Tag Archives: Banks

JP Morgan – Trying to Make Sense of Nonsense

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JP Morgan ChaseJP Morgan Chase and Company is an international banking and financial service holding company. Employees of the company engaged in a series of trades in April and May of 2012 that generated about $6 billion in losses. By the company I mean investors who entrusted their hard-earned savings with JP Morgan Chase.

Now, a year and a half later the company has agreed to pay a fine of $920 million to various government regulatory commissions in the United States and England.

What’s it all about? I’m sure I don’t understand it completely, or even mostly, but I’ll do my best to explain what I do understand and my problem with the fine. Yep, I think the fine was unjustified.

After the financial crisis of 2007 and 2008 the governments of England and the United States decided that a big part of the problem was banks behaving in dangerous ways. When banks take on very risky propositions they can lose the money of all their investors, they cost investors their life savings, their homes. They do damage to the economies of their countries which hurts people who had no investment with the banks. Your retirement money was lost even though you did nothing wrong. Too big to fail. Bailout, TARP, trillions of your tax-dollars spent to keep these institution afloat <—– (seriously, follow that link and read).

The governments of the United States and Great Britain passed rules about risky behavior. JP Morgan covered up violations of these rules and even went as far provide false information to the government about the trades in April and May of 2012.

With all this you might wonder why I think the fine unjustified. If a bank wants to make dangerous investments, that’s their business. If they lose $6 billion dollars that means other investors gained $6 billion dollars. Why should the government be involved unless the trades were criminal in nature?

Oh, yes, some of the trades were criminal in nature. Many of the trades were made simply to generate revenue for the people who worked for JP Morgan. I say arrest them. There are laws about larceny, let’s enforce them. The same during the original financial crisis with what were predatory loans. Loans designed to deceive the person signing the papers by increasing interest rates immediately after the purchase. Arrest the lawyers who wrote the language into the loans. Arrest the bankers who talked people into taking the loans. Fraud is a crime.

Arrest the real estate agent who bribed the home inspector to give an inflated price on the house. Arrest the home inspector. These are crimes and this is where the government should be involved.

What happens instead is regulations that do little good in the long-run while the actual criminals walk off with the money. Do we think such criminals will think twice before stealing again? That others won’t be attracted to the easy money? My easy money? Your easy money?

Do you think average home inspectors would continue to give out false pricing guidelines after a few hundred were sentenced to hard time in prison? The average real estate broker? Your average loan agent? Would a lawyer write deceptive language into a contract if he or she faced ten years in a federal penitentiary.

If you write a contract designed to deceive … jail. If we did that how long do you think before your phone bill became less complex?

The reason we don’t is because the phone companies, banks, and other enterprise businesses paid for your representative’s campaign, vacation, gave family members jobs, and much more. It’s simple bribery and that’s a crime also. Every single elected official in our government is guilty of taking bribes, every one.

Instead of arresting people the government and industry just play a shell-game with your money, with my money.

If you run a bank into the ground, tough luck. The bank closes and another, better run, one gets bigger with all that money. In the end this helps average people because even if your bank fails, another, better bank picks up the loan.

That will change the way financial institutions are run. This $920 million fine isn’t what forces a change.

The $6 billion JP Chase lost? That forced them to reevaluate the way they do business. They fired the people involved, the government is building cases against some of them. An excellent result. No fine necessary, in fact, the fine really comes out of the pocket of investors, not criminals.

I’m out-of-order? You’re out-of-order! The whole system is out-of-order!

Sword and Sorcery fantasy with a Libertarian Twist
Current Release: The Sword of Water ($2.99 for a full length eNovel)
Upcoming Release: The Spear of the Hunt

 

Wages Paid via Fee Ridden Cards

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It's My MoneyAn increasingly large number of Americans do not have bank accounts. This number has grown by about ten percent in the last four years and is expected to climb. This presents what some view as a dilemma and others view as an opportunity.

In this internet age it is more expensive for an employer to print out checks and much cheaper to use direct deposit. This being the case, more and more employers are dropping the check option. Whether or not this effects you is dependent upon where you live as there are different rules in each state. It is a growing trend and one that will certainly continue to rise.

The problem end of the issue is how to pay employees who don’t have bank accounts of any sort and cannot accept direct deposits. To solve this issue banks began to allow employers to pay their employees onto what are called payroll cards. At this point all seems well and good. If people choose not to have a bank account that’s certainly their option. If companies choose to save money by using direct deposit that is also within their legal right, depending upon the state.

Banks incur some expenses in issuing these payroll cards and the plan was to recoup this amount through charges on the cards. There is a charge to deposit money on the card, a charge to withdraw money with the card, a charge to inquire on the balance of the card, a charge to receive a statement for the card, a charge to replace the card, and even an inactivity charge if you don’t use the card!

I think you can guess that the banking industry quickly realized that this service they were providing offered an opportunity to make a lot of money. They started to push the idea to the companies, some even give kick backs … er … rewards, to businesses that have their employees use payroll cards.

