Tag: banking

Credit Card Signatures Are About to Become Extinct

Seth Anderson0 comment

Adult Signature Not Required
Adult Signature Not Required…

The New York Times writes:

Credit card networks are finally ready to concede what has been obvious to shoppers and merchants for years: Signatures are not a useful way to prove someone’s identity. Later this month, four of the largest networks — American Express, Discover, Mastercard and Visa — will stop requiring them to complete card transactions.

The signature, a centuries-old way of verifying identity, is rapidly going extinct. Personal checks are anachronisms. Pen-and-ink letters are scarce. When credit card signatures disappear, handwritten authentications will be relegated to a few special circumstances: sealing a giant transaction like a house purchase, or getting a celebrity to autograph a piece of memorabilia — and even that is being supplanted by the cellphone selfie.

Card signatures won’t vanish overnight. The change is optional, leaving retailers to decide whether they want to stop collecting signatures.

(click here to continue reading Credit Card Signatures Are About to Become Extinct – The New York Times.)

finally!

Speaking for myself, I’ve been using doodles or wavy lines for years and the only time I’ve ever been questioned was once, when voting.1 

Nobody ever even seems to notice or care my signature looks like a sine wave.

One Is The Loneliest Number
One Is The Loneliest Number

Footnotes:
  1. I had to produce my driver license to receive my ballot [↩]

Merchants Chip-Card Headaches

Seth Anderson0 comment

To Safeguard Wealth Men Established Banks
To Safeguard Wealth Men Established Banks

I’m surprised that merchants haven’t stepped up their transition to chip-cards, especially now that the issuing banks are no longer responsible for fraud. All of our credit cards have chips in them, even some store-issued cards.

For millions of merchants that haven’t yet met the credit-card industry’s deadline for accepting more secure plastic, the bill is coming due.

As of last October, retailers who didn’t make the transition to chip cards are on the hook for counterfeit transactions that used to be covered by card-issuing banks. The costs of the fraud, known in the industry as chargebacks, are starting to stack up.

…

The credit-card industry and retailers battled for a decade over rolling out chip cards, which are more secure but also require new payment terminals and take more time at checkout. The balance tipped against retailers after a spate of cyberattacks hit major chains such as Target Corp. and Home Depot Inc. and compromised millions of cards.

Target, Home Depot and some other large merchants, including Wal-Mart Stores Inc., are now processing chip transactions, but there are still plenty that haven’t installed the new equipment and are for the first time facing sizable costs for counterfeit transactions.

Financial institutions have been issuing the new cards to customers for more than a year, but just 22% of retailers are able to process them, according to a survey released last month by Boston Retail Partners. Another 53% of the merchants in the survey planned to install the systems within the next 12 months.

Some of them didn’t want to install the new equipment before the busy holiday shopping season and have been surprised to discover that there is a long wait to get it certified, according to payments executives and merchants.

(click here to continue reading More Chip-Card Headaches, This Time for Merchants – WSJ.)

I wonder if lawyers for various merchants are considering making consumers responsible? Or what really is the hold up? Boggles the mind that only 1/5 of the retailers have converted their credit-card accepting machines. This isn’t a new thing, sprung without warning. The change has occurred over years…

Credit Card Fraud
Credit Card Fraud – all charges eventually reversed by my bank…

Invasion of the Home Snatchers

Seth Anderson0 comment

Life's short enough to remain optimistic
Life’s short enough to remain optimistic.

I rented The Big Short recently (via Netflix), so I’ve been researching some of what was written about the mortgage fraud, including this great article by Matt Taibi about how the banks churned out so many mortgages they didn’t have time to actually hold the deeds before re-selling:

If you’re foreclosing on somebody’s house, you are required by law to have a collection of paperwork showing the journey of that mortgage note from the moment of issuance to the present. You should see the originating lender (a firm like Countrywide) selling the loan to the next entity in the chain (perhaps Goldman Sachs) to the next (maybe JP Morgan), with the actual note being transferred each time. But in fact, almost no bank currently foreclosing on homeowners has a reliable record of who owns the loan; in some cases, they have even intentionally shredded the actual mortgage notes. That’s where the robo-signers come in. To create the appearance of paperwork where none exists, the banks drag in these pimply entry-level types — an infamous example is GMAC’s notorious robo-signer Jeffrey Stephan, who appears online looking like an age-advanced photo of Beavis or Butt-Head — and get them to sign thousands of documents a month attesting to the banks’ proper ownership of the mortgages.

This isn’t some rare goof-up by a low-level cubicle slave: Virtually every case of foreclosure in this country involves some form of screwed-up paperwork. “I would say it’s pretty close to 100 percent,” says Kowalski. An attorney for Jacksonville Area Legal Aid tells me that out of the hundreds of cases she has handled, fewer than five involved no phony paperwork. “The fraud is the norm,” she says.

Kowalski’s current case before Judge Soud is a perfect example. The Jacksonville couple he represents are being sued for delinquent payments, but the case against them has already been dismissed once before. The first time around, the plaintiff, Bank of New York Mellon, wrote in Paragraph 8 that “plaintiff owns and holds the note” on the house belonging to the couple. But in Paragraph 3 of the same complaint, the bank reported that the note was “lost or destroyed,” while in Paragraph 4 it attests that “plaintiff cannot reasonably obtain possession of the promissory note because its whereabouts cannot be determined.”

The bank, in other words, tried to claim on paper, in court, that it both lost the note and had it, at the same time. Moreover, it claimed that it had included a copy of the note in the file, which it did — the only problem being that the note (a) was not properly endorsed, and (b) was payable not to Bank of New York but to someone else, a company called Novastar.

(click here to continue reading Invasion of the Home Snatchers | Rolling Stone.)

