Category banking

Jul 8 2015

IMF still very critical of US banking and financial system

When I was reading CNN this morning, I came across a story regarding a strongly worded report from the International Monetary Fund, the Bretton-Woods financial organization that exists to foster international trade and monetary cooperation around the world that, while it noted some positives, noted a lot of negatives in the financial system of the United States.

Most troubling was the fact that the “Big Banks” noted in the 2010 report issued by the IMF have since “gotten bigger,” by absorbing or otherwise acquiring smaller banks. Indeed, it noted two prime examples in JPMorganChase and Wells Fargo, two powerhouse banks which got even larger as it acquired smaller banks during and after the Great Recession that weren’t able to do as well, further increasing their already behemoth sizes. Said the IMF: “Large and interconnected banks dominate the system even more than before.”

Further troubling was the Student Loan market, which has exploded since the Great Recession, tripling in size since 2005 to $1.2 Trillion, per CNNMoney. When one considers students who are drowning in student loan debt may not have a healthy enough debt-to-income ratio to acquire forms of credit, such as unsecured credit, automobiles or even mortgages, the threat to the economy in the future that could be developing becomes quite clear.

Further concern was that of the “shadow banking industry,” per CNNMoney as well, which is the more investment-based banking that includes hedge funds and big-money insurance companies, now account for more than 70% of assets, per the IMF. One major danger to this is that these organizations are not banks, and therefore, are not subject to the same laws and regulation that more “Main Street Banks” or even “Wall Street Banks” are subject to; which open the gates on possible threats to Main Street consumers.

Even moreover, was the detail that even though the Dodd-Frank Act is approaching its fifth anniversary, it’s largely not implemented. Dodd-Frank, often cited as the greatest overhaul in the American financial system since the Great Depression, included many consumer protections, particularly in the mortgage and credit industries.

While not necessarily stated in the IMF report, it does bear mentioning that the Volcker Rule, named for Federal Reserve Chairman Paul Volcker, was not included in the verbiage for Dodd-Frank, which would prohibit the trading of depositor monies with the [Main Street] Bank off of the Bank’s own accounts — like those on Wall Street Banks; one of the catalysts of the 2007 Great Recession, per his own words.

Further risks cited by the IMF were that of Fannie Mae and Freddie Mac, the common names for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, government-sponsored entities in the housing industry. The IMF has noted that because the government still has direct control of these entities, which creates fiscal risk, it noted.

So… have we made progress overall? Or do some of the new minuses subtract against the positives we’ve made, leaving us largely where we were several years ago?

Good question. I honestly don’t know. [weighs hands] Consumers have a lot of new protections compared to a decade ago, thanks largely to the new Consumer Financial Protection Bureau; and even in the mortgage industry’s new “Closing Disclosure,” which streamlines three closing documents into one document that makes things a little easier to understand — eliminating some paperwork, and eliminating three separate pieces of paperwork in favor of one.

Further Reading:

– http://money.cnn.com/2015/07/07/investing/imf-warns-us-financial-risks/index.html

– http://www.imf.org/external/pubs/ft/gfsr/

Oct 9 2014

UK begins borrowing in Chinese Yuan — dangerous thing to do?

The Treasury of the United Kingdom has noted that it has begun trading bonds in the Chinese Yuan.

Why is this a concern? The concern is two-fold: one, the currency and economy is centrally planned and manipulated in the People’s Republic of China. Not only is this in direct contradiction of the free-market model of the Western world — and not only is this validated by the Western world by sovereign funds trading in yuan; but this is also a concern of the authoritarian regime having a bigger centrally-planned grasp on Western economies, that is supposed to be relatively free from governmental controls past base consumer and business regulation.

Further, a serious concern is the manipulation of the currency itself by the Chinese government. Quite often, it depresses the yuan compared to the United States dollar, to inflate the US’ trade deficit with the PRC. Inso doing this, while it may be doing it strictly for the sake of manipulating its debt compared to the US currency, the reserve currency of the world, as it sits today — is the United States Dollar; and devaluing its currency compared to the US Dollar manipulates its value across the board. Is the United Kingdom taking a willing part in letting the PRC government manipulate its own currency and economic status by taking the yuan on as an informal reserve?

