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Finance: The 2008 US Bailout Package Implications

If you are scratching your head trying to understand the implications of the massive US bailout plan approved last week, you are not alone. I first realized the extend of this crisis when I started receiving calls from friends outside of North America desperately looking for information on how things were progressing.

Being raised in Brazil in one of its most intense historic periods, I have lived through a series of economic crisis, some of them with unforeseeable consequences such as weakening currency and ballooning inflation. From that experience, I learned something extremely valuable: as part of an economic crisis, concomitantly there is always a confidence crisis. The ability of governments to regain trust is an essential element to re-stabilize the economy in such moments and succeed with their economic plans.

At times of crisis in Brazil, every time the government would come out with a new economic package without inspiring trust, people would run on banks and take their money out, aggravating even further the situation. Not having a sound plan, inspiring confidence and direction always made things worst then they were previously.

America’s bailout plan is then put to test at the moment it was signed by President Bush and will become part of the history of that country a few years from now. In the same way of a tsunami, this massive plan will have waves over global financial systems. It will first affect banks directly linked to American institutions, then affect institutions that deal with these banks starting with Europe and trickling down to developing countries. Then, it will finally hit people who do business with all these institutions.

For businesses, this will be bad news if you are heavily leveraged and rely a lot on external financing. If you export goods to American consumers, you may want to reconsider your market demand estimates and your exposure to currency fluctuations. You will feel, if you have not felt already, more difficulty to raise capital from banks and lending institutions.

For individuals, the greatest challenge will be to identify which investments are currently exposed to the crisis. Investments may not be the only source of concern. In America, personal debt is also a source of anxiety these days in the US, since each American has in average nine credit cards. In other parts of the world the concern will be more towards the ability of smaller banks to absorb the impact of the crisis without going out of business with people’s money.

The success of the American bailout plan will be directly linked to the ability not only of the American government, but also other nation’s governments, to inspire confidence on how the way ahead will be conducted. The effects will not come immediately and results may not take effects for months.

As a strategist, you should observe macroeconomic and global contexts in order to provide appropriate solutions. Always consider the economic context and macro trends before presenting it a solution to a customer or board of directors. They will probably considerably benefit from your up-to-date insight.

PS: I have found a very good site that contains relevant information about this economic crisis: Everything you need to know about the Global Money Crisis.

Posted by Rodrigo Caetano

New Banking for New Era...

4:14pm UK, Thursday October 16, 2008

Joel Hills, Business correspondent

Beneath the wreckage of the global financial crisis lies a bundle of mysteries, and here is just one: Why, when the banks were rescued by the taxpayer and Armageddon duly avoided, does the amount banks charge each other to borrow money remain so incredibly high?

Brokers

Financial turmoil means the banking world has a lot of explaining to do

The Bank of England's base rate, so often referred to by journalists as the cost of borrowing, is 4.5%. Go back a few years and you'd expect Libor (the London Interbank Offered Rate - the rate at which banks lend to each other) to be perhaps 0.2% higher than base rate.

The reason you should care passionately about something as apparently sleep-inducing as "Libor spreads" is that, like the base rate, the Libor rate influences the amount you pay to borrow money.

If those spreads remain as wide as they are then as sure as eggs is eggs the cost of mortgages and other loans is going-up.

Let us not get too carried away. Libor spreads did narrow slightly (very,very slightly) today. The sense was this was some kind of reaction to the Bank of England's new Market Operations policy.

Banks are still conscious about liquidity and this should help them get cash much more discreetly.

Sky Business Editor Michael Wilson on Bank of England funding move

The Bank of England is changing the way it helps banks obtain funding in an emergency.

An emergency facility did exist, of course, but the problem was that when Northern Rock tried to access it last summer and news leaked out, the resulting run on the bank went some way to putting the Rock out of business.

So from Monday it is all change.

Banks with temporary glitches will be able to borrow overnight from a standing facility at more generous terms than before and in greater secrecy.

Banks with bigger liquidity issues will be able to clamber through a new "discount window facility" and exchange the assets they're struggling to shift for government gilts, although only for a few months.

My understanding is that neither of these facilities will be available to the terminally ill. Any bank that is insolvent need not apply.

As one analyst put it to me, the financial sector is in the middle of a world war. The fighting is still going on and peace is many years away.

Why do unregulated credit default swaps pose such a lethal threat?

The Bank of England also plans to shake up the way it auctions off its repo operations. Watch this space for details.ome on, you can hardly wait.

I mock but these are radical changes: a new system for a new era of banking. A new era of banking where, perhaps, Libor spreads and levels of unsecured lending in general will never return to what we thought of as being normal.

The government is not saying this but my hunch is that's certainly the belief at the Bank of England.

And if this proves to be the case then let's hope the Bank of England does cut the base rate dramatically over the coming months.

If it doesn't we may find that mortgages for a large number of both first time buyers and homeowners will become more expensive.

Bank on this: Bank failures will rise in next year...

