Where's the Outrage at the Banks?

A couple of days ago the market dropped due to an analyst downgrading Wells Fargo (WFC) to sell from hold. Part of the reasoning was that the Wells Fargo profit was tied to mortgage servicing, which is not an income stream that is sustainable in the long run. As it turns out, however, the companies making the most from loan servicing include Bank of America (BAC), Citigroup (C) and JPMorgan Chase (JPM); go figure.

So hey, you say, what does it matter where their profit comes from. Well, if you understand the situation, you are going to be just a little bit pissed off. Let's start with the fact that these financial institutions brought us the financial meltdown of the past year or two by playing a lot of financial games. We are talking derivatives and high leverage games that led to serious problems from which the entire planet is suffering. Next we move to the fact that we the people bailed out their collective arses at great cost. Our government debt is at record levels and our children and grandchildren will pay the price. Then we move on to how these too big to fail idiots continued providing big bonuses to themselves and dividends to their stockholders with our money. Upset yet? You will be. Now many of these companies are returning to profitability despite record numbers of Americans losing their homes due in no small part to the policies of the financial institutions. What do I mean by that?

Well, most banks securitized their mortgage portfolios and sold them off to investors. The loans were sliced and diced ad infinitum. Yet they remained the servicers on the loans, extracting fees for collecting payments and foreclosing on homes. As it turns out, many of the financial institutions that created the current mess are making loads of money off of the misery of those facing foreclosure. They are profiting from our pain and they are avoiding loan modifications because they can make more money through the foreclosure route. Are you outraged yet?

Disclosures: None.

Comments

[TradingHelp...:]

Well said. It is that scenario that prompted Matt Taibbi to describe a certain investment bank as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

The description seems as relevant and accurate today as it ever did.

Oct 25 03:59 AM

[Angry Banker:]

Banks do not make more money through foreclosure than through people repaying their loans. If they did, then the banks would not have lost so much money the last two years.

Banks make money by taking prudent risks and receiving fair compensation (e.g., interest and fees) in exchange for taking those risks. Unfortunately they did not take prudent risks and lent money that they should not have lent, because the borrowers did not have the ability to repay. And then their second line of defense, foreclosure, also failed because the underlying assets collateralizing the mortgages were not worth what as much as when they made the loans.

Oct 25 06:07 AM

[forge98:]

Yes. I am extremely upset about these facts. Save the financial system? It seems to me it's a lot like Rep Charles Rangel being in charge of "Ways and Means." He doesn't pay taxes!!!! If it wasn't so scary it would be laughable. These banks get reprieve after reprieve yet they are the root cause of the mess.

Oct 25 08:00 AM

[nukldrager:]

I have plenty of outrage at the banks. They've gutted the system and appear to be quite willing to let us bleed out. F them.

Oct 25 08:19 AM

[lorddarley:]

The country would have been just as well off without these large banks, that were so poorly managed, and which decided that traditional banking was not profitable enough.

It was sheer politics that kept them afloat, rather than allowing the bad ones to collapse. The smart survivors could have easily picked up the slack. In fact, they would have more money to lend if we had not wasted so much on the big banks.

If a "bank" wants to derive its revenues from leveraged gambling and speculation, rather than lending, the FDIC should withdraw its insurance.

Oct 25 09:27 AM

[been there ...:]

Of course, the banks are now making profits because the taxpayers have assumed the risk and what the banks have left is the profitable revenue stream from servicing and service fees. The bonuses are being earned from the banks' return to the high-risk ventures that the taxpayers guarantee. Please notice, the banks are NOT showing profits from their lending activities. Very quickly, what is your definition of what a bank is and what a bank does. Please use the definition you learned prior to 1995 -- you know, the one you grew up with. Could be that it is: Banks are where people deposit their money (for safety) and in return, the banks loan the money to people and businesses to buy homes, build factory and stores and to buy cars and equipment. They pay the depositors a reasonable rate of interest and they charge a rate on their loans of approximately 3% higher than what they pay the depositors. What is today's definition? I invite you to reply with your definition of what a bank is today. Also, do you think we need to return to the old definition?

Oct 25 09:34 AM

[No Sympathy:]

Your anger (outrage) is misplaced. The banks, who by the way are not traditionally mortgage lenders, sold and securitized mortgages because they did not want the risk in the first place. Remember the savings and loan mess? It wasn't the "banks" that failed it was the mortgage lenders. When the S&Ls were gone our government pushed the banks into mortgage lending thru such programs as the Community Reinvestment Act Program (CRAP) or they face the wrath of regulators. So our Government sets up programs such as Fannie and Freddie so that the banks can offload the risk that they didn't want in the fist place. The FDIC, OCC, State Banking regulators, and Federal Reserve inspectors and regulators were more likely to criticize a bank for Not making a bad loan than making one. I once, as a bank director, was chastised by the Federal Reserve for denying a mortgage loan to a young lady who had lost her employment after the application was and home purchase contract was signed. She was actually relieved and thankfully for the denial because since she had lost her employment she had no income to pay the mortgage on a home that she didn't now want. So the bank avoided a potentially bad loan, the customer was happy, but the Regulators were upset and criticized the bank and accused us of sex discrimination and that we might be in violation of the CRAP laws. Our government pushed the banks into mortgage banking after they pushed the S&L industry over the cliff.
We were encouraged to make bad loans and then push them on to others to avoid the risk and to avoid the wrath of the regulators. In other words the Banks did exactly what they were told to do by the government or be put out of business by the government. So save your wrath and outrage for Barney Frank who is still pushing banks to keep making bad loans. Oh by the way that young lady who was denied a loan... She is now my wife.