Further Reading:

– China’s currency dream gets U.K. lift
http://money.cnn.com/2014/10/09/investing/china-yuan-uk/index.html?hpt=hp_t3

May 18 2014

The Average American Taxpayer pays… WHAT?

If you’re a taxpayer in the United States, you may find it interesting how much you actually pay to businesses and other interests you already pay money to…

Thanks to some compiling by Moyers & Company, and a couple of other sources; I’ve put together a list:

– A policy analysis from the Cato Institute from 2012 shows that the United States Federal Government loses about $100 Billion a year to corporate subsidy, on everything from energy, to the food and housing industries.  With the methodology of 115 million families, that’s over $800 a year.

– The State and Local Governments themselves are different picture.  The New York Times ran an investigation that determined that State and Local (i.e., the County and City/Town level) gave on average $80 Billion.   That adds up to be almost $700 per year.

– Retirement Banking Fees are another hefty loss for taxpayers — on average costing over $350 per year; which assumes a 1% management fee per year of one’s retirement fund, and a middle-range percentile retirement fund amount as cited by the Economic Policy Institute was assumed to be about $35,000.

– A report by the International Monetary Fund reports that over $83 Billion winds up in interest payments on loans and banking.  That accounts to $722 per year.  A further sobering fact: the five wealthiest banks in the world, JPMorganChase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs account for THREE QUARTERS of these subsidies!

– Overpriced Medications were a surprise to me on this list — while the notion itself was not, the amount certainly was.  A study conducted by the Center for Economic and Policy Research found that US drug patent monopolies raises the price of prescription medications in the US by over $270 Billion per year!  That translates to over $2000 per year.

– $870 per year goes to corporate tax subsidies, which total about $100 Billion per year, as mentioned by The Tax Foundation.  This includes everything from depreciation, and even experimental tax credits.

– Corporate Tax havens are a very serious problem.  Indeed, the US Public Interest Research Group found that the average taxpayer family paid $1231 per year to offset the losses by those [such as large banks and wealthy individuals] who offshore their monies to avoid taxation.

According to my calculations, that’s $4873 PER YEAR.  Almost five thousand dollars; assuming an average income of about $50,000.

Consider these numbers, when one looks at what they pay out for social programs:

– The Examiner released some information in 2012 about what Americans pay in social programs, such things as Education, etc.  A complete list can be found at that link, but leaving out the costs of Defense [as the Military Contract Industry is another racket in and of itself…], the costs turned out to be LESS than $500 PER YEAR.  This accounts for everything including Veterans Benefits spending, Housing, SSI, and even things like our contributions to the Railroad Retirement Fund!

…who should you *really* be mad at when it comes to who can’t afford what?  Where *IS* the “Big Government,” really?  I’ll let you decide.

I freely admit, I’ve abridged *some* information — mostly, related to Defense in Social Spending, but that, to me, doesn’t count…  and even then, admittedly, is only another $250 per year.  I also admit, I rounded *UP* on those figures — so the *actual* costs for Social Programs, are ACTUALLY a little lower.   But I’m a fair guy.

All of a sudden, the political cartoon above isn’t so ridiculous, is it?

I want to especially thank Moyers & Co., and Paul Buchheit for their work on compiling some of this data.

May 13 2014

China set to surpass the US Economically This Year — Wait, not so fast…

US-China-Economy-2011

US and China – 2011. Courtesy: WSJ Click for Larger.

While it’s true that the economy of People’s Republic of China [PRC] is indeed set to surpass that of the United States “soon,” [some estimates even say by the end of the current year] — that’s really not that important.  Here’s why:

The United States has held the top economic spot in the world for well over 120 years.  It turns out, if you count everything but sheer “mass money,” America still is the largest economy — and still will be for quite some time.  Here’s why:

Firstly, the Chinese market and economy is manipulated and controlled directly by the Chinese government.  While a lot of what goes on in China that involves international trade or business goes on in “Special Economic Zones” [which are areas that involve far less government intervention than anywhere else], its relatively safe to say that the Chinese economy, as such, is otherwise centrally planned and managed.  The world knows this, and this is something born in mind in any economist, businessman/businesswoman or otherwise when considering the economic power of the PRC.

