Banking 4 Beginners

As many of my readers already know, I spent ten years in the banking industry and another seven years as a consultant to bankers. Admitting this is almost akin to saying you were a thief and a liar but not every banker is to blame for the mess we are in today. Anyway, I mention my association with banking for a reason. One aspect of my previous job was to help educate our banking clients. I spent a lot of time designing classes and writing what amounted to text books on banking. Over the years I gave numerous lectures on the industry ranging from very technical seminars with bank CFO’s to teaching the basics of banking to newly hired bank employees. I discovered that I had a knack in making the incomprehensible understandable. In fact, most of these classes and textbooks are still being taught today.

Truth be told, I miss writing the classes and giving the lectures. I also think there is a greater need than ever to explain to nonbankers just what is going on and why it is happening. So I would like to try to fill in this gap. I want to spend time delving into the history of banking and how we got into this mess. I lived through a lot of the changes that are impacting us today and can discuss some of this first hand.

I strongly feel that people need to understand the hows and whys of the bank failures, mortgage crisis and stock market declines. But the business analysts on TV are talking to each other and rarely explain what is happening in terms that the average person could understand. Plus the situation today is very complex and no one has the time or space to cover more than just the highlights. So there is a definite need to educate people. Therefore I am going to try to remedy this since I now have the time and genuinely enjoy discussing the banking industry and explaining difficult concepts so that anyone can understand them.

In the past I have already written a few blogs on banking. But I realized that PC Fugitive isn’t the right platform for what I want to do. So I have created a new blog: Banking 4 Beginners. There is a link to this on the right. I am using a new feature which not only shows the name of the blog but also the name and date of the last posting. This way you can see at a glance if a new article has been added in either my new blog or in Lorena Mae. However, unlike my original blogs, Banking 4 Beginners won't be updated a couple of times a week as many of the articles will require research which will take time. My goal with Banking 4 Beginners is not quantity but quality and to be informative without sounding too professorial or boring. So to try to achieve these goals will take a lot more time than my current blogs.

I also know that Banking 4 Beginners is not for everyone. That’s ok. I know this can be a very dry subject. The blogs might be long and I doubt if there will be pictures. And even though I will try to present information in an entertaining way it still won’t ever be that exciting. But life today is certainly “exciting” in a very scary way all due to banking, mortgages and economic problems. Yet most of the population doesn’t understand any of it. So if I could help to educate even a handful of people then my new Banking 4 Beginners blog will have served a purpose.

It Is Not Strictly Business - It Is Personal Now

Last summer and fall America was enthralled with the election and pretty much ignored what was happening all around us. Oh sure we were not happy with that bank bailout but it was strictly business, right? And who really understands that? Not your average citizen, especially when terms like derivatives and bundles and subprime are thrown around. Besides nobody paid much attention to what Bush was doing; he was leaving soon anyway. And yes the market dropped but hey it has done that before but it was costing less to fill up our SUVs, so life wasn’t too bad, right? So the summer flew by as summers do and the fall was exciting and historical as the country elected Obama as our president. Then came the winter…

Maybe at a Christmas party you first talked to a neighbor or friend or somebody’s spouse and you realized that people around you were losing their jobs. Perhaps you cut back some on your holiday shopping, and even if you didn’t, you discovered that favorite stores and restaurants were disappearing overnight. Suddenly the holidays seemed a bit more muted this year; more furtive looks, more dipping into the eggnog, scared people heading to church on the Sunday after Christmas.

In January, when it seemed as if everyone on TV was rejoicing Obama’s inauguration, no one you knew was celebrating. Life was actually turning more stressful. The harsh winds of winter were beginning to creep into your house.