Oct 25 09:49 AM

[hooligan:]

so when is politics going to take a hand? when is the treasury and the fed going to serve the people and not merely facilitate the transfer of generational tax to bankers bonuses? lest we forget, the bankers themselves pay tax on their massive bonuses dont they? bankers are doing what the rules let them do, and if that means stupid tax payers elect stupid politicians with iqs in direct opposition to the bankers who snake oil them with a story of "too big to fail" and "you cant let the banking system collapse or the economy will collapse" then in the words of the prophet "you get the government you deserve". Ergo, the vast majority of people are better off being stupid and ripped off. Now that makes me angry, but that is the truth. We are gullible, powerless and born to be victims of smarter bankers. I think we should all go to hold hand sessions for rape victims to understand how we can move on with our lives.

Oct 25 09:55 AM

[a. palmer jr.:]

I called my local bank the other day to check CD rates. It seems that a one year CD is now paying .6% annually! Seems to me that this is yet another con game by the big bankers who make millions in bonuses while leaving their investors with no interest on their savings. This whole recession we are in is just another excuse to screw the people who have a little bit of money in their bank. First excuse I can remember was the great "S&L scandal" of a few years ago. That immediately dropped the savings rates from 5 1/4% down to 2% and it stayed that way for several years. About two years ago rates started to gradually rise to almost 4% and now this current debacle has given the bankers yet another excuse to screw savers on their rightful interest. It seems that banking has been taken over by the oil companies, or do they just do business the same way?

Oct 25 09:56 AM

[George /Mis...:]

Capitalism at work . Unstoppable. We all played the game and we all need to get a grip. Lets stop crying in our soup and move on. The banks where their when we needed them. They are in the business of lending and when we over borrow and they over lend it inevitably falls back on the banks and we call them failures. Stop playing the blame game and move on. It will be all over soon.

Us small retail investors in FRE, FNM, C, BAC, and CIT stocks are just sitting ducks, flying by the seat of our pants hoping to get lucky and strike it big. We all take advantage of one another just as the banks are profiting from the bailouts.

Oct 25 09:56 AM

[msoori:]

How do I make myself too big to fail? Thats a question we all will have to figure out!

Oct 25 10:09 AM

[Mike from NYC:]

I think it's time to re-enact Glass Steagall. Since many of the market and bank regulations of the Depression Era were repealed our economy has become more volatile and less stable especially the banking sector which is the cornerstone of our financial sector.

Ayn Rand has been proven wrong and as much was said by even those who followed her - Sumner, Paulson, etc. and last but not least Greenspan. It seems that the politicians of the 30s were a lot smarter than the politicians of today and much smarter than most who work on Wall Street today.

When I read financial magazines my head spins from all the chicanery that goes on in the financial world - high frequency trading, black pools, derivatives, yada, yada, yada. There is almost no transparency today and as a result the financial markets are left unregulated. The same is true for banks which use accounting 'magicians' to spin their books.

There is outrage and it's all the banks and Wall Streeters that are outraged even though if it wasn't for the US Taxpayer most of them would be jobless at this time as their firms would have collapsed last September.

I think Wall Streeters and the Bankers have become too entitled, much too entitled, in their belief that they need to be so well rewarded for doing their job. Many here and on other sites scream about unions and their entitlements, but the real 'entitlisters' work in the financial sector. At least the unions didn't almost bring down the economy - no that was for the entitled workers in the financial sector.

Yep I'm outraged!!!!!!!

Oct 25 10:10 AM

[john s. gordon:]

lord darley is right, cancel FDIC insurance when a 'bank' (read hedge fund) uses/misuses leverage/speculation.
> jack

Oct 25 10:21 AM

[Dakco:]

Whoa there for a moment, lets be fair and think back in the early 1990's when our government who regulates our banks told them and other financial institutions to ease credit for those who normally cannot qualify for a home loan. Now if you are a banker and want to follow what our government suggests and be competitive what do you suppose most bankers would do? I am not defending anyone on this mess but lets not blame it all on just the banks. Those good for nothing air heads in Washington need to share a lot of the blame if not most.

Oct 25 10:22 AM

[Dorlan H. F...:]

The American people are a puzzle to me. I cannot understand how the kind of people I see on the "Tea Party Tours" and showing outrage at the Town Hall meetings on healthcare sit and take this crap. I understand your belief in the free market. But a "Market" is a place where "THINGS" are sold. America has desended in to "FREE RIPOFF" where the players who can concoct the biggest scams get the biggest bonus. Moving against this activity is NOT a move against the free market.

The current financial crisis steming from subprime mortgages has two main factors as the cause. The provision of mortgages without any regard for what the market required or what the market could bare. There is this asinine thinking that once money is being made then someone must being doing something right. (The Taliban is making billions from heorin need I say more?) The making of money cannot be the be all and the end all of economic activity. There is something call sustainability.