Secondly, PPP.  Fareed Zakaria aptly demonstrates that the Purchasing Power Parity of the United States still far exceeds that of the PRC.  Indeed, Fareed’s demonstration of the same loaf of bread in China being bought for $1.66, compared to that of $2.39 on average in the States.  Further, his example of the cost of utilities, on average being a third the cost in the PRC compared to a similarly sized home in the US also further demonstrates the US’ superior PPP standing.

Quite so, when one analyzes the PPP of the US and China, China could combined its PPP with that of JAPAN and still not exceed that of the United States.  Indeed, China’s still not able to bank on its PPP — it has to pay for everything at the prevailing exchange rate — not the rate based on its PPP, unlike the US.  And this is just one singular example.

So… is China really overtaking the US economically?   In the words of Tom Wright at the Wall Street Journal, “Yes and No.”  You decide.

Further Reading:

– Tom Wright.  China’s Economy Surpassing U.S.?  Well, Yes and No – The Wall Street Journal Blog

– Chung-Tong Wu. China’s special economic zones: five years later – Asian Journal of Public Administration

– Fareed Zakaria  Is China really about to overtake the US? – Fareed Zakaria 360 – Global Public Square

Nov 14 2013

JPMorganChase plans, axes Twitter Q&A after #Ohsh!t moment…

JPMorgan1

JPMorganChase Vice Chairman Jimmy Lee was all set to use their official Twitter account, @JPMorgan to answer questions posed to the banking giant using #AskJPM.  The seemingly innocuous move turned immediately to panic as apparent distrust, anger and indeed simple trolling immediately took over the hashtag.

Several hours later, JPM retracted the idea.
Image

Why did this become such a problem?

Aside from simple internet trolling, public confidence in America‘s banking system remains low — and indeed, possibly even contemptuous.  Even I stopped myself from submitting the following question:

“Why did you purchase new jets and hangars for them while you received $25 Billion of my money? Wasn’t it because you were in trouble and needed help? Or was it because you screwed America, and you knew it and wanted to get away with it again? #TARPFunds #BankingCrisis #AskJPM

I still don’t trust the banking system — particularly after having worked in it for several years from the mortgage backed securities side.  Consumers get ripped off at every opportunity, and while improvements have been made, it’s a system of ethics and thought that drives the industry to produce “more, more, more; and damn everything else!”

…like any rabidly for-profit market, I guess.

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Nov 12 2013

The one family you’ve probably never heard of… who’ve influenced your life the most

English: The heraldic achievement of the House...

The House of Medici

 

The Medici Family of Italy is probably something you’ve never heard of, unless you’re involved in high finance, politics, or the academic sides of each… but they’ve likely influenced your life more than you’ll ever know.

The Medici family rose to prominence during the 14th century in Florence, getting very wealthy off the textile and later, further gathering power in the Kingdom’s local governments. At the time, their seemingly unstoppable rise continued onward and upward, to the point where they founded the Medici Bank, the largest and most notable bank of the 15th Century of Italy.

Why is this so important? The Medici family not only produced FOUR Catholic popes (Popes Leo X, Clement VII, Pius IV and Leo XI) — but it also made massive contributions to accounting and finance methodology — including the advent of the dual-book accounting system and overall improvements of the general ledger. Many of these improvements are still used by public and management accountants even today!

Coat of Arms of the Medici Family. based on Ar...

Coat of Arms of the Medici Family

 

Arguably, the Medici’s were the most wealthy family in Europe, and among the most powerful — effecting policy, religion and even banking methodology that’s still in use today. Next time you balance your checkbook, take a minute, and think about how the whole system of finance works, and where it came from… and look into it! You’d be surprised how the simple methods we use today to balance our sheets were revolutionary just a few hundred years ago…

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Nov 5 2013

Why did I leave Business to become a Theorist…

Socrates-1-

The Death of Socrates

“…an unexamined life is not worth living.”
 — Socrates

It’s question I’ve gotten a lot when I’ve been bouncing it off the minds of my more intellectual friends…

“Why would you not get a graduate degree in business?”
“There’s more money in business.  You want to study philosophy?!”