Sunday, October 05, 2008
By MICHAEL LIEDTKE
Bank on this: bank failures will rise in next year

Here's a safe bet for uncertain times: A lot of banks won't survive the next year of upheaval despite the U.S. government's $700 billion plan to restore order to the financial industry.

The biggest question is how many will perish and how they will be put out of their misery -- in outright closures by regulators scrambling to preserve the dwindling deposit insurance fund or in fire sales made under government pressure.

Enfeebled by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing U.S. taxpayers $170 billion to $205 billion, after adjusting for inflation.

The government's commitment to spend up to $700 billion buying bad debts from ailing banks is likely to save some institutions that would have otherwise died, but analysts doubt it will be enough to avert a major shakeout.

"It will help, but it's not going to be the saving grace" because a lot of banks are holding construction loans and other types of deteriorating assets that the government won't take off their books, predicted Stanford Financial analyst Jaret Seiberg. He expects more than 100 banks nationwide to fail next year.

The darkening clouds already have some depositors pondering a question that always seems to crop up in financial panics despite deposit insurance: Could it possibly make more sense to stash cash in a mattress than in a bank account?

"It sounds like a joke," said business owner Mauricoa Quintero as he recently paused outside a Wachovia Bank branch in Miami. "But it sounds safer than the turmoil out there right now."

Not as many banks are likely to fail as in the S&L crisis, largely because there are about 8,000 fewer today than there were in 1988.

But that doesn't necessarily mean the problems won't be as costly or as unnerving; banks are much larger than they were 20 years ago, thanks to laws passed in the 1990s.

"I don't see why things will be that much different this time," said Joseph Mason, an economist who worked for the U.S. Treasury Department in the 1990s and is now a finance professor at Louisiana State University. "We just had a big party where people and businesses overborrowed. We had a bubble and now we want to get back to normal. Is it going to be painless? No."

With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp., the government agency that insures bank and S&L deposits. The FDIC's potential liability is rising under a provision of the bailout that increases the deposit insurance limit to $250,000 per account, up from $100,000.

Using statistics from the S&L crisis as a guide, Mason estimates total deposits in banks that fail during the current crisis at $1.1 trillion. After calculating gains from selling deposits and some of the assets of the failed banks, Mason estimates the clean-up this time will cost the FDIC $140 billion to $200 billion.

The FDIC's fund currently has about $45 billion -- a five-year low -- but the agency can make up for any shortfalls by borrowing from the U.S. Treasury and eventually repaying the money by raising the premiums that it charges the healthy banks and S&Ls.

Through the first nine months of the year, 13 banks and S&Ls have been taken over by the FDIC -- more than the previous five years combined.

The FDIC may be underestimating, or least not publicly acknowledging, the trouble ahead. As of June 30, the FDIC had 117 insured banks and S&Ls on its problem list. That represented about 1 percent of the nearly 8,500 institutions insured as of June 30. Entering 1991, about 10 percent of the industry -- 1,496 institutions -- was on the FDIC's endangered list.

Although the FDIC doesn't name the institutions it classifies as problems, this year's June 30 list didn't include two huge headaches -- Washington Mutual Bank and Wachovia. Combined, WaMu and Wachovia had more than $1 trillion in assets; the assets of the 117 institutions on the FDIC's watch list totaled $78 billion.

Late last month, WaMu became the largest bank failure in U.S. history, with $307 billion in assets, nearly five times more, on an inflation-adjusted basis, than the previous record collapse of Continental Illinois National Bank in 1984. The FDIC doesn't expect WaMu's demise to drain its fund because JP Morgan Chase & Co. agreed to buy the bank's deposits and most of the assets for $1.9 billion.

Regulators dodged another potential bullet by helping to negotiate the sale of Wachovia's banking operations to Citigroup Inc. in a complex deal that could still end up costing the FDIC, depending on the severity of future loan losses. On Friday, a battle of banking giants erupted when Wachovia struck a new deal with Wells Fargo & Co. without government help, and Citigroup demanded that it be called off.

The banking outlook looks even gloomier through the prism of Bauer Financial Inc., which has been relying on data filed with the FDIC to assess the health of federally insured institutions for the past 25 years.

Based on its analysis of the June 30 numbers, Bauer Financial concluded that 426 federally insured institutions are grappling with major problems -- about 5 percent of all banks and S&Ls.

About 15 percent of the banks on Bauer's cautionary list have more than $1 billion in assets. Not surprisingly, the troubles are concentrated among banks that were the most active in markets where free-flowing mortgages contributed to the rapid run-up in home prices that set the stage for the jarring comedown. By Bauer's reckoning, the largest numbers of troubled banks are in California, Florida, Georgia, Illinois and Minnesota.

"It's important for people to remember that not all these banks are going to fail, just because they are on this list," said Karen Dorway, Bauer Financial's president. "Many of them will recover."

James Barth, who was chief economist of the regulatory agency that oversaw the S&L industry in the 1980s, doubts things will get as bad as they did then.

