Tuesday, March 30, 2010

Did The Bank Bailout Work?

By: Marquis Codjia

A few months ago, the crumbling global economy was atop the
agenda of many G20 leaders. Social unrest, banking sector
meltdown, global growth conundrum, and stock market yo-yos were
the main discussion topics among the planetary leadership.

Governments the world over addressed the most imperative issue,
the banking pandemonium, with massive cash inflows into a sector
that hitherto epitomized capitalism at its best (and worst),
with a modus operandi more akin to central intervention in
communist economies.

The global tab ranges from 4 to 5 trillion US dollars according
to the most optimistic estimates, but the overall costs may run
higher in the future.

The financial rescue of the ailing banking sector, in principle,
was the right course of action and various experts across the
political spectrum saw eye to eye on its criticality, including
the staunchest free-market theorizers who routinely treat as
leftist energumens out of the antediluvian era those who dare
buck conventional wisdom regarding the role of government in
social economics.

It was flummoxing, however, to observe how lenient authorities
were vis-à-vis banks throughout the bailout process on top of
the very favorable terms under which funds were disbursed.
Hence, financial institutions that benefited from state largesse
were able to quickly use monies received to regain profitability
and reimburse their respective governments.

Other parts of the economy didn't experience so swift a
recovery. Unemployment is still high; the mortgage sector is
still in a shambles. Banks have been reluctant to lend, creating
an underperforming productive sector and a lethargic private
consumption. The stock market may be up but, debatably, the
"real economy" is still down.

Banks played a crucial role in the current economic malaise but
anti-bailout commentators were wrong to vilify them and to
affirm that such guilt should have precluded public rescue.
Financial intermediaries are an epochal pillar of our
post-modern economies and it would have been socio-economically
ruinous and politically unpalatable to let them sink.

Admittedly, a majority of banks are today more cash awash and
profitable than a year ago albeit some pockets of the industry
are still comatose owing to the liquidity hemorrhage that has
devastated them since the recession erupted.

Regrettably, nothing has changed. These institutions are
resorting again to the erstwhile practices that wrought havoc to
the economy in the first place, under the aegis of a regulatory
body eerily blind, deaf and tongue-tied.

Banks, evidently, should be encouraged to pursue and make
profits as any private concern. But when such a financial quest
comes at the expense of an entire system or poses a systemic
threat to the productive sector of the economy, the argument in
favor of tougher regulation becomes of preeminent import.
Companies need to utilize hedging for exposure control; yet,
speculators lately seem to use derivatives to bet against their
very benefactors. Although outrageous to vast swaths of the
populace, such practices are explicable if one considers that
the speculating camp only furthers private interests of elites
(their investors) who seldom factor morality into the
profitability equation.

Case in point: Greece. The Hellenic government bailed out its
banking sector with billions of dollars only to see their
country downgraded a few months later because of an perceived
default risk.

At this moment, elected officials and central bankers should
ponder the following question: did the bailout work? Or, stated
differently, did the mammoth cash infusion into banks and the
associated supplemental initiatives reach the initial goals?

Seasoned economists and social scientists will grapple amply
with issues regarding program effectiveness and efficiency in
the future, but prominent experts currently believe the answers
to such interrogations are negative. George Mason University
economist Peter Boettke posited that bank bailouts have created
a "cycle of debt, deficits and government expansion" that in the
end "will be economically crippling" to major economies, whereas
Barry Ritholtz, famed author of Bailout Nation and CEO of
research firm FusionIQ, thinks the rescue programs could have
been conducted better.

It can be argued that the initial rescue phase of the bailouts
program was effectual in that it helped avert a domestic and
global banking hubbub. But, contrary to popular credence, that
was the easiest part. The courageous headship of political
leaders and regulators cannot be underrated in the process, but
it is indisputably far facile for a powerful central bank, like
the US Federal Reserve, to make journal entries to the credit of
targeted institutions and replenish their corporate coffers via
the much celebrated "quantitative easing".

The Fed, just like other G8 central banks, is in an enviable
position because it can create money 'out of nothing' by
increasing the credit in its own bank account.

