FedUpUSA

Archive for December 9th, 2009

It would be nice if the media covered the actual scam in these stories….. but they don’t:

Dec. 9 (Bloomberg) — Andrea Allan used a convenience check she received in the mail from JPMorgan Chase & Co. for Home Depot purchases. The check cost her almost $700 in interest and fees when the bank cut her credit limit and wouldn’t honor it.

“Why during this economy would Chase put out checks to people to entice them?” said Allan, a 50-year-old aesthetician in North Hollywood, California, whose credit limit was cut to $1,100 from $3,500 after she received the checks in September. “It feels predatory, not convenient.”

Well yes, that’s inconvenient.  What’s worse is that there is no requirement for card issuers to notify you (other than on your statement) when they cut your line back, which can (and sometimes does) lead to this sort of problem.

But that’s not the real scam in these “convenience” checks. 

Oh no.

The real scam is found in the typical pitch enclosed with them, like the one I got from Discover a couple weeks ago.

“0% if paid off by March 31st 2010.”

Sounds good, right?

Well, no, it’s not, and it’s not 0% either.

From the date I received the checks there was roughly four months of “zero interest.”  So far so good.

But in the fine print was disclosed that there was an immediate 5% “convenience fee” added to the balance when I wrote the check!

Let’s see – there are 12 months in a year, and I got four months for 5% right up front, and if I don’t pay it off, I start getting charged interest.

So what was the actual interest rate on that loan again?

If I wrote the check and then paid it off in one month, I’d pay 5% for holding the money for one month.  If I did this 12 times I’d pay 5% 12 times, or an annualized 60% interest rate!

The longer I hold the money, of course, the lower the effective rate – which is why they cut that off after March.  If I hold it for the full four months then I pay “only” an effective 15% interest rate.  That’s not awful (unless you consider that Discover can borrow from The Fed at zero!) but it is not “zero interest.”

But of course when I get the check I might not cash it instantly.  Let’s say I spent it a month later on Christmas presents.

Well then my “effective interest rate”, since the zero period expires in March, would be 20%.

See how these clowns get you?

What’s missing is a clear, one-page description along with some simple examples, such as the person who holds the money for only one month, for two, for three, and for the maximum possible four before their ordinary interest rate kicks in.

That’s a very nice scam boys and girls, but I won’t be biting on it, you shouldn’t bite on it, and if we had anything approaching an honest regulator in this country this sort of “trick ‘em and screw ‘em with fancy games” practice would be absolutely banned.

I am not sure whether Potemkin reform is worse than no reform at all, except the latter makes it abundantly clear that America is in the hands of a corrupt plutocratic elite.

The latest, from the Huffington Post, is that the normal flurry of last minute amendments to gut legislation has gone one step further, in the case of H.R. 4173: Wall Street Reform and Consumer Protection Act of 2009. As Huffington Post reports:

A group of Democrats friendly to Wall Street interests forced a delay in consideration of the landmark financial regulatory reform bill scheduled to hit the House floor on Wednesday, Financial Services Committee Chairman Barney Frank (D-Mass.) told reporters in the Speaker’s lobby.

Frank accused the New Democrat Coalition of blocking the bill because its members are being prodded by big banks to abolish the Consumer Financial Protection Agency and to allow major financial institutions to avoid state laws tougher than federal regulations.

A Democratic leadership aide confirmed that centrist and conservative Democrats are threatening to vote no on the bill, leaving the caucus short of the needed votes

“The big banks in particular are trying to get more preemption,” said Frank. “It’s a state-consumer battle with the big banks. We want compromise. They want to offer an amendment that makes it easier to preempt state consumer laws.”

Gutting state authority over banking rules would deliver banks a victory, the polar reverse of the objective of this exercise, which is to rein the banksters in. Per CQ (subscription required):

House leaders are trying to settle a dispute between liberal and moderate Democrats that threatens to sideline, at least temporarily, a bill to overhaul regulation of the financial system.

The battle centers on two proposed amendments to the bill’s consumer protection provisions that moderate Democrats are demanding a vote on. Should those amendments not be made in order, members of the New Democrat and Blue Dog caucuses probably would vote against a rule to commence debate on the bill (HR 4173), a House aide said. That would in all likelihood quash the rule, given that Republicans are likely to oppose it unanimously.

But liberal Democrats are staunchly opposed to the amendments, and have threatened to abandon the bill if at least one of them is adopted. But the liberals also fear they do not have the votes to kill either amendment.

One amendment would allow federal regulators to preempt state financial laws and the other essentially would scrap the creation of a Consumer Financial Protection Agency.

“We still have some details to hammer out,” said Michael E. McMahon, D-N.Y., a New Democrat who has played a prominent role in the caucus negotiations over the final regulatory overhaul bill.

The amendment that would give the federal government the ability preempt state laws on financial protection issues is being offered byMelissa Bean of Illinois, a New Democrat. Supporters argue that, without it, financial companies would face a patchwork of state and federal regulations.

The other amendment, to replace the proposed consumer agency with a council of regulators that would oversee consumer protections for financial products, was offered by Idaho Democrat Walt Minnick, a Blue Dog.