"It's scary right now, but it's not as scary as a lot of people are making it out to be," said Barth, now a senior fellow at the Milken Institute, a think tank.

Mani Behimehr, a home designer living in Tustin, Calif., isn't feeling reassured after what happened to WaMu and Wachovia. After he heard the news that WaMu had been seized and sold to JP Morgan, he rushed out to withdraw about $150,000 in savings and opened a new account at Wachovia only to learn about its sale to Citigroup two days later.

"I thought this is the strongest economy in the world; nothing like that happens in this country," said Behimehr, 46, who is originally from Iran.

The tumult is creating expansion opportunities for healthy banks. Industry heavyweights like JP Morgan, Citigroup and Bank of America Corp. have already rolled the dice on major acquisitions of financially battered institutions in hopes of becoming more powerful than ever.

Smaller players like Clifton Savings Bank in New Jersey are bragging about their relatively clean balance sheets to lure depositors away from rivals that are wrestling with huge loan losses. The bank, with about $900 million in total assets, says just one of its 2,300 home loans is in foreclosure.

"There is going to be a flight to quality," predicted John Celentano Jr., Clifton Savings' chief executive. "People are going to start putting their money in places that were being run the way things are supposed to be run: the old-fashioned way."

------

AP Business Writer Dave Carpenter in Chicago and Associated Writers Rasha Madkour in Miami and Amy Taxin in Orange County, Calif. contributed to this story.

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On The Net:

http://fdic.gov

http://www.bauerfinancial.com

How to determine your bank's financial health...

From the Los Angeles Times

YOUR MONEY

A little digging will tell you whether it's a safe place for your cash

By E. Scott Reckard |Los Angeles Times Staff Writer
September 7, 2008
Cracking your bank's information vault

Cracking your bank's information vault (Christopher Serra / For The Times / September 5, 2008)
How can you tell whether your bank is in hot water?

More people have been asking that question since the collapse of Pasadena mortgage giant IndyMac Bank in July. After the government took over the bank, many customers had to wait in line for hours before they could speak to anyone about their deposits.

Sidney Eisenberg would like to avoid that inconvenience.

"Who wants to stand in line to do the paperwork, or find out because you didn't dot an 'i' or cross a 't' some bureaucrat doesn't want to give you your money? Life is too short to engage in any more hassles than necessary," said Eisenberg, 62, of Rowland Heights, whose investments include bank certificates of deposit as well as stocks and bonds.

The Federal Deposit Insurance Corp. says that when a bank fails, most customers who are covered by deposit insurance don't lose access to their money at all. IndyMac customers who didn't want to stand in line at a branch were still always able to access their accounts online or at an ATM, the agency says.

But when it comes to money, some people don't want to take any chances. Even if you know that your account is 100% insured, you still may want to check on the soundness of your bank or credit union.

Where do you start? Eisenberg, a retired General Motors executive, clicked on a "security" link on the website of his bank, Citibank, but found only "a bunch of trivial info about 'phishing' and online security scams."

Regulators rate the soundness of financial institutions but don't disclose the resulting grades. Savvy consumers, however, can turn to ratings generated by private firms that wade through the oceans of numbers that banks report to regulators.

The Federal Deposit Insurance Corp.’s website lists 11 firms that rate banks and thrifts and provide reports online, by mail or even over the phone. That information can be found at www.fdic.gov/bank /individual/bank/index.html.

The firms generate their ratings by feeding data taken from the banks' quarterly reports to regulators into proprietary computer programs.Information on banks and thrifts that is made available includes net worth (also known as capital), problem loans, profit or losses, cash on hand and reserves for losses.

Some of these services are expensive and oriented toward financial professionals. But Bankrate Inc. and BauerFinancial Inc. give free access to their ratings on all 17,000 U.S. banks, savings and loans and credit unions. Most institutions get three or four stars, with five best.

Veribanc issues twin ratings: one on the institution's current condition, plus a forecast of its prospects. The ratings for one bank or credit union cost $10; additional institutions are $5 apiece.

The rating experts take pains to caution that a low rating does not signal that collapse is likely. Even the worst-off banks -- those on the FDIC's secret list of troubled institutions -- have failed only 13% of the time, the agency says. Most worked their way back to health.

Comparing Bankrate's ratings with the website's data on CD interest rates, it's easy to see that many institutions offering high yields have few stars, leaving you to perform your own risk-reward analysis.

In any case, if your bank gets low grades, check to make sure all your money is insured by the FDIC so that you at least won't lose any funds if the bank fails.

Basic FDIC insurance tops out at $100,000 per customer, but it is possible to insure many times that amount at a single institution by setting up joint accounts and trusts.

To determine whether your deposits are fully insured, don't rely on the assurances of lower-level bank employees, said Greg McBride, senior analyst at Bankrate.

"Do you really want to have as your financial advisor someone making $10 an hour on the other side of the teller window?" he said.