Regulation is where actual political bravery need be shown from
authorities, and so far the lack of sweeping reforms in the
financial sector may obliterate the latter's plodding recovery.

At present, there are five distinct reasons explicating the
mediocre results obtained so far from the bailout scheme.

First, the much needed financial overhaul is taking longer to
move up the legislative ladder and reach US President Barack
Obama's desk because not only financial lobbies - such as the
über-powerful American Bankers Association - are exerting strong
pressure, but the political agenda is also crowded with the
healthcare reform and the geostrategic concerns linked to the
conflicts in Afghanistan and Iraq.

The fact that Senate Banking chief Chris Dodd, D-Conn., wants to
introduce reform in the sector will probably change little in
the short-term. Second, President Obama's own senior level
financial staff is composed of former Wall Street alumni and
lobbyists, and many skeptics are incredulous that a clique so
tied to financial interests can spearhead true reforms in an
industry that was previously munificent to them.

The next two factors are endogenous to the banking industry. One
is the past experience of regulation and deregulation cycles
that usually make laws dissipate over time, and the other stems
from the idiosyncratic ability of financial engineers and
investment bankers to design new products and techniques to
counter existing laws.

Finally, the regulatory endeavor should be global in scope, and
the present lack of geographic cooperation and the practical
difficulty to track systemic risk within the industry are
currently handicapping further advances.

(Article initially published at http://wp.me/pMqmW-8y)

About the author:
I'm a finance professional with a solid, varied risk management
experience in the financial services arena. I have been involved
in capital markets for a few years now, in the course of my work
but also as a trader. I'm an MBA graduate from Rutgers
University Graduate School of Business at New Brunswick, New
Jersey, and a CPA (Certified Public Accountant). Read expanded
bio at http://marquisc.wordpress.com/about/

Tuesday, March 23, 2010

Joe Biden F Bomb

Much adieu about nothing but it is kind of funny. Biden isn't the first vice president to get criticized for language such as this. Remember the furor over Dick Cheney telling Sen. Pat Leahy to "go f..k yourself"? And, of course, we have the Nixon watergate tapes to reference for colorful use of foul language.

Note to republicans and conservatives: this is so petty an issue and using it only illustrates how impotent you've become. If you hadn't dropped the ball over the last ten years and sold out to corporate handlers this health care bill would probably still be dead on arrival like all the previous attempts.

Sunday, March 21, 2010

HR 3590 Passes

President Obama speaks moments after the historic passage by the House of Representatives of the Senate's health reform legislation.

The 3 Steps to Fix American Healthcare

Copyright (c) 2010 Scott F Paradis

In the rush to pass healthcare reform congress and the president are failing to address the fundamental issues corrupting the system: Americans' approach to aging and mortality and the growing opportunity to siphon profits from an uncontrolled system. As the misguided debate rages on Capitol Hill attempting to infuse more funds into an already bloated system, opportunists continue to divert health related revenue to pad the bottom line. Instead of committing more resources we must take three aggressive steps to refashion American healthcare. We must limit profit; empower consumers; and promote healthy lifestyles.

The American healthcare system is a nearly perfect money machine: consumable services of universal demand which are easily manipulated by fear and greed. This money machine, however, is draining resources from virtually every aspect of the economy. We must institute well thought out measures to address highly charged emotional issues - literally the realities of life: death and taxes. And we need effective means to dissuade parasites from feeding off the system. We must turn off the road to financial ruin now and steer a new course.

Currently health related services account for 17.3 percent of the U.S. gross domestic product. By the end of this decade healthcare is expected to represent nearly one fifth of all domestic spending. With trillions of dollars in play lots of people are mining for healthcare gold. Today hundreds of billions of dollars of non health-related healthcare resources are siphoned off for at best marginal benefit enriching overpaid corporate executives, lawyers, politicians and an army of bureaucrats. The damage the parasites inflict amount, by some estimates, to one third or more of all healthcare costs. The first step to fix the healthcare system is to get the focus off profit and get it squarely on health.