Companies enjoy these rewards and started to make it easier for employees to get the payroll cards and more difficult for them to use direct deposits. A woman sued because a McDonald’s refused to direct deposit into her Credit Union. That was, of course, illegal and they’ve agreed to start offering direct deposit to their employees now.

Other companies are simply making it very difficult to use direct deposits because banks are offering them major rewards for every employee then can get on the payroll card.

I’m not totally against the banks here. They are providing a service to people who choose not to have bank accounts and that service needs to be paid for with fees. However, it is clear that the banking industry sees this as not a way to provide a service but a way to steal money from people. Yes, I said steal. If the banks were charging some minimal fee and making a small profit on the cards I wouldn’t call it stealing but when they colluded with companies to provide no other option and charge far more than it costs to provide the service they are engaged in anti-trust practices.

This practice affects the poorest people the most as they are generally the ones without bank accounts and without other recourse. They need that minimum wage job and can’t easily go somewhere else. As the check payment method continues to decline their options will become even more limited.

What’s the solution? It’s not easy. The government could start to regulate these payroll cards for excessive fees like they do banks for other services but such efforts often end up with unintended consequences.

What I would love to see is a return to real competition. A group of people sees an opportunity to offer cards with lower fees and starts a Credit Union or Bank. This forces the existing banks to lower their fees until a competitive and fair level is reached. Right now the we don’t live in a capitalistic country anymore. We live in a country where if you tried to do that you’d be legislated out of business by the crony capitalist in your community, your state, and in Washington D.C. Anti-trust practices are ignored. The business that pays for the elections gets legislation passed that ensure their success and rival’s failure.

This system is so dangerous that it could potentially destroy our great nation. It is not the threat Ayn Rand warned us about in the communist dominated era when she wrote her novels but the effects are the same.

Rand warns us of the dangers of giving not what is earned but what is needed; communism.

If she was alive today I think she would have warned us that it is just as dangerous to allow success not to be derived through hard work, fair prices, and good ideas but instead through political connections; crony capitalism.

Tom Liberman
Sword and Sorcery fantasy with a Libertarian Twist
Current Release: The Sword of Water ($2.99 is a fair price for 300+ pages of my hard work, if you disagree, don’t buy it!)
Next Release: The Spear of the Hunt

What Went Wrong in Cyprus?

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Cyprus Bank CrisisOne of the biggest financial stories in recent weeks is the bankruptcy of several large banking institutions in Cyprus and the methods needed to bail them out. I don’t want to talk about the methods for solving the financial crisis but analyze the reasons behind it. It’s an interesting case and in the United States you don’t see too many Democrats or Republicans lining up to blame each other, there’s a reason for that.

Cyprus has a long and complex history but the parts that pertain to our story have to do with its politics and economics. Politically it is split between a Turkish faction and a Greek faction dating back to the 1974 when the country reunited after an invasion by Turkey split the region. The Turkish part of the island is allocated seats in the government but refuses to take them because they will not acknowledge a Greek government.

The country is what we would call socialist or liberal in many regards but not in a special few. As of 2002 Cyprus has the lowest corporate tax rate in Europe and is considered very business friendly. It has become a hub for foreign investment because of few restrictions. Many Russians and other eastern tycoons placed huge sums of money in its banking system because of the tax friendly status. Thus it is an odd mix of what people call Conservative and Liberal.

They have also recently had an energy boom thanks to deposits of natural gas found offshore. They have little other than that as a natural resource and derive much of their income from tourism.

So, with all this business friendly, low-tax conservative money policy, why are they bankrupt?

Much of the money that was coming in was given back out in what eventually became bad loans. Thus the banks went bankrupt much as they did in the United States. They also have a public debt of 84% of the GDP which is one way to determine, with modest accuracy, how much they owe. This means despite lots of economic growth prior to 2012, when the crisis hit, they were still in debt.

The reason we don’t see an uproar among conservatives to raiding the savings accounts of citizens to bail out the banks is that a lot of very wealthy people have their money in Cyprus banks and they don’t want to lose it. The reason we don’t see liberals decrying the situation is that even with excellent economic growth a liberal government was still in debt. Neither system worked.

My point here is that the economic system as it stands is unsustainable with any model. We insist on growth with flattening populations and when we don’t get it, make it happen through stimulus packages. We loan money to aid growth and count on being paid back with interest. There is currently so much debt that much of that money will never be repaid. The few countries not in debt will be driven into it because the money they supposedly are owed will not be repaid. If everyone is in debt then no-one can make payments. It’s that simple. There is no money.

I don’t want to devolve into a conversation about how to solve the situation, I just wanted to point out an instructive event currently taking place in Cyprus. If you are a Democrat or a Republican I urge you to look at the situation closely and make a particularly hard examination of the policies you endorse. We must stop bickering over which failed policy we want to pursue, it gets us deeper into trouble.

Tom Liberman
Sword and Sorcery fantasy with a Libertarian Twist
Current Release: The Sword of Water
Next Release: The Spear of the Hunt