Archive for the 'Banking' Category

04
Oct
11

Frail Honor, the Most Dangerous Kind

Well THIS is not what I wanted to write about. But there it is, Freshly Pressed, all about the protest on Wall Street and the virtue of the down trodden. Our future is in a lot of trouble. Seeing all these young Americans out in the cold to support their cause reminds me of an accidental moment of clarity I experienced in high school. It was Veteran’s Day, and instead of enjoying our new snow, I was sitting in English Lit. I’m pretty patriotic, so I had the thought that reading Lawrence Furlenghetti may not be the best way to honor our precious vets. I stood up and mentioned to the class how our time spent studying poetry was indeed undermining the sacrifices made by generations of veterans. Within minutes the tempera paint and posterboard were pilfered from the art room and we had some respectable signs. We paraded through the halls and quickly gathered a following that represented the ENTIRE school. Every student left class to support the Veteran’s Day cause. There we were, in the falling snow, on the side of the highway drinking hot chocolate and shouting something about freedom and sacrifice. The media was there within the hour and we clambered for their attention as they expounded on our devout patriotism.

Obviously, we were all lying. But the question is, were we lying to the media and our teachers? Or were we lying to ourselves? In that moment, every one of us was convinced that it was our teenage duty to honor the veterans. I was a little proud of my act of rebellion. As a teen, I was NOT rebellious and this would go a long way toward redeeming my straight-laced reputation. However, the pride was tinged with a nameless fear. I knew very well that the only reason the entire school walked out behind me was because they wanted to. I had successfully appealed to their inner-most wishes for a day off and I made it look honorable. At that moment, human nature stripped a layer and I discovered the simplicity of manipulation. Turn a person’s frailty into that which makes him honorable and he will stand for much less than he could be. It is easy to recline in one’s excuses, but so difficult to live up to an expectation.

Now, I see these protesters on Wall Street and all over the country, youth who were traded honor for mediocrity, and I am sad for our future. I would like a youth that is prepared to rise up and embrace the challenges ahead, enjoy the freedom of our new found globalism, and spread a better way of life to the truly downtrodden masses (not the ones being fed organic veggies and pasta in the street). Unfortunately, what sleeps on Wall Street right now is only bringing this nation further into despair. With it goes the hope that would bring prosperity to those who need it most.

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20
Jun
09

Redundant Robust Regulation

Because I have nothing to do on a Friday night, I hurried home from work today so I could begin reading Obama’s White Paper “outlining” his financial system overhaul. I made it all the way to page 21. I will finish, but needed to stop and breathe. The buzz is that Obama wrote this all by himself. I have not substantiated that, but if he did, he needs an editor. The first 16 pages are so redundant, I actually had to use the table of contents as a map and still I thought it was a test to prove that nobody reads these documents. There are full paragraphs repeated in the document.

I need to read the rest of it, then I need to read it again, but this should be broken down. I wondered how something so momentous was released with barely a hiccup on Wall Street and now I understand. It is innocuous. Really the first 16 pages simply state and re-state that there will be increased supervision over financial agencies of all sorts. I actually don’t disagree. The financial industry is behaving horribly right now and Obama, or whoever the author is, makes a valid point when he mentions how banks are circumventing regulation.

But there are a couple of troublesome tidbits tucked away in this document. First, it calls for increased supervision of “Tier 1” financial institutions by the Federal Reserve. This is odd. This is not a Federal Reserve responsibility. It is a little known fact that the Federal Reserve is not a government entity. The increased supervision may not be the worst idea ever, but the definition of “Tier 1” is dangerously undefined. It includes any institution that is involved with an institution deemed too big to fail. This can include smaller correspondent banks, third party payment processors, small insurance agencies and investment firms. It expands the reach of the Fed beyond where it was ever intended to be.

Speaking of the Federal Reserve, buried between all the talk about supervision, a real change is casually mentioned. The discount window is to be subject to Congressional approval. I can’t even imagine what that might mean since later in the document, it mentions relaxing emergency lending by the Fed. There are no details on either item in the first 21 pages, so possibly I have misinterpreted, but I find this confusing. It makes me wonder if anyone involved with this truly understands the Fed Funds and discount window process, because this does not seem workable.

Of course, I am not overly concerned with the Fed’s new role. I am reading the document because I want to find a real benefit to consumers. Rest easy. The Community Reinvestment Act is going to be protected and possibly expanded under this plan. Last I heard, that very piece of legislation was a great contributor to the current situation. It’s a nice idea, but it is unrealistic. There is a reason that lending standards were as high as they had been.

