When critics say that Europe is running out of time to deal with the financial crisis I wonder if they are not years too late. Both in Europe responding and those saying it is too late.
It feels to me similar to a situation where I have maxed out 8 credit cards and have a little bit left on my 9th. You can say that failing to approve my 10th credit card will lead to immediate pain. Not just to me, but all those I owe money to. That is true.
But wasn’t the time to intervene likely when I maxed out my 2nd credit card and get me to change my behavior of living beyond my means then? If you only look at how to avoid the crisis this month or year, yeah another credit card to buy more time is a decent “solution.”
But I am not at all sure that bailing out more bankers and politicians for bad financial decisions is a great long term strategy. It has been the primary strategy in the USA and Europe since the large financial institution caused great recession started. And, actually, for long before that the let-the-grandkids-pay-for-our-high-living-today has been the predominate economic “strategy” of the last 30 years in the USA and Europe.
That has not been the strategy in Japan, Korea, China, Singapore, Brazil, Malaysia… The Japanese government has adopted that strategy (with more borrowing than even the USA and European government) but for the economy overall in Japan has not been so focused on living beyond what the economy produces (there has been huge personal savings in Japan). Today the risks of excessive government borrowing in Japan and borrowing in China are potentially very serious problems.
I can understand the very serious economic problems people are worried about if bankers and governments are not bailed out. I am very unclear on how those wanting more bailout now see the long term problem being fixed. Unless you have some system in place to change the long term situation I don’t see the huge benefit in delaying the huge problems by getting a few more credit cards to maintain the fiction that this is sustainable.
We have seen what bankers and politicians have done with the trillions of dollars they have been given (by governments and central banks). It hardly makes me think giving them more is a wonderful strategy. I would certainly consider it, if tied to some sensible long term strategy. But if not, just slapping on a few more credit cards to let the bankers and politicians continue their actions hardly seems a great idea.
Related: Is the Euro Going to Survive in the Long Run? (2010) – Which Currency is the Least Bad? – Let the Good Times Roll (using Credit) – The USA Economy Needs to Reduce Personal and Government Debt (2009 – in the last year this has actually been improved, quite surprisingly, given how huge the federal deficit is) – What Should You Do With Your Government “Stimulus” Check? – Americans are Drowning in Debt – Failure to Regulate Financial Markets Leads to Predictable Consequences
The webcast is by the great Kahn Academy which produces simple educational content (like the above) on all sorts of topics. I find this too slow but I think it might be good for people that are not really sure how the banking system works. There is a group of people that are very apposed to fractional reserved banking, as a principle. I actually am fine with it, but it needs to be regulated much better than we have done.
I suppose it might be true that our political leaders are much too subservient to those giving them lots of cash to regulate in a manner even close to acceptable: and therefore fractional reserve banking is dangerous. I am not sure that they are so hopeless that this is the case, though the more I see of how much they don’t know, and how often they seem to just vote based on what those giving them cash want it gets to be harder to believe they can be trusted to act close to properly (this is extremely sad). And it is mainly an indictment of ourselves: we keep putting people back in power that act mainly to reward those giving them cash and don’t seem interested in actually what is important for the long term interests of the country.
I believe the FDIC actually does quite a good job of providing a solution to manage some issues with a fractional reserve banking system and people being able to rely on getting their money back.
In the first place debit cards are a bad idea. They don’t have the same protection as credit cards. Banks pushed them in the USA because of the huge fees they charged (hidden from users). Now those banks are not allowed to charge the hugely excessive fees (compared to any other country) they had been charging retailers. And the banks are now trying to push huge fees onto those using the cards. Just dump any debit card you have.
Secondly, you should have long ago severed any ties with the large banks (that not surprisingly are the ones announcing the huge fees, so far). They provide lousy service and extract exorbitant fees whenever they can sneak them by you. Choosing to do business with companies that you must remain hyper vigilante to abuse from is just not sensible. Small banks unfortunately get bought out by the large banks to prevent competition. So while using small banks is ok, you keep having to go to a new one as the large ones buy out your bank to prevent the competition.
So it is more sensible to just pick a credit union. Credit unions are decent overall. Some can still be bad choices but it is almost impossible to do worse than any of the large banks. If you use ATMs a good deal make sure you minimize ATM fees when selecting a credit union (their policies in that area – waived fees, network ATM access… are significantly different between your options).
The free checking we have grown accustom to may well be on the way out. That seems fine to me. Essentially the government’s subsidy to the large banks and financial institutions in repressing short term interest rates (at the expense of course of savers and retirees) has greatly reduced the value of checking and savings balances at banks. I am sure the large banks will be the most customer unfriendly as fees are added to accounts, based on their track record.