I’ve asked myself the same questions a lot, particularly the last year or so.  Yeah…  you definitely don’t get a degree in the humanities or social sciences and expect to make a lot of money — but I found myself going “Businessmen and businesswomen are a dime a dozen in the world today.  Indeed, they’re going to be flooding the marketplace by the time I graduate,” which is true.  Not only do I have my past successes in business as armament on a resume, but I started looking to the future…

With my experience in business, I can still teach business if I so want to; however, I think teaching the basics of political philosophy and ethics in politics could be just as important to preventing the next financial or political calamity as any business professional could be, teaching the equivalent courses.  Indeed, studying our past mistakes and failures makes us better able to prevent another Lehman Brothers‘ or Subprime Mortgage crisis or S&L Scandal.  Teaching the values of a balanced approach to policy in business, and business in policy I think is just as important, as well.

My main goal since I was a kid was to teach — even when I went into the private sector for awhile, first in mortgages, then in security as a manager, now working for a Fortune 500’s Health Safety and Environmental Department while I continue schooling…   I realized that studying our political past and the successes and failures in it lend just as much understanding as studying the great economists and financiers of our past and present does.

If maybe one day, one of the students I inspire goes forth to be a little more ethical, and blows the whistle on an unfair banking practice, or other social justice issue, or even something as simple as being a little more ethical in his or her business practices by having a sense of social responsibility and social justice, but still being profitable in his or her business — I think I’ll have done my part.

More and more the past several years, my drive has shifted from a sense of being educated more in business to more a sense of social justice.  I learned I was more interested in learning about business for the sake of my OWN knowledge, than applying it toward something I could use in the future.  When I found myself studying political or social justice issues…  particularly the work I’m doing right now as a Research Analyst and Intern with The SERO Project…  this is the stuff that actually matters.   The fact I retain information from a Business Communication course doesn’t *mean* anything, aside from the fact I can write kickass resumes and letters.  Helping myself and my friends better themselves is an awesome thing to be able to do…  but, when it comes to social science and social justice… this stuff actually MATTERS.

I was lucky enough to grow up in a home in the top 5% of income in the United States.   I’m well taken care of, essentially, the rest of my life, even if I fall flat on my face a dozen times.  I’ve lived in some of the nicest places in the country — I’ve gone to some of the best schools our nation has to offer — including Eastern’s prestigious College of Business.  I have a family who’s always been there, and I have access to many resources and avenues the average person does NOT.  I’ve had everything I’ve ever wanted, essentially…  even if I had to wait awhile for it.  Studying and working on behalf of the social sciences, particularly social justice, I think is not only a calling, but a duty of mine to perform — and it’s something I’m loving more and more, and have more and more a passion for as the days go by.  While I don’t have a wish at this time to be directly “in” politics, I’d love to be a back-office player someday…  maybe a policy analyst, or a Chief of Staff who offers a sounding board to a legislator or other person who’s decisions matter — to be right there, in the thick of it, when the opinions and the research actually count for something OTHER than lining your own pockets.

This is what I’m going to do.  Let’s get it done.

Oct 19 2013

China’s call for a “De-Americanized” Future?

317b5967cf5b1b4ca8849bfa3f7f89e52a4d4aeeWhile this would, no doubt, be disastrous for the American economy, which is vastly based on the “full faith and credit of the United States government” of the United States dollar — could China’s own less-than-impartial statement that the future of the world should be “de-Americanized” have a point?

Partisan infighting in Congress, on top of massive trade deficits with China and Japan (among others) are threatening the faith the world has in the US government’s ability to pay the debts it has already racked up — even in simple interest payments on Treasury Bills and other things.

While there’s yet been a default on any obligation of the United States, if partisan gridlock doesn’t change in Washington, could it be an inevitable future?

Those on the right say our borrowing to fund the government and to pay our obligations say this is an unsustainable model do have a point.  Borrowing forever with no intention to fix it will only result in a catastrophic failure — sooner or later.