The next and most significant thing is asking people who can LEAST afford it to pay MORE. This is where the world need to change its thinking. How can a credit granting institution look at a man who is doing two jobs and can barely afford a mortgage and ask him to pay higher interest? Arguing that he is a higher risk and therefore has to pay more is silly. Asking a man who can barely afford it to pay more is not a smart way to manage risk. This only put pressure on the man and a self fulfilling prophecy occurs as indeed it did! The smarter thing to do is to restrict the pool of loanable funds to these type of borrowers and let them pay less and more affordable rates. The punishment for having bad credit or limited means is limited supply of loan. Once the fund for this type of loan is exhausted applicants in this category would then have to wait until there is room. That would be punishment enough and a disincentive for bad credit. This approach would have prevented the ironic and idiotic practice of selling subprime mortgage backed securities as "high yielding investments".

Oct 25 10:28 AM

[User 327442:]

I am angry that Congress allowed the laws to be changed to protect the banks and not the people the congresspersons' represent.

These idiots need to be voted out. Vote Independent and not for congresspersons' that switch their affiliation.

Oct 25 10:29 AM

[hooligan:]

a palmer jr... banks are smarter than you because a) they are more leveraged with only 10% down on a leveraged balance sheet, compared to your balance sheet of a whopping 50% of equity on your mortgage. They pay the CD rate or Fed rate of 0.6% or 0.25% and lend to you at the mortgage rate of 5%. So did you get the math? The banks are smart, they have equity of 9-1 which they still leverage 3 times, the banks borrow at zero...you are dumb, because you have equity of 50% and pay 5%. Let's all ask ourselves exactly why anyone even needs a bank. Getting a few people together would bring borrowing rates down and interest rates up to around 3%. Why play the ponzi, shell game, corrupt poltician/regulator/ce... bank/investment bank (which is not really an investment bank cos we made them all banks, well except GS who we made the Feds bank)?

Oct 25 10:39 AM

[rennert:]

Tax payers are not stupid they are being duped by the Super Rich in to voting the way those greedy Financial Movers and Shakers want them to vote. Than they are being blamed on top of that. The entire system is rigged. Elections flawed wit Propaganda by the Lobbyists of the Super Rich. They knew Obama was a nice, nice very nice man. So nice he would never have the nerve to really stand up against those Wheelers and Dealers. That's why he was allowed to become President by the Super Club. Every one else who looked like they had any back bone was discredited.

Oct 25 10:39 AM

[Alakh N Singh:]

It is the banks who are responsible for all the mess. They are so myopic that they deny loans if a person loses job. Comm on, if a person loses job, he/she can get another job within 2-3 months because by losing a job, the person has not lost his/her abilities which were responsible for him/her getting the first job. Mr. Ex-Bank Director when you had denied loan to your current wife, were you not myopic, if not stupid, that your wife could get a husband like you after losing her job and be able to pay her mortgages even if she did not get another job in next 1-2 months? By the way, you did not mention when she got her next job! Anyway, had you given her loan, you would have got not only a wife but also a house today! Now you have got only a wife and claiming that you were very wise and fair to deny her a loan when her loan was already approved. I also own a big house, but have been in danger of losing it because stupid bankers did not let me refinance even though my income had more than doubled, but because Bank Of America returned my mortgage checks two times as Non-Sufficient-Fund check even though my salary had been received by them before the checks were presented, just because they wanted to charge $35 as NSF return check. This spoiled my excellent credit history and other bankers without looking into why my credit history was spoiled denied the opportunity to refinance. I pleaded the potential bankers many times that the return of two mortgage checks was BOA's fault not mine, but they never heard and denied me refinancing at better rates. Now for your (Mr. Director) information, I have sued BOA for $10 Million damaged for spoiling my credit history and you will soon know (on November 2nd, 2009) that BOA has lost the case and has to pay me big damages. Mr. Ex-Director you should realize this ultimate truth that the fat salaries and huge bonuses that you or other executives receive is from the pockets of consumers like us whom you all have been exploiting because of your advantageous positions as intermediaries of credit services.

Oct 25 10:52 AM

[MktMaven:]

For those of you wanting more of an explanation, read this.

Blaming the crisis on CRA or subprime lending is flat out wrong: there simply were not enough subprime borrowers to cause a catastrophe of this magnitude. For that, you needed greed-induced leverage, a complete lack of ethics, and a set of parasitic financial institutions.

As we noted in April, 2008:

"With the development of toxic (derivative and subprime lending) financial products, the relationship between investment banks and the economy has turned parasitic."

You also need a compliant (non functioning) regulatory apparatus, something we warned about in 1998:

"“The nature of financial market activities is such that significant dislocations can and do occur quickly, with great force. These dislocations strike across institutional lines. That is, they affect both banks and securities firms. The financial institution regulatory structure is not in place to effectively evaluate these risks, however. Given this, the public is at risk.”

See:twisri.blogspot.com/20...

Why the market failed - twisri.blogspot.com/20...

Adam Smith on the Current Financial Crisis - twisri.blogspot.com/20...

What happened. What now. - twisri.blogspot.com/20...

To REALLY see what went wrong, take a look at page 6: www.sec.gov/rules/prop... See page 2: www.sec.gov/rules/prop...

Also see: www.ethicalmarkets.com...

Oct 25 10:53 AM

[mollytjm:]

Good article.
As long as we have election by private donation, we'll have this same situation over and over again. Successful politicians get most of their campaign $ from fat cats. It's not realistic to think they'd go against the very people who bought them their power.