McBride advises visiting the FDIC's online Electronic Deposit Insurance Estimator or contacting the FDIC call center at (877) 275-3342. For credit unions, the National Credit Union Administration’s website has a similar calculator at webapps.ncua.gov/ins.

If you need to find another place to park some or all of your money, you can compare interest rates online at Bankrate. Also, each week BauerFinancial publishes a free list of money market and CD rates offered by banks and thrifts that get at least 3 1/2 stars. The list can be found at www.jumboratenews.com/btc_cdratewatch.asp.

Eisenberg discovered that Bankrate gave Citibank three stars -- not awful but not great either.

He doesn't really think the giant New York bank will ever fail, but nonetheless he withdrew about $100,000 that was uninsured at Citibank and socked it away in a CD at Union Bank of California.

"Why wouldn't you want absolute peace of mind if you're only earning 3 1/2 % or 4% on a CD?" he said. "At that return, you're not getting paid to run any risk at all."

Sorting out bank names---

From the Los Angeles Times
September 7, 2008

You probably think you know the name of the bank where you put your hard-earned money. But it's not always that simple.

Look up Wells Fargo on Bankrate.com or BauerFinancial.com and you'll find 10 banks with names that begin "Wells Fargo." They're all part of San Francisco-based Wells Fargo & Co., but they're technically separate banks with sometimes different ratings.

The Federal Deposit Insurance Corp.'s online directory of institutions (www4.fdic.gov/idasp/index.asp) helps to sort this out.

Click on "Offices" and fill in part of your bank's name and where your branch is located, and you should get the complete name of the legal entity you're doing business with.

(Most deposits at Wells Fargo are actually held by a unit called Wells Fargo Bank, National Assn., which is based in Sioux Falls, S.D.)

BauerFinancial.com lets you search for ratings using a unit's unique FDIC certificate number, which you can get at your branch or the FDIC institution directory.

Some banks use more than one name, a potential danger for depositors if they're not aware of the practice. Pacific Capital Bank of Santa Barbara operates in five metropolitan areas in California, using a different bank name in each market.

But for purposes of federal deposit insurance they are all one bank -- important to know if you put money in more than one of the units. The bank says it's careful to explain that Pacific Capital Bank is the government-insured entity.

Electronic Deposit Insurance Estimator

Welcome to EDIE the Estimator

EDIE the Estimator can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts. EDIE lets you know in a printable report for each bank whether your deposits are within or exceed coverage limits.

The information you get from EDIE is only as accurate as the information you enter. So:

BEFORE YOU BEGIN, HAVE A LIST OF:

  • All the deposit accounts you have at FDIC-insured banks
  • Current balances
  • Names of all account owners and beneficiaries

FOR BUSINESS ACCOUNTS, ALL OF THE ABOVE, PLUS:

  • Name of the business
  • Employer Identification Number (EIN)

Use EDIE now!

When your deposits are 100% FDIC-insured, you can't lose a penny, no matter what.

Where to Keep Cash When No Investment Seems Safe...

by Eric Dash
Thursday, September 11, 2008


The New York Times

Cash used to be the most boring of assets. But not this year.

Nervous depositors rushed to withdraw money from IndyMac Bank, the California thrift that collapsed in July. Investors holding supposedly liquid auction-rate securities were stunned to discover they could not sell them after the markets seized up in the spring.

Others watched as a string of money market mutual funds had to be bailed out. And still others suffered losses in ultrashort bond funds, once considered pillars of stability.

“Normally, bad news for the economy is good news for cash investors,” said Peter Crane, the head of Crane Data, a money market research firm. “But because of the flight from the subprime mortgage contagion, this time is different.”

So what is a high-net-worth investor to do? Getting the most bang for your bucks is not as simple as it used to be. Inflation is a growing concern, chipping away at the benefits from low-yielding deposit accounts. And there are so many cash products to choose from.

Financial experts say that investors have traditionally kept between 5 and 10 percent of their total assets in cash. But given recent swings in the stock and bond markets, many investors have significantly increased holdings.

How much money should you pull out of the market? It’s truly a personal decision, based on factors like your appetite for risk, your expected retirement age and your everyday cash needs. Once you have decided, here are some means of reaching your cash management goals.

DEPOSIT ACCOUNTS A checking account is probably the simplest cash management tool, but few investors use it strategically. Your goal should be to put in enough money to cover your basic needs but no more. After all, checking accounts have just about the lowest yield of any investment, and the interest is taxable.

Convenience and safety should be priorities. Choose a bank that does not make you pay for checks and doesn’t charge a lot of pesky fees. And pay attention to the Federal Deposit Insurance Corporation insurance, which kicks in if the bank should fail.

Single accounts are covered for up to $100,000. Joint accounts have $100,000 of insurance protection per account holder, and retirement and trust accounts also qualify. So spread your money around. “A married couple can actually shield $1.1 million at one bank just by titling accounts so they are in different ownership categories,” said Greg McBride, a senior financial analyst at Bankrate.com.

