Last week I published a summary of my interpretation of Occupy Wall Street. The movement has sprung up in many cities and appears to be similar in all of these. This is my response to those movements.
First, let me say that I get it. There's a lot of frustration out there. People are out of jobs and worse yet, they feel their future has been stolen by financiers who haven't been and won't be punished for their incompetence. People like Patrick Meighan have been arrested (read his story here) and jailed over non-violent protests. I know that there have been some criminal acts committed by some of the Occupiers, but that doesn't change the message these people are trying to bring (it doesn't excuse it, but that's a different story).
I also agree with parts of the message of the Occupy movement, the financiers should be punished. The banks should have been allowed to fail and the people creating the mess should certainly not be in charge of the business that I involuntarily bailed out. And like them, I'm not convinced that the system can work itself out - I'm just that cynical.
But I also know that we live in the United States of America, a country with a system of laws and that we have to obey those laws. Even if politicians and bankers committed fraud and theft, that doesn't give me the right to break laws. If someone refused to leave when instructed by police, they deserve to be arrested. When Mr. Meighan (same story as above) was arrested, he complained in his blog that in most situations of this type, "the police just give you a ticket and let you go. It costs you a couple hundred dollars." One thing that is different in his case is that he would have gladly taken the ticket and ripped it up and never left the park he occupied. Police have an obligation to enforce the law (which he acknowledges in his blog) and in that case that meant physically removing the Occupiers and cleaning out the park.
I also know that it's possible to move up in the world. I grew up in a not-too-priviledged environment. I won't go into the details, but my college was paid on a combination of scholarships and grants (until I lost the grant because I made too much in a below-minimum wage job). I have worked at one job or another (and sometimes two at the same time) since 1973. My father taught me that there is always a job available for someone who was willing to work. This past weekend, I heard that Scheider National Trucking needs to hire 41,000 and Pizza Hut needs to hire 28,000. These may not be jobs that people want or may not pay as much as their last job, but they are jobs. And they pay at least minimum wage.
I decided sometime back to adopt the slogan "Think Globally, Act Locally." What that means to me is to elect the kind of representatives who push an agenda of personal responsibility. I believe this is the only way (if there's a way) to fix our national problem. By encouraging people to work, even at low-paying jobs, to pay off debts and to support the family, politicians begin encouraging a way out. As for acting locally, charity begins at home, helping the people in your community. I can't help Mr. Meighan in LA, but I can help the single lady in our church who sells real estate and hasn't sold any in a while. I can help the people who will come to me in February through April to file their tax returns (without charging them) so they can get the refunds and credits that are available under current law. I can help the couple whose husband is in a wheel chair and unable to work.
So while I understand the Occupy movement, I can't say I agree with it. I believe that instead of protesting, the occupiers would be better of returning to work and starting their own personal recovery. That's my thoughts, what are yours?
Showing posts with label banking. Show all posts
Showing posts with label banking. Show all posts
Monday, December 12, 2011
Thursday, December 08, 2011
What is Occupy Wall Street?
I've been trying to wrap my head around what's going on in the Occupy Wall Street movement. It's gotten a lot of attention from the press, yet there seems to be very little understanding about what is really going on. Some of the bloggers I read have published stories about crime in the Occupy movement, stories that have seem limited airtime on national news. But my goal has been to avidly read every story I could find, to determine what it's all about. These people are exerting a lot of time and in some cases money, I'd like to find out why. In this post, I'll try to explain what I've learned. In a later post, I'll give my thoughts and opinion on that information.
Two of the best stories I've read come from Bloomberg Businessweek, both available online here and here. While there are more stories out there, these stories do a better job of explaining the movement than most. I encourage reading them. I also plan on reading a book described in the article titled "Debt: The First 5,000 years" by David Graeber, the so-called "Man behind the mask."
The article says that Graeber "as been an anarchist since the age of 16." What's unique is that Graeber would not mind being an anarchist. He admits that "most people don’t think anarchism is (just) a bad idea. They think it’s insane." But unlike most people, "Graeber’s father, (has) seen it work."
The Occupy movement is made of a lot of other individuals, each with their own view of what is going on. As a group, they are still trying to define what all of this means. But there are groups within the movement that have similarities and they attract people sympathetic to their views (I doubt we see many Reagan conservatives at these rallies). They are against money in politics and the crushing effect of "debt: mortgages, credit-card debt, student loans, and the difference in how the debts of large financial companies and those of individual borrowers" get settled.
If there is one defining trait of the Occupiers - it's that. It's the "where's MY bailout" story. Where's the bailout for the middle-aged man, who took out first and second mortgages, credit cards and bought the American Dream on payments, then lost his job in the 2008 fiasco and saw his interest rates skyrocket, while the Bank paid executives huge salaries? Where's the bailout for the college graduate who took out student loans, now can't find a job to pay them back?
The timing of the movement, amidst this overwhelming debt by individuals, bail-outs and unemployment has been the triggering action to bring these people together. Top that off with a conservative movement that wants to cut all forms of aid because they think it's the only way to recover and they hate big government and the movement ignites. The Occupiers "oppose cutbacks and austerity of any kind." (Wikipedia defines austerity as budget cutting, lower spending, reduction of benefits). This comes from the anarchy that Graeber's father saw in Spain after the IMF mandated spending cuts, austerity that is now being imposed on Greece, other nations and even individuals in the US.
What bothers me the most about watching the movement from the sidelines is the similarities between this movement and some movements I've watched from afar in Egypt, Libya and France. Movements in those countries started not as political movements, but as movements by unemployed. When large numbers of people become unemployed and can't find work to pay for basic necessities, they look for answers and frequently rise up against the government. Instead of answers, they see the government keeping them down. I've read other articles that compared debt to slavery, this idea feeds the movement as well.
At the end of the article, reference is made to a policy recommendation in Graeber's book calling for "jubilee" - a forgiveness of all international and consumer debt. I understand the term and have even written about it (although I referred to a city of refuge). I thought it was uniquely Judeo-Christian in concept, but the article says that jubilees occurred "in ancient Babylon, Assyria, and Egypt." The article goes on to say that the "alternative, ... was rioting and chaos in years when poor crop yields left lots of peasants in debt."
Is that where we're headed? Rioting and chaos (which we've already seen)? Is anarchy, or small democracy the answer? Must banks be run as non-profit organizations? Should all debt be wiped clean every seven years? I'm not sure I have the answers, but I'll give my opinion in my next post.
Two of the best stories I've read come from Bloomberg Businessweek, both available online here and here. While there are more stories out there, these stories do a better job of explaining the movement than most. I encourage reading them. I also plan on reading a book described in the article titled "Debt: The First 5,000 years" by David Graeber, the so-called "Man behind the mask."