Obviously you should not carry credit card balances, with high interest rates.
There really is almost no excuse for dealing with the large banks (other than a mortgage that was sold to them without your permission where you have no option but to put up with their behavior as their customer). Many of the other extremely bad customer service industries (cable TV, internet access providers, airlines) have monopolistic powers than often make it extremely difficult to avoid dealing with them. Of course the large banks make huge anti-competitive moves that shouldn’t allowed in any capitalistic system. But then our system is more about what you can buy with your cash payments to congress than capitalism. And you can’t accept the proponents claims of capitalism as a reason to do what they ask; more often then not those playing the capitalism over government argument are asking for anti-capitalist measures (allowing anti-competitive practices etc.) in support of special interest at the expense of society (markets require regulation to have the benefits of competition provide a dividend to society).
This was a bad month for jobs in the USA. Not only did the U.S. Bureau of Labor Statistics report that the number of jobs remained at the same level as last month (125,000 additional jobs are needed for population growth, on average and we have huge losses from the credit crisis recession that have to be gained back) the last 2 months were revised down. The change in total nonfarm payroll employment for June was revised from
a gain of 46,000 to a gain of 20,000, and the July was revised down from gaining 117,000 job to gaining
85,000. That results in a total loss for this report of 58,000.
Still much better than the huge losses of several years ago but, along with the last few months, not a good sign for short term job growth. And the failure to address decades of favors given by politicians to too big to fail banks may actually create serious problems much sooner than most people feared. Pretty much everyone knew that the failure to address the main cause of the credit crisis was setting us up for again having the economy suffer huge blows due to the behavior of too big to fail institutions but I, and I think most people, thought it would be at least 5 years away and maybe even 10 before we had to seriously pay for the failures of our politicians to address this problem they (and their predecessors created).
It really seems like politicians don’t understand that their predecessors (decades ago) could afford to payoff large political donors and avoid dealing with problems and the enormous amount of wealth the economy was generating would let us prosper (even with lousy leadership), but that is no longer the case. The USA has used up huge economic advantages and that easy time is not coming back. Sadly the main hope for the USA is that other countries leaders create enough waste that the USA can remain competitive with all the waste our create (extremely lousy health care system, for example). It seems the American public doesn’t understand either, if anything we are electing even less intelligent and capable leaders today (over the last 10 years).
The USA has 14 million unemployed. Among the major worker groups, the unemployment rates for adult men was 8.9%, adult women 8.0% and teenagers 25.4%, whites. Of those 14 million the number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6 million in August.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.4 million to 8.8 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour over the month to 34.2 hours. The manufacturing workweek was 40.3 hours for the third consecutive month; factory overtime increased by 0.1 hour over the month to 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down to 33.5 hours in August, after holding at 33.6 hours for the prior 6 months.
As bad as this news is, it could be much worse. The economy is actually growing (very slowly), probably. Many companies are actually still very profitable (I am not counting companies that have fake profits with congress approved ability to report fake values for their assets – Congress granted their too big too fail donors, this, and many other favors while most others are left out in the cold). The wealth in the USA, even after we have been consuming our capital to live beyond what we earn each year (for decades) is still extremely high. This allows us to live well and invest even with many bad practices in place. We continue to have many excellent companies doing great work and providing great jobs. Even with all the problems in the USA there are few countries that are in as enviable an economic position. The biggest problem I see is we have been squandering those advantages far too easily and quickly for far too long. That leaves us much more economically venerable than we need to be.
I strongly support Elizabeth Warren and strongly support her for to head the Consumer Financial Protection Bureau. She would do a great deal to improve the economy of the USA. And she would do a great deal to improve the life of tens or hundreds of millions of people. We have allowed a few people to bribe our elected officials to distort markets to damage hundreds of millions and provide huge gains for a few. We need to support capitalism not crooked elites breaking capitalism to favor their allies at the expense of the economy and those who want to benefit from free markets. It is very difficult to impede the greed fueled distortions that politicians put in place to break free markets and provide huge benefits to those who pay them. Elizabeth Warren is one of the few that is knowledgeable and skillful enough to reduce the damage those people cause the economy and everyone else.
Nobody is entirely innocent; money’s promise is for most of us a siren’s call. And, as a nation, we’ve willfully scanted education in civic and financial literacy in schools at all levels. So guilt is not worth focusing on. We need instead a future practice of clear rules and tough oversight. And we need to remind ourselves that Adam Smith’s concept of an invisible hand did not contemplate that hand’s picking the pockets of the people whose individual decisions and actions, if the market works perfectly, let supply match demand.
There are few political appointments I care much about. They normally are so co-opted even if they have good ideas they can’t get anything done. Don Berwick is a great person to have lead health care reform. The system is so messed up I am skeptical he can actually get much done, but I also strongly support him.