Powerful corporations control access to healthcare services leaving consumers to fend for themselves mainly ill-informed and largely powerless, in often emotionally charged circumstances. Because of built in firewalls people have no incentive to, nor way of comparing healthcare related costs, services or records of performance. In addition to the lack of transparency consumers rarely have the power or incentive to choose more cost effective options. The system is designed like the games in Las Vegas - to ensure the house always wins. Special interests overwhelm individual consumers at every turn. Choices by informed, responsible individuals sustain rational, market-driven systems. To fix American healthcare we must empower and incentivize individual consumers to determine "best value" in a transparent healthcare system.

Every economic endeavor is a dance of supply and demand. While the current healthcare system primarily manipulates the supply side of the equation it is time Americans get serious addressing the demand side.

A lifetime is a temporary adventure. As troubling as this realization is, as a society we must come to terms with mortality and the components of modern life undermining wellbeing. We each are responsible for our own health and fitness, and collectively we are responsible for the environment driving the pace and quality of life. Improving the health, wellbeing and fitness of Americans in all stages of life will drastically reduce demand on the healthcare system. The most significant step to fix American healthcare is to honestly assess our circumstances and act uncompromisingly to promote health and wellness from cradle to grave.

Continuing down the current path, funneling national resources at an ever increasing rate to sustain an aging population and inflate opportunists' profits, will cause our healthcare system and then our national economy to collapse. While congress debates ways to increase the power and reach of the system, realize the solution lies with the people. Three steps are required to fix American healthcare: limiting profit, empowering individuals and improving lifestyles. We can stay our current course or we can fix the system - it is time to choose.

Scott F Paradis, author of "Promise and Potential - A Life of Wisdom, Courage, Strength and Will" http://www.promiseandpotential.com
publishes a free weekly ezine, "Money, Power and the Path to True Prosperity". Subscribe now at: http://www.c-achieve.com

Friday, March 19, 2010

Will the New Credit Card Laws be the Solution to Credit Card Debt for Which We've Been Searching?

Marketing to college aged students has been an ethical issue for years for lenders like Bank of America, Wells Fargo and JP Morgan Chase. The government has finally put in their two cents on the issue in the new Credit Card Accountability and Responsibility Act of 2009 and they are putting in some serious restrictions.

A few of the large banks have offered personal financial education in an attempt to overcome those ethical issues. Despite those efforts, 84% of students have at least one credit card, with the average student having 4.6. The average balance on a student card is $3,000. On top of student loans, the average student is leaving college with more debt than they typically can handle.

So, how will the act attempt to provide credit card debt help?

- No more freebies! Issuers cannot offer free items like t-shirts and pizza slices to entice students to sign up for credit cards on college campuses, college sponsored events (including sporting events), or within 1,000 feet of the campus.

- Anyone under 21 cannot secure a credit card without either an adult co-signer or proof of enough income to pay at least the minimum payment.

I hope that the new rules set forth will be able to put a dent in the massive amount of student debt. Unfortunately, something tells me that without any sort of education or free information about good spending practices and building credit, students can get into just as much trouble. They will be fair game to the credit industry after 21-and their naivety will only serve the interests of the credit card companies.

What other changes have come with the new credit card laws? The biggest change you will notice will probably be the ones to your statement. The highlights of the new format include:

- A structured format that features the fees and interests involved in your bill.

- A special section that explains how much time you will spend and how much interest you will pay for simply making the minimum payment every month. Some statements will even include a comparison of what paying more than they minimum can do to your balance.

- A toll free number for credit counseling. On top of those changes, everyone should receive their credit card statement at least 21 days before the due date.

There are many things these new laws can help us see-for a large amount of people, the newest format will only make it more clear that their need for credit card debt help is dire.

If you've already gotten in trouble with your credit cards and are looking for a permanent solution to your credit card debt, consider Missouri and Illinois Chapter 7 bankruptcy. You could be doing yourself the biggest favor by simply researching what kind of help Missouri and Illinois Chapter 7 can offer in your situation. Find an reputable attorney in your area who is willing to offer you free articles, blogs, bankruptcy faq, and even publications to educate you before you even step foot in an office.