The article says that Graeber "as been an anarchist since the age of 16." What's unique is that Graeber would not mind being an anarchist. He admits that "most people don’t think anarchism is (just) a bad idea. They think it’s insane." But unlike most people, "Graeber’s father, (has) seen it work."
The Occupy movement is made of a lot of other individuals, each with their own view of what is going on. As a group, they are still trying to define what all of this means. But there are groups within the movement that have similarities and they attract people sympathetic to their views (I doubt we see many Reagan conservatives at these rallies). They are against money in politics and the crushing effect of "debt: mortgages, credit-card debt, student loans, and the difference in how the debts of large financial companies and those of individual borrowers" get settled.
If there is one defining trait of the Occupiers - it's that. It's the "where's MY bailout" story. Where's the bailout for the middle-aged man, who took out first and second mortgages, credit cards and bought the American Dream on payments, then lost his job in the 2008 fiasco and saw his interest rates skyrocket, while the Bank paid executives huge salaries? Where's the bailout for the college graduate who took out student loans, now can't find a job to pay them back?
The timing of the movement, amidst this overwhelming debt by individuals, bail-outs and unemployment has been the triggering action to bring these people together. Top that off with a conservative movement that wants to cut all forms of aid because they think it's the only way to recover and they hate big government and the movement ignites. The Occupiers "oppose cutbacks and austerity of any kind." (Wikipedia defines austerity as budget cutting, lower spending, reduction of benefits). This comes from the anarchy that Graeber's father saw in Spain after the IMF mandated spending cuts, austerity that is now being imposed on Greece, other nations and even individuals in the US.
What bothers me the most about watching the movement from the sidelines is the similarities between this movement and some movements I've watched from afar in Egypt, Libya and France. Movements in those countries started not as political movements, but as movements by unemployed. When large numbers of people become unemployed and can't find work to pay for basic necessities, they look for answers and frequently rise up against the government. Instead of answers, they see the government keeping them down. I've read other articles that compared debt to slavery, this idea feeds the movement as well.
At the end of the article, reference is made to a policy recommendation in Graeber's book calling for "jubilee" - a forgiveness of all international and consumer debt. I understand the term and have even written about it (although I referred to a city of refuge). I thought it was uniquely Judeo-Christian in concept, but the article says that jubilees occurred "in ancient Babylon, Assyria, and Egypt." The article goes on to say that the "alternative, ... was rioting and chaos in years when poor crop yields left lots of peasants in debt."
Is that where we're headed? Rioting and chaos (which we've already seen)? Is anarchy, or small democracy the answer? Must banks be run as non-profit organizations? Should all debt be wiped clean every seven years? I'm not sure I have the answers, but I'll give my opinion in my next post.
Wednesday, November 02, 2011
The power of the consumer
Over the last few weeks, banks have slowly backed off their plans to charge fees for debit cards (I expected this. See here for my prediction) The consumer has the power to effect change.
The first time I saw a change like this was back in the mid 1980's. At that time, the country of South Africa was under increased scrutiny due to Apartheid (see details here). It was discovered that many business interacted with South Africa and a large movement was made to force these businesses to stop. One bank, which has since been merged into other banks, was heavily involved and did not change their policies.
After several months of trying to get the bank to change, a group emerged that petitioned the bank for policy changes. The group said that if the bank did not change, the signees of the petition would open an account at the bank and then close it the next day. And there were a lot of signees.
The day after this information came out, the bank "clarified" their position on Apartheid. They explained that they made loans to businesses in South Africa and not to the government. Their loans were actually helping the people of that country and would give them a chance to change the government.
The petitioners were unimpressed. Even with the "clarified" position, they vowed to go on with their opening and closing of accounts. They responded publicly to the bank and planned to start the following week. Before they started, the bank announced a change in policy and stopped making loans to businesses in South Africa. The consumer had voted and US businesses (largely) stopped supporting Apartheid.
By 1994, South Africa had elected it's first non-white president. There are a lot of side-stories that come out of this incident, but the story relevant here is that consumers have the power to change a nation. Without violence, threats or even name calling, consumers can vote with their wallets. Individuals can change too. You have the right to decide what services you want from a bank (or any company) and evaluate the cost. If it's too much, you have the right to change providers.
The first time I saw a change like this was back in the mid 1980's. At that time, the country of South Africa was under increased scrutiny due to Apartheid (see details here). It was discovered that many business interacted with South Africa and a large movement was made to force these businesses to stop. One bank, which has since been merged into other banks, was heavily involved and did not change their policies.
After several months of trying to get the bank to change, a group emerged that petitioned the bank for policy changes. The group said that if the bank did not change, the signees of the petition would open an account at the bank and then close it the next day. And there were a lot of signees.
The day after this information came out, the bank "clarified" their position on Apartheid. They explained that they made loans to businesses in South Africa and not to the government. Their loans were actually helping the people of that country and would give them a chance to change the government.
The petitioners were unimpressed. Even with the "clarified" position, they vowed to go on with their opening and closing of accounts. They responded publicly to the bank and planned to start the following week. Before they started, the bank announced a change in policy and stopped making loans to businesses in South Africa. The consumer had voted and US businesses (largely) stopped supporting Apartheid.
By 1994, South Africa had elected it's first non-white president. There are a lot of side-stories that come out of this incident, but the story relevant here is that consumers have the power to change a nation. Without violence, threats or even name calling, consumers can vote with their wallets. Individuals can change too. You have the right to decide what services you want from a bank (or any company) and evaluate the cost. If it's too much, you have the right to change providers.
Thursday, October 06, 2011
Bank fees
Unless you've been living under a rock, you've heard the mess about bank fees. At least four of the major banks (Bank of America, Wells Fargo, Sun Trust and Regions) are planning to start charging debit card holders a monthly fee of anywhere from $3 to $5. Citibank is increasing the fees on checking accounts. The president has said that the banks don't have the right to certain profits (more on that later).
The banks say that they have to do this to make up for the lost fees charged to retailers. In theory, retail prices should come down as their fees go down (I'm not holding my breath). Consumers are complaining it's not fair. My suggestion is simple. Change accounts or change banks.
Most banks have some accounts that will still be free. Simply sitting down with someone at the bank or calling the bank can help you understand your options. Before you do, write down your expectations/requirements. Do you use an ATM? Do you use other banks' ATM's? Do you use your debit card? Do you keep a balance? Do you have other accounts with the bank?
Also, banks may have other options available based on your age (I found out I'm a "senior" at age 52 at one bank) or school status (student checking is often free). Smaller banks or credit unions may have benefits based on your employer.
If the bank has no free account that fits your need, consider changing banks. Tell the person you've talked to at your current bank that you're planning to look at other banks. Be prepared to follow through.
My honest opinion is that this fuss will not last if consumers start changing banks. They will find ways to keep depositors from jumping ship. But there's no reason you should pay fees.
