The financial industry -- especially the major commercial banks -- continues to take huge write-offs for under collateralized loans, and it is expected that the next serious hit to them will come from haircuts they'll take from business bankruptcies that are sure to multiply this year.
Money that has been all but given them, and Fed interest rates at a rate probably lower than they have ever been in my lifetime, don't seem to be helping them or the consumer.
Rather than revitalize their loan portfolios where there is still life, the common mentality seems to be 1) purchase the assets of smaller banks and 2) continue to squeeze every dime of interest out of borrowers.
For years, there have been two and only two rules of banking that were both common and necessary for them to have very low risks and to be very profitable. Here they are:
1. Make loans to people and companies that can and will pay them back.
2. Make your spread 2 points higher than the rate you are paying for money.
That's it. The whole shebang.
The rates banks are charging credit card users, for an example, bump federal usury laws. We're talking about 20% and more in most cases. Yet, the banks overall cost of money is less than 5%. So customers who should be paying 7% are paying 20%.
And as the public's personal economies lessen, they are far more likely to default on loans than they would otherwise. Consequently, it appears that the federal government will need to institute some rules and tests to keep banks from continuing to provide a major reason for the failing of the US economy.
How many of your friends are beginning to show signs of their net worths tanking? It doesn't have to be that way, and shouldn't be especially when it's the public's money that's keeping financial institutions solvent. Banks need to be required to readjust rates on existing credit to match the proper spread on the price they are paying for funds.
And funds the federal government has pumped into to the banks' capital accounts need to be used to make loans, not buy other banks. That was never the deal.
Copyright 2009 - William S. Cherry
BILL CHERRY, REALTORS
DALLAS
Our 44th Year Selling America
214 503-8563
800 314-7110
I am so angry with my primary bank. The bank where I have my business, trust and a personal account.
PNC used $7.5Billion of TARP money to buy National City Mortgage a few months ago.
I fume each and every time I walk in my local branch.
Eventually, when time permits, I'll move my accounts to one of the locals, but then what? Will that small local friendly bank that knows my name be purchased by PNC?????
Who knows.
All I know is that I'm disgusted.
Lenn, I'm sure you rad this morning's Inman whereby Obama is asking for the $350 remaining million to get to home owners because of exactly this sort of thing. - where was the accountability
Bill I could not agree more with your post. It is very very sad indeed . Thanks for the post great reading
Make loans to people and companies that can and will pay them back.
Bill, If the banks had truly adhered to this rule, do you think we'd be in the mess we are in? My Dad is from Europe and all my life he preached to me "If you can't pay it back at the end of the month, you cannot afford to buy it." I have lived by that rule and can't even remember the last time I payed interest on a credit card, and I do use them often.
Take personal action against the large banks. Take your money out and put it in a small local bank or credit union. Cut up your credit cards and only pay cash for things.
The next few years and what type of programs come out will be very interesting. The banks being saved seemed to be a necesary evil and a tough pill to swallow.
I so agree with Lenn. What happened to customer service at these banks? And GREED? Don't get me started. I just want to make a fair living. I'm the first in my office and I actually work when I'm there. It shouldn't be this hard.
You are absolutley right. I heard yesterday the reason the banks are not lenfing money is the only assets they have are the TARP funds. Real estate is not liquid.
The Law of Unintended Consequences... Congress didn't see what could happen with the money (honestly, the banks asking for it probably didn't know what they were going to do if they got the money). And they didn't attach strings. Had they attached strings... we'd be dealing with a different set of problems.
I am really coming down to the opinion that NO more money needs to be spent like this. It is NOT coming back to the government. It is NOT going t fix the economy. It is NOT going to create (or save... don't get me started on that weak verbiage) jobs. It is just going to be a bill that my kids will have to pay.
I agree Bill. The banks now work for us, the U.S. taxpayers. They created this problem through sheer greed and now they want everyone else to foot the bill. The credit card rates are usury and the meager rates they offer on savings accounts don't even keep up with inflation. And people wonder why Americans don't save. We're going to have to face systemic and fundamental changes in our financial systems and our way of living in order to correct this mess and lay a good foundation for the future. Great post. Best of luck.
When it comes to having the monetary system, GREED will take you down everytime!
Money is debt and debt is money.
Interest is charged to pay debt for the banks. They always have more than any consumer.
