Tom Armistead

Banks Don't Intentionally Overcharge Credit Card Customers… Or Do They?

Somewhere in there these same large banks got themselves a federal exemption to the operation of state usury laws.

Your focus on the interest rate only limits the scope of your article. My wife handles the credit cards, and she found a tendency for them to claim late charges which they were not entitled to, or even to delay cashing/posting payments in the interest of getting a late fee and an interest rate upgrade. Frequently they were quick to back down when challenged.

It is not surprising that the banks resist the idea of a federal consumer protection agency. After all, they used the federal government to do an end run around the protections the states had enacted.

In point of fact many credit card issuers are predatory - they are trying to do a modern version of the "company store" strategy. As a matter of public policy, consumers whose entire income is devoted to paying interest and late charges cannot create any demand for goods and services.

Somthing needs to be done.

Banks Negotiate Watered Down Stress Results

John, capital requirements for banks, as they existed up to these stress tests, were based on the tacit assumption that a bank with losses would have access to capital markets, together with time to replace capital from earnings.

The depredations of bear raiders and the folly of mark to market accounting combined to shut the banks off from capital raises, creating the danger of systemic collapse.

At this point the Geithner plan has created a situation where banks can raise capital, diluting existing shareholders. This is as it should be, the shareholders wind up taking the loss. And those who attempted to short the financial system into oblivion have now taken some losses too: this also is as it should be.

Stress Tests: Where Do CDS Fit In?

Credit Default Swaps are in effect insurance against bad debt on bonds or other obligations. The notional amount would be the policy limit. Because losses are infrequent, a CDS with a notional amount of 1,000,000 might only be worth 12,000 at fair market value.

The 15 trillion would be the total amount of insurance. At one point globally notional CDS totalled 65 trillion, more than they total of all outstanding corporate debt. Rather than closing the original transaction, a party closes their position by buying or selling a new opposite position. So net notional amounts seriously overstate the total size of the problem - they are "headline" numbers.

But the 64 billion in my opinion is an overstatement of assets - these banks collectively are asserting that they all have unrealized gains totalling 64 billion on CDS trading. Checking the OCC figures, for the last 8 quarters the banks collectively reported losing 8 billion per quarter on the average, not consistent with large unrealized profits...

Stress Tests: Where Do CDS Fit In?

These are not net notional, they are, as labeled, fair values. The net notional amounts are far larger. The notional amounts total about 15 trillion.

www.occ.treas.gov/ftp/...

Net notional amounts of CDS globally have declined lately, and these banks are the major players. Do you really believe that they are smarter than each other and all the other players to the tune of 64 billion?

On May 05 09:28 AM dcollis24 wrote:

> It is less important to know the gross notional of CDS than it is
> to know the composition of the underlying reference entities. Selling
> protection on a diversified index at 88bps is very different from
> selling protection on GMAC at 1500bps. Probability of default is
> dramatically different. Also, there is no reason that the aggregate
> bank CDS notional needs to "net to zero." As you said, there are
> other couterparties in the game.

Buffett's Financial Bets

Buffett's attitude toward municipal bond insurance is curious: at Eric Dinallo's invitation and with considerable help from the NAIC he entered the bond insurance business. So far as I know it was his only start-up ever. As I recall he offered to reinsure or take over various books of business at twice the prevailing rate but nothing came of it.

Buffett has had a long and successful career but like any other successful person he looks out for number one. He thought he could do some old fashioned premium gouging in the muni arena but it didn't work out.

It is not like the man we all see in his public utterances, but to me the whole moral hazard in municipal insurance argument sounds like a case of sour grapes.