The banks say that they have to do this to make up for the lost fees charged to retailers. In theory, retail prices should come down as their fees go down (I'm not holding my breath). Consumers are complaining it's not fair. My suggestion is simple. Change accounts or change banks.
Most banks have some accounts that will still be free. Simply sitting down with someone at the bank or calling the bank can help you understand your options. Before you do, write down your expectations/requirements. Do you use an ATM? Do you use other banks' ATM's? Do you use your debit card? Do you keep a balance? Do you have other accounts with the bank?
Also, banks may have other options available based on your age (I found out I'm a "senior" at age 52 at one bank) or school status (student checking is often free). Smaller banks or credit unions may have benefits based on your employer.
If the bank has no free account that fits your need, consider changing banks. Tell the person you've talked to at your current bank that you're planning to look at other banks. Be prepared to follow through.
My honest opinion is that this fuss will not last if consumers start changing banks. They will find ways to keep depositors from jumping ship. But there's no reason you should pay fees.
Tuesday, August 16, 2011
Payday loans in Missouri
I saw some articles today about payday loans in Missouri and it touched me off. Seems that in Missouri there are "325 McDonald's restaurants, 157 Starbucks coffee outlets and 1,040 payday loan stores." (as of 2010. source: Bankrate article). Now my personal opinion is that Starbucks is overpriced, but I'm thinking 10 times as many Payday lending stores as Starbucks is a little much. And you can always get things on the dollar menu at McDonalds.
In reality, the article was NOT drawing a conclusion about the number of McDonalds and Starbucks vs payday lending, it was just comparing numbers in terms that most people can relate to. The goal is to get you to say "gee, that's way too many payday lending stores." So why would there be so many? Well to quote a well-known bank robber who was asked why he robbed banks - "because that's where the money is" (Wikipedia). Payday lenders flock to Missouri because they know they can make a good profit. "The APR allowed by Missouri’s statutes of 1,950% based on a two-week loan of $10" (BBB paper)
The same BBB paper indicates there are some nursing homes that have payday lending companies at the homes. The article doesn't mention if they loan money to the residents (let's hope not), but they do loan to workers, then allow them to pay back with payroll deductions. I'm reminded of the Tennessee Ernie Ford song "Sixteen Tons" which said "I owe my soul to the company store." (Video here)
In reality, the article was NOT drawing a conclusion about the number of McDonalds and Starbucks vs payday lending, it was just comparing numbers in terms that most people can relate to. The goal is to get you to say "gee, that's way too many payday lending stores." So why would there be so many? Well to quote a well-known bank robber who was asked why he robbed banks - "because that's where the money is" (Wikipedia). Payday lenders flock to Missouri because they know they can make a good profit. "The APR allowed by Missouri’s statutes of 1,950% based on a two-week loan of $10" (BBB paper)
The same BBB paper indicates there are some nursing homes that have payday lending companies at the homes. The article doesn't mention if they loan money to the residents (let's hope not), but they do loan to workers, then allow them to pay back with payroll deductions. I'm reminded of the Tennessee Ernie Ford song "Sixteen Tons" which said "I owe my soul to the company store." (Video here)
Sunday, March 13, 2011
Western Sky
Today I saw an ad for Westernsky.com. This is a company owned and operated by Native Americans. The ad offered about $2500 in a loan. They will put the money in your checking account overnight. No collateral is required and there are no fees for early pay off.
I was curious, this sounded suspiciously like payday loans I talked about here or the Cashwell company I talked about here. When I found their website, I saw that they claim to have lower rates than payday loans. From looking at their rates, they are lower than Cashwell.
But they aren't cheap. For a loan of $2525, you'll pay a $75 fee right off the bat. Then you start paying almost 140% in interest. If you pay it off over the required 36 months, you'll pay over $10,000.
The website explains that Western Sky operates "within the boundaries of the Cheyenne River Sioux Reservation, a sovereign nation located within the" USA. I don't know if that means they operate under different rules. I wonder if they can pursue US citizens who don't pay them in the same way US companies. Or maybe they get to play under US rules in some cases and their own rules in other cases.
It would scare me to work with a company that might not operate under US laws. It would scare me even more to pay 140% interest. (I should note that this was their least offensive loan. If you only borrow $1000, you'll pay almost 195% interest)
I was curious, this sounded suspiciously like payday loans I talked about here or the Cashwell company I talked about here. When I found their website, I saw that they claim to have lower rates than payday loans. From looking at their rates, they are lower than Cashwell.
But they aren't cheap. For a loan of $2525, you'll pay a $75 fee right off the bat. Then you start paying almost 140% in interest. If you pay it off over the required 36 months, you'll pay over $10,000.
The website explains that Western Sky operates "within the boundaries of the Cheyenne River Sioux Reservation, a sovereign nation located within the" USA. I don't know if that means they operate under different rules. I wonder if they can pursue US citizens who don't pay them in the same way US companies. Or maybe they get to play under US rules in some cases and their own rules in other cases.
It would scare me to work with a company that might not operate under US laws. It would scare me even more to pay 140% interest. (I should note that this was their least offensive loan. If you only borrow $1000, you'll pay almost 195% interest)
Tuesday, March 01, 2011
What a difference a bank makes
This morning I called my small "home-town" bank because my debit card is broken. This bank has a feature where they transfer an extra $1 into savings every time you use the card. But they charge me a monthly fee of $5. Each time I use the card, they deduct 50cents from that fee, so if I use it 10 times, there's no fee.
Another reason I signed up for this account is that in March of this year (which started today), they are going to give me a bonus and match all of the dollars they've transferred to savings. I think in my case that will exceed the service charges I've paid.
Anyway, back to replacing my debit card. Martha at the bank was very nice and was ready to send me a new card. Then she told me there was a $5 charge. I told her to hold off.
Then I called one of the big credit card companies and told them that the card I have for them is broken (I'm rough on cards in my wallet). Michele was very nice and offered to send one out right away. I talked to her about the rewards program and she offered to upgrade my card in two different ways. The first was no charge (I pay no annual fee now) and would give me trip cancellation benefits (not a big deal, but if it's free). The second would give me more rewards, but cost an annual fee of $59. I declined the second and accepted the first.
My point here is this: people like to bash the big credit card companies and praise the little guy, but my experience is the opposite. What's your experience?
Another reason I signed up for this account is that in March of this year (which started today), they are going to give me a bonus and match all of the dollars they've transferred to savings. I think in my case that will exceed the service charges I've paid.
Anyway, back to replacing my debit card. Martha at the bank was very nice and was ready to send me a new card. Then she told me there was a $5 charge. I told her to hold off.
Then I called one of the big credit card companies and told them that the card I have for them is broken (I'm rough on cards in my wallet). Michele was very nice and offered to send one out right away. I talked to her about the rewards program and she offered to upgrade my card in two different ways. The first was no charge (I pay no annual fee now) and would give me trip cancellation benefits (not a big deal, but if it's free). The second would give me more rewards, but cost an annual fee of $59. I declined the second and accepted the first.