Greed is an equal opportunity temptation. It took a lot of 'cooperation' to get us into this mess: politicians who made it easy for the banking industry by watering down strict guidelines for loans, bank OFFICERS who stood to gain on their gambling, no matter how it went, the public who thought there was easy $ in buying real estate they couldn't begin to afford, the credit card companies (banks again) offering serious temptations to people they knew couldn't pay it back, drug companies that sweet talk us into insisting our doctors prescribe whatever new and expensive drug is out there...ALL got us here.
But the bottom line is that if your elected officials, who decide policy on these matters, all get most of their $ from these same industries, it's hard to see how it will all change.

Oct 25 11:23 AM

[slsdoug:]

Actually banks lend a *lot* more money than they take in as deposits. I wrote a synopsis about it here: www.assetpreserver.com...


On Oct 25 09:34 AM been there before wrote:

> Of course, the banks are now making profits because the taxpayers
> have assumed the risk and what the banks have left is the profitable
> revenue stream from servicing and service fees. The bonuses are
> being earned from the banks

Oct 25 11:25 AM

[rennert:]

Now the little interest rates are a joke. 35million Americans on Food Stamps. Doc and Vet and Food prices raging higher each Day. The crooked Politicians tell us no Inflation. They do not see those bills. There Butler is doing all the buying. As long as the Financial Mafia that put these crooks into power can make billions on keeping the interest rates low they will always tell us no inflation.

Oct 25 12:27 PM

[Buckoux:]

Blow it out your a$$, you god-damned "watermelon"!


On Oct 25 12:01 PM GAPBANGER wrote:

> HUMANS HAVE STOPPED LOOKING AFTER EACH OTHER! and have a GREED sickness
> of EGO!

WOLF looks after others
> and learns from the past. WOLF is not a BLUE WOLF of GREED.
> Stephen C. Hansberger M.S.W. [e-mail]
> Someone Please twitter this because I dont twitter.

Oct 25 12:46 PM

[Buckoux:]

Best post on this topic thread.


On Oct 25 10:29 AM User 327442 wrote:

> I am angry that Congress allowed the laws to be changed to protect
> the banks and not the people the congresspersons' represent.
>
> These idiots need to be voted out. Vote Independent and not for congresspersons'
> that switch their affiliation.

Oct 25 12:49 PM

[Fliujniligui:]

I always tought that we are free and responsible. We have the choice to own the bank, home or both. And we have the responsibility to stay solvent in doing whatever we do. With this, I think the winner is always the bank, not the guy who is stimulated by the bank and social pressure to buy home. So I freely and responsibly endorse being a shareholder in bank. This way, I do not complain, nor do I suffer. I just have a small kick beside my job income.

Oct 25 01:19 PM

[demlord:]

i am calling for a new way!!!! everybody give everything to me that they cant hold in one hand... i will then redistribute , after a small fee... say 80%... then the banksters and their paid lackeys the demo...i mean rethugs wont get their fix... running bear in woods-looking for tree... what is a native american? me, so-called indians are not native americans... free healthcare thats so expensive no one will be able to afford it... thats the answer to our problems... that and tax everything and everybody 98% and nirvana is on our doorstep...if that damn woman from alaska would just go away i could sleep at night knowing that the lord is on earth again!!! and he is black ... how about that bitches!!!!! and he beat me at solitare

Oct 25 01:23 PM

[IndidnaJohn:]

I am a dull working man at 64. Outrage is rabble rousing, not very useful. I can tell you what is useful; by the hand or by the box, it

Oct 25 01:31 PM

[Midwest:]

No Sympathy has his facts skewed.

The rant is more RNC talking points but it conveniently fails to embrace the harsh reality of the report created by the Bush Administration's "President's Working Group on Financial Markets" in 2007, which clearly and decidedly puts the blame of the mortgage meltdown on greed over laws supposedly "forcing" lenders to give money to the unqualified.

Try to get beyond Newsmax and Fox before spewing more completely discounted "facts". Greed and horrifically bad government oversight allowed this to happen.

www.mcclatchydc.com/25...

Sincerely,
One Mad As Hell Former Reagan Republican

Oct 25 01:34 PM

[IndidnaJohn:]

is Gold Coins that will roll your rocks. In your possession only. Save in "stuff" not in paper.

Oct 25 01:35 PM

[unclej0:]

Corruption is ubiquitous. See my blog.
unclej0.blogspot.com/

Oct 25 02:53 PM

[PainfullyAware:]

Midwest,

There is no "Single Source" for Catastrophe; There are multiple "Contributing Factors".

Yes, generality covers it all but does not "Identify Alterable Metrics".

Money Knows No Political Boundaries. What Is "Said" Is More Important Than The Source; If It Is Validity Is More Than Just Association.

Beware taking information from only sources with vested interest in "Soothing Bad Metrics". The Presidents Working Group On Financial Markets Has "Functional Arms" With Great Influence. Goldman Sacs - Just so happens that most of the US Treasury's top personnel have ties to them - JP Morgan, Morgan Stanly, and the "Too Big To Fail" crowd would be worth your investigative time to see the connectivity. Throw in "Campaign Contributions" and the "Money Circles" become more apparent.

The More You Know The Less Certain You Will Become.

Debate Is The Distillation Of Reality.

Reality Will Be Reality Whether Believed In Or Not.