Year-end results were announced at work making this recession, depression whatever it’s called start to hit home. If there hasn’t already been a reorganization or downsizing in your company, you know one was coming. Maybe you’ve worked hard and climbed the corporate ladder but you’ve never been given a million dollar bonus or flown on private jets to sun drenched “meetings”. No, in fact, you’ve worked harder than ever spending late nights and weekends, seeing less and less of your family while your employees resent you as they believe what they see on TV about management. And now all employees are told of wage freezes, no bonuses and no more matching 401K. But worst of all, you might have lost your job or, if you’re in management, you might have the gut wrenching task of having to let people go. Your job, if you still have it, has become even more stressful. But what can you do? There are no jobs out there so you stay put, if you can, but hating every minute of it, and you seriously begin to worry about strokes and heart attacks. But you will do whatever it takes because you need that job for the bills are beginning to accumulate like the snowdrifts against your house and car.

By February, you’ve already received the credit card statements and you’re scared. You know that after paying your mortgage and electricity and everything else that there isn’t much left over to help chip away at your MasterCard and Visa and Target and all the other credit card balances. Then you start to go through the paperwork to fill out your income taxes. You worry how you are going to be able to pay Uncle Sam, but unlike some states, you never once question if you will pay, of course you will find the money, sending in that check, somehow, someway.

No matter how difficult, you still manage to pay your bills, your taxes and yes, your mortgage. You may go deeper into debt, you may have to stop buying nice things for our spouse, you may stop putting money into your child’s college funds or your pension plan but you’ve always been told that you have to pay your bills, especially your mortgage. And it is depressing to know that you can no longer do more for your family, that the dream you’ve worked for all your life is gone through no fault of your own and you can’t fix it any more. In fact it hurts, really hurts, deep down inside you. And you realize that what is happening all around you isn’t strictly business or economics or even politics anymore. It has become personal, very very personal.

Then Obama tells us he will help us with his recovery plan. But what do we get? Out of the billions and billions of dollars, the hardworking taxpayer gets only a few lousy bucks more each month and nothing for the struggling small businessmen and women. Instead Obama promises handouts to people who bought homes we never could afford so that they can stay in their homes. Lowlifes who never worked or saved or earned the right to buy their homes. Yet we are told we have to give them our tax money so they can stay in their fancy houses; while we struggle to quietly pay our mortgages on our small homes every month. It just isn’t right and we are hurt and angry. So now, it is no longer strictly business. It has become personal.

Bio Brief - Nancy Pelosi - Part 3 of 3

Peter Schweizer wrote a book entitled Do As I say (Not As I Do); Profiles in Liberal Hypocrisy and it should not come as a surprise that he devoted an entire chapter to Mrs. Pelosi. One example of her hypocrisy was explained in a National Review article where Schweizer says: “Nancy Pelosi bashes everyone who doesn't allow unions to call the shots. Everyone that is except herself. It's takes an amazing amount of gall to accept the Cesar Chavez Award from the United Farmworkers Unions while using non-UFW workers on your Napa Valley Vineyard. It takes the same to praise the Hotel Employees and Restaurant Employees Union and take massive sums of money from them all the while keeping them out of your Hotel and chain of restaurants. But again, I think Pelosi correctly assumes that no one in the media will challenge her on this.”

Although it is not true that her husband owns $17 million in Del Monte stock, the email making the rounds about her was correct in stating that she did get the American territory of Samoa exempt from the increase in minimum wage. And that Del Monte, which is headquartered in her district, has two packing plants in Samoa with around 5,000 employees. She also did get into trouble once by using government planes to travel to and from San Francisco and there was an incident over her paying her husband $100,000 for consulting fees, a practice she had voted to ban.

Pelosi’s hypocrisy is also evident in how she runs Congress. Remember her initial vow last year to have Congress work five days? That went out the window in the first week when she adjourned Congress on a Monday so that people could attend the national college football game! I’ve not heard much about that 5-day work week since then, have you? And last August, when gas prices were closing in on $5 the Speaker adjourned Congress for a five-week vacation without taking any action to lower gas prices while Republicans continued to debate the issue on the darkened House floor.

But the coup de grace of hypocrisy was last summer when Pelosi called Bush “a total failure” yet refused to acknowledge that Congress had the lowest approval levels of just 14% according to Gallup, ratings that were even lower than Bush’s! The same CNN article continued to report that a whopping 70% disapproved of the job Congress is doing. And while the Real Clear Politics poll shows that Obama has an average favorable rating of 61.8%, Congress continues to have a low favorable rating of just 27.3%.