Protecting Bank of America
Protecting Bank of America

Still amazed that we as a nation did not storm Wall Street with pitchforks and throw a bunch of bankers on a boat headed right for Somalia or somewhere similar. And in fact, now that a few years have passed, collateralized debt obligations (CDOs) are back, and the cycle of fraud continues.

The 2008 financial crisis gave a few credit products a bad reputation. Like collateralized debt obligations, known as CDOs. Or credit-default swaps. But now, a marriage of the two terms (using leverage, of course) is making a comeback — it’s just being called something else. Goldman Sachs Group Inc. is joining other banks in peddling something they’re referring to as a “bespoke tranche opportunity.”

That’s essentially a CDO backed by single-name credit-default swaps, customized based on investors’ wishes. The pools of derivatives are cut into varying slices of risk that are sold to investors such as hedge funds. The derivatives are similar to a product that became popular during the last credit boom and exacerbated losses when markets seized up. Demand for this sort of exotica is returning now and there’s no real surprise why. Everyone is searching for yield after more than six years of near-zero interest rates from the Federal Reserve, not to mention stimulus efforts by central banks in Japan and Europe. The transactions offer the potential for higher returns than buying a typical corporate bond, especially if an investor focuses on first-loss slices or uses borrowed money, or both. Obviously, the downside may be much greater, too. Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment.

(click here to continue reading Goldman Sachs Hawks CDOs Tainted by Credit Crisis Under New Name – Bloomberg.)

U Pick Parts
U Pick Parts

Sub-prime auto loans are the next big thing, but some bankers whine that The Big Short might be interfering with their con…

Auto loans made to risky borrowers and then bundled into bonds sold to investors have been making headlines for years, with some voicing concerns over an apparent resemblance between the so-called subprime auto market and the subprime housing market that sparked the 2008 financial crisis and ensuing recession.

Indeed, the parallels may not have been lost on investors either. In a note published on Wednesday, Morgan Stanley analysts led by Jeen Ng wonder whether last year’s debut of The Big Short—the film version of the Michael Lewis book published in 2010—has played a role in sparking fresh worries over the asset class.

(click here to continue reading Morgan Stanley: People Might Be Worried About Subprime Auto Bonds Because of the ‘Big Short’ Movie – Bloomberg.)

as Gawker writer Hannah Gold puts it:

The memo reads:

“However, concerns about growing recessionary risks – and perhaps even the popularity of the recent movie The Big Short – have motivated investors to investigate any potential source of weakness. Consumer sectors that involve large initial outlays, such as housing and autos, provide a natural place to start. Combine that with recent headlines from Fitch suggesting that delinquencies in some sectors of the auto ABS market have reached 20- year highs, and you get a target sector for investors’ concerns.

Those concerns are not without merit, at least as far as delinquencies are concerned. It is interesting to highlight that as the housing market continues to heal from its post-crisis depths, mortgage delinquencies have been on a steady decline while auto delinquencies have been going in the opposite direction.”

Or maybe potential investors are suspicious of auto loans because…they’re actual villains. Critics of the auto ABS have been pointing out parallels between the subprime auto market and the subprime housing market for years. Hopefully this story has a slightly less disastrous ending.

(click here to continue reading Morgan Stanley Analyst Fears the Movie The Big Short Has Discouraged Investors From Buying Risky Auto Loans.)

Great. Just in time for a wave of deregulation if Hillary Clinton wins in 2016, or worse, Donald Trump, or even worse, Ted Cruz…

The Uberization of Money

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Of course it buys happiness
Of course it buys happiness…

I hadn’t considered this angle, but it seems as if this will be an interesting development in the near-future. As an aside, I had to go to my bank recently to get a check reissued, and needed to get my form letter notarized by a banker. The banker had to stamp the document, and then scribble a handwritten record of it in some ancient log book. I joked with the guy that this procedure probably hadn’t changed in 200 years, he smirked agreement. Amusingly, there was an advertisement on the banker’s desk touting their smartphone payment options. Yet the notarization process was slow, and analog.  Ripe for change, just like financial transactions. Have you ever looked at a mortgage document for instance? Pages and pages of crap that nobody reads, or comprehends. Anyway…

Over the next decade, the familiar 20th-century modes of banking and investing will give way to something very different. We are on the verge of the Uberization of finance, which will bring multiple new opportunities but also a range of new risks.

The ubiquitous ride-sharing company uses a simple device—the smartphone—to connect people who want rides with people who want to drive them. Uber is a high-tech middleman that is making the intermediaries of the past obsolete. The financial world is one of the most mediated industries on the planet, and that is precisely what is about to change. Uberization also means using vast amounts of data to make those connections feasible.…

Technology is one source of this shift, but so is legislation. The JOBS Act of 2012 contained a seemingly innocuous provision making it easier for startups to raise money from investors previously deemed too poor to dabble in such ventures. At the end of October, the Securities and Exchange Commission finally approved the rules, which will go into full effect early next year. As a result, any company or person with an idea can solicit and raise up to $1 million without most of the onerous regulatory and reporting requirements of the past.

So what lies ahead? Retail banking is the one area of the financial world that has undergone tremendous change over the past decade. Bank tellers are now scarce, and many consumers use smartphones for payments and deposits. It also has become much easier to trade shares online.

But core services such as lending money, raising capital and investing for clients still depend on a firm to act as a conduit—and as a choke point. With many promising startups already launched and with venture capital funding new ones every day, here’s a glimpse of what we can expect in the years ahead.

…

Loans to large companies are up over the past decade, but lending to small business has contracted, from more than $700 billion in 2008 to less than $600 billion today, according to the Small Business Administration. As for the Silicon Valley ecosystem of venture capital, it certainly doles out funds to dreamers, but it excludes many types of businesses, especially brick-and-mortar ones.