MONEY MARKET FUNDS Another portion should be allocated to money market mutual funds, which carry relatively low yields but are generally safe and liquid, despite the problems some of them had over the past year as investments in complex mortgage-related securities soured.

Unlike conventional bank accounts, money funds have no government guarantees. But money fund managers have always stepped in to rescue their funds because their reputations are on the line, even during this year’s exceptionally volatile markets.

Still, not all money funds are created equal. You should pay attention to the size of the fund, its holdings, its expenses and its track record. Be careful of so-called sweep account money funds offered by brokerage firms, which usually carry high expenses.

High-net-worth investors might want to consider tax-free money funds. Over the past year, their yields have not been appreciably different from their taxable cousins’. Or consider a money market deposit account, which most banks offer. It serves the same purpose as a money fund but carries F.D.I.C. insurance and may pay higher rates. You can use Internet sites like Bankrate.com to search for the highest yields both regionally and nationally.

Even so, this is one type of investment where yield should come second.

“Don’t be greedy,” Mr. Crane said. With money funds, don’t be “in the No. 1 yielding anything. You want to be a B student.”

Bruce R. Bent, who helped invent money market funds in the 1970s and is chief executive of The Reserve, an investment management company, added, “The most important thing is sleeping well at night.”

C.D.’s AND BROKERED DEPOSITS Investors who do not need their money on hand but are still looking for a safe haven might find certificates of deposit attractive. Banks set their own interest rates, and those badly in need of deposits offer the most attractive rates. C.D.’s are backed by F.D.I.C. insurance. You will have plenty of options. At least six institutions are currently offering one-year C.D.’s at interest rates of 4.25 percent or better.

The catch: If you need your money at a certain time, you must make sure the maturity of your C.D. matches your investment horizon. If you are forced to cash in early, you will pay a penalty rate and forfeit some interest.

Another alternative is buying C.D.’s through your brokerage account. Banks have found this an easy way to raise deposits, and often these C.D.’s will pay higher interest rates than those bought directly from the bank.

Brokered deposits are F.D.I.C. insured, but have a few drawbacks. If you need to cash in early, you could suffer a loss since what you will get in return is only what another investor is willing to pay. And if a bank fails, there is a greater chance you could face a delay in getting to your money. That’s because, unlike ordinary C.D.’s, brokered C.D.’s are held in the firm’s name, not your own, so it can take time to sort out who is owed the money.

US Travelers Face Credit Snafu...

From:     US Travelers Face Credit Snafu

New global system declines the cards Americans carry

Europeans and others worldwide are shifting to the PIN-based system, but US credit card firms are refusing. Europeans and others worldwide are shifting to the PIN-based system, but US credit card firms are refusing.
By Eric Lucas Globe Correspondent / September 7, 2008

All I wanted to do was buy gas, so I put my credit card in the automatic card-reader and got ready to fill the tank. "Card not valid," said the error message on the readout, rejecting my Visa. It wasn't until this happened a half-dozen times that I concluded something was seriously amiss.

This was June, in Scandinavia, and the problem I encountered is a transaction-security snafu that is going to afflict more and more Americans traveling overseas. Much of the world - but not the United States - is switching to a new type of credit card. "Chip-and-PIN" cards, as they are called, have an embedded ID chip that requires users to enter a unique code before the transaction is approved. The procedure is similar to that for ATM cards, except that the latter draws money from a cash account, while chip-and-PIN cards charge credit systems such as Visa, MasterCard, or American Express.

Europe is quickly making the shift. Nearly all the credit-card terminals in Britain, Ireland, Denmark, France, and Spain have been changed. Canada is scheduled to convert in 2010. And as many as 50 other countries around the world are converting.

The reason is obvious: A credit card requiring a PIN code is useless to a thief. European officials report that the system has significantly cut the credit-card fraud that grew after former Soviet bloc countries joined the European Union.

But US consumers cannot get these cards.

No US card issuer offers them, and according to the American Bankers Association, there are no plans to adopt the technology.

"It would be costly to change all the transaction terminals in the US," says Don Rhodes, director of risk management policy at the ABA, "and right now the industry doesn't seem to feel the level of fraud justifies it."

In theory, overseas merchants are required to accept US cards (which are called "mag-stripe," for the magnetic stripe that identifies each card) if the cardholder can offer a suitable picture ID to authenticate a signature.

"We have been quite clear that there are instances where a signature rather than a PIN should be accepted," says Sandra Quinn, a spokeswoman for the British payment processing council APACS, about a procedure called a PIN bypass. "But I have heard of problems."

Problems, indeed. Even Rhodes ran into trouble on a trip to London last winter. And over my three weeks in Scandinavia, my Visa card was rejected about half the time, and never accepted at automatic pay points where there was no live cashier. (Officials at Visa International, the world's largest payment network, declined to comment.)

So what can US travelers do when they are in chip-and-PIN countries?