On Oct 25 01:34 PM Midwest wrote:

> No Sympathy has his facts skewed.
>
> The rant is more RNC talking points but it conveniently fails to
> embrace the harsh reality of the report created by the Bush Administration's
> "President's Working Group on Financial Markets" in 2007, which clearly
> and decidedly puts the blame of the mortgage meltdown on greed over
> laws supposedly "forcing" lenders to give money to the unqualified.
>
>
> Try to get beyond Newsmax and Fox before spewing more completely
> discounted "facts". Greed and horrifically bad government oversight
> allowed this to happen.
>
> www.mcclatchydc.com/25...
>
> Sincerely,
> One Mad As Hell Former Reagan Republican

Oct 25 03:04 PM

[Swashbuckler:]

"Banks make money by taking prudent risks and receiving fair compensation (e.g., interest and fees) in exchange for taking those risks." Yeah. And by having their former officers, who are layered thick in the upper reaches of government (see Goldman Sachs), steal the money from taxpayers to subsidize their ridiculous unearned and undeserved bonuses. The government may as well funnel taxpayer money to Acorn, Amtrak and the US Postal service for giant bonuses. Same sh#t. No difference.


On Oct 25 06:07 AM Angry Banker wrote:

> Banks do not make more money through foreclosure than through people
> repaying their loans. If they did, then the banks would not have
> lost so much money the last two years.
>
> Banks make money by taking prudent risks and receiving fair compensation
> (e.g., interest and fees) in exchange for taking those risks. Unfortunately
> they did not take prudent risks and lent money that they should not
> have lent, because the borrowers did not have the ability to repay.
> And then their second line of defense, foreclosure, also failed because
> the underlying assets collateralizing the mortgages were not worth
> what as much as when they made the loans.

Oct 25 03:46 PM

[OnWallStree...:]

Read why mortgages are invalid contracts, and all subsequent contracts & agreements that emanate from them are invalid, non-enforceable ... makes the mortgage originators, owners, and hypothecators net worth capitalization significantly below $0.00, into at least the negative tens of $trillions on an aggregate basis.

SUBPRIME’ ‘SLIDE’ THAT MASKS FRAUDULENT FINANCE
www.worldreports.org/n...

Oct 25 04:11 PM

[liebe:]

Your article has one very serious error. It states that our children and grandchildren will pay for our national debt. We are going to pay long before any grandchildren grow up to pay. A serious CRASH and day of reckoning are coming, not next generation, not someday, in the next few months, or years at most.

Oct 25 04:38 PM

[RTF 360:]

Where's the Outrage at the Banks?
Surely you jest Mr. Brown.

The Fall of the Republic --- The Presidency of Barack H. Obama
www.youtube.com/watch?...

Oct 25 04:38 PM

[doubleguns:]

We should have "foreclosed" on the banks. If we get a downturn and they end up back in the shit. Who will not want to "foreclose" on them.

Keeping them around has resulted in them preying on us like vultures.

Lets ALL be miserable together next time. Banks included. At least the guilt will pay then.

Misery loves company.

Oct 25 05:45 PM

[Drew Horn:]

Banks are businesses with the objective of making as much money as they legally can. They are not charities, social workers, or community cheerleaders. They are much more than money lenders, they are (via leverage) money creators. And they always have been and will continue to be those things. We should expect them to act in all ways that maximize their profits and doing so isn't bad, it is capitalism.

A lot of people express anger and outrage at bankers when they should be complaining about politicians. Who was it that repealed Glass Steagle, who wrote the laws that created Freddie and Fanny?
Who passed laws that provide incentives to banks to make mortgage loans to people who can't afford to repay them. Who put pressure on the SEC to limit their oversight of financial markets. Who failed to regulate the derivatives market. Who passed laws making large parts of AIG's business untouchable by state insurance commissioners. Who underfunds the IRS and bank regulators, etc, etc.

It is legal and expected that banks will offer contributions (bribes) to those who are supposed to represent us in government. It is also legal to accept the contributions. The reason its legal is that the US Supreme Court says so. Until we have a new court or perhaps a new constitution, I fully expect that bankers will continue to contribute money that is readily accepted and nothing will change. You sir, are complaining about the wrong villains.

Go back to trying to figure out how to make money!

Oct 25 05:45 PM

[MSimon:]

We thus stand at a crossroads for American capitalism. One path would channel popular rage into political support for some genuinely pro- market reforms, even if they do not serve the interests of large financial firms. By appealing to the best of the populist tradition, we can intro- duce limits to the power of the financial industry—or any business, for that matter — and restore those fundamental principles that give an ethical dimension to capitalism: freedom, meritocracy, a direct link between reward and effort, and a sense of responsibility that ensures that those who reap the gains also bear the losses. This would mean abandoning the notion that any firm is too big to fail, and putting rules in place that keep large financial firms from manipulating government connections to the detriment of markets. It would mean adopting a pro-market, rather than pro-business, approach to the economy.

from:

www.dynamist.com/weblo...

Oct 25 05:51 PM

[bindlepete:]

The Banks - big ones are broke - if there was anything near honest accounting. Their Tier 3 Assets, if not sold to the taxpayers for unrealistic prices - the big government give away - would place them in receivership so their bonuses are undeserved. But money talks and Washington will not shut them down nor even curtail the bonus flow.

Now if Washington did get tough they would translate the bonus flow to loans and then forgive them when the heat was off. Remember GS and their little ploy in 2008? This, by the way, defers the taxes on the personal cash flow until the loan is forgiven.