All of this explains why new funding ventures have received such a boost from the JOBS Act. Kickstarter is the most familiar, with Indiegogo close behind. These crowdfunding platforms let almost anyone announce an idea and solicit money for it, usually in chunks of $1,000 or less. No established venture-capital firm or large bank would dole out such small amounts. Their overhead alone, for due diligence and compliance, would mean steep losses on investments that size.

But the new crowdfunding sites remove those layers, and for now they have few of the regulatory burdens or scrutiny. It is the Wild West of fundraising. The most recent success was Oculus Rift, a maker of virtual reality headsets that raised $2.4 million on Kickstarter and then was bought by Facebook a little more than a year later for $2 billion.

The big hitch? A Kickstarter contribution is a donation. When people fund projects on the site, it is out of passion for the product, not any hope for a financial return.

The next wave of crowdfunding, through sites such as SeedInvest and Fundable, will offer equity ownership to those who throw money into the ring. This new model could upend the insular world of venture capital and business loans while at the same time providing new opportunities for small investors. As for a would-be innovator, if you can post an idea online, raise a million dollars for it and (most important) choose how much equity you want to part with at what valuation, why go through the gauntlet of a commercial loan application or make the rounds at the VC firms on Sand Hill Road?

The result is likely to be billions of dollars of new funding, which would spur lots of good ideas—and lots of bad ones, too. The prospect of unconventional new funding sources has already prompted comparisons to 1999, when millions of individual investors joined the IPO craze only to see their shares of Pets.com become worthless. Such risks are very real, but either way, much more money will be in motion.

(click here to continue reading The Uberization of Money – WSJ.)

After Hour Deposits
After Hour Deposits

I better start polishing up our business plans so we can tap into some of this pending sweet, sweet funding…

Is Fracking About To Burst The Economy?

Seth Anderson0 comment

The Myth of Trust
The Myth of Trust

I ran across a quite interesting discussion of the history of the Oklahoma oil boom in the 1970s and its subsequent bust in the early 1980s, which is linked with the story of Penn Square Bank. There is a book by Phillip Zweig specifically on this topic, called Belly Up: The Collapse of the Penn Square Bank, I think I’ll have to look for a copy.

If you have a moment, you should read the entire essay.1

History aside, what about the current situation with oil prices cratering? Are we in trouble?

Now of course a debacle of the Penn Square variety requires at least one other thing, which is a banking industry so fixated on this quarter’s profits that it can lose track of the minor little fact that lending money to people who can’t pay it back isn’t a business strategy with a long shelf life. I hope none of my readers are under the illusion that this is lacking just now. With interest rates stuck around zero and people and institutions that live off their investments frantically hunting for what used to count as a normal rate of return, the same culture of short-term thinking and financial idiocy that ran the global economy into the ground in the 2008 real estate crash remains firmly in place, glued there by the refusal of the Obama administration and its equivalents elsewhere to prosecute even the most egregious cases of fraud and malfeasance.

Now that the downturn in oil prices is under way, and panic selling of energy-related junk bonds and lower grades of unconventional crude oil has begun in earnest, it seems likely that we’ll learn just how profitable the fracking fad of the last few years actually was. My working guess, which is admittedly an outsider’s view based on limited data and historical parallels, is that it was a money-losing operation from the beginning, and looked prosperous—as the Oklahoma boom did—only because it attracted a flood of investment money from people and institutions who were swept up in the craze. If I’m right, the spike in domestic US oil production due to fracking was never more than an artifact of fiscal irresponsibility in the first place, and could not have been sustained no matter what. Still, we’ll see.

The more immediate question is just how much damage the turmoil now under way will do to a US and global economy that have never recovered from the body blow inflicted on them by the real estate bubble that burst in 2008. Much depends on exactly who sunk how much money into fracking-related investments, and just how catastrophically those investments come unraveled.  It’s possible that the result could be just a common or garden variety recession; it’s possible that it could be quite a bit more. When the tide goes out, as Warren Buffet has commented, you find out who’s been swimming naked, and just how far the resulting lack of coverage will extend is a question of no small importance.

At least three economic sectors outside the fossil fuel industry, as I see it, stand to suffer even if all we get is an ordinary downturn. The first, of course, is the financial sector. A vast amount of money was loaned to the fracking industry; another vast amount—I don’t propose to guess how it compares to the first one—was accounted for by issuing junk bonds, and there was also plenty of ingenious financial architecture of the sort common in the housing boom. Those are going to lose most or all of their value in the months and years ahead. No doubt the US government will bail out its pals in the really big banks again, but there’s likely to be a great deal of turmoil anyway, and midsized and smaller players may crash and burn in a big way. One way or another, it promises to be entertaining.

(click here to continue reading The Archdruid Report: Déjà Vu All Over Again.)

We’ll see, but it might be a good time to start putting a few Krugerrands under your mattress…

Gold Coins
Gold Coins

Footnotes:
  1. The bank is often cited as being partly responsible for the collapse of Continental Illinois National Bank and Trust Company of Chicago, which had to write-off some US$500+ million in loans purchased from Penn Square. [↩]

Boeing falls most since April After Cantor loss

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Double Rainbow Over Boeing
Double Rainbow Over Boeing

The most amusing headline we read the day after Eric Cantor (Smug R) lost his primary to the Tea Bagger, and Ayn Randian acolyte, David Brat, was this one. Poor, poor Boeing, lost one of their sugar daddies…

Boeing Co. (BA) fell the most in two months as U.S. House Majority Leader Eric Cantor’s defeat in a primary election threatens congressional reauthorization of low-cost lending that benefits the world’s largest planemaker.

Keeping alive the Export-Import Bank will be an “even more high-profile/challenging fight,” Chris Krueger, a senior policy analyst for Guggenheim Securities LLC, said today by e-mail. Boeing was the “biggest loser” besides Cantor in the Virginia Republican’s surprise loss yesterday, Krueger wrote.