Missouri Bankruptcy attorney James Brown has been working to relieve the debt of hard-working American families for over 15 years. He has dedicated his career to educating consumers about options for debt relief and has released 5 publications, including, "Get Out of Debt: Secrets Your Creditors Don't Want You to Know." You can request a free copy at http://www.castlelaw.net

Thursday, March 11, 2010

A Bumpy Ride for Commercial Loans

For anybody lulled into believing that the banking crisis is over, read the following excellent article on the current state of commercial loans.

A Bumpy Ride for Commercial Loans
By Stephen Bush

With business financing and working capital loans, commercial borrowers need to be prepared for a long and bumpy ride. Based on how chaotic the commercial banking climate is currently, this situation is expected to prevail for a long (but unpredictable) period of time. In spite of the frustrating and confusing business lending environment, a prudent commercial loans strategy is likely to produce the most effective results that can be hoped for by small business owners.

Misinformation and insufficient information will play a somewhat unpredictable role in achieving the desired outcome of business borrowers finding appropriate commercial finance solutions. The eventual success of commercial financing efforts will depend on an individualized and detailed assessment of the unique financial circumstances for a specific business, although it is appropriate to note that there are new and effective business loan options that will satisfactorily fill the commercial funding gap for many small business owners impacted by their current ineffective commercial bankers.

Anticipating the long and bumpy ride that lies ahead for even the most ordinary business financing request will be prudent and wise for small businesses. It has not been unusual for commercial borrowers to wait for one to two months before their bank finally declines to make a commercial loan that had appeared to be a mere formality when the lending process began, either because banks do not want to publicly admit that they are not presently making business loans or perhaps due to their somewhat secretive and changing guidelines for making such loans. Regardless of their prior description of "normal" for working capital management and commercial financing options, many business owners have already discovered how much and how quickly this has changed.

The rationale for describing the journey to business financing success as being both long and bumpy is based on a prevailing banking climate that is characterized by misinformation as well as insufficient information about current commercial finance options for small businesses. After they have finally been informed by their current bank that needed business finance help is not forthcoming, because they simply do not have enough information to successfully complete their task, a small business owner might be unsuccessful in their attempt to find a new source of commercial funding in one typical scenario involving insufficient information. When a commercial banker misleads a prospective business borrower by advising the business owner that the bank will be able to help in providing an unsecured working capital loan when the banker has already been told by senior bank officials that such financing will not be provided except for specific established business clients, this is an increasingly frequent misinformation scenario. Most banks are in fact eliminating or reducing working capital financing to small businesses as indicated by one public report after another.

Realistic expectations of what lies ahead in business financing efforts should produce more successful results. This article represents a sincere attempt to accurately portray the recent confusing and unpredictable state of commercial banking for small business owners, and this fulfills a primary purpose in describing current attempts to obtain small business loans as potentially being a long and bumpy ride.

Stephen Bush and AEX Commercial Financing Group provide help for small business finance programs and working capital loans:

Friday, March 5, 2010

Bailouts Not Working

The bailouts appear to be only working for the elites on Wall Street. We still have massive unemployment. The government is running up huge, unprecedented deficits. Certain cartels and industries are running up the costs to the middle class(oil and health care for example). The future of our children and grandchildren has been mortgaged.

Here's an excellent article explaining why the road we're headed on is paved with rocks:

Bailing Is Not The Way Out!

Copyright (c) 2010 Scott F Paradis

As the government continues to attempt to bail out the sinking ship known as the U.S. economy, we find ourselves in the dubious position of realizing an infusion of cash only adds ballast weighing down the listing vessel. We are paying one credit card with another - a practice that may well end the grand American experiment.

While we deride Friedman's monetary policy and look to Keynesian fiscal policy for answers, we can't escape the reality - time and circumstances have changed. Old solutions will not work on this new problem.

Our mistaken national policy of installing finance as king, unleashed the unchecked creativity of Wall Street. The leverage invoked by wanton and reckless financial malfeasance left a wreck with two defining characteristics: a destabilized middle class and a penchant for needless consumption.