My point here is this: people like to bash the big credit card companies and praise the little guy, but my experience is the opposite. What's your experience?
Tuesday, November 23, 2010
Fees from the giant banks now at the highest level ever recorded
That's the headline from this Clark Howard online article. If you're not familiar with Howard, he has a radio program and a TV show on HLN talking about ways to "spend less, save more and not get ripped off." He's a consumer advocate. While I listen to a lot of Christian financial programs, Howard doesn't put his faith (or lack of) on the air. His show is strictly about money and ways to help.
In his article, Clark sites a newspaper article that says that AM fees, checking fees and overdraft fees have all gone up. But wait, didn't Congress solve this problem? Didn't they pass a law commonly called the CARD Act? Didn't a well-known blogger tell us about that here?
Well you're right, on all of those. Congress has also been targeting bank fees and made it so that you can't overdraft unless you ask for the protection. But banks will continue to find all legal means to turn a buck. That's what banks do. They try to make a profit.
Back in June, the NY Times called this a "New Day for Consumers". A consumer bureau was created and the President appointed (while Congress was on vacation) a head of that bureau who will certainly write new regulations and probably attack this problem once they read my blog.
In the mean time, what do you do about the fees? Clark Howard thinks "the reality is you have so much choice in the marketplace." He suggests "a credit union or small community bank." He also likes online banks, which is a good fit for a lot of people.
So if your bank is charging you fees, shop around. You'll be glad you did.
In his article, Clark sites a newspaper article that says that AM fees, checking fees and overdraft fees have all gone up. But wait, didn't Congress solve this problem? Didn't they pass a law commonly called the CARD Act? Didn't a well-known blogger tell us about that here?
Well you're right, on all of those. Congress has also been targeting bank fees and made it so that you can't overdraft unless you ask for the protection. But banks will continue to find all legal means to turn a buck. That's what banks do. They try to make a profit.
Back in June, the NY Times called this a "New Day for Consumers". A consumer bureau was created and the President appointed (while Congress was on vacation) a head of that bureau who will certainly write new regulations and probably attack this problem once they read my blog.
In the mean time, what do you do about the fees? Clark Howard thinks "the reality is you have so much choice in the marketplace." He suggests "a credit union or small community bank." He also likes online banks, which is a good fit for a lot of people.
So if your bank is charging you fees, shop around. You'll be glad you did.
Tuesday, September 28, 2010
Round up, my way or add $1 checking
A few months ago, I signed up for one of those checking accounts that moves money from checking to savings every time you use your debit card. Sounds simple enough, it's forced savings. What could go wrong?
Well, I've always been one to track my spending. In college, I balanced my checkbook (out of self-defense) so that I knew how much money I had. This was in the days before debit cards, so I only wrote checks or used the ATM, but I never overdrew my account. Even if it was only $1.67, I knew how much I had.
Now in theory, I could still track my account, just by adding $1 to every purchase or writing down two transactions every time I did one. That's a good theory, but I can't seem to make that work either. Sometimes, the bank doesn't take out $1 (I'm still not sure why) and sometimes they wait several days to take out the $1. So my balance never matches what the bank says.
And as for the forced savings, it's my own money that I'm saving. If I wanted to put money in savings, I could move it myself. It's not like the interest rate on savings is all that much about the rate on checking. So what's the big deal?
Anyone else using these types of accounts? Good, bad or indifferent?
Well, I've always been one to track my spending. In college, I balanced my checkbook (out of self-defense) so that I knew how much money I had. This was in the days before debit cards, so I only wrote checks or used the ATM, but I never overdrew my account. Even if it was only $1.67, I knew how much I had.
Now in theory, I could still track my account, just by adding $1 to every purchase or writing down two transactions every time I did one. That's a good theory, but I can't seem to make that work either. Sometimes, the bank doesn't take out $1 (I'm still not sure why) and sometimes they wait several days to take out the $1. So my balance never matches what the bank says.
And as for the forced savings, it's my own money that I'm saving. If I wanted to put money in savings, I could move it myself. It's not like the interest rate on savings is all that much about the rate on checking. So what's the big deal?
Anyone else using these types of accounts? Good, bad or indifferent?
Saturday, October 24, 2009
Very interesting
No doubt, credit card rates are on the rise. We've heard it would happen and it's happening. But it seems that First Premier Bank, based in South Dakota, may be stretching the limits (if there are any).
Gordon Hageman lives in the San Diego, California area and was sent an invitation for a pre-approved credit card with an interest rate of 79.9%. Yep, just shy of 80%. Since it's probably compounded monthly, the actual yearly rate will come out closer to 103%.
Now Gordon admits his credit isn't perfect, but he thinks it's about average. Gordon called the bank to make sure he wasn't misreading it and he wasn't. First Premier claims to be the country's 10th largest issuer of Visa and MasterCards and "focuses on individuals who have less than perfect credit, but are actually still creditworthy."
I'm 103% certain that First Premier probably loses a lot of money on some people who get the card and never pay their bills. I'm certain they also make a profit. I was unable to determine who owns First Premier or to find any information about their profits & losses.
Now Mr. Hageman thinks that possibly First Premier may be trying to take advantage of him. He noted that the interest rate was not declared on the cover letter, but was on the included "fine print disclosure" (the picture accompanying the article seemed to indicate the interest rate was in large print and the rest of the disclosure was fine print).
I actually see nothing wrong with First Premier's actions. The interest rate was disclosed, on the disclosure statement. Mr. Hageman has a choice to sign up for the card, or frame the offer for continued humor (I'd laugh at it every day). Nowhere in our constitution are citizens guaranteed the right to life, liberty and low interest credit cards.
(Source for post is here).
Gordon Hageman lives in the San Diego, California area and was sent an invitation for a pre-approved credit card with an interest rate of 79.9%. Yep, just shy of 80%. Since it's probably compounded monthly, the actual yearly rate will come out closer to 103%.
Now Gordon admits his credit isn't perfect, but he thinks it's about average. Gordon called the bank to make sure he wasn't misreading it and he wasn't. First Premier claims to be the country's 10th largest issuer of Visa and MasterCards and "focuses on individuals who have less than perfect credit, but are actually still creditworthy."
I'm 103% certain that First Premier probably loses a lot of money on some people who get the card and never pay their bills. I'm certain they also make a profit. I was unable to determine who owns First Premier or to find any information about their profits & losses.
Now Mr. Hageman thinks that possibly First Premier may be trying to take advantage of him. He noted that the interest rate was not declared on the cover letter, but was on the included "fine print disclosure" (the picture accompanying the article seemed to indicate the interest rate was in large print and the rest of the disclosure was fine print).