Ex-Im arranges financing that helps foreign airlines buy jets, a service that Boeing said last month would support $10 billion of 2014 sales. As Congress debates reauthorization, House Financial Services Committee Chairman Jeb Hensarling of Texas is being promoted as a possible Cantor successor. He has said the U.S. should “exit the Ex-Im.”

(click here to continue reading Boeing Tumbles as Cantor Loss Clouds Ex-Im Bank’s Future – Bloomberg.)

Boeing - El Segundo
Boeing – El Segundo

So what exactly is the Export-Import Bank? The Wikipedia entry:

The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States federal government. It was established in 1934 by an executive order, and made an independent agency in the Executive branch by Congress in 1945, for the purposes of financing and insuring foreign purchases of United States goods for customers unable or unwilling to accept credit risk. The mission of the Bank is to create and sustain U.S. jobs by financing sales of U.S. exports to international buyers. The Bank is chartered as a government corporation by the Congress of the United States; it was last chartered for a three-year term in 2012 which will expire in September 2014. Its Charter spells out the Bank’s authorities and limitations. Among them is the principle that Ex-Im Bank does not compete with private sector lenders, but rather provides financing for transactions that would otherwise not take place because commercial lenders are either unable or unwilling to accept the political or commercial risks inherent in the deal.

(click here to continue reading Export-Import Bank of the United States – Wikipedia, the free encyclopedia.)

Golden Plowshares
Golden Plowshares

Corporate welfare, in other words. Propping up the bottom line of the military-industrial complex, and other crony capital chores. Sure, after World War 2, the bank was perhaps justifiable, the Marshall Plan and all that. But in today’s economy? Why does Boeing, GE, Halliburton or ExxonMobil need special low-interest loans subsidized by US taxpayers, loans that are not available to the rest of the business world? Especially when so much of what the bank subsidizes is bad for the planet. 

Like:

The bank’s environmental policy is a disappointment because it would allow an increase in spending on coal and other technologies harmful to the environment, said Steve Kretzmann, who runs Washington-based Oil Change International, which seeks to curb government aid to fossil-fuel companies.

“It makes a mockery of the Obama administration’s supposed commitment to phase out fossil-fuel subsidies,” Kretzmann said in an interview.

The project in Papua New Guinea led by Irving, Texas-based Exxon has become a particular point of contention.

The pipeline’s construction will destroy pristine tropical forests, PacificEnvironment’s Norlen said in a submission to the lender in September.

Exxon “is the most profitable corporation on the planet,” Kretzmann said. “This is the last place that taxpayer support should be going.”

(click here to continue reading Obama’s Trade Goal Fights His Clean-Energy Plan (Update4) – Bloomberg.)

and:

President Barack Obama’s goals of boosting U.S. exports and combating climate change are colliding as the U.S. Export-Import Bank expands financing for oil, gas, mining and power-plant projects.

Bank-supported ventures approved in the year ended Sept. 30 will emit an estimated 17.9 million metric tons of carbon annually, more than triple the previous year and the most since the lender started releasing data in 2001, according to its annual reports. Among companies aided were General Electric Co. and Petroleos Mexicanos, Mexico’s state-owned oil business.

“Ex-Im is on a fossil-fuel binge,” said Doug Norlen, policy director at PacificEnvironment, an environmental advocacy group in San Francisco.

You Can't Bribe No one
You Can’t Bribe No one

We’re not alone in wondering why in our current economic climate, this corporate welfare bank continues to exist.

For instance, from those hippies at Forbes:

Nothing brings out the well-tailored lobbyists in Washington quite like a threat to corporate welfare.  With the Export-Import Bank’s legal authorization set to run out this year, the Chamber of Commerce recently led a Big Business march on Capitol Hill to protect what is known as Boeing’s Bank.  Over the last eight decades ExIm has provided over a half trillion dollars in credit, mostly to corporate titans.  Congress should close the Bank.

ExIm was created in 1934 to underwrite trade with the Soviet Union.  The agency piously claims not to provide subsidies since it charges fees and interest, but it exists only to offer business a better credit deal than is available in the marketplace.  The Bank uses its ability to borrow at government rates to provide loans, loan guarantees, working capital guarantees, and loan insurance.

The result is a bad deal for the rest of us.  For instance, ExIm is not free, as claimed.  Recently made self-financing, the agency has returned $1.6 billion to the Treasury since 2008.  However, economists Jason Delisle and Christopher Papagianis warned that the Bank’s “profits are almost surely an accounting illusion” because “the government’s official accounting rules effectively force budget analysts to understate the cost of loan programs like those managed by the Ex-Im Bank.”

In particular, the price of market risk is not included, even though doing so, explained the Congressional Budget Office, would provide “a more comprehensive measure of federal costs.”  Delisle and Papagianis figured ExIm’s real price to exceed $200 million annually.  Indeed, both the Government Accountability Office and ExIm Inspector General raised questions about the accuracy of the agency’s risk modeling.

Federal Reserve economist John H. Boyd took another approach, explaining:  “For an economic profit—that is, a real benefit to taxpayers—Eximbank’s income must exceed its recorded expenses plus its owners’ opportunity cost, a payment to taxpayers for investing their funds in this agency rather than somewhere else.”  If ExIm was private, he added, “one must suspect that its owners would have pulled out long ago in favor of a truly profitable enterprise.”  He figured the Bank’s real cost averaged around $200 million a year in the late 1970s but had increased to between $521 million and $653 million by 1980.  Given the recent explosion in Bank lending the corresponding expense today could be much higher.

(click here to continue reading Close the Export-Import Bank: Cut Federal Liabilities, Kill Corporate Welfare, Promote Free Trade – Forbes.)