Elizabeth Warren is excellent and wise enough to actually accomplish things even with those who will attempt to thwart and improvements in the financial system that move forward capitalism at the expense of a few nobles that are protected by political allies. I have no doubt those in power will still thwart most efforts to stop politically sanctioned distortion of markets to enrich a few people that then pay a portion of their gains to the politicians that let them ruin free markets for their own huge personal gains.
Very few political appointees make much difference. If Elizabeth Warren gets this position she will have a good chance and making a huge difference o the quality of life for hundreds of millions of people and the economy overall. That is true even though she will have to continually fight those politicians seeking to protect the anti-competitive benefits they have lavished upon those that pay them to enact policies that benefit them at the expense of everyone else.
Related: If you Can’t Explain it, You Can’t Sell It – Middle Class Families from 1970-2005 (webcast of Elizabeth Warren) – What the Financial Sector Did to Us – Politicians Again Raising Taxes On Your Children
USA consumers pay huge fees on debit cards not found in most other rich countries. Other countries provide debit cards with much cheaper fees than USA banks mandate now given their anti-competitive oligopolistic pricing power. I haven’t seen anyone (that isn’t in the pay of banks) arguing for keeping excessive fees in place. But there are lots of people being paid by the banks (including most likely, “your” representative).
David Frum, special assistant to President George Bush, is exactly right.
[banks] are lobbying hard to repeal the cap on debit card fees in advance of the July date when Dodd-Frank goes into effect… Congress is not swayed by arguments. It is swayed by clout — and on this issue, it is the banks who have the clout.
Based on that experiment, economist Robert Shapiro of Sonecon estimates that about 56% of the value of reduced swipe fees will reach the final consumer. That’s the basis for his calculation of savings of $230 per household. That’s also the basis for his further calculation that reduced swipe fees will translate into a one-time gain of 250,000 new jobs.
The new Republican House majority appropriately mistrusts government regulation. But if the financial crisis taught us anything, it should have taught that financial regulation is different from other forms of regulation. Invisible charges imposed by a financial cartel is not my idea of a free market.
The caps were part of the huge bailout taxpayers gave banks and were meant to be a partial watering down of a few of the smaller favors their bought and paid for politicians had given them over the years (as “punishment” for their misdeeds).
A huge problem with current practices at American companies is that senior executives believe they personally are due what the company earns. The repeated ethical lapses perpetrated by the senior executives and supported by their well paid board continues to undermine the economy of the country.
Two events last week illustrate the level of disconnection with reality the current crop of ethically challenged senior executives.
First, we have the senior executives at the too big to fail financial institutions that did fail and were bailed out by taxpayers. We all know the economic calamity caused by these executives, throwing millions of people out of work, adding huge burdens to already overburdened future taxpayers with the huge spending governments engaged in, in order to successfully avoid what would have been a depression. Fewer people realize the government has been systemically transferring money to these large, too big to fail financial institution from millions of savers with policies directly providing billions in profits to all the large financial institutions that had failed.
So what did the senior executives that failed as spectacularly as anyone has ever failed economically in history do last week? They paid themselves tens of millions of dollars, paid for by all those who have received artificially lowered rates (through action by the Federal Reserve in order to save the economy and reward their member banks) on their savings which provided billions in profit to the failed large financial institutions. Just like 5 years ago, as they were doing their best to take such detrimental actions that would cause a depression (but for the government saving us from that outcome) they again use the excuse that they are just doing what all their colleagues are doing.
The lack of honor of these men is amazing. And the lack of honor of those who continue to treat these people as anything but pariahs is amazing. That we continue to pursue policies that enable and enrich too big to fail financial companies on the backs of those that save and in so doing provide billions in profits for the executives to treat as their personal bank accounts is sad.
The compatriots of those senior executives at Transocean showed the same disregard for honor, accuracy and truth. First, who is Transocean?
So with what was one of the worst (if not the worst) economic safety failures ever and 11 deaths in the explosion, this is what Transocean senior executives say, in their SEC filings:
“As measured by these standards, we recorded the best year in safety performance in our company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere,” it adds.
Unfortunately large banks have a very strong tendency to try to take as much of your money as they can get away with. Rather than having to stay ultra-vigilante (as though I am in business with a thief that I have to watch ever minute or expect my money to be stolen) I would rather pick those I going into business with to avoid those seeking to rip me off. Credit unions are usually the best bet. Some credit unions join nationwide ATM networks, so if ATMs are important to you check this out before selecting a credit union.