The financial industry staunchly opposes creation of the agency, saying it will squelch innovation. The Chamber of Commerce is “whipping the vote hard” on the Minnick amendment, a House aide said.

The New Democrats were given a commitment that the amendments would get floor time, according to a House aide.

With House Republicans almost assured to vote with the New Democrats and Blue Dogs on both amendments, the House would likely adopt both measures if they came to a vote.

Liberal Democrats have fought hard against both proposals. They are critical of federal regulators for failing to curb the sort of predatory credit practices that came to light during the financial market meltdown, and want to keep state powers intact. But they also see a new federal consumer protection agency as a cornerstone of the overhaul.

House Financial Services Chairman Barney Frank said late Wednesday afternoon that the decision on what amendments to allow is now entirely up to House leadership. The New Democrats are currently in negotiations with leaders and Treasury Department officials, according to Frank and House aides.

“I told the liberal coalition that they may have gone further” in achieving their agenda during the committee markup than they could hold onto when the bill got to the floor, said Frank, D-Mass.

But that hasn’t kept liberal members of the caucus from issuing a threat similar to the New Democrats’ — a “no” vote on final passage if Bean’s amendment is attached.

“I would vote against this bill if it preempted state law,” said Brad Miller, D-N.C.

This is making me ill.

I was reading a post by George Washington over at ZeroHedge that actually spurred the following rant. An excerpt reads:

The Telegraph notes:

The former US Federal Reserve chairman told an audience that included some of the world’s most senior financiers that their industry’s “single most important” contribution in the last 25 years has been automatic telling machines, which he said had at least proved “useful”.

Echoing FSA chairman Lord Turner’s comments that banks are “socially useless”, Mr Volcker told delegates who had been discussing how to rebuild the financial system to “wake up”. He said credit default swaps and collateralised debt obligations had taken the economy “right to the brink of disaster” and added that the economy had grown at “greater rates of speed” during the 1960s without such products.

When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitisations had contributed “nothing at all”, he replied: “You can innovate as much as you like, but do it within a structure that doesn’t put the whole economy at risk.”

He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and “proprietary trading should be pushed out of investment banks and to hedge funds where they belong”.

It is not just George Soros.

Nassim Nicholas Taleb has repeatedly said that speculation should be limited to hedge funds, and that banks should solely engage in traditional depository functions, and – because of their power to create credit – be treated as public utilities.

Many other top economists and financial experts have said that financial innovation is harmful, and have called for reimposing Glass-Steagall and for separating traditional banking from investment banking.

What got me started was the use, and misuse, of the term “innovation”.

It is not financial innovation that must be curtailed. Innovation, in and of itself, is a very good thing. The issue currently at hand is that it was not financial innovation that got us into this mess. It was fraud! Financial engineers attempted to create methods of circumventing regulations, laws, prudent risk management, common sense and mean market returns. For instance, taking $100 million of junk status mortgages and creating $300 million of so-called AAA exposure out of it (MBS, CDO’s, CDO cubed, credit lines supporting CDO’s, CDS protecting the CDO exposure. etc. – all from a simple mortgage that no one thought would be paid in the first place). That is not innovation, that is called LYING! It was thinly veiled fraud. This lying, in turn, was labeled “innovation”, which it absolutely was not, and the moniker has been carried on in the media ever since.

Innovation is the personal computer! Innovation is the smart phone! Innovation is mapping the human genome! Innovation can be found in stem cell research! Innovation is discovering new ways of human learning and social interaction. All of these examples of innovation make society more productive, and more efficient. It harms none but those who would be relegated to the annals of obscelence anyway. But CDOs and credit defaults swaps as innovation!!! I’m afraid not. I bitched about this as far back as two years ago in “Welcome to the World of Dr. FrankenFinance!” There are forms of finance that are innovative, but they have nothing to do with the current malarky.

Then we have “the Great Global Macro Experiment“, in which today’s central bankers can be likened to mad scientists. The reflexive relationship between private sector bankers’ (the Frankenstein monster’s) faux “innovations” and their public sector ”mad scientist” (Dr. Frnakenstein) counterparts will destroy the developed economies as we know them unless this ridiculous boom/bust cycle is put to an end. The quickest and most efficient way to do that is to let overpriced bubble assets deflate in due course and have the markets reflate them naturally based on fundamental  values and stable macroeconomic conditions - and NOT through artificial (hence unsustainable, causing another boom/bust cycle) boosting of risky asset prices and synthetic suppressing of market rates in order to stimulate unsustainable demand that would have been there in a sustainable fashion in the first place if risky asset prices were allowed to deflate.

Yes, I know it’s a run-on sentence, but why stop when I’m amped. I also know why the mad scientist central bankers will not let the Frankenstien assets properly correct. If they do, then it will throw the existing oligarchy off of their perch. I have dedicated several posts to this socio-economic stratification dilemma that is known as class conflict. See “You’ve Been Bamboozled, Hoodwinked and Lied To! Here’s the Proof. What Are You Going to Do About It?” for an example of exactly what I mean. That is why the media preached “the world is coming to an end” in 2008. Read my blog. I predicted the series of events that led up to the meltdown quite accurately, and publicly (look here for the proof). Take it from someone who demonstrated that they saw what was going on well in advance. THE world was definitely not coming to an end. THEIR world was coming to an end. MY world was just experiencing a much needed, albeit a very serious, and well telegraphed correction, in the form of a near depression that would have wiped out most of the unproductive financial and (dare I utter it) intellectual capital to make room for the stuff that would move us into the next phase of productivity for the new millenium.