On The Internet You Can Become A Dog Easily

Seth Anderson0 comment

Starbucks Elevators
Starbucks Elevators

In a second follow-up to this minor, amusing tale, the @GSElevator guy lost his book deal.

In the face of a barrage of attacks on his credibility, his publisher stood by him. But on Thursday it reversed course and said it was canceling the book.

The publisher, Touchstone, an imprint of Simon & Schuster, did not provide a reason for the turnabout. It released a terse statement saying: “In light of information that has recently come to our attention since acquiring John Lefevre’s ‘Straight to Hell,’ Touchstone has decided to cancel its publication of this work.”

In a phone interview Thursday afternoon, Mr. Lefevre said that he and his agent demanded a conference call with Touchstone, and received one Thursday morning, but were not told why the deal had fallen through. “All they would say is our hands are tied,” he said.

Only Goldman Sachs seemed to be enjoying the moment. “Guess elevators go up and down,” @GoldmanSachs tweeted in response to the news.

Mr. Lefevre’s proposed book, titled “Straight to Hell: True Tales of Deviance and Excess in the World of Investment Banking,” had drawn widespread attention — for the window it promised to provide into Wall Street’s often raucous culture, and as the latest test case in whether social media postings, some resembling online performance art, could be transformed into successful books.

(click here to continue reading Book Deal Falls Apart for Parodist of Goldman – NYTimes.com.)

Don't Bring Your Dog Shet to Town
Don’t Bring Your Dog Shet to Town

from John Lefevre, the banker behind Goldman Sachs Elevator, this defense:

For the avoidance of any doubt, any person who actually thought my Twitter feed was literally about verbatim conversations overhead in the elevators of Goldman Sachs is an idiot.

Newsflash: GSElevator has never been about elevators. And, it’s never been specifically about Goldman Sachs; it’s about illuminating Wall Street culture in a fun and entertaining way. Without highlighting the obvious evolution of the tweets into more generally-appealing observations, let’s start with the simple fact that each of my tweets says “Sent from Twitter for Mac,” hardly the work of someone pretending to be hiding in the walls of 200 West.

Being called a “fake” or a “hoax” by the same people who embraced me as “satire” is simply laughable – and it really speaks to the silly and opportunistic attempts at cheap headlines.

(click here to continue reading GSElevator’s Open Letter To Haters – Business Insider.)

Gawker piled on, claiming it discovered plagiarism on the @GSElevator feed

and the beat goes on…

Investor Group Sues Richmond, CA Over Eminent Domain Plan

Seth Anderson0 comment

plus ça change…
plus ça change…

Complications. This had sounded like an interesting way out of the national home owner crisis, but the banks are worried they will lose their paper money value. Of the 624 properties in discussion, 444 are still current in their payments, just that their houses assessed valuation is significantly less than the mortgaged value. Is eminent domain allowable in this sort of circumstance? The legal precedent is unclear, so presumedly, this lawsuit and similar is going to take a while to be settled.

Banks representing some of the nation’s largest bond investors filed suit against the city of Richmond, Calif., on Wednesday to block plans by city officials to seize and buy mortgages using their powers of eminent domain.

The lawsuit, filed in federal court in San Francisco, could serve as a key test for whether a city can move forward with such a strategy, which would allow it to forcibly buy mortgages from investors at a price potentially below the property’s current market value. The city would then reduce the loan balance and refinance the mortgage to help struggling homeowners avoid foreclosure.

The legal challenge could serve as a key test for whether cities from Newark, N.J., to Seattle are able to follow Richmond’s lead.

…

City leaders in Richmond, a working-class suburb of around 100,000 on the San Francisco Bay, began sending letters last week to mortgage companies seeking to purchase loans on 624 properties and threatening to force sales via eminent domain if investors resisted. The city is partnering with Mortgage Resolution Partners, a private investment firm based in San Francisco, which was also named a defendant in the lawsuit.

 

(click here to continue reading Investor Group Sues Richmond, Calif., Over Eminent Domain Plan – WSJ.com.)

Back in Feburary, 2013, The New Yorker’s Tad Friend wrote an interesting overview about Steven Gluckstern’s plan1

LETTER FROM CALIFORNIA about Steven Gluckstern’s solution for the foreclosure crisis. At sixty-one, Steven Gluckstern has extensive experience handicapping risk propositions on Wall Street. This past fall, Gluckstern, the chairman of a San Francisco-based group called Mortgage Resolution Partners, was in the midst of a tour of Southern California. In between hasty meals, he raced his rented Mercedes to meetings with mayors and activists and real-estate agents and developers, trying to interest them in his company’s sole product: a plan for cities battered by the foreclosure crisis to keep their citizens in their homes.

It’s a tool so ingenious that Wall Street treats it as the gravest threat to civilization since the breakfast burrito. Even as America’s home prices have risen for six of the past seven months, twenty per cent of homeowners remain “underwater,” owing more in principal than the house is worth. It’s a national problem that’s concentrated in a few locales, most notably California. Mentions Salinas councilwoman Jyl Lutes.

In places like Salinas, a large part of the problem is not the loans that are held by banks. It’s the ones that were pooled in “private-label securitizations.” Under Gluckstern’s plan, a city would use its powers of eminent domain to seize a homeowner’s mortgage in court, pay off the bondholders, then arrange a new mortgage for the homeowner at a price much closer to what the home is actually worth. M.R.P. started its campaign in San Bernardino County. In June, the county and the cities of Fontana and Ontario established a “joint powers authority” to examine M.R.P.’s plan. The foes of eminent domain rose up almost instantly and assailed the plan. A coalition of twenty-six financial-service and real-estate groups sent a letter threatening lawsuits.

