Posts Tagged ‘banks’
One doesn’t need a Ph.D. in economics to know certain facts about the current state of America’s economy:
1) Unemployment continues to be a serious problem not only for the unemployed but for the economy as a whole.
2) Consumers are skittish about spending money, so they can’t help drive an economic recovery.
3) In response to fears about unemployment and the economy, consumers are paying off debt.
4) Reducing debt may be a a good thing for individuals and for the economy in the long-term, but when too many people do it all at once it leads to less goods and services being bought, which reinforces and helps sustain a recession or a weak recovery.
5) Many of the largest corporations in America are sitting on huge sums of cash. Among the reasons for not investing it and hiring new employees: aversion to risk, preoccupation with the current bottom line, and hefty profits through making current employees more productive, that is, making them work longer and harder.
Enter the Bank of America. You know, the corporation that American taxpayers shelled out 45 billion dollars to rescue. Its past and current behavior exemplifies the failings of many giant corporations to do the right thing in national crises. Make no mistake about it, the way that the Bank of America mistreats its customers is bound to reinforce exactly the types of behavior that will maintain the economy in its present anemic state.
Let’s take the story back a few years. It seems that for several years the Bank of America has been arbitrarily raising interest rates on its credit card customers. Here is an excerpt from an article on MSN from BusinessWeek, February 2008.
Credit card issuers have drawn fire for jacking up interest rates on cardholders who aren’t behind on payments but whose credit scores have fallen for other reasons. Now, some consumers complain, Bank of America is increasing rates based on no apparent deterioration in their credit scores at all. The major credit card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving explanations for the increases, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter — headed “Important Amendment to Your Credit Card Agreement” –- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. “No one could give me an explanation,” says Eric Fresch, a Huron, Ohio, engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit….But Bank of America appears to be taking an even more aggressive stance because, beyond credit scores, it is using internal criteria that aren’t available to consumers. That makes the reasons for the rate increases even more opaque….Analysts also say they are surprised by the magnitude of the rate increases Bank of America is imposing on affected cardholders.
You can find stories all over the web about Bank of America’s bad behavior regarding its credit card customers. Recently it appears that BofA has accelerated the use of one of its strategies: arbitrarily reducing the credit limit of customers who have very good credit histories, pay on time, and pay more than the minimum. The deal goes like this: You borrow an amount from BofA at a good interest rate. After a few months you get a call. You are told that your credit limit is being reduced to almost exactly what you owe. When you ask for an explanation, you are given transparently bogus reasons. And there is no appealing the reduction. This action is unfair to credit card customers because it can adversely affect credit scores. Consumers now appear to be maxed out on their cards when 24 hours earlier they had a nice cushion. A lawyer in California became so incensed about this practice and arbitrary increases in interest rates that he threatened to sue the BofA. The story can be found in the Huffington Post, January 2010. An excerpt:
“Banks have done really well figuring out ways to screw people without making themselves legally liable,” said Ira Rheingold, director of the National Association of Consumer Advocates. “I think [the limit reduction] is another example of Bank of America’s venality. Whether or not it’s a successful lawsuit, I don’t know. Whether I think it ought to be challenged — absolutely.”
But maybe Bank of America is just trying to do what is best for its shareholders. That’s often what you hear when companies are challenged about their executives’ pay or other practices. Yet BofA doesn’t seem too keen on giving its shareholders a say in the pay of its executives. For example, a Los Angeles Times headline on February 23, 2010 announced:
Bank of America resisting shareholders on executive pay. . . The bank is working to keep investor proposals on executive compensation off the ballot.
The machinations of BofA are sad stuff. The resulting likely behavior from customers with reduced credit lines: pay off debt more quickly and spend less money in the marketplace. Of course this will only help to extend the anemic recovery. The fact is that the actions of leading banks and corporations have often not been good for the economy. They rant and rave about taxes and the federal government, but it’s a shell game. (Banks and their supporters will tell you that the reason they are not loaning is because of federal regulations. BofA is currently sitting on 172 billion in cash.) The intense preoccupation of corporations with the bottom line (and the well-being of their executives) has left millions of Americans un- or underemployed. The way that credit has been handled, for example, has increased the fear that we will never come out of this downturn, which will only help to prolong it.
Socialism is no threat. Corporations only looking to the bottom line, which in times such as these is downright unpatriotic, are a threat. It’s time for companies that have done so well in America to stand up and sacrifice for America. We are not asking you to become charities, although you were willing to take our charity when you needed it. We are asking you to spend some money, damn it, and put people back to work, even if it’s not the absolutely best thing for your corporation’s current bottom line….and stop harassing responsible citizens while you do it.
Oh, and just in case you might be worried about the well-being of the former Chairman of BofAm, Ken Lewis, here is what ABC news reported regarding his retirement pay in 2009.
Outgoing Bank of America CEO Ken Lewis’ nearly $64 million retirement pay puts him ahead of most, though not all, fellow major bank CEOs who have left their institutions during the financial tumult of the last two years.