We are in perpetual debt forever as long as the fractional banking system is out there.
As long as money is needed, create your own economy and your own success!
Think about it. The bank loans you money. Where do you put it? Back in the bank. They take your money and loan to other people at a higher interest rate than you make on your money. They are always ahead.
I hear about people purposely missing payments on their mortgage so they can get a loan modification for free.
Many are trying to get 2nd liens forgiven or a reduction in principle on the 1st lien.
Banks mayy be the problem.... But about the people? Should they get debt forgiven? I don't think their arm was twisted at closing.
Aloha Bill,
Banks have the ability to help communities and individuals develop and thrive but they choose their bottom line and usury first and foremost. Our fractional reserve banking system orchestrated and managed by the privately owned Federal Reserve is the most outrageous and vile institution that Europe has ever installed on our shores. Why does a privately owned company run our banking network, that's a question congress will, of course, never ask. Please read this post
Peace,
Bill, when the consumer continues to get squeezed more and more it is about greed. Isn't this what got us into this mess in the first place?
Bill, everyone should check their cc each and every month. It is outrageous what they are doing.
We have a discover card we ONLY use at Sam's. I pay it off every month. I looked last month and it was 22%, I had a hissy fit. I had my hubby call, he is nicer than I am.
They immediately took it back down, and credited us money back.
Had they not, I would have stopped Discover ASAP and paid cash at Sams.
Great post William. Too much to say on my part to comment on this but I think you hit it right on the money.
Thanks to each of your for chiming in.
Lou, I learned everything I know about money and economics at an old bank in Clayton -- First National Bank of Clayton. It was run by a very, very bright guy named Al Rusch. (I understand its name is no longer in the public eye) and at night classes Washington U. that the bank graciously paid for.
In fact I'll tell you even more. I played the piano during that period at the Chase and the Playboy Club. Nice memories.
All of you who are interested in this banking subject will find Kimo Stowell's post, which he references above, interesting. I enjoy peaking into Kimo's mind from time to time. He's a bright guy.
And Missy does what I've been doing for about 5 years. I no longer pay interest. Period. I would if the rates were reasonable, but they have risen to loan shark diminsions and I'm not going to give into that because it can only mean trouble will be waiting for me ahead.
Good point and opinion. Wait until the commercial defaults start that is going to get interesting.
Bill,
All really good points that I agree with.
That being said, I still don't think lower rates are the solution to this economic crisis.
It is the access to credit that needs to be resolved.
Mark, if you want to see the number of loan defaults/credit card balance defaults diminish in huge numbers, you dramatically lower the interest rate charged on the outstanding principal balance.
Credit cards are the 21st century answer to loan shysters and pawn shops. Banks were not originally conceived and licensed to operate that way.
When we REALLY find ou the true facts, I'm afraid our hair will stand on end. It's a sorry state of affairs out there.
I think you should be testifying on the hill! Very sound advice. I truly believe some solutions don't need to be so complex that even the analysts with MBAs from Wharton can't figure it out.
Wells Fargo is bragging in emails to its customers that it has purchased Wachovia, which was, by the way, probably one of the worse run banks that every arose from nowhere. And it did it by buying and merging with a zillion small banks.
That bank would probably have been better liquidated than pumped up with fed money that helped Wells acquire it.
It is an absolutely idiotic tact to have financial institution so large that if they are improperly managed they can all but destroy our economy.
Further, banks are corporations. Corporations have stockholders and bondholders. By definition, the stockholders are owners; the bondholders are creditors. Since when does the federal government step in to save stockholders and bondholders from losses?
Secretary Paulson is apparently quite well thought of, but that congress followed his recommendations shows that all, including him, were totally irresponsible in their representation of the American people. It's unforgivable. And that irresponsibility is comprised of Democrats and Republicans.
Mr. Obama's plan is only going to make things worse. Congress had better tank it. Come back here in a year and let me know how things turned out.
Bill: It is a SHAME that banks are allowed to do this to the general public. Not long ago the banks raised the rates on many good paying card holders because the didn't realise the letters that were send ( Not with their normal billing statement ) stating that if they didn't respond in X amount of time, they would increase their rates. WoW.. This is highway robbery..
Great Post and thanks for taking your time to write it for us. Greed is indeed the root of all evil.
... very insightful post Bill - thanks for the great info.
I will continue to follow your blog updates from here !