The opposition often invoked what’s known as the “moral-hazard argument”: if you reward people for risky behavior they’ll just do it more. By the time Gluckstern visited the San Bernardino area, last fall, he was a marked man. When Gluckstern dropped by county C.E.O. Greg Devereaux’s office, Devereaux ruefully acknowledged that the opposition had gummed up M.R.P.’s plans. Without quite conceding in San Bernardino, Gluckstern began stealthier campaigns, in Michigan, Maryland, and southern Florida. He hopes to convince the opposition that his campaign will continue.

(click here to continue reading Tad Friend: Can Steven Gluckstern Solve the Mortgage Mess? : The New Yorker.)

Mini Bank In Fine Style
Mini Bank In Fine Style

and from what I recall, it turns out the mortgages are often held by multiple entities because of the mortgage derivative market.

and it is unclear if these particular legal challenges are going to stand up in court:

Legal advocates of the eminent domain plan have said that constitutional challenges aren’t likely to hold up in court. The loan strategy wouldn’t burden interstate commerce “because it doesn’t prevent credit from flowing in any particular way,” said Robert Hockett, the Cornell University law professor who was an early advocate of using eminent domain to seize underwater mortgages.

“This is a bluff,” said Mr. Hockett. “It’s meant to scare city officials into saying, ‘Oh, who are we to argue with the big guns.”

Supporters say their plan would help not only specific homeowners but also the broader community by reducing foreclosures that are hurting property values and eroding the tax base. “It’s the responsibility of banks to fix this, and they haven’t, so we’re taking it into our hands,” said Richmond Mayor Gayle McLaughlin in a call with reporters last week.

 

Footnotes:
  1. not available for non-subscribers [↩]

Fed Sees Action if Growth Doesn’t Pick Up Soon

Seth Anderson0 comment

Federal Reserve Bank of Chicago
Federal Reserve Bank of Chicago

Every time I read about the sweet deal the Fed gives banks, I get mad. Corporate welfare is rarely the right answer, but the Fed and its relationship to banks continues unabated.

Another option is a change in the Fed’s public communication about its plans. Since January the Fed has been saying it doesn’t expect to raise short-term interest rates until late 2014. The Fed could change its policy statement in September to move that date into 2015. Such pronouncements about the expected path of short-term rates tend to reduce long- and medium-term interest rates. The Fed thinks this supports near-term spending and investment.

Officials also are looking at changing the interest rate paid on money banks deposit at the Fed. This interest on reserves is now 0.25%. Some critics say the Fed shouldn’t be paying banks even this small amount for money that they choose not to lend.

Fed officials haven’t been very enthusiastic about this idea. Some officials think the benefits of reducing the rate would be small, and some worry cutting the rate could disrupt short-term money markets. Still, officials might choose to reduce the rate in combination with other moves in an effort to give the economy a little extra lift. The European Central Bank cut its bank deposit rate to zero earlier this month.

The Fed could also try to push its benchmark interest rate, the federal funds rate, a little lower. Since late 2008, it has targeted a range for the rate between zero and 0.25%. It could narrow that range closer to zero.

(click here to continue reading Fed Sees Action if Growth Doesn’t Pick Up Soon – WSJ.com.)

Here’s why I get mad: the Fed lends corporate banks money at basically zero percent interest, no strings attached. Apparently, this happens in Europe as well. The banks in turn loan a percentage of that money out, at varying interest rates, 4.5% on a mortgage if you are a good credit risk, or 18% if you have a credit card that you’ve missed the payment deadline a few times. The rest they keep. Why is this acceptable? Since when did you vote on who your bank’s CEO will be?

How Does the State Respond?
How Does the State Respond?

I consider Ron Paul a crank on many, many topics, but I agree with him wholeheartedly on his repeated insistence that the Fed should be audited.

Federal Reserve Transparency Act of 2011 – Directs the Comptroller General to complete, before the end of 2012, an audit of the Board of Governors of the Federal Reserve System and of the federal reserve banks, followed by a detailed report to Congress.

Repeals specified limitations on such an audit.

(click here to continue reading Bill Summary & Status – 112th Congress (2011 – 2012) – H.R.459 – All Information – THOMAS (Library of Congress).)

Why should the Fed policy be more hidden than that of every other branch, department and division of the government?

Bank of America Attempts to Repair Image

Seth Anderson1 Comment

Bank of America - Kodachrome
Bank of America – Kodachrome

It will not be an easy task to rehabilitate Bank of America’s image. Skank of America, as some call it, is a particularly juicy target for the Occupy Movement folks, with good reason.

Bank of America has shifted brand advertising duties to a WPP team from Omnicom Group’s BBDO, according to two executives familiar with the matter.

The selection of WPP comes after a process that the bank, under its CMO Anne Finucane, began in January. WPP will now be responsible for the rollout of a new strategic positioning — or what Bank of America was internally calling the development of a “North Star” that would signal to Wall Street and consumers that it’s a new day at the bank, helping to repair the company’s tarnished image.

The agency change will likely lead to BofA shedding its current “Bank of Opportunity” slogan, which was developed by BBDO. The tag was adopted a few years ago to replace the prior “Higher Standards” campaign, but it lost resonance amid a recession that tightened consumers’ purse strings and crippled many small businesses across America.

WPP’s Brand Union was already assigned to Bank of America, so the holding company secures an even larger place on the bank’s roster with this win. Interpublic Group of Cos.’ Hill Holliday, which has handled marketing duties for the bank’s wealth management and corporate social-responsibility operations, among other things, is expected to retain its work. Those agencies either could not be immediately reached or referred calls to Bank of America, which did not return a request for comment by press time.

It’s unclear what the moves mean for Bank of America’s PR shop, Weber Shandwick. Media duties and digital were not in play.