Another hidden dagger for consumers, the Gramm, Leach Bliley Act is going to be compromised, dissolving the stringent distinction between entities under examination. Right now, Gramm. Leach, Bliley allows banks to offer investment and insurance services, but each offering is very separate. Very simply, if you hold a small investment account with ABC bank, it cannot be considered when processing standard banking requests, such as overdraft payments or charge offs. Perhaps under the new standards, the bank will still not consider a $50,000.00 investment account when decisioning an overdraft. But the Fed, in a regulatory role, may consider you a high risk customer because of an overdrawn checking account regardless of your investment account. Such perceived risk could be detrimental to a financial institution’s rating.

Additional “benefits” to the consumer include fair and balanced disclosures. Bank disclosures are pretty much just factual regurgitation, so this seems like a red-tape-laden token. It also calls for simplified “plain-vanilla” to quote our president, product offerings and disclosure of such offerings.

A quarter of the way in, it’s hard to stand behind this. There is so much regulation, but there are very few specifics regarding the regulatory standards. There are agencies, expanded oversight, and more, but all of this intervention is not qualified. There are no defined goals. Personally, I would like to see a plan that empowers financial institutions and consumers. Too big to fail? Break it up. We have anti-trust laws on the books. CRA as consumer advocacy? Let’s get rid of unfair overdraft practices that essentially trap customers into paying an additional $30-$40 per transaction. Clarified disclosures? Why don’t we strive for financial literacy? The financial world is riddled with pitfalls and is automated to the extent that consumer need not monitor their own finances. This has led to complacency in an area most crucial to our survival. Complacency breeds exploitation.

13
Jun
09

The American Dream up for Resale

I am not a fan of TARP. I am not a fan of the bailouts. I am not a fan of an ineffective but over-priced stimulus package. I am not a fan of a banking system that exploited consumers to the point of exhaustion, then went to the government begging for alms. With a democrat in office and a democratic congress, I would have hoped that government payouts would ultimately have helped the consumers, not simply the behemoth sized banks.

The truth is, the middle class is being squeezed dry. Now that they can’t give anymore, the juicers have gone to the government to DEMAND more. It is unfair on a new level and we Americans should be outraged. We should be afraid. We should make it stop. This is still a representative government that is ultimately responsible to us.

Here is my nutshell version of the financial crisis, complicated by great legislation like the fair housing act: In the 90’s, adjustments were made to reserve requirements, freeing up A LOT of money to lend. In the beginning of the 21st century, right off the bat, our financial sector was attacked. Businesses were dealt a physical blow that they could not overcome and Americans were frightened. To combat a financial meltdown, rates were reduced to historic lows. It was all harmless until greed walked in. With rates so low, it was no longer profitable to lend money – and there was all that new money just waiting to be loaned out… Banks had to find new ways to generate income. Standard fees were increased, but it wasn’t enough.

This is when it became sinister…Banks had to go one step further and find new sources for fee income. This is where the average consumer got involved with the financial crisis. Now banks figured out that the lower middle class may not have a lot of money individually, but as a collective, it was a great cash cow. Even more lucrative was the less savvy lower class. Banks could offer them exactly what they wanted – easy credit, overdraft protection, increased services – all for a fee. Studies were done, numbers were crunched, and the “UNBANKED” demographic became highly sought out. In the eyes of the banking industry, this demographic was practically willing to sign over their government checks for just a little more purchasing power that would soon run out.

And run out it did. When this increased purchasing power ran out, so did the increased fees. And the losses started coming in. The charge-offs, the write-offs, all began to add up and banks were about to experience a day of reckoning for what they had done.

Thank goodness for TARP or those banks would have really suffered!

But what did TARP do for these exploited customers? Credit card rates for risky customers still hover around 30%. The once-manageable rate on the adjustable second mortgage is now out of reach so homeowners can barely make an interest payment. Overdraft policies have not relaxed in the least (actually, that is a little untrue. I JUST read this morning that B of A is tiering based on the size of the overdraft). Overdraft protection that further entrenches consumers by paying offending items and drawing account balances VERY negative has become an industry standard.

And the ultimate, cruelest irony? These very squeezed consumers are paying for TARP. They are feeding their captors whose only lifestyle adjustments involve laying middle-class people off.