The “mad scientists” have prevented that cleaning of the house, and here we are now – most likely about to hit that depression-like correction anyway, and having wasted trillions of dollars of taxpayer financial capital in an attempt to save an unproductive oligarchy to which I do not belong.

Drunken fools and slush funds have one thing in common. No one ever acts to cut them off. Thus, it should be no surprise Treasury Extends TARP.

Facing opposition from Republican lawmakers, the Obama administration is extending its $700 billion financial-rescue program until next October, as expected, Treasury Secretary Timothy Geithner said Wednesday.

The Troubled Asset Relief Program, which has been a lightning rod for criticism that the government aided Wall Street while ignoring Main Street, had been set to expire Dec. 31. As of Dec. 9, the Treasury had roughly $309.5 billion in TARP funds available for new commitments and programs.

Some funds may be used to increase Treasury’s contribution to the Term Asset-Backed Securities Loan Facility. Based on the statute that created TARP, the Obama administration would need Congress to approve any further extension of the use of TARP funds.

Mish: Approval?
Since when does the Treasury or the Fed ask for approval?

President Obama said Wednesday the extension is really a “winding down” with a changed focus on troubled homeowners, small banks and small businesses.

Mish: It’s an extension, we just don’t want to call it that.

Obama added that the TARP program has served its original purpose of stemming the financial crisis, cost less than expected, and given government officials a chance to reduce the deficit faster.

GOP lawmakers have sought to block the extension, arguing that that the White House’s plans to use TARP to fund more government spending violates the intent of the law and adds to America’s debt burden.

“TARP was supposed to be a temporary plan to restore the health of the credit markets and protect the economy from a ‘doomsday’ scenario,” said Rep. Spencer Bachus, R-Ala., the ranking member on the House Financial Services Committee. “Instead, the Obama administration is turning TARP into a permanent bailout agency and petty cash drawer for politically favored interests.”

Mish: The original purpose was met so we are going to use the money for a slush fund instead. Does the law allow that? Excuse me, I almost forgot ….
Approval?
Since when does the Treasury or the Fed ask for approval?

According to Geithner’s letter to Congress, Treasury does not expect to deploy more than $550 billion of the funds.

Mish: I see “petty cash” has taken on quite a different meaning these days. One thing is for sure, $500 billion is not what it used to be. Then again $550 billion is only the expectation. Who knows what will really be spent, or for what, or under what conditions?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html  to learn more about wealth management and capital preservation strategies of Sitka Pacific.

From The Daily Capitalist

As my readers know, every so often I really get fed up with what comes out of Washington (Our Nation’s Capital) and feel the need to vent. My recent irritation is a letter Christina Romer, the president of Obama’s Council of Economic Advisers, published in the Wall Street Journal.

The letter is an apologia for the economic policies she and Summers and Geithner have been recommending to the president. She seems like such a nice lady, and she’s the wife of economist David Romer. Both were econ professors at Berkeley and both studied economics at MIT. But …

Here are some excerpts from her letter, with my comments:

Within a month of taking office, the administration had announced its Financial Stability Plan and signed the American Recovery and Reinvestment Act. The Recovery Act helped stem the decline in spending caused by consumers and businesses reeling from the fall in asset prices and the drying up of credit. Real GDP, which had fallen at a 6.4% annual rate in the first quarter of 2009, began to grow again just two quarters later. …

She seriously believes this. But she has a slight problem with the cause and effect, post hoc ergo propter hoc*, thingie. That is, there is no evidence, theoretical or empirical, that the Recovery Act did anything positive or lasting. Even assuming Keynesian stimulus works, the government hadn’t spent enough money to make it work according to the Keynesian formula. At least that’s what Paul Krugman said. Whatever, no one has ever offered any proof that such stimulus works.

And, as far as I know, PCE (consumer spending) is still very low, asset prices are still declining, and credit is worse.

We’ve already seen from the Recovery Act that spending on infrastructure—everything from roads and bridges to schools and municipal buildings—is an effective way to put people back to work while creating lasting investments that raise future productivity. …

Yadda, yadda, yadda. Again more spending on things the government wants, not the things that the market wants. The jobs are already fizzling. See this excellent article in the WSJ, ironically published on the same day as Mrs. Romer’s piece. The gist is that when the government money ends, the jobs dry up.

Subsequently the president pushed for the Cash for Clunkers program that was successful in boosting demand and job creation. …

All this did was to junk a bunch of good cars, fill the pockets of auto dealers, and appease the UAW. Auto sales are already declining again. It just accelerated future sales of people who would have bought cars anyway.

[A]bout a month ago the president announced the latest in a series of measures to encourage banks to lend to small businesses. …