According to Ad Age’s DataCenter, BofA is the 17th-largest marketer in the country, with $1.55 billion in ad spending in the U.S. The company’s rethink comes amid widespread mistrust of large financial organizations that manifested in the Occupy Wall Street movement.

(click here to continue reading Bank of America Moves Brand Advertising From BBDO to WPP | Agency News – Advertising Age.)

JP Morgan Chase Bat Signal
JP Morgan Chase Bat Signal

Stunts like these won’t help:

Jamie Dimon, chief executive of JPMorgan Chase and the industry’s regulation-basher in chief, has called for a sit-down next week between the heads of four of the nation’s biggest banks — JPMorgan, Goldman Sachs, Bank of America and Morgan Stanley — and Federal Reserve Governor Daniel Tarullo, the Wall Street Journal is reporting.

The purpose of this friendly get-together will be to express the banks’ displeasure about financial regulation, particularly a Fed plan to limit the banks’ exposure to derivatives tied to the credit of foreign governments and other banks.

According to the WSJ:

bankers will tell regulators that the rule is based on “unrealistic” standards and could foster “potentially destabilizing” market shifts, according to two draft letters reviewed by The Wall Street Journal.

In other words: Nice economy you’ve got there. Shame if anything should happen to it.

(click here to continue reading Bank CEOs To Tell Fed Regulation Is ‘Unrealistic’: Report.)

plus ça change…
plus ça change…

and there was this, as reported by Aaron Krager of Gapers Block:

Under the recent settlement between big banks and multiple state’s Attorney General gives Bank of America a pass in the alleged fraud against homeowners. The Home Affordable Modification Program should help homeowners restructure their loan in order to stay in their houses. But BofA put up roadblocks to prevent many of these according to a lawsuit.

As the bank installed single point of contacts for homeowners, as directed under consent orders with federal regulators in April, Mackler was promoted. As a SPOC, he allegedly escalated homeowners’ concerns up the hierarchy and allegedly learned another BofA employee told at least one homeowner to voluntarily cancel her HAMP request with the promise of a private modification — a violation of HAMP guidelines. The settlement released BofA from this lawsuit and further prevents the American public from learning the depths the banks went to defraud their consumers.

Since the bank bailout by the federal government through the Troubled Asset Relief Program, Bank of America posted $5.5 billion in profits while paying in no taxes. The bank did pay back the $45 billion they received from TARP. Companies are expected to pay a marginal tax rate of 35 percent but have lobbied Congress and state legislatures for favorable tax loopholes that they regularly utilize to their advantage.

From 2008 to 2011 Bank of America spent more than $15.77 million in lobbying expenditures, according to OpenSecrets.org. Portions of the lobbying undoubtedly goes to loosening regulations but the creation and protection of tax loopholes cannot be dismissed.

(click here to continue reading Bank of America Ignores Citizen Tax Enforcers – Gapers Block Mechanics | Chicago.)

650,000 customers fled corporate banks last month

Seth Anderson0 comment

Bank of America - Kodachrome
Bank of America – Kodachrome

We did close a Bank of America account (presumedly), but haven’t yet closed our Chase accounts.

Yes, The Big Banks DO Care If We Move Our Money

650,000 customers moved $4.5 billion dollars out of the big banks and into smaller banks and credit unions in the last month.

But there is a myth making the rounds that the big banks don’t really care if we move our money. For example, one line of reasoning is that no matter how many people move their money, the Fed and Treasury will just bail out the giants again.

But many anecdotes show that the too big to fails do, in fact, care.

Initially, of course, if the big banks really didn’t care, they wouldn’t have prevented protesters from closing their accounts.

(click here to continue reading Big Banks Plead with Customers Not to Move Their Money | The Big Picture.)

A Fool Too Long
A Fool Too Long

and no matter how much the One Percenter Banks claim they don’t care if we move our money elsewhere, of course they do care:

Even though the government may keep throwing money at the dinosaurs, the Basel regulations do have some capital requirements, and so the big banks need to bring in some actual deposits to fund their casino gambling.

Moreover, if too many depositors leave, the illusion that the big banks are serving the American public will be burst, and a critical mass of consciousness will occur, so that the banks’ questioned control over the American political and financial systems will start to be questioned.

So moving our money is an effective step towards reclaiming America.

Plutocrats Running Scared

Seth Anderson0 comment

Curvaceous
Curvaceous

Dr. Paul Krugman has a point:

But listening to the reliable defenders of the wealthy, you’d think that Ms. Warren was the second coming of Leon Trotsky. George Will declared that she has a “collectivist agenda,” that she believes that “individualism is a chimera.” And Rush Limbaugh called her “a parasite who hates her host. Willing to destroy the host while she sucks the life out of it.”

What’s going on here? The answer, surely, is that Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is. They’re not John Galt; they’re not even Steve Jobs. They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.

This special treatment can’t bear close scrutiny — and therefore, as they see it, there must be no close scrutiny. Anyone who points out the obvious, no matter how calmly and moderately, must be demonized and driven from the stage. In fact, the more reasonable and moderate a critic sounds, the more urgently he or she must be demonized, hence the frantic sliming of Elizabeth Warren.

So who’s really being un-American here? Not the protesters, who are simply trying to get their voices heard. No, the real extremists here are America’s oligarchs, who want to suppress any criticism of the sources of their wealth.

 

(click here to continue reading Panic of the Plutocrats – NYTimes.com.)

Fed Setting Their Hair on Fire

Seth Anderson0 comment

Federal Reserve Bank of Chicago
Federal Reserve Bank of Chicago

Surprisingly, Paul Krugman liked President Obama’s speech:

First things first: I was favorably surprised by the new Obama jobs plan, which is significantly bolder and better than I expected. It’s not nearly as bold as the plan I’d want in an ideal world. But if it actually became law, it would probably make a significant dent in unemployment.