OMG – THIS IS WRONG!!! We were pacified by passage of the most ineffective banking reform bill of all time when really we should be rioting in the streets. I am a capitalist through and through and I love to see successful business. But greed and corruption will defile any capitalist system and that is what we are living right now. We are at risk – grave risk – of losing our way of life to this. It is imperative that we stand up for what is right. Write to congress. Tell your friends. Tell your neighbors. And for goodness sake, be vigilant. This happened as people slept, offering their financial independence as a sacrifice to an American banking system that promised an American dream that was not theirs to give. All the banking system has to offer us Americans is begged, borrowed, or stolen.

08
Feb
09

Like a Thief in the Night

Something huge has happened.  It crept by largely unnoticed by the citizenry as a whole and barely remarked up by the press.  There was a data breach.  That’s probably why the story slipped by – it sounds so dull.  What happened, though, is that millions of credit and debit card numbers were stolen by an overseas group.  The group hacked into a third party credit card processor, Heartland Financial, and took these numbers.  Customers have been reassured that no damage was done and every bank is handling it differently.  Some banks immediately closed the cards, leaving customers to have their purchases declined.  Other banks notified their customers and told them that they may request a new card if it would make them feel more comfortable.  Still other banks have simply “blocked” the compromised cards until new ones can be issued.  Customers may still use their cards, but only if they are able to input a PIN with the transaction.  Still, this leaves customers unable to use compromised cards at restaurants and even Starbucks.  Heartland Financial contends that only card numbers were taken so it would be difficult for the perpetrators to do real damage with this information. 

The bigger picture has not been addressed.

It is very possible that this compromise may include millions of cards.  Heartland Financial processes about 100 million transactions per month and suspicions are that the sniffer software had been in place since May of 2008.  There is no question that this will be the biggest breach in history.  Right now it is second to the TJX breach, but the final numbers are not in.  Of course, Heartland has downplayed the severity of this situation, even going so far as to make the announcement on inauguration day, when the press was somewhat preoccupied.  Heartland was made aware of this breach by Visa.  They did not uncover it themselves, despite the security measures the company had taken.  When Visa noticed an inordinate amount of fraud on customer accounts, they traced it back to Heartland and notified the company.  It took months for Heartland to uncover it.  Their own staff was unable to do it; they had to hire a third party forensic analyst to find the breach.  As this has been uncovered, Heartland finally admitted that information is not encrypted during the transmittal phase of a transaction.  This makes the system inexcusably vulnerable.

Even as Heartland downplayed this situation, banks were noticing these fraudulent charges that Visa reported.  Heartland assured people that no harm would come of this, but in one weekend, a small credit union incurred $11,000.00 in losses.  The losses have since been traced to this compromise.  STOP.  So, we have potentially tens of millions of cards compromised.  If the perpetrators are able to put through just $100.00 on each of these cards, the losses will be astronomical.  Under Visa’s Zero Liability policy, banks issuing Visa cards may be liable for fraudulent transactions on customer accounts.  The banking system is already under duress.  Regardless of fraudulent charges, banks stand to loose.  Reissuing credit and debit cards can cost up to $20.oo PER CARD, depending on the size of the institution. 

In addition to the financial strain this is placing on the American banking system, it erodes consumer confidence even more.  Customers who are unaware of the many steps involved in processing these transactions are making the logical assumption that their bank is unsafe.  On a local level, banks are receiving harmful press.  In some places, businesses are refusing to accept debit cards.  Consumer confidence is already at an all time low and, unbelievably, confidence in the financial industry is even lower.  Much damage has been done to the American psyche.  While consumer confidence plunges, restaurants miss out on a week of business.  Many customers are coping with this situation by staying home until new cards arrive.  They know their cards will not work at restaurants, so unless they have planned ahead they are not eating out.

Customers face an actual danger in that there is evidence these perpetrators are “phishing” for more information.  Once the cards are closed, they cannot be used, so the criminals are searching for information that is useful.  They are calling these nervous customers and claiming to be from their banks, asking to confirm information.  If the customer gives it over, they are literally giving up their identity.  These perpetrators have not been named.  We just know that they were found overseas.  I would like to know if these are really just greedy men or if they need to raise massive amounts of money for a certain planned purpose.  Or, even more sinister, is this a concerted effort to undermine the American financial system?

We know nothing about the perpetrators of this crime except that they are overseas.




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