Cash usually works. But carrying large amounts comes with the risk of theft or loss and forces travelers to bear costly foreign exchange fees. Also many businesses such as car rental agencies will not accept cash and require a credit card imprint before handing over the keys to a car, though such companies are the most likely to still accept mag-stripe cards.

Depending on the country, travelers checks are accepted in many places. Scandinavian merchants usually will not take them, and travel specialists have advised against them, as they are theft magnets. To use them you must find a bank that will cash them. And traveler's checks, like cash, do not offer the advantages of credit cards that appeal to frequent travelers: postponing payment for a month, an avenue to dispute charges, monthly and yearly expense tracking, and frequent flier miles.

Debit cards like the ones you use at ATMs (which are ubiquitous worldwide) usually can be substituted for credit cards. But relying on them means you must ensure there is plenty of cash in your account.

If you are planning a trip soon and want to use your credit cards, make sure you have several good picture IDs to back up your signature, a passport or a driver's license, for instance. IDs that have a scannable bar code, such as a passport, are best.

And despite what the payment-processing groups and card issuers say, many merchants will want payment with a code card, period. "No code, no ticket," I was told in Copenhagen at Danish National Railways. "No exceptions."

Eric Lucas can be reached at ericplucas@yahoo.com.

Economy Stimulus Plan a Taxpayer-Funded Bank Bailout in Disguise!

From:     Economy Stimulus Plan a Taxpayer-Funded Bank Bailout in Disguise!

J. Wu Posted in Personal Finance, Popular by J. Wu

Bush’s economic stimulus plan consisted of three points.

  • 1. $600 tax rebates to low to middle income Americans.
  • 2. Revised tax deduction expenses for small businesses to stimulate entrepreneurship.
  • 3. Doubled the loan limit of mortgages that qualify to be acquired by government organizations, Fannie Mae & Freddie Mac. (the media rarely discusses this point!!)

I have problems accepting #1 and #3. The government and the media market this plan as a means to boost consumer confidence. However, these laws seem to benefit banks more than the overall economy.

Tax Rebates Bail out Overlent Banks
As we saw in Bankaholic’s “How are you spending YOUR stimilus check?” poll, most Americans are saving their money or paying off debt.

The US government will be sending out over $110 billion dollars worth of tax rebates, but most of this money will ultimately find its way to banks.

Where does money that you save go? …to your bank account!

Where does money for paying loans go? …to the bank that lent it to you!

and finally… Where does money you SPEND on shopping sprees go? …to the bank accounts of the companies that sold you stuff!

As we all know, the current credit crunch is caused by lenders who have lent out significantly more than they really have. All the money that the government is giving away eventually finds it way into the vaults of nearly-insolvent, greedy banks… either that or to China to import the latest iPod to America.

It gets worse though…

Increased Lending Limits for Fannie Mae Lead to Tax Payer Bailout
SF Gate summarizes this situation the best:

“Crane said: The proposal would allow Fannie Mae and Freddie Mac to buy loans up to 125 percent of an area’s median home value - up to $729,750 - well above their current $417,000 limit.

Fannie and Freddie are government-sponsored entities that inject liquidity into the mortgage market by purchasing loans and then either keeping them or packaging them into securities sold to investors - with a guarantee in case they default.

This means that Fannie Mae will be buying up a lot of bad, high risk mortgages—some of which will inevitably default! Who will be paying for those bad loans? …the taxpayers! Future generations of Americans will be paying for the reckless mistakes of irresponsible lenders.

Comments/Replies...

 

  1. medray said:
    on June 28th at 10:39 pm

    I think stimulus plan, social security, medicare, 401k are all bull. Americans have nothing but debt, and the aging baby boomers are gonna bankrupt the whole country. This is why I invest all my money in other countries.

 

 

  1. Concerned American said:
    on June 27th at 09:08 pm

    I’m no expert either, but bailing out banks just gives them an excuse to continue irresponsible lending practices. What we need is a total reform on the banking system.

    1) Remove the fractional reserve system
    2) Kill the derivatives market, this will take out a lot of the speculative pressures on the markets.
    3) STOP GOVERNMENT INTERVENTION!! This is supposed to be a free market! Let banks fail, let bad businesses go bust!

 

 

  1. John said:
    on June 27th at 08:26 pm

    Although I believe you are absolutely correct to say that the bank will be getting the majority of the money. But isn’t that what we want to do? May be I am over simplifying it, but the causes of our current economic issues is because of the banks lending so much that many people can’t pay back, and banks are squeezed for money. By having injection money back into the banking capital, though doesn’t solve the fundamental problem of sub par lending practice, it does bring some rigor back from the banking industry?

    Again, I am no expert, and would love to hear people’s opinions.

Identity theft study reveals HSBC, BofA, Wamu top targets...

Customers of HSBC, Bank of America, and Washington Mutual suffer the highest rates of identity theft in the banking industry, according to an investigative study released Wednesday by a UC Berkeley Law School researcher.