I actually see nothing wrong with First Premier's actions. The interest rate was disclosed, on the disclosure statement. Mr. Hageman has a choice to sign up for the card, or frame the offer for continued humor (I'd laugh at it every day). Nowhere in our constitution are citizens guaranteed the right to life, liberty and low interest credit cards.
(Source for post is here).
Tuesday, October 13, 2009
What were you thinking? - Follow up
Back in March, I posted an entry about a local man, a deacon in his church, who robbed a bank. My post is here, but in summary, the man was hailed by many as a "good" man who just snapped. He was seen walking into the bank wearing a mask and police were called. He ended up holding two bank employees hostage during the attempt, before he eventually gave himself up.
Last week, Bruce Lee Windsor plead guilty in Federal court to the bank robbery. Windsor, father of 4, stepped up to the task and admitted his actions. He still faces two counts of kidnapping in state court. Whether he will plead guilty in this case or attempt a defense is not yet clear.
Windsor faces up to 25 years on the Federal case (sentencing date not set). According to this news article he did not have a criminal past, however he was facing a $30,000 lawsuit. The article also says the "federal system doesn’t allow parole." With that information and the upcoming state trial, Mr. Windsor will be away from his children for a long, long, long time.
Some comments I've seen on the newspaper articles question Windsor's status as a "good man." Some people had question about his real estate dealings (the lawsuit is one result). He did have financial problems and apparently was looking for a way out.
There are a lot of victims in this story. Some are quick to point out his wife and children, who still face the same problems he faced before the robbery and now face new problems. They are correct in pointing out these problems. Others are correct to point out the two people held hostage, who feared for their life as well as all of the ones in the bank. From a strictly dollars and cents viewpoint, there's lost business at the bank, cost of the police force to come out and other business aspects. I mentioned back in March that I knew a family impacted by the event (much less than those immediately involved).
I go back to my original question - What were you thinking? Obviously, Windsor wasn't thinking. The Greenville News reports that FBI has a 60% clearance rate in solving bank robberies. You have only a 2 in 5 chance of getting anything and then it's only likely to be "couple of thousand dollars." As Miller Shealy, a former federal prosecutor and now Charleston School of Law professor says, "the bank robber is a more desperate form of criminal and not a very smart one these days." (see here)
I hold no special animosity towards Mr. Windsor, but I also hold no special compassion. Maybe he was a "good man", but his actions deserve punishment. The length of that punishment will soon become obvious.
Last week, Bruce Lee Windsor plead guilty in Federal court to the bank robbery. Windsor, father of 4, stepped up to the task and admitted his actions. He still faces two counts of kidnapping in state court. Whether he will plead guilty in this case or attempt a defense is not yet clear.
Windsor faces up to 25 years on the Federal case (sentencing date not set). According to this news article he did not have a criminal past, however he was facing a $30,000 lawsuit. The article also says the "federal system doesn’t allow parole." With that information and the upcoming state trial, Mr. Windsor will be away from his children for a long, long, long time.
Some comments I've seen on the newspaper articles question Windsor's status as a "good man." Some people had question about his real estate dealings (the lawsuit is one result). He did have financial problems and apparently was looking for a way out.
There are a lot of victims in this story. Some are quick to point out his wife and children, who still face the same problems he faced before the robbery and now face new problems. They are correct in pointing out these problems. Others are correct to point out the two people held hostage, who feared for their life as well as all of the ones in the bank. From a strictly dollars and cents viewpoint, there's lost business at the bank, cost of the police force to come out and other business aspects. I mentioned back in March that I knew a family impacted by the event (much less than those immediately involved).
I go back to my original question - What were you thinking? Obviously, Windsor wasn't thinking. The Greenville News reports that FBI has a 60% clearance rate in solving bank robberies. You have only a 2 in 5 chance of getting anything and then it's only likely to be "couple of thousand dollars." As Miller Shealy, a former federal prosecutor and now Charleston School of Law professor says, "the bank robber is a more desperate form of criminal and not a very smart one these days." (see here)
I hold no special animosity towards Mr. Windsor, but I also hold no special compassion. Maybe he was a "good man", but his actions deserve punishment. The length of that punishment will soon become obvious.
Wednesday, September 23, 2009
Debtor's Revolt
It seems that Ann Minch of Red Bluff, Ca. has a problem with her bank - Bank of America. The Huffington Post (source) found her YouTube video declaring war on the bank. They have raised the interest rate on her credit card all the way to 30%. According to the article, she's made the minimum monthly payments for "several years" and never missed a payment. She even paid extra from time to time, sometimes $50, sometimes $100. And they raised her rates in reward for the loyalty.
So, Ann is getting even. She went down to her branch and closed her account and moved the money to local community banks. And now she's refusing to pay the balance on the card until they lower her rate. She's upset that the bank got a government bailout and now won't help her.
Well, I'm not sure she's following the right track (even though she has gotten her rate reduced). I'm not fan of BofA, but you have to admit they have ATMs everywhere. If Ann decides to use an ATM and her local community bank doesn't have one handy, she's likely to pay a $3 fee (or more) to get the money she moved. And refusing to pay a balance she legitimately owes can wind up trashing her credit report and causing her to owe more than she started with.
I did a little simple math to find out what her credit card has been costing her. According to the article, her current balance is $5,943.34. At her rate of 12.99%, that's about $772 in interest she's been paying every year. Wouldn't she be better off buying things with cash, instead of charging them? I'm sure she bought some stuff on sale, but did she save $772 each year on sales?
I was curious as I read this, what is my interest rate? See, I don't even know (or care). I pay off my balance each month and don't pay interest. Well, a couple of times in the last few years I have. I slipped up and made a late payment and was charged interest. Net fees & interest over the last 5 years has been under $200. I don't want to pass this off as minor, that's $200 that I could have used for something else. It's a penalty I've paid for my mistakes. Ann Minch's penalty is $772 a year. (turns out my rate is 7.9% for purchases - from Capital One).
Tuesday, September 15, 2009
Debit cards and overdraft fees
Last night there was a story on NBC news about a young soldier, Private Cid, who was having problems with his bank debit card. Since a couple of my family members recently had similar problems, I felt like it was time to speak out. I did some research and found some potential answers, political and practical. This may be long, but I encourage you to read on.
It seems young Private Cid uses his debit card daily for a lot of small transactions. In fact, the video story can be found at this site (I just rewatched it) and it says the average debit card transaction is under $20. In one day Private Cid had five such transactions, for pizza, sandwiches and such totaling $33.41. Trouble was, he didn't have the money in the bank and encountered $175 in overdraft charges. In a single five month period, he had total overdraft charges of $1785. For a young army private, that's more than a month's salary.