Oct 25 05:51 PM

[Alessandro:]

You pick Oct. 25th, 2009 to write your article, the very first day of a HUGE protest in Chicago, Called Showdown in Chicago, in which thousands of protestors are protesting against the banks.

Just google "Showdown in Chicago" and maybe you can start catching up a bit.

Oct 25 07:11 PM

[ebworthen:]

The outrage is there. Generations of Americans no longer believe in their leaders in government and industry; and are ready to revolt or retire to another nation.

There will be blood in the streets...or there will be a slow, quiet yet orderly move to the exits of the country and the currency...or both.

The majority left in what was once a great nation will be the dependent underclass rioting for more free cheese, and the oligarchs trying to pay the soldiers enough to protect them.

Oct 25 07:19 PM

[Common Schl...:]

Remember this blog when you next apply for credit, insurance or a job. Also, review your local paper for the penalties for theft of $1,000 or more, which is grand larceny. Lastly, think of the S&L debacle of 1987, the Long Term Hedge Capital Management bailout of 1996, former Governor Eliot Spitzer and the insistence by the financial industry and the SEC that no legislative oversight or criminal consequences for certain financial firms/activities is required at this time.

Individuals must reveal every detail of their finances and personal lives and be subject to a mysterious FICO score to be able to work, drive and live. The financial institutions that nearly broke the world hold us to the strictest of standards. reject us mercilessly and act without cause (have they raised your interest rate or cancelled a credit card lately?).

And now JPMorgan Chase reports record profits, less than 1 year after the meltdown.

Even the score, folks.
1) Stop using credit where possible;
2) Make the financiers prove they deserve your business (try your local banks, for instance);
3) Call you elected representatives and tell them that you want the sane protections they afford Wall Street.

Corporate FICO scores, anyone?

Oct 25 07:29 PM

[jdl51:]

"Whoa there for a moment, lets be fair and think back in the early 1990's when our government who regulates our banks told them and other financial institutions to ease credit for those who normally cannot qualify for a home loan."

Let' be fair and tell the truth here. The CRA was implemented to stop banks from redlining neighborhoods that they were taking deposits from but refused to lend to. The banks were never "forced" to lend to anyone but were required to lend to qualified borrowers in neighborhoods that they serviced. The banking fiasco had its roots in irresponsible lending to just about everyone, not poor unemployed ghetto folks. If that were the case, we would not be having foreclosures in every neighborhood in the country, but would be limited to a few homes in the poorest neighborhoods that the right constantly tries to blame for the collapse of the whole financial system. You'd have to be an idiot or completely ignorant of how the system works to believe that. Banks went on a lending binge to anyone that walked in the door regardless of qualifications because they were more interested in making fees, securitizing the loans, passing them on to investment bankers who with the collusion of the rating agencies, sold them to an unsuspecting world and then the cycle repeated itself until it collapsed. And to multiply the problem, investment banks sold insurance policies, but they couldn't call them insurance policies because those are regulated so they called them credit default swaps. They sold them to anyone who wanted one, again to collect the fees on something they never thought they would have to pay off. Unfortunately the whole house of cards collapsed. The previous administration didn't believe in regulation and looked the other way while all this was going on instead of jumping in and putting a halt to it or at least try to regulate the derivatives industry which would have lessened the losses considerably. If you want to blame someone, blame the mortgage brokers that sold these subprime loans to people they knew wouldn't be able to pay, the appraisers that juiced their numbers, the regulators who were asleep at the switch and the ratings agencies that didn't bother to do their due diligence and check the underlying mortgages. Any link in that mortgage chain would have put a stop to the whole mess, yet all of them were too greedy to do their job responsibly.

Oct 25 08:38 PM

[observer00:]

[Drew Horn: Comments (68)
Banks are businesses with the objective of making as much money as they legally can. They are not charities, social workers, or community cheerleaders. They are much more than money lenders, they are (via leverage) money creators. And they always have been and will continue to be those things. We should expect them to act in all ways that maximize their profits and doing so isn't bad, it is capitalism.]==========...

I have no problem with businesses making money by providing customers with service of value. I do have a problem with businesses that gouge folks [e.g., banks, insurance, pharmaceutical companies, used car sales companies, lawyers, investment companies, etc.]. Obviously, the problem doesn't just start/stop with banks. Some basic business ethics should be communicated to business owners/employees & implemented. The good thing about capitalism is the choice it offers us. And the customer does indeed have a choice... We can vote with our wallet if the business "shafts" folks.

Oct 25 08:50 PM

[observer00:]

Another point, folks. Has no one noticed that the banks that were "too big to fail" have only gotten larger? Evidently, there's no monopoly here [yeah, right]. If the gov't was truely looking out for the taxpayers [nice mental vacation], financial institutions would be limited in size & required to have a larger amount of assets to cover loans.

Oct 25 08:54 PM

[BRUCE E. W.:]

reuters.com/articl...

NEW YORK, Oct 20 (Reuters) - Freddie Mac (FRE.N) (FRE.P), the No. 2 U.S. home funding company, on Tuesday sold $3.5 billion in new two-year reference notes due Dec. 15, 2011, said a market source familiar with the offering.
The notes were priced to yield 26 basis points over comparable U.S. Treasuries.

The joint lead managers on the sale were Goldman Sachs, Citigroup and Morgan Stanley.
More of the same: only the brand names GAIN.