The Federal Trade Commission received over 245,000 reports of identity theft in 2006, but does not typically publish the names of the financial firms and companies listed in the reports. Through an extensive Freedom of Information Act request, Chris Hoofnagle, a staff attorney at UC Berkeley's Boalt School of Law, was able to get detailed records on the individual consumer complaints.

Hoofnagle received detailed information for three randomly chosen months in 2006: January, March, and September. These months included data from 88,560 complaints, with 46,262 names of institutions identified by victims.

Estimated Annual Incidents Per Billion in Deposits Among Largest US Banks (2006)

(Credit: With permission from Chris Hoofnagle)

Once he crunched the numbers, Hoofnagle discovered that HSBC has the highest rates of reported identity theft in the financial industry during 2006, when adjusted for billions of dollars in deposits. Bank of America and Washington Mutual came in a close second and third. According to Hoofnagle's stats, HSBC had 21 incidents of identity theft per billion dollars in deposits, Bank of America/MBNA had about 17, while Washington Mutual had 16. Online banking leader ING had the lowest rates in the industry, with just a single reported incident.

Technically, American Express and Capital One lead the pack--with 485 and 242 respective incidents per billion dollars in deposits. However, Hoofnagle excluded them from the graph due to the small scale of each company's banking operation (Amex's 7 billion in deposits compared with Bank of America's nearly 760 billion).

Outside of the financial services sector, telecom giants AT&T and Sprint suffered from more than 9,100 and 8,300 estimated reported cases of identity theft. As the firms do not publish the numbers of customers they serve, it was impossible for Hoofnagle to break these numbers down further.

While the FTC incidents that Hoofnagle examined were from 2006, a number of recent reports indicate that HSBC has recently been overwhelmed with a "a wave of banking fraud." Real numbers to back up these reports will not be available from the FTC for some time.

The levels of theft described by Hoofnagle's match up nicely with a 2007 report released by Cambridge University researchers, which revealed that Bank of America and Washington Mutual took the longest time to shut down phishing sites targeting the banks. Sites masquerading as BofA and Wamu typically stayed online for more than 100 hours, compared with less than two days for Chase and PayPal.

Finally, while the FTC publishes an annual identity theft report, it is not required to break down its figures and reveal the names of the most frequently victimized banks. While states like California have been able to pass significant pro-consumer data breach legislation, this is one area where states have little power. Incidents of identity theft are primarily reported to the FTC, and not to state attorneys general. To force the FTC to voluntarily publish such data, federal legislation will be required--something that is unlikely to happen.

Hoofnagle's 16-page study, with detailed numbers and graphs, can be found here.

Comments/Replies...


by CESSNA150SKYPILOT February 27, 2008 8:57 AM PST
Good for you for finding this out! Sometimes I think they're all in cahoots! I guess the only way is to write our congress persons and demand transparency in reporting by the FTC.
 

by bpapa9013 February 27, 2008 9:12 AM PST
CRAP, I have a vehicle loan with HSBC!

I have been learning that they are a really crappy lender since I took that loan. Apparently they don't just have a high rate of ID theft, but they are also shistey about changing the rate on "fixed rate" credit and not obeying minimum payment agreements on loans.

(Agree to a low introductory rate + fixed low minimum payment for X months of a 4X month loan= minimum payment will almost double the SECOND MONTH!! ***!?!)

I would avoid this bank like the plague, I am going to pay off my loan ASAP! (Fortunately it was just financing on a scooter so I should be able to pay it off in about 3 months!)
 

by gwilliamp February 27, 2008 10:12 AM PST
These figures do not mean much without knowing how many customers or transactions the bank processed in the time period. If expressed as a percentage of customers or, even better, transactions they would better express the client vulnerability of each company.
 

by gcifra1 February 27, 2008 11:02 AM PST
I have reported my personal experience to HSBC:
They outsource the Customer Service calls to India etc. The call centers are packed with operators sitting so closely that you can hear the activity of several accounts. I am a captive audiance to numerous conversation where I can hear not only the operators but the customers they are talking to. There are obviously no cubicles and if so they are not to ensure privacy. Also they are trained with such canned answers that it is impossible to have a logical constructive conversation.
 

by Bryan_Ansley February 27, 2008 3:00 PM PST
What?s sad is that there is technology and services out there that are capable of stopping ID fraud before it has a chance to damage consumers and inflict losses on the banks. Many senior-level banking execs just don?t realize that they?re out there.

On Jan. 1, a new Federal Reserve Board regulation went into effect to combat this lack of knowledge. The rule gives bankers until November to implement ID theft protection programs that meet the Fed?s requirements, which require ?reasonable policies and procedures? for preventing ID theft, identifying ?red flag? activities, and notifying victims.

And the introduction of new and improved ID theft detection and prevention tools will help increase awareness, too. In a few weeks, my company is going to announce a new technology banks can use to protect their depositors. Essentially it will compare the location of the depositor (determined via their cell phone) with the location of the credit card transaction. If the two don?t match, the transaction is flagged so it can be checked out immediately.