Now the individual in this story is an army soldier which brings a special feeling of patriotism (no mention was made of where he's serving). But this could easily apply to my son or my daughter. And since I know a few people who recently faced similar situations, I paid special attention. Overdraft fees are a "cash cow" for the banks and they will make over $27BILLION with these fees. I can be somewhat cold sometimes (my kids think all the time) and I think the bank deserves to make a profit, but they don't have to make it all on me (or my family).
There are some proposals that may change the way these overdraft fees work. I tend to favor less legislation, but in this case, the banks have not been playing nice (even if they've been playing by the rules) and it's probably time to change the rules. However, changing the rules won't be 100% in favor of the consumer and the consumer is bound to lose some in the deal. For example, banks claim they pay these over-charges as a courtesy to consumers and that "6 percent of consumers were glad their charges were paid, despite the overdraft fee." Overdraft fees only affects about 18% of Americans (details on the legislation and the source for this is here -- do I get bonus points from liberals by quoting a newspaper with "democrat" in the name?).
But if you're counting on the government to bail you out of overdraft prison, you might be stuck for a while. So I have a simple solution and some alternatives to help you in the mean time. They do require a little discipline and I know that's hard to come by these days. One simple solution is to keep track of how much money is in your account and never go below $0. Only the government can keep spending when the balance reaches $0 and if you're not printing money in your spare room, you can't get away with it.
Another solution is to "hide" some money in your account. The amount depends on the most you charge in a given day. Say you regularly charge about $33.41 in a day like Private Cid. You put an extra $35 in your account and mentally subtract that from the balance each time you check it. For easier math, just make it $100. Then when your balance goes below $100, you think "Oh No, I've overdrawn" and you put it back. This requires some extra discipline because you have to make it a practice NOT to spend that $100.
Traditional banks sometimes offer "sweep" accounts, where you can have money in savings and have it "sweep" to checking when you overdraft. This, or a line of credit, will effectively do the same as "hidden" money. But these aren't always available to everyone.
Finally, I'll mention a new, high-tech way to help. This is especially relevant to the two people I know who recently had over $100 in overdraft fees, but also relevant to everyone. My bank of choice is BB&T. They offer "Alerts" on their website. In fact, I just signed up for alerts myself. You go to the website and specify that you want to be notified when your balance drops below a certain level (I chose $100). You can have it alert you when a deposit is made, or when a check clears. You can have it alert you when you get an NSF charge (that way you can STOP SPENDING). You can even have it send you your balance each day so you know how much you have to spend.
BB&T alerts are free and can be sent to your email or even your cellphone (normal text rates apply). You can specify what time of day the alerts are sent so you don't get woken up at 8am every day. While I don't intend this as a commercial for BB&T, I strongly encourage everyone (especially overdraft prone people) to find out what their bank offers.
* Update - my editor in chief (wife) pointed out that this doesn't always take in to account pending transactions. Also, I noticed that some alerts don't come out on weekends and holidays. You still have to have some personal responsibility. But this can help you manage your account.
It seems young Private Cid uses his debit card daily for a lot of small transactions. In fact, the video story can be found at this site (I just rewatched it) and it says the average debit card transaction is under $20. In one day Private Cid had five such transactions, for pizza, sandwiches and such totaling $33.41. Trouble was, he didn't have the money in the bank and encountered $175 in overdraft charges. In a single five month period, he had total overdraft charges of $1785. For a young army private, that's more than a month's salary.
Now the individual in this story is an army soldier which brings a special feeling of patriotism (no mention was made of where he's serving). But this could easily apply to my son or my daughter. And since I know a few people who recently faced similar situations, I paid special attention. Overdraft fees are a "cash cow" for the banks and they will make over $27BILLION with these fees. I can be somewhat cold sometimes (my kids think all the time) and I think the bank deserves to make a profit, but they don't have to make it all on me (or my family).
There are some proposals that may change the way these overdraft fees work. I tend to favor less legislation, but in this case, the banks have not been playing nice (even if they've been playing by the rules) and it's probably time to change the rules. However, changing the rules won't be 100% in favor of the consumer and the consumer is bound to lose some in the deal. For example, banks claim they pay these over-charges as a courtesy to consumers and that "6 percent of consumers were glad their charges were paid, despite the overdraft fee." Overdraft fees only affects about 18% of Americans (details on the legislation and the source for this is here -- do I get bonus points from liberals by quoting a newspaper with "democrat" in the name?).
But if you're counting on the government to bail you out of overdraft prison, you might be stuck for a while. So I have a simple solution and some alternatives to help you in the mean time. They do require a little discipline and I know that's hard to come by these days. One simple solution is to keep track of how much money is in your account and never go below $0. Only the government can keep spending when the balance reaches $0 and if you're not printing money in your spare room, you can't get away with it.
Another solution is to "hide" some money in your account. The amount depends on the most you charge in a given day. Say you regularly charge about $33.41 in a day like Private Cid. You put an extra $35 in your account and mentally subtract that from the balance each time you check it. For easier math, just make it $100. Then when your balance goes below $100, you think "Oh No, I've overdrawn" and you put it back. This requires some extra discipline because you have to make it a practice NOT to spend that $100.
Traditional banks sometimes offer "sweep" accounts, where you can have money in savings and have it "sweep" to checking when you overdraft. This, or a line of credit, will effectively do the same as "hidden" money. But these aren't always available to everyone.
Finally, I'll mention a new, high-tech way to help. This is especially relevant to the two people I know who recently had over $100 in overdraft fees, but also relevant to everyone. My bank of choice is BB&T. They offer "Alerts" on their website. In fact, I just signed up for alerts myself. You go to the website and specify that you want to be notified when your balance drops below a certain level (I chose $100). You can have it alert you when a deposit is made, or when a check clears. You can have it alert you when you get an NSF charge (that way you can STOP SPENDING). You can even have it send you your balance each day so you know how much you have to spend.
BB&T alerts are free and can be sent to your email or even your cellphone (normal text rates apply). You can specify what time of day the alerts are sent so you don't get woken up at 8am every day. While I don't intend this as a commercial for BB&T, I strongly encourage everyone (especially overdraft prone people) to find out what their bank offers.
* Update - my editor in chief (wife) pointed out that this doesn't always take in to account pending transactions. Also, I noticed that some alerts don't come out on weekends and holidays. You still have to have some personal responsibility. But this can help you manage your account.
Wednesday, July 15, 2009
How much is that pack of cigarettes - Part 2
Back in May a year ago, I posted this entry about the cost of a pack of cigarettes. I showed how a pack a day, started at age 15 continued until retirement could cost you up to $1.6 MILLION.
Turns out, I may have UNDERestimated. This story, tells about a man who used his debit card to buy a pack and was charged slightly over 23 QUADRILLION dollars. Well, actually it was 148 trillion over, but what's a few trillion when you get that high?
After a while, he was able to convince Bank of America that this was an error and they resolved the problem. But it makes me wonder, how many packs could he have purchased for that much?