If you’re looking to avoid those fees, Ally, Charles Schwab (SCHW, Fortune 500) and USAA not only let all of their customers use out of network ATMs free of charge, but they also refund the fees that their customers are charged by other banks. State Farm Bank doesn’t charge you for going out of network and reimburses fees of up to $10 charged by other banks.
In general, the best advice is to avoid large banks like you would someone with a dangerous communicable disease.
BankSimple is a very promising new offering from Alex Payne, one of Twitter’s first employees and CTO of BankSimple, that promises “to simply put people first. Real customer service, no surprise fees, and a deep desire to help people is what makes BankSimple different.” Now the large banks are perfectly comfortable saying they try to help while trying to find any way possible to trick customers out of money. So Banksimple’s words don’t mean much. but I think there is a real chance they will be different. It is a great market to be in, huge amounts of money to be made and your competitors all treat customers egregiously poorly. That should give you a great opportunity to gain a huge market share.
They are not yet open for business but it might open in early 2011. They are not actually going to be a bank, but instead provide the customer value and partner with existing banks (so we can deal with someone that isn’t trying to rip us off and they can let some bank deal with the administration of managing the money.
I made several more Kiva loans to entrepreneur in Kenya, Lebanon, Nicaragua, Kenya, Honduras and Armenia (brining my total loans to 251). It really is great to see real people using capitalism to improve their lives. And being able to help by lending some money is wonderful. When looking for loans I give preference to loans that improve productivity and increasing capacity of the entrepreneur. If they use the proceeds of the loan to increase their capacity to produce they can pay off the loan and find themselves much better off.
A nice example of this is the loan to Douglas Osusu (pictured). He has requested this loan of 80,000 KES to purchase a dairy cow and a posho mill. This loan also has a portfolio yield (Kiva’s equivalent of an annual percentage rate) of 19%. 19% is very loan for loans on Kiva (remember there are significant costs to servicing micro-loans) – I like the rate to be under 30% but sometimes accept rates up to 40% (or even higher occasionally). I also give great preference to low rates, as the lower the rate the better for the entrepreneur. The 3rd factor I consider is the history of the field partner bank (default rate, delinquency rate and currency exchange loss rate). In this case the field partner is new and carries risk because of that. Still in this case I really like the loan and I like that this lender is charging low rates so I want to take the risk and see how they can do. The amount I lend is based on the combination of these factors – I lend more when I have several reasons to really like the loan.
Join other readers by making loans and joining the Curious Cats Lending Team: 8 members, 213 loans totaling $8,775. Comment with the link to your Kiva page and I will add a link on Curious Cat Kivans.
My current default rate is 1.39% and the delinquency rate is 8.49% (see chart of USA general delinquency rates). The delinquency rate is exaggerated due to technical details (some difficulties in reporting in various countries and such things). Agricultural loans often become delinquent on Kiva but still are paid in full (in my experience). While the defaulted loan rate is 1.39% if you look at the percent of dollars lost I have a rate of 1.2% (this is nearly all due to a bank that failed over a year ago to which I had 2 loans where I lost $87.50 of $100 – there are also 2 other losses for under $5). I add to my total loan amount a couple times a year but also I get to keep relending as money is paid back.
Related: 100th Entrepreneur Loan – More Kiva Entrepreneur Loans: Kenya, El Salvador (June 2010) – Kiva Opens to USA Entrepreneur Loans – MicroFinance Currency Risk – Kiva Fellows Blog: Nepalese Entrepreneur Success
Some companies (Banks, Verizon, Comcast, credit card insurers, United, car dealers…) continually find new ways to be hostile to customers. It really is amazing people put up with their horrible practices. The latest from the fees to check bags, fees to for paying company expenses, waste your time on voice mail hell if you want to talk to us crowd is fees to pay bills using automated systems.
The customer hostility of these companies is part of their DNA. We should recognize the new attempts to fleece customers but there is no reason to be surprised by the new, ever more hostile customer behavior of these companies. There are alternatives for consumers, just find them, and support them. Some industries are dominated by customer hostile companies (which can make avoiding them hard): banks (both consumer and investment banks), credit cards, airlines, cable companies, cell phone service. Even in those industries you can find ethical companies: Southwest Airlines, many credit unions, CarMax…
And yet these guys are charging $15. I asked Chase, “How can you charge that much for an automated transaction?” They said, “Well, that’s how much we charge.” And you look at some of the other charges out there. For instance, this week Verizon Communications is introducing a new $3.50 charge if you pay your bill online, automated phone system, or to a service rep without using their recurring, automatic bill paying system.
Time Warner Cable charges $4.99 to pay by phone with a human being, but it too charges nothing to use the automated system.
“People pay for a product or service,” said Doug Heller, executive director of Consumer Watchdog, a Santa Monica advocacy group. “They shouldn’t have to pay again just for the right to pay them.”