Earlier, when I was googling on Pelosi’s husband, Paul, I turned up a lot about her son, Paul Jr. I looked at a few articles and discovered that that Nancy Pelosi’s son, Paul Pelosi is a real chip off the old block. An excellent article at http://valleywag.gawker.com/5113868/paul-pelosi-jr-the-fresh-green-prince-of-san-francisco highlights Paul Pelosi Jr. Here is just a sampling: “His LinkedIn profile is a bit incomplete. It discusses his investment-banking work for Bank of America and JPMorgan Chase. And it mentions his job at Countrywide, for example, where he worked as a loan officer — at one of the mortgage companies most scrutinized for its role in the housing bubble and ensuing collapse of Wall Street. But it pointedly omits his $180,000 a year job as a senior vice president at InfoUSA, a marketer of consumer databases, which he started less than one month after his mother became House Speaker, while simultaneously holding his job at Countrywide. InfoUSA CEO Vinod Gupta also paid Bill Clinton millions of dollars as a consultant…”

Did anyone ever mention during the mortgage crisis that the Speaker of the House’s son worked for the worst culprit, Countrywide? Now if a Republican Congressman’s son worked for them there would be outcries of conflict of interest but not a peep was said and this was the Speaker of House! As for InfoUSA, there is a definite trend of paying off the relatives of high ranking Democrats. However, I won’t comment any further as I was once a client of theirs, although perhaps paying off Clinton and Pelosi might explain the exorbitant prices they charged for their services!

At the same time she and her family appear to flaunt the rules, she is currently working to repeal the Fairness Rules. Basically these rules, which were implemented by Newt Gingrich as part of his Contract with America, ensure that minority opinions are heard through open debate and alternative bills, and include a six-year term limit for committee chairmen. There is an excellent article about this in Human Events at http://www.humanevents.com/article.php?id=30143&s=rcmp.

This Human Events article ends by saying: “Pelosi’s proposed repeal of decades-long House accountability reforms exposes a tyrannical Democrat leadership poised to assemble legislation in secret, then goose-step it through Congress by the elimination of debate and amendment procedures as part of America’s governing legislative process.”

Add in her professed Progressive (read Socialistic) ideologue and this is a very scary picture of our Speaker of the House, third in line for the Presidency, isn’t it?

Short Retort

Wonderful video by Fred Thompson on how America should "Spend Itself into Prosperity". His lecture on our economy is very funny or perhaps bitter sweet might be the better description. To find out how we got to this point, the solution and what you can do just watch this video: http://blip.tv/file/1528079

Carter, Clinton and Liberal Congress to Blame

When the financial problems surfaced my first reaction was to place a big portion of the blame on Jimmy Carter and the liberal Congress who passed the first CRA law. I then read an article that explained why I was wrong and silly me, I believed it. Since then I have read too many other reports that indicate that my initial gut response was, in fact, right. CRA is to blame for a big part of the housing and mortgage problem.

What is CRA? During Jimmy Carter’s presidency, Congress created the Community Reinvestment Act to ensure that banks met the credit needs of lower income areas. I was in banking then and remember when a close friend of mine was initially put in charge of implementing the CRA requirements for my bank. I even helped her with the demographics and maps outlining where the low income areas were and showing the number and types of loans we had in those areas.

Within a year we needed to have an entire department full of people, including a lawyer, to not just make these loans but to show the government that we were in compliance with the new laws. This is because we soon realized that this law had teeth. If a bank was found to be out of compliance then the government could stop it from opening branches, merging with other banks, or even give then a Cease and Desist order! I worked for a large bank which had the manpower and expertise to not only meet the new laws but to then prove we did meet them. But for smaller banks, both making the loans and the accompanying CRA paperwork was (and still is) a huge burden.

I am assuming this but it would make sense that over the next 10-15 years the banks found and made loans to the “best” consumers and businessess in low income areas. Yet they still had to show growth and continuous new lending but there was no one left who qualified.