However, liberal economics specifically state that when the economy is in a recession, or otherwise growing at an anemic rate, that it is the government’s duty to pump money into the economy to ensure that consumer confidence remains high and that people spend — particularly during problems like high unemployment or lower consumer confidence, the two silver bullets to economic futures.  When people are scared (fiscally speaking) they withhold money; and not spending money grinds the economy to a halt.  Very effectively.

Are both goals mutually exclusive?  I don’t think so.

While a plan to begin to work down our debt obviously needs to be in place, because consumer confidence still hasn’t fully recovered from The Great Recession, this is where [neo?]liberal economics comes in.  Adaptive economics, in particular.  The economy “running itself,” particularly without any regulation, obviously doesn’t work as much as an authoritarian, centrally planned economy.  A government buffer helps “prop up” the economy, while the wheels of the private sector continue to spin.

It’s a mess, but it’s one we can fix — if we come together and work the problem… and not just point fingers — and America can still be a leader in the world.

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Oct 6 2013

#2013Shutdown’s effect on Business and the Future of America…

Professor David Victor, Ph.D.

Professor David Victor, Ph.D.

One of my former (and future, no doubt!) professors from Eastern Michigan University, Dr. David Victor, posted this morning about a possible future oil boom for Iceland, noting that a recent survey and discovery shows Iceland sits on a *LOT* of the possible undiscovered oil reserves in the world, estimates place it at 13%.  With the thawing of the northern ice cap, and the North Atlantic Current keeping ice from marring up the major ports of the island nation, all of these things could conspire to bring a well-needed boon to it’s economy.

However, another follower on Facebook of Dr. Victor, the Chair of CitrinGroup, also threw in his two cents, stating that while the Chinese are courting and betting on future oil producers, such as Iceland, the United States, already suffering an anemic economy, is wasting it’s time on policy matters that in the grand scheme of things, don’t really matter.  I tend to agree.

The United States’ economy is JUST starting to  gain traction, while sitting fairly stationery and spinning it’s wheels, begging to move forward since the crisis began in the Subprime Mortgage market in 2007.  We’re finally starting to see forward momentum beyond the familiar numbers of “0.04% gains.”  People are beginning to feel confident in the economic system again.

However, when people see the Government itself can’t get it together and pay it’s OWN bills, that’s when people begin to hold onto their OWN money, going “What if I find myself right back in 2008 again?”  I admit, I found myself thinking twice when I made a relatively small purchase this morning, because the well-being of MY household budget is determined by the fiscal health of the Federal Government.

When recessions and slumps hit the nation, the Government is there to provide relief, to buffer the blow with benefits, stimulus and other some-such capital, by pumping money into the system.  However, if that money is cut off too soon, the economy can slump again.  Bad news breeds bad feelings.  Bad feelings breed either a binge on spending, or a lack of spending, more often, the latter.  When people stop spending, the economy grinds to a screeching halt — as we saw starting with the credit freezes of 2008.  While one can argue the merits of policy on both sides of the aisle, the latest budgetary and policy debate is doing nothing but killing consumer confidence, and indeed, making foreign markets question the stability of the American economy.

While Obamacare is certainly an expensive program, so was the F-35 Fighter — which estimates have the cancelled fighter costing as much as a trillion dollars — a number often attributed to the cost of Obamacare.  Oddly enough, I haven’t heard it mentioned once by Republicans on the Hill, even though it is now essentially a great waste of capital and expenditures.

Who’s right?  Who knows.  One thing I do know is — #2013Shutdown can be a death knell for the fragile traction the American economy took years to get.

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Aug 17 2013

The Banking System isn’t getting better — it’s getting worse.

Having worked in finance for over half a decade, and now having been involved in high finance now nearly a decade, I’ve been exposed to now only the internal workings of how credit and finance works from the inside, but I’ve studied it extensively as a matter of interest, and I see a problem developing — some if it we all know about, the other parts, not so much.

While our individual finances are improving overall, I see a big problem developing with the same system that brought it down in 2007 — unregulated banking.