Throwing the housing market to the wolves seems to be in vogue. I see it as the equivilent to selling it all short and creating a graveyard for many people who are trying to salvage their homes; a landfill garbage dump for scavengers in private equity; a waste treatment center for financials and a triage center for government agency.

bloomberg.com
bloomberg.com/apps...

by Elizabeth Hester and Zachary R. Mider
Oct. 21 (Bloomberg)
" JPMorgan, which posted net income of $8.45 billion for the nine months, and Goldman Sachs, with $8.44 billion, are the most profitable U.S. banks. "

– JPMorgan Chase & Co., navigated the financial crisis without a quarterly loss and is now making more money advising more corporate clients on mergers and acquisitions than Goldman Sachs Group Inc. The New York- based lender took in $1.26 billion in advisory fees in the first nine months of the year..., data compiled by Bloomberg show. The bank also extended its lead in underwriting equity and debt offerings, earning $4 billion in the same period, twice as much as Goldman Sachs."

"...JPMorgan and Goldman Sachs may make it harder for other banks, including boutique advisory firms, to compete, said Matthew McCormick, a banking-industry analyst at Bahl & Gaynor Inc. in Cincinnati, which manages $2.5 billion."

‘Insurmountable Leads’ from Investment Bank Profit :Although the company has certainly benefited from the strong trading environment, JPM has also taken considerable market share in investment banking throughout the crisis"

“They have captured share and will sustain a lead for a considerable period of time,” McCormick said. “It’s going to be very difficult for upstart or broad-based firms to come in and usurp what many believe are the insurmountable leads that Goldman and JPMorgan have over competitors.”


This neutral business report (excerpted qoutes & paraphrases) from Bloomberg posted by Hester & Mider on Oct. 21 indicate an unbiased statement of position held at the pinnacle of financial power by two financial giants during and, in part, gaining from a major crisis which they helped to produce. It is pretty clear that the onset of a new era of financial domination is being forced upon the network of financial markets. It is not just competition that is being snuffed out and blended into a tunnel of emergent homogeneity, but a total loss of adaptive flexibility. With mergers and acquisitons dominating the financials, the power of these two giants is nearly sovereign. At that level they make their own rules since everyone is in a dependency allotment contest. There are undoubtedly those people who can read the (see original full text) content with glorious envy at their success. But there is something obscene about the figures that are emerging given their role in creating such misery, and now having them positioned with the money to be one of the few who will actually gain tremendously and progressively from pirating all the spoils. And they will buy debt for pennys on the dollar and continue to benefit from the crisis and dilutions they were very much instrumental in creating.

pbs.org/wgbh/pages...

pbs.org/wgbh/pages...

"In The Warning from PBS, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008."

The Frontline links include (the second one) a serial commentary section which include top economists and core thinkers on the issues.

Oct 25 11:48 PM

[Joe Shareho...:]

Mad at the banks? FAZle them. I agree these financial leeches killed our economy. The corruption among the banks is unprecedented in my humble opinion. Let me say this, however. The chickens will come home to the roost. Main street can only take so much. Then Make sure you have FAZ when this happens. I'd love to be involved in a coordinated effort to charge up the credit cards and then default. But something like that would likely never get beyond planning stages. And anyone who carried it out would only hurt themselves. So for the time being, I'll be satisfied with FAZ. Even if it continues to drop, it'll be back I believe. I've set aside a chunk of what I call restitution money. This is money I can afford to gamble with - not a lot, but a small chunk. I believe the banks are still toast, however, so I believe it'll eventually come around.

Oct 26 12:15 AM

[bowonwing:]

The U.S. Govenment "Bailout." Barrons 3/16/09 page 14:
"A number of big banks, including GS and DB, were paid roughly $50B from the U.S. bailout of AIG last fall, the WSJ reported. The news came as lawmakers sought names of firms that received money from AIG."

San Francisco Chronicle 3/4/09 pageC2:
Est. cost of "the government's [U.S. taxpayers] package of bank bailouts, loans and economic stimulus plans" "$3 TRILLION." Google financial bailout and the estimates are now, 10/09, up to $17 Trillion+. (S&L crisis 1986-95: $256B)

Did they get billions without giving anything in exchange?

By definition: a Bailout does not require "anything in exchange."
"Bailout- of pertaining to, or consisting of means for relieving an emergency situation." Random House Dictionary. The "thing in exchange" is the so called relief of "the emergency situation." (In fact "the bailout" is the greatest grab of U.S. Taxpayer money in the history of the U.S.)

The "bailout" was an "Emergency rescue plan," proposed by Fed Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson [originally for $700B, which has become about $3T+ in 2009) in 2008. The governments [U.S. taxpayer] initiative was to pump liquidity into the markets and to encourage consumer and business lending [to John Q. Public]. But this is not what has happened.

Read: "Getting off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis" by John B. Taylor, a senior fellow at the Hoover Institution (Conservation Think Tank at Stanford University), who was a Treasury undersecretary in Bush's first administration.

Read: "The Creature from Jekyll Island- A Second Look at the Federal Reserve" by G. Edward Griffin, to learn about the Federal Reserve and its history, a must read to understand this. The banks own, literally, the Fed. And why is the Fed refusing to reveal where there $2 Trillion went (to the Banks!)? (Bloomberg is suing them under the FOIA to get this information).

Final question: Why does not the U.S. Treasury issue it's own money, (instead of the Federal Reserve, which is actually owned by the banks themselves) and what would the effect of that be on the banks and the public of the U.S.?