In 1995, when Clinton was president, there was a revision to the CRA and one of the changes was to allow the securitization of new CRA loans with subprime mortgages. I have heard but have not yet been able to prove that these changes also allowed banks to use unemployment checks as income for applying for a loan. Regardless of the exact method, the result was to offer mortgages to people who would not qualify for a loan if they lived in my neighborhood or your neighborhood. Yet they were now moving down the street and raising the prices of our houses, all thanks to CRA. And gee, guess what one of the roles of a community organizer is?

Basically, CRA is affirmative action imposed on banks. But, affirmative action to lower the requirements to get into college is one thing, lowering the requirements to make a loan is an entirely different prospect. If a person flunks out of college, no harm is done but if a person can no longer pay their mortgage, well, we now see what happens. Then again, what else should we expect when liberal congressmen, most of whom have never worked in the real world their entire lives, tell businessmen how to do business?

I hate being right. But my gut instinct to blame CRA is correct. And yet, even as I write this, banks are still being examined to see if they are compliant to CRA regulations. This makes no sense. We must reign in the CRA requirements or else we will find ourselves back in the same mess, regardless of any new proposals by Congress to resolve this issue. As the saying goes, it would simply be throwing good money after bad.

Presidents Right, Left and Center

Did you see the President last night?. He looked awful. I know the presidency ages people but President Bush is not only grey haired now, he also looked grey all over. He appeared tired and drawn and as if he has lost some weight. It also looked as if they tried to hide it with not just coverup but also a touch of rouge on his sallow cheeks. Then there was that noise. Did you hear it? Throughout his speech there was this very low background noise. I might be wrong but it sounded as if it was his stomach. And who could blame him? My stomach would be churning and roiling, too, if I had the entire economy of the United States on my conscience.

Will his speech help? I don't know. People agree something is needed but $700 billion is a lot of money. After the speech a pundit explained what Bush should have. The $700 billion is the max amount and they came up with that number based on the government buying up to 5% of all the bad loans. The President also didn't mention that not all of the loans will go bad. Some of it will be repaid as folks pay off these loans otherwise Uncle Sam will own a lot of houses. I wish President Bush had told the public this as it makes it a bit more palatable to swallow.

Right now though, conservatives are not happy with the idea of government getting involved. In fact this would create one of the largest, if not the largest new government department. On the other hand, liberals aren't happy because, well, I guess because it is Bush's idea. They also want to add in a lot more things to try to further protect the consumer although if the consumers had paid off their loans we might not be in this mess.

Then there is the McCain - Obama power struggle over the whole thing. Was McCain correct in suspending his campaign and trying to call off the debate on Friday? Or is he simply grandstanding or worse, jumping to a quick decision without thinking it through? At first I thought he backed himself against the wall for he could end up looking weak and Obama looking like the leader. But now I think McCain just might be the one looking like a future president.

Obama is looking like the man who said "present" in past votes and avoided making the tough decisions when he said that he would return to Washington if he was needed. Excuse me? He is first and foremost a Senator and this is the most important issue in years to hit Congress and yet he was once again going AWOL rather than actually make a vote.

And one more President has jumped into the fray when Bill Clinton defended John McCain! Clinton appeared on Good Morning America this morning and in discussing McCain's suspension of his campaign said "I presume he did that in good faith since I know he wanted -- I remember he asked for more debates to go all around the country and so I don't think we ought to overly parse that." For a man who is supposed to be campaigning for Obama he sure is going about it in a strange way. On top of his latest defense of McCain, on Monday Clinton defended Sarah Palin. Ironically, the extremely liberal Huffington Post had an article quoting Clinton discussing Palin's appeal and said "I get this," Clinton said. "My view is ... why say, ever, anything bad about a person? Why don't we like them and celebrate them and be happy for her elevation to the ticket? And just say that she was a good choice for him and we disagree with them?"

Back to the economy, you would think that with all these Presidents and wanna be presidents that they might come up with an idea that will help people and Wall Street. For if there was a time to forego politics, now is that time. Meanwhile, there isn't much the American people can do but watch and wait and pray that for once the politicians do the right thing, not the politically expedient thing to do.