Through our desire to reside in more prestigious residences, drive ever more grand SUV's, and accumulate more impressive toys we have fallen prey to misguided financial policy, counter productive energy policy, and imprudent foreign policy. We have leveraged our future, willingly accepting the reward of trinkets for Manhattan while simultaneously shackling ourselves and future generations into lifetimes of debt service.

Addressing the crisis by plowing more money into the hands of the elite that brought us to this precipice only reinforced previous mistakes. It is time to stop concentrating wealth in the hands of the few while building debt for the working classes. We have undermined trust in what once had been the enabler of global stability - the U.S. economic engine. That engine is fueled by the optimism, innovation, and engagement of ordinary people with extraordinary vision.

Unfortunately, most often, real solutions, those demanding sacrifice, are left until all easy options are exhausted and the wreck rests on rock bottom. We haven't hit bottom yet, so we likely won't entertain real solutions soon. Those solutions, in the end however, will come from the people - a top down approach in our current political environment will not work.

As our financial system crumbled we are forced to reconnect to what matters most - to enduring values - to one another. Economic nepotism must be laid to rest. We must embrace a system whereby the moneyed elite and the masses act together in a collective self-interest based on universal, enduring principles. We must come to realize the material excess of wealth is a false idol leading us astray. We must come to recognize and embrace ideals more appealing than appearances and more enduring then accumulation.

Overcoming the greatest challenge of our time, demands we overcome the greatest challenge of all time - the double-edged sword of human nature: fear and hubris. The debt bubble and the aftermath of its demise is a flaunted example of the frailties of human nature. Admitting we have a problem is the fist step to fixing it.

Though we have strayed into believing accumulating is our highest purpose, this crisis may yet cause us to see a greater truth. We are here to experience, to act, to grow, to love. The stuff we accumulate does not endure. For in the end, it is the people we become and the love we share that matters. Bailing is not the way out. A coming together and a commitment to one another is.

Scott F. Paradis, author of "Promise and Potential: A Life of Wisdom, Courage, Strength and Will" http://www.promiseandpotential.com publishes "Insights" and a free weekly ezine, "Money, Power and the True Path to Prosperity". Subscribe now at: http://www.c-achieve.com

Monday, March 1, 2010

IBM Layoffs Coming?

Several news sources are reporting that IBM will be conducting what they call "resource actions" this month(March). Resource actions are in reality layoffs/downsizing. This is a bit surprising since IBM posted their best year ever in profits for 2009 at 13.4 billion. There's been no official word yet so at the moment it's in the rumor stage. However, considering the fact that these leaks are coming from different locations it's probably a sign that there is something coming down.

Corporate downsizing is in vogue again after the recession hit. What concerns people is when companies making huge profits take these measures it seems unfair to the employees who helped build that profit. It probably is and a severance package most likely will be used to pay down credit cards, car payments, and perhaps get ahead on a mortgage. After that, there's a another paycheck taken out of the system and little spending money left to grease the economy. It's belt tightening time.

Another concern about this is the state of IT workers in the USA. During the technology boom of the '90's, jobs were created at breathless rates and the wages were outstanding. Things haven't been so rosy over the last ten years. A lot of jobs and production facilities were outsourced overseas, investment fell off after the dotcom bust, big companies gobbled up smaller ones and the software and hardware became much more user friendly therefore eliminating a lot of support positions. There's a lot of people with computer science degrees cleaning restrooms.

One could argue that this is the natural state of things in a dynamic free market economy where creative destruction of businesses fuels new advances and makes things better and stronger. My concern is that the IT industry is going in the same direction as steel and autos. Let's hope that this pending action doesn't include plans to outsource more work overseas.

Final rant:

I find it hard to believe that the economy can fully recover, much less expand, when our industrial base is shipped to China, good jobs are eliminated by downsizing, and the US government attacks the problem by throwing money we don't have at it. The bottom line is always a concern but when a company makes record profits and then eliminates jobs there's something a little out of kilter with fair play.