I heard this story on the radio today, then captured the link from Adam. Thanks Adam! Guess it's time to redo my spreadsheet.
At least we can be thankful that the debt hasn't climbed that high yet.
Turns out, I may have UNDERestimated. This story, tells about a man who used his debit card to buy a pack and was charged slightly over 23 QUADRILLION dollars. Well, actually it was 148 trillion over, but what's a few trillion when you get that high?
After a while, he was able to convince Bank of America that this was an error and they resolved the problem. But it makes me wonder, how many packs could he have purchased for that much?
I heard this story on the radio today, then captured the link from Adam. Thanks Adam! Guess it's time to redo my spreadsheet.
At least we can be thankful that the debt hasn't climbed that high yet.
Thursday, May 21, 2009
Credit Card Bill
You may have heard that the congress has passed a new bill, changing the way credit cards work. Congress is working to protect consumers, who have been bearing the burdens of the companies (who else would bear the burden? See the bottom of this note). No matter that the Federal Reserve had already tightened a lot of the rules, congress wanted it's name on a bill.
The new law (to be signed soon) will make it harder for people under age 21 to get cards, and "it would also ban rate hikes unless a consumer is more than 60 days late -- and then restore the previous rate after six months if minimum payments are made." (According to CNN) There are other items reported to be in the bill, I found a good list at the Simple Dollar (this site). He even some predictions as to what might come about in the future. Some of bill's line items include restrictions on raising interest rates without a 45 day notice, putting a stop to double-cycle billing, which hit me back in April 2007 (see here). Teaser rates that last a couple of months would be gone for good.
So what do you think of this new bill? I'll share my opinion. I don't think much about it. And neither should you. Not that I think bad about it, just that I haven't wasted many brain cycles thinking about it.
I'm one of the freeloaders, the folks who charge using their credit card, then pay it off each month. I never (except in April 2007) get hit with interest rates, fees, etc. In fact, I get reward points which I trade in on free travel, so I'm making money off the cards (well, not much). I pay no annual fee and therefore, I'm getting a free ride. The credit card companies are making this money by charging fees on other people. They charge interest, late fees and annual fees.
So this sounds like a reverse "tax", much like the lottery (see my note here), a Robin Hood thing - take from the rich, give to the poor. So this legislation seems like a good idea, right?
Actually, I think it's not a good idea. First, there seems to be some hypocrisy here. We're telling credit card companies they've been bad corporate citizens, but we're not telling the consumers they've been bad. Isn't that a little one-sided. Additionally at a time when we're trying to encourage our banks and financial institutions to be cut their expenses and be more liquid, we are cutting one of their tools to increase their liquidity. If they can't make a profit "on the backs of the consumers," how will they make a profit? If they don't make a profit, they will go out of business and then who profits? Certainly not the consumer.
Many conservatives have been saying that a likely change will be increases in annual fees. People like me will suddenly see new fees where they had none before. The Simple Dollar (another reference) disagrees. No problem, I'll change cards or eliminate them all together.
You may say that it's fine for me to suggest I'll change or eliminate cards, what about those who can't afford to do that? They have a super high balance and bad credit and can't get new cards. My answer is simple, if you can't afford the stuff you bought, you shouldn't have bought it. Credit cards are nothing more than a way of deferring payment on something. If you can't afford it today, what makes you think you can afford it a month from now? Instead of paying $25 a month for that big LCD TV, why not save $25 a month and pay for it in cash?
One thing is certain, this new legislation will make credit cards less attractive. Those with poor credit are less likely to get cards, because the companies can't charge the exorbitant fees. And those who pay the cards off monthly are likely to see less benefits. In reality, this is probably a good thing. Which brings me back to the original statement. Why did congress do this? Most of the line items in this bill were already set to take effect next year due to the changes made by the Federal Reserve. So why all the ranting and raving? Because congress wanted to have their name beside something good.
Seems like much ado about nothing.
Wednesday, March 18, 2009
Can you do your job TOO well?
Suppose that you were in a job where a lot of people were doing the same thing. Now suppose all of the people around you were failing at their job, but you were succeeding. The boss comes around, you would expect he would praise you, right?
Well not if you were a bank. Seems a bank in Massachusetts was doing a good job. Actually, an exceptional job. They had NO bad loans. While this article isn't clear, I would assume they got no TARP money since they had no Troubled Assets that needed Recovering (that's the TAR part of TARP).
But instead of praising the bank, the FDIC is criticizing them. Saying they should have taken more risk. Helped out "the community" more. Now I'm all about helping the community. Search back through my blog for the word VITA and you'll see the way I'm doing this now. Taking every Friday & Saturday afternoon, not to mention the classes I went to before that. But that's my choice.
If this bank wants to help the community, there are lots of ways they can participate. I'm willing to bet they already help in a lot of ways, they've just chosen not to write bad loans. Isn't that what got us into this trouble?
Well not if you were a bank. Seems a bank in Massachusetts was doing a good job. Actually, an exceptional job. They had NO bad loans. While this article isn't clear, I would assume they got no TARP money since they had no Troubled Assets that needed Recovering (that's the TAR part of TARP).
But instead of praising the bank, the FDIC is criticizing them. Saying they should have taken more risk. Helped out "the community" more. Now I'm all about helping the community. Search back through my blog for the word VITA and you'll see the way I'm doing this now. Taking every Friday & Saturday afternoon, not to mention the classes I went to before that. But that's my choice.
If this bank wants to help the community, there are lots of ways they can participate. I'm willing to bet they already help in a lot of ways, they've just chosen not to write bad loans. Isn't that what got us into this trouble?
Wednesday, December 10, 2008
A Rescue Plan! (Diego style)
Ok, watching Go Diego Go with my 2 year old grandson has warped my mind. Everyone is calling the bailout plan a "rescue plan" and my mind switches to a silly video (see here). I get to singing the little song every time I hear it.
Previously, I posted on pyramid schemes (here) and multi-level marketing (here). I also talked a little about profits (here) and said they were a good thing. My goal was to get to this post and after a few interruptions I'm here.
My thought all along on this bail out plan (excuse me Rescue Plan! - Diego is very emphatic) is that it reminds me of a pyramid scheme. Everyone is saying that the problem we have is because of bad home loans. Ok, I've blogged about that too (here, here, here and here). I've been talking about this for over a year. The problem I have now is with our solution.
We've decided that the way to fix the problem is to allow more people to borrow more money. See, the problem before was that they couldn't repay all that they had borrowed, so now we're lending them more. Makes sense, right?
This is like the pyramid scheme. As long as people are buying and selling homes, we can keep the economy flying. Once people stop and look at what they really have, it all falls apart. I really don't like the alternative (lots of foreclosures, depressed home values, layoffs, general depression), but I honestly believe the longer we delay this the worse it will be. Someday, we have to pay the piper and it won't be pretty.