Of course, it isn’t likely to become law, thanks to G.O.P. opposition. Nor is anything else likely to happen that will do much to help the 14 million Americans out of work. And that is both a tragedy and an outrage.

Before I get to the Obama plan, let me talk about the other important economic speech of the week, which was given by Charles Evans, the president of the Federal Reserve of Chicago. Mr. Evans said, forthrightly, what some of us have been hoping to hear from Fed officials for years now.

As Mr. Evans pointed out, the Fed, both as a matter of law and as a matter of social responsibility, should try to keep both inflation and unemployment low — and while inflation seems likely to stay near or below the Fed’s target of around 2 percent, unemployment remains extremely high.

So how should the Fed be reacting? Mr. Evans: “Imagine that inflation was running at 5 percent against our inflation objective of 2 percent. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.”

(click here to continue reading Setting Their Hair on Fire – NYTimes.com.)

And if you had the intestinal fortitude to watch the latest GOP debate12 – you heard the GOP repeatedly criticize the Fed, without having any factual reasons to do so…

Now, however, leading Republicans are against tax cuts — at least if they benefit working Americans rather than rich people and corporations. And they’re against monetary policy, too. In Wednesday night’s Republican presidential debate, Mitt Romney declared that he would seek a replacement for Ben Bernanke, the Fed chairman, essentially because Mr. Bernanke has tried to do something (though not enough) about unemployment. And that makes Mr. Romney a moderate by G.O.P. standards, since Rick Perry, his main rival for the presidential nomination, has suggested that Mr. Bernanke should be treated “pretty ugly.”

So, at this point, leading Republicans are basically against anything that might help the unemployed.

Footnotes:
  1. I watched about half, and then ate a pound of laxatives [↩]
  2. not really [↩]

Vitriol for Bernanke, Despite the Facts

Seth Anderson0 comment

A Fool Too Long
A Fool Too Long

Rick Perry doesn’t seem like the type to let facts get in the way of constant stream of vitriol.

On Aug. 16, while speaking in Iowa, Gov. Rick Perry of Texas, a Republican presidential candidate, took the demonization of Mr. Bernanke to a new level. He declared in much-quoted remarks — and to appreciative laughter from the crowd — that “we would treat him pretty ugly down in Texas,” and that Mr. Bernanke’s monetary policy was “almost treacherous — or treasonous, in my opinion.” The next day, in New Hampshire, Mr. Perry was less inflammatory but more pointed. “They should open their books up,” he said of the Fed. “They should be transparent so that the people of the United States know what they are doing.”…

It’s also hard to fathom what Mr. Perry means when he calls for the Fed to “open its books up.” It publicly releases its current balance sheet every Thursday at approximately 4:30 p.m., and it’s available on the Fed’s Web site. Mr. Perry’s campaign didn’t respond to a request for comment.

The charge that the Fed is “printing money” seems to be shorthand for recklessly risking or even seeking inflation. That notion “is complete nonsense,” Robert E. Hall, a senor fellow at the conservative Hoover Institution and professor of economics at Stanford, told me. “But it must be exciting to accuse him of things he hasn’t done.”

(click here to continue reading Vitriol for Bernanke, Despite the Facts – NYTimes.com.)

Hmm, Fed open its books every Thursday, at a specific time, and yet Rick Perry continues to insist that the Fed is hiding something. Hmmm. Maybe Mr. Perry just has a reading comprehension problem?

Spam Can Be Cut by Blocking Card Transactions

Seth Anderson0 comment

Erected and Enlarged

Of course shady banks are involved in the worldwide spam scourge, otherwise there wouldn’t be any money generated for the spam-meisters sending their poorly crafted herbal viagra emails. What’s interesting is that there are so few banks involved.

For years, a team of computer scientists at two University of California campuses has been looking deeply into the nature of spam, the billions of unwanted e-mail messages generated by networks of zombie computers controlled by the rogue programs called botnets. They even coined a term, “spamalytics,” to describe their work. Now they have concluded an experiment that is not for the faint of heart: for three months they set out to receive all the spam they could (no quarantines or filters need apply), then systematically made purchases from the Web sites advertised in the messages.

The hope, the scientists said, was to find a “choke point” that could greatly reduce the flow of spam. And in a paper to be presented on Tuesday at the annual IEEE Symposium (PDF) on Security and Privacy in Oakland, Calif., they will report that they think they have found it.

It turned out that 95 percent of the credit card transactions for the spam-advertised drugs and herbal remedies they bought were handled by just three financial companies — one based in Azerbaijan, one in Denmark and one in Nevis, in the West Indies.

The researchers looked at nearly a billion messages and spent several thousand dollars on about 120 purchases. No single purchase was more than $277.

If a handful of companies like these refused to authorize online credit card payments to the merchants, “you’d cut off the money that supports the entire spam enterprise,” said one of the scientists, Stefan Savage of the University of California, San Diego, who worked with colleagues at San Diego and Berkeley and at the International Computer Science Institute.

(click here to continue reading Study Says Spam Can Be Cut by Blocking Card Transactions – NYTimes.com.)

Thomas S. you dropped your Cialis

And you probably already realized this, but there is a lot of spam sent out, cluttering our email boxes with come-ons for boner pills and Cialis rip-offs…

Spam has proved notoriously difficult to defeat over the years, despite sophisticated filtering technologies and legal investigations and convictions. Seven years after the famous prediction by Bill Gates, then chairman of Microsoft, that spam would be eradicated in just two years, about 90 percent of all e-mail is spam.

An earlier study undertaken by the scientists showed that a single commercial spam e-mail campaign generated three messages for every person on the planet. That same study revealed that to sell $100 worth of Viagra, a spam provider needed to send 12.5 million messages.