Oct 26 01:31 AM

[chris coonan:]

Wells Fargo is an evil bank that took my house, and every bit of worth I accumulated in 18 years of working in Architecture and Development.

Just when I needed to move to Arizona from California, to work, the housing bubble burst, and I couldn't sell my house....2 years of carrying the cost of an extra house bankrupted me, and then I lost my job because nobody is building or developing anything without Credit. Wells Fargo took my house, and everything I owned, and they were one of the major reasons everything went to hell. I didn't even get an eviction notice, and the bank had sold the house, and the new owners came and plundered antiques that had been passed down to me through my family for 4 generations.

I am now a statistic, surviving off of unemployment insurance, supporting 5 people, with no hope of regaining a position in my field.

For a guy who tried to do the right thing, pay his bills and give to society though charity and service.....Yes, I am a little pissed off at the situation.

I know that there are many others, that share my pain, and that misery loves company. I can only see a trainwreck coming for the rest of America, as there are too many people like me. Of course the 10 percent that hold most of America's treasure will be just fine, they will just have a little less of it.

Oct 26 04:32 AM

[User 485826:]

Totally agree with you. The Institute of Economic Affairs (in England) have published report which comes to the same conclusion.
So, now, the Government must do the right thing, which is to take over all the toxic loans, which they insisted upon and thus repay the banks.
Then, the voters can see what happened for themselves and will stop blaming the banks.


On Oct 25 09:49 AM No Sympathy wrote:

> Your anger (outrage) is misplaced. The banks, who by the way are
> not traditionally mortgage lenders, sold and securitized mortgages
> because they did not want the risk in the first place. Remember the
> savings and loan mess? It wasn't the "banks" that failed it was the
> mortgage lenders. When the S&Ls were gone our government pushed
> the banks into mortgage lending thru such programs as the Community
> Reinvestment Act Program (seekingalpha.com/symbo...) or
> they face the wrath of regulators. So our Government sets up programs
> such as Fannie and Freddie so that the banks can offload the risk
> that they didn't want in the fist place. The FDIC, OCC, State Banking
> regulators, and Federal Reserve inspectors and regulators were more
> likely to criticize a bank for Not making a bad loan than making
> one. I once, as a bank director, was chastised by the Federal Reserve
> for denying a mortgage loan to a young lady who had lost her employment
> after the application was and home purchase contract was signed.
> She was actually relieved and thankfully for the denial because since
> she had lost her employment she had no income to pay the mortgage
> on a home that she didn't now want. So the bank avoided a potentially
> bad loan, the customer was happy, but the Regulators were upset and
> criticized the bank and accused us of sex discrimination and that
> we might be in violation of the CRAP laws. Our government pushed
> the banks into mortgage banking after they pushed the S&L industry
> over the cliff.
> We were encouraged to make bad loans and then push them on to others
> to avoid the risk and to avoid the wrath of the regulators. In other
> words the Banks did exactly what they were told to do by the government
> or be put out of business by the government. So save your wrath and
> outrage for Barney Frank who is still pushing banks to keep making
> bad loans. Oh by the way that young lady who was denied a loan...
> She is now my wife.

Oct 26 05:48 AM

[tenofwands:]

Every step in the portrayal of our corporate culture and process as it is: A DESECRATION OF THE FUNDAMENTALS OF DEMOCRACY
is a holy day on my cosmic calendar. God is good.

Oct 26 07:16 PM

[MSimon:]

"I have no problem with businesses making money by providing customers with service of value. I do have a problem with businesses that gouge folks [e.g., banks, insurance, pharmaceutical companies, used car sales companies, lawyers, investment companies, etc.]."

You left out the gas company, the oil company, the electric company, the water company, doctors, the airlines, shipping companies, railroads, grocery stores, meat markets, shoe stores, clothing stores, car repairs, Microsoft, Apple, the movie industry, accountants, dentists, in fact any one who sells anything is suspect. They all need to start selling low and buying high - from you.

No one is gouging you. (Except the government) All you have to do to stop the gouging is walk every where you go and freeze in the winter and fry in the summer. That will stop the rip offs. As soon as you want something they have you.

Oct 27 01:48 AM

[MSimon:]

chris coonan:

You were in the business and didn't know it was a house of cards?

I'm told the market is picking up for electronic engineers.

Oct 27 01:55 AM

[MSimon:]

Drew Horn,

Actually it is worse than the big money guys. Bill Lockyer put it to the legislature in California: It is the legislators and the voters who want something for nothing. Get it. The VOTERS.

See the 2 minute video:

powerandcontrol.blogsp...

The enviros want the property owners to take the hit to protect the Mexican tit mouse. The poor people want to soak the rich. The rich want to gouge the poor. The politicians want their 10% coming and going. The Party is over friends. Time to sober up.

We can pull out of this We Are Americans. It will take a LOT of hard work. Something few are interested in. I see it all over America. I teach my kids: do your very best put in extra effort. You will go far. Why? Because most people just put in enough effort to get by. There is only one mark to strive for Excellence.

Once America gets back to Excellence all the rest will work out.

Oct 27 02:18 AM

[lennywon:]

I like Mike from NYC comment put back the Glass Steagall Act and let's keep it that way. Commercial and investment banks are two variant types of enterprises, the first is supposed to be risk adverse and the bedrock of our economy, while the second, well who gives a damn, if they fail we won't need to bail them out will we?

Nov 06 02:03 AM