Previously, I posted on pyramid schemes (here) and multi-level marketing (here). I also talked a little about profits (here) and said they were a good thing. My goal was to get to this post and after a few interruptions I'm here.
My thought all along on this bail out plan (excuse me Rescue Plan! - Diego is very emphatic) is that it reminds me of a pyramid scheme. Everyone is saying that the problem we have is because of bad home loans. Ok, I've blogged about that too (here, here, here and here). I've been talking about this for over a year. The problem I have now is with our solution.
We've decided that the way to fix the problem is to allow more people to borrow more money. See, the problem before was that they couldn't repay all that they had borrowed, so now we're lending them more. Makes sense, right?
This is like the pyramid scheme. As long as people are buying and selling homes, we can keep the economy flying. Once people stop and look at what they really have, it all falls apart. I really don't like the alternative (lots of foreclosures, depressed home values, layoffs, general depression), but I honestly believe the longer we delay this the worse it will be. Someday, we have to pay the piper and it won't be pretty.
Saturday, March 08, 2008
Foreclosure relief
Back on January 28, I asked the question "When is a rebate, not a rebate?"
Now I ask about foreclosure relief. Seems there are two types of people who are being foreclosed on, first the man (or woman) who simply can't afford his (or her) house. Maybe he had some credit problems when he mortgaged the house and had to settle for a so-called subprime loan (I hate that term). Now the payments are going up. Or maybe some other bad luck has hitten, he's maxed out the credit cards, lost a job or other ways pinched. Bottom line, he can't afford the payments.
The second type of foreclosure is the person who looked for bargains, bought homes on the margin, with little or no money down. Now that home prices are falling, he owes more on the house than it's worth and the prices are likely to never (or at least not soon) go back up. His investment has lost money and he is looking to get out. He's decided to stop throwing more money at it and he will just let the house go to foreclosure.
Government is talking about some sort of foreclosure relief. In the short term, the banks are offering extensions before they enter the foreclosure process. This isn't really an extension, without this if a consumer contacted his bank he would already get extensions. Banks don't want to foreclose, they have enough houses and look at it as a lose-lose proposition. If they do foreclose, they lose money because they can't sell the house.
The short term solution is good because (hopefully) it will make some consumers wake up. They can re-negotiate their mortgage and possibly keep a house they might would lose. Sure it's a stop-gap, but it will help some.
Longer term, there are calls for banks to "forgive" parts of mortgages. I think this is a bad idea. If a house is now worth less than the mortgage, the bank "forgives" the execess mortgage amount. This rewards buyers who put little down or used bad mortgages. It also invalidates a contract. The buyer signed a contract to pay a certain dollar amount, now he's backing out. If the government forces banks to accept these contract changes, the banks lose and will likely not lend money as quickly in the future.
This mess was created over a period of several years, it will take several years to get out of it. Just because this is an election year doesn't mean an action has to be taken. Some people will lose homes, some people will not be eligible for loans. Some young couple who wants a home will be turned down and they didn't do anything wrong. It's just that now they look like a credit risk.
I encourage the government not to do anything to adjust mortages. I also encourage banks and other financial institutions to look carefully at future customers. Any who walked away from a house should be treated like the risk they are. Those who took out bad mortgages should also be treated as a risk.
Now I ask about foreclosure relief. Seems there are two types of people who are being foreclosed on, first the man (or woman) who simply can't afford his (or her) house. Maybe he had some credit problems when he mortgaged the house and had to settle for a so-called subprime loan (I hate that term). Now the payments are going up. Or maybe some other bad luck has hitten, he's maxed out the credit cards, lost a job or other ways pinched. Bottom line, he can't afford the payments.
The second type of foreclosure is the person who looked for bargains, bought homes on the margin, with little or no money down. Now that home prices are falling, he owes more on the house than it's worth and the prices are likely to never (or at least not soon) go back up. His investment has lost money and he is looking to get out. He's decided to stop throwing more money at it and he will just let the house go to foreclosure.
Government is talking about some sort of foreclosure relief. In the short term, the banks are offering extensions before they enter the foreclosure process. This isn't really an extension, without this if a consumer contacted his bank he would already get extensions. Banks don't want to foreclose, they have enough houses and look at it as a lose-lose proposition. If they do foreclose, they lose money because they can't sell the house.
The short term solution is good because (hopefully) it will make some consumers wake up. They can re-negotiate their mortgage and possibly keep a house they might would lose. Sure it's a stop-gap, but it will help some.
Longer term, there are calls for banks to "forgive" parts of mortgages. I think this is a bad idea. If a house is now worth less than the mortgage, the bank "forgives" the execess mortgage amount. This rewards buyers who put little down or used bad mortgages. It also invalidates a contract. The buyer signed a contract to pay a certain dollar amount, now he's backing out. If the government forces banks to accept these contract changes, the banks lose and will likely not lend money as quickly in the future.
This mess was created over a period of several years, it will take several years to get out of it. Just because this is an election year doesn't mean an action has to be taken. Some people will lose homes, some people will not be eligible for loans. Some young couple who wants a home will be turned down and they didn't do anything wrong. It's just that now they look like a credit risk.
I encourage the government not to do anything to adjust mortages. I also encourage banks and other financial institutions to look carefully at future customers. Any who walked away from a house should be treated like the risk they are. Those who took out bad mortgages should also be treated as a risk.
Thursday, November 29, 2007
Citibank - proof the "subprime" lending mess is bigger than you think
Unless you missed it, Citibank (actually parent company Citigroup) got a bail-out yesterday from Abu Dhabi, the investment arm of the Saudi government. The Sauds paid $7.5 billion (yes, Billion) for a 5% stake of Citi. As such, they become Citi's biggest shareholder.
Some will see this as Bush's fault, others as Clinton's. Some will see this as a problem with big oil. Others will see this as an attempt by the middle eastern bloc to control the US. Any or all of those may be valid.
I see this as a sigh that the "subprime" lending mess is bigger than you think. It has impacted one of the top two banks in the nation (depending on how you look at it, Citibank is #1 or #2, Bank of America shares the lead with them).
We can no longer blame the subprime mess on irresponsible banks or irresponsible borrowers. I don't believe there is any simple "fix" for the problem and I believe it will affect us all.
Some will see this as Bush's fault, others as Clinton's. Some will see this as a problem with big oil. Others will see this as an attempt by the middle eastern bloc to control the US. Any or all of those may be valid.
I see this as a sigh that the "subprime" lending mess is bigger than you think. It has impacted one of the top two banks in the nation (depending on how you look at it, Citibank is #1 or #2, Bank of America shares the lead with them).
We can no longer blame the subprime mess on irresponsible banks or irresponsible borrowers. I don't believe there is any simple "fix" for the problem and I believe it will affect us all.
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