In the United States, from the 1700s to the early 1900s, there was banking crash roughly every 15 years.  With the institution of strong regulation, particularly after the Stock Market Crash of 1929, the United States entered a golden age of banking.

How can this be?  With over 100 years of 15 year booms and busts, why did it all of a sudden stabilize?  Regulation.  With strong, effective regulation, bank busts came to a halt.  Not a SINGLE widespread bank bust occurred for over FIFTY years in America.

While a majority of this process took place in the 80s and 90s, the arguable beginning was the Nixon Shock; a term attributed to the end of the Bretton Woods system in the United States, when Nixon unilaterally wrote off the US Dollar’s ability to be converted into Gold; the United States Dollar became a free-floating value currency, which caused the US Dollar to become a reserve currency in many nations of the world — massively increasing it’s value.  In the 1980s, this trend continued: deregulation became the buzz word.  With more risks, banks could make more money with the same hard cash in it’s accounts.

restore-glass-steagallThe most hardcore change, in my opinion came during the Clinton administration, when Congress approved the repeal of the Glass-Steagall Act of 1933, repealed by the Gramm-Leach-Bliley Act of 1999, signed by Bill Clinton in November of that year.  This VERY important piece of legislation turned banking regulation on it’s head: Glass-Steagall was an instrument that separated Main Street banks from Wall Street banks.  In english, this means regular depositor banks (such as Bank of America, or Huntington Bank or Chase Bank) could play the stock market and make investments with depositor money that it otherwise barred from doing under the 1930s legislation, just like Investment banks and corporations can and do.

Seen as a vestige of post-Crash and pre-/post-World War II stabilizing legislation, it was, at the time, seen as unnecessary.  However, when deregulation began picking up steam in the 1980s, things happened in short order:

– The 1980s and 1990s Savings & Loan Crises: Savings and Loan thrifts were given many of the same powers as banks under deregulation legislation signed by President Carter in 1980; without the same regulations banks were subject to.  With the massive take-off of real estate lending, (outstanding mortgage debt was $700 Billion-ish in 1970, and nearly doubled to $1.2 Trillion in 1980), S&L’s took massive risks by lending out more money than they should have, on top of rising interest rates caused many institutions to fail.  This was failure to such a degree the United States had never seen.

– Repeal of Glass-Steagall Act: With the S&L failures still fresh on the minds of financiers and politicians, many argued further deregulation was required to avert such a disaster in the future.  Congress passed Gramm-Leach-Bliley and it was signed by President Clinton at the twilight of his Administration.  By the end of the next Administration (G. W. Bush), only EIGHT years later. the United States was reeling from the worst banking and credit crisis it had seen since the dawn of the 20th century, and it was spreading throughout the world.  The FDIC began publishing lists of bank failures every Friday, conducting raids on banks it or the State controllers deemed in danger of failing, or already had, legally — and, for the first time in history, the FDIC, the Federal Depositors Insurance Corporation’s funds went NEGATIVE from insuring lost depositor money.

All of these took place within 25 years of the beginning of banking deregulation in the United States — AFTER an over 50-year golden era for banking in the United States where bank failure was almost unheard of, to the point where bank failures and bank runs were becoming regular weekly news events on Friday nights.

Even more disturbing, the largest four banking institutions in the United States, the four largest banks (Bank of America, Citigroup, JPMorganChase and Wells Fargo) are now THIRTY percent LARGER than they were in 2007!

How can the next banking crisis be softened, if not stopped?

– Reconstitute a Bretton Woods-like system for the American economy: peg it with something convertible to stabilize the possible future crash of the US Dollar.  This would, in general, lower the value of the dollar, however, the dollar would be safe from a crash, or other cataclysmic disaster brought on by a perceived lack of confidence in the American financial system, which is all that currently “holds up” the American economy and the value of the US Dollar.

– Reinstitute a Glass-Steagall Law.  Banks shouldn’t be allowed to gamble with depositor money.  When banks buy futures or invest in trusts or mutual funds with depositor money, it’s the same as taking it down to the Casino and betting on a three-of-a-kind.  In fact, I’d be willing to bet on a CASINO win, over futures and stocks, at the moment.

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