My advice to banks: The ID protection space is huge and there are many different vendors and services, but you need to start researching and seriously consider implementing one. That?s the best way for them to protect their customers, and themselves.

Bryan Ansley
BAnsley@FNBmerchants.com
http://SecureIdentitySystems.com.
 

by geofbrewer February 27, 2008 9:15 PM PST
It is amazing to me as large as HSBC is, they are unable to spend the money necessary to keep customer data safe. Of course, as a customer of one of their many subsidiaries, I'm not surprised. I'm afraid of a meltdown before I can close my accounts. Does the name Enron sound familiar? I thought another financial institution would beat them to Chapter 11/7. And to think when I started to deal with HSBC, I was blissfully ignorant of what was to come.
 

by March 4, 2008 9:55 AM PST
Many of these financial institutions outsource their operations overseas where they are not subject to the same regulatory standards including the protection of customer data. They also have large constituencies of illegal alien customers who are illegally given loans and other services without social security numbers or use stolen/fraudulent social security numbers. What easier way to illegally obtain social security numbers and other information to establish an aura of legality. Look at all the data thefts, breaches and so called losses at the height of the illegal immigration debate....Only a coincidence????? The government wants cheap illegal labor and illegal votes at any cost and will pursue any measure to achieve this.
 

by dudeman121 March 4, 2008 10:01 AM PST
H & R BLOCK USES HSBC FOR INSTANT TAX REFUND LOANS. Talk about risky business. Over the past few days, I've confirmed, verified by Lifelock (Identity Fraud protection Agency), that HSBC does not, or at least did not properly handle a "Fraud Alert" on applicant's credit report for a tax refund anticipation loan. This is pretty scarry considering that H & R Block, whom many of us trust to handle our most private financial info such as our taxes, associates our taxes with HSBC Bank. Wow!!!
 

by K2S1d April 4, 2008 9:02 PM PDT
You might read ?The Silent Crime? by Michael McCoy. He states that there are 5 major areas of identity theft and identity theft can?t be prevented. On page 191 he does a comparison of services. He states Pre-Paid Legal Services is ?Most robust with complete restoration, credit monitoring and access to attorneys 24/7.? You can order the book here http://stolendata.blogspot.com/2007_04_01_archive.html and find out more about the service here http://www.keithdsmith.com
 

by smsdes April 21, 2008 10:03 AM PDT
Had heard of the Bof A and WaMu problems, but never thought it would hit home.

My husband was checking our monthly online statement and saw 2 new accounts setup. he figured it was a glitch, but an hour later the accounts had taken $30,000 from a line of credit at Bof A and had then transfered $10,000 to a Wamu Account!!!
We are now fighting to get all the info and have had the police in our home for reports and lost time from work to deal with the banks.

Its more than just a simple crime,It effects the persons life for years!

I am on the west coast,and the theives from wha twe could tell are on the East coast.

I would love to hop a plane and personally hunt them down!!

75% of Banking Websites Not Secure...

 The Piggy Banker™

By Best Bank Rates | August 12, 2008 | Personal Finance

A new study from the University of Michigan has found that more than 75 percent of banking websites are not completely up to snuff when it comes to security.The study looked at 214 financial institution websites and focused on both design flaws and improper security practices. None of these flaws represent catastrophic security issues, but many could allow for easier access to your password and user name should a malicious hacker come calling.

The flaws studied included the following:

Insecure Login System

Nearly half of the banks examined had “secure” login systems on insecure web pages which did not use the SSL protocol. Failure to use SSL, the study says, allows for the possibility of an attack that would allow for the interception of login details if a user was accessing the site wirelessly, called a “man in the middle” attack. The study notes that most banks secure the internal portions of their site, but many leave the login page unsecured.

Putting Contact Info on an Insecure Page

The biggest flaw of the bunch (55 percent failing the test): A similar attack to the above could simply let a hacker change the phone number listed on the contact info page, redirecting customers to a phony call center ready to snap up their user name and password.

Redirecting Outside the Bank Without Warning

When users are directed to third party services (like, say, bill payment sites), the bank doesn’t warn them of the change. A user may not know if what he’s seeing is trustworthy or not.

Using Social Security Numbers or Email Addresses as User IDs

These are simple things to guess or find out, especially email addresses. Banks should allow users to create a custom user name, as well as have a policy on weak passwords, but 28 percent of banks tested did not.

Emailing Secure Information Insecurely

Things like password resets and financial statements should be sent securely: Passwords, for example, should never be sent as plain text, yet 31 percent of banks failed this test.

The full study (10 pages, PDF link) can be reviewed here. Specific sites failing the various tests were not revealed. Also note that the study was performed back in 2006 (the results are only being published now), so things may have improved since the original analysis.

Home Ownersip in Mexico Now a Reality...

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