Nostradamus meets the Grim Reaper
This is an actual headline from an article posted on Bloomberg (News) at 7:21 this evening, September 1st, 2010: Economy Avoids Recession Relapse as Data Can’t Get Much Worse
The first lines of the article explain:
The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good. The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 40 percent below five years ago.
This is not from a skit on Stewart of Colbert. This is from a leading publication on business on a day that the Stock Market rallied. (I wonder what they will be writing when it retreats, again.) So, let’s get this straight. We are not going to have another recession, the dreaded double-dip, because things are already too bad to have one. How then do we characterize our current economy? Oh, I could think of a few words, but so can you, dear reader.
Things can get worse. Here’s the ticket: The Republicans win the House this fall and things completely stall out as the GOP offers (once again) the panacea of tax breaks for the wealthy as the cure for our economic ills.
(Btw, the name of the person featured on this $10,000 bill is Salmon P. Chase. If you don’t believe me, click here. He was a Secretary of the Treasury and a Chief Justice of the Supreme Court. Coincidence. I think not.)
Wall Street……………………….Henry Adams
Yes, it is certainly easy to be a Monday morning quarterback once the game is over. But the game is far from over for the Democrats and Obama. Brown’s victory in Massachusetts—won in part because Obama supporters sat out the election or actually voted for Brown because they were upset about Obama not being progressive enough on health care—is indeed the proverbial wake-up call. Obama now knows that his administration is going to have to take a more political turn. What does this mean? Harnessing the populism that propelled Brown and Obama into office. Of course those who supported them aren’t all the same populists, but there is an overlap.
People feel ripped off and they should. They have been ripped off by Wall Street and now they are worried that the government will rip them off with new health care legislation. That the former is true, and the latter is not, makes little difference to current politics. What should have happened, and what now must happen, is that Obama must harness the outrage against Wall Street into outrage about how the insurance companies have ripped people off and will continue to do so unless stopped. This doesn’t require that Obama become a flaming radical. But it does require that he worry less about what the big bad banking system will do to us if we don’t cater to its wishes.
American capitalism will not go down the tubes if we make prudent decisions about what banks can and can not invest in. It’s now clear, once again, that commercial banks that take deposits should not become investment houses. This was the law of the land for more than sixty years until Republican Senator Gramm, and Republican Representatives Leach and Bliley, helped change things in 1999 with the the Gramm-Leach-Bliley Act. While there are of course numerous reasons for why stocks are not worth any more today than they were back in 1999, it does seem that GLB’s legislation has not helped to protect us from bad times. As a matter of fact, it undoubtedly was a major factor in the banking crisis.
No doubt Obama was worried that if he didn’t cater to the banks the American economy would recover more slowly. But the political risk, and the risk to our economy in the future, is simply too great now not to harness the populist sentiment in the country. And you know Americans have had a long distrust of bankers. Writing at the turn of the twentieth-century about his reaction to bankers in the 1860′s, Henry Adams, grandson and great-grandson of presidents, said the following. (He speaks about himself in the third person.)
He [McCulloch] was a banker, and towards bankers Adams felt the narrow prejudice which the serf feels to his overseer; for he knew he must obey, and he knew that the helpless showed only their helplessness when they tempered obedience by mockery. The Education of Henry Adams, Chapter XVI
So enough jokes on late night TV and more teeth in actual measures to reign in the fat cats, especially since the Supreme Court has decided to make money the undeniable king of our future elections by unleashing corporate wealth to finance elections.
And Adams would have a warning for Obama as he proceeds.
The most troublesome task of a reform President was that of bringing the Senate back to decency. The Education of Henry Adams, Chapter XVII
RockefellerJ.P. Morgan in action
Obama’s budget is smart and far-sighted. I wish I could say the same about the bank bailout. We are certainly not out of the woods on this one.
On April 1st, the New York Times ran an Op-Ed piece by the noble winning economist, Joseph Stiglitz. (There is an excerpt and link below.) It’s about as clear a presentation of the issues involved as I have seen (in a short piece). And it lays out why we should be concerned about the plan, which is no doubt the work of Geithner and Summers. I worry, as many do, that the red-herring rhetoric of “nationalizing” the banks will prevent us from properly addressing the situation. I worry that Geithner and co., for all of their good intentions, are too close to Wall Street not to be sucked into the myth that “nationalizing” must mean socialism or the appearance of socialism. (The irony here is that this is precisely the rhetoric that the right has used so successfully in the past to prevent such needed programs as universal medical insurance.) I worry that this plan is viewed as a shrewd move to get the Wall Street/banking crowd on board by Geithner and co., but will end up providing the banks only a temporary boost in liquidity, yielding “profits” that will once again allow them to laugh all the way to their own banks.
J.P Morgan headquarters
My hope is that if the plan doesn’t work, the Administration will quickly turn around and say, we tried, and move on to a solution more appropriate to the problem. I am confident that Obama the pragmatist would make such a move. The question at hand: how hard will his own soft ideologues fight to avoid the appearance of “nationalizing” the banks?
Obama’s Ersatz Capitalism (excerpt)
by JOSEPH E. STIGLITZ
THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.
Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency. . . .
What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.
So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.