europe, it expects 7 per cent of the $2,467bn of consumer debt will be lost, with much of that falling in the UK, the continent's biggest nation of borrowers. In the US, the carnage is well under way. For nearly two years, banks ranging from giants such as Citigroup to small community lenders have been bleeding as the economic downturn caused "maxed out" consumers to fall behind on their repayments of credit cards, automotive loans, student loans and other once-plentiful forms of credit. In recent months, what started as a debacle has turned into a nightmare. As unemployment continued to rise and house prices kept falling, the rate of defaults has surpassed historic norms, rendering many of the computer models used by US banks to predict losses useless. In this phase of the crisis, lenders are flying blind. "We are asking boards of financial institutions to sit down, think about plausible nightmare scenarios and then take measures to deal with them," says Peter Niculescu, a former executive at Fannie Mae, the US mortgage institution, who is now a partner at Capital Market Risk Advisors, a financial consultancy. Read the rest of the article Labels: baillout, banking crisis, banking industry, Credit card industry, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). New Bank Scam: Buy Discount TARP WarrantsThe federal panel investigating the TARP bank bailout has announced that nearly a dozen banks have been buying back government-issued warrants at a steep discount from their face value. Banks that received emergency government funding were required to give the government warrants to purchase the company's stock at a certain price in the future. The banks are now buying back these warrants at only two-thirds of their face value. So far, the transactions have resulted in a loss of $10 million in revenue to taxpayers.Some on the panel are considering a proposal to mandate the sale of the warrants on the open market to maximize the benefit to taxpayers. Link to story in the Wall Street Journal. Labels: baillout, banking industry, banking system, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Why Private Equity Wants To Buy Banksbecause there's not much else to buy, according to this Financial Times story:On Wall Street: Banks no longer so lucrative Financial Times By Henny Sender Published: July 3 2009 19:52 | Last updated: July 3 2009 19:52 The planned merger of two Japanese banks is the latest unhappy chapter in the 10-year saga of foreign private equity capital's adventure in Tokyo finance. The two banks, Shinsei and Aozora fell into the hands of Ripplewood and Chris Flowers and Cerberus Capital Management respectively at what appeared to be close to the end of the country's lost decade. The two purchases came after the Ministry of Finance was unable to find any domestic buyers for the two ailing institutions. Ten years on, the two are still not healthy. Both got into trouble like many of their US peers by straying into investments that promised high yields with seemingly low risk, whether junk bonds that proved worthless for Shinsei or a piece of GMAC in the case of Aozora. It has been easy for both banks to stray from the banking business in Japan in recent years because they lacked a broad base of cheap funding from deposits and they never became the go-to source of loans for corporate Japan. Now private equity is an eager if frustrated buyer of troubled banks in the US and one of the few sources of fresh equity for a sector that desperately needs capital. US authorities are as paranoid as their Japanese peers of these would be owners' intentions and intend to impose onerous requirements, (which may or may not prove very burdensome) on private equity. At the same time, regulators also intend to impose all sorts of constraint on the banks and limit the degree of leverage all banks are allowed, which will likely lead to lower profitability. Read the rest of the article Labels: bailout, banking industry, financial crisis, private equity Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). California to Issue IOUs at Discount?The creator of the fine website Across the Curve had the following to say about the situation on California tonight: "I guess it is fair to state that California is bankrupt. If one issues scrip money rather than paying bills in cash that would signal a serious problem. It is a sad sign of the vale of tears through which we have passed these last two years that the fiscal demise of our largest state receives remarkably little notice. In another time and place it would have been a seismic event of major import."This piece from Breaking Views notes that banks may ask for a discount on state IOUs: Labels: bailout, banking industry, California, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Banker: "This Is a Phenomenal Environment"One more from today's FT:Radical shift in the banking power base By Patrick Jenkins and Jane Croft Financial Times Published: June 30 2009 18:50 | Last updated: June 30 2009 18:50 It is barely nine months since the collapse of Lehman Brothers ushered in one of the worst financial crises since the Great Depression. But for the strongest banks, the second quarter of 2009, which closed on Tuesday, has confirmed the upbeat trends of the first quarter. While banks such as Citigroup, Merrill Lynch, Royal Bank of Scotland and UBS continue to find life difficult, thriving rivals--JPMorgan, Goldman Sachs, Morgan Stanley, Barclays, Deutsche Bank and Credit Suisse--are talking privately of a record second quarter. They have benefited from lively markets for commodity and foreign exchange trading, at profit margins that are between two and eight times higher than before the height of the financial crisis last autumn. At the same time, companies have been rushing to issue new debt and equity. More fundamentally and sustainably there have been clear shifts in market share between the banks--in everything from UK mortgages to US Treasury bill issuance--as aggressive groups have taken advantage of opportunities left by weakened rivals. BanksOne investment banker says: "There used to be 15 banks competing. Now there are six. This is a phenomenal environment. I’ve never seen anything like this in 20 years in the business." Read the rest of the article Labels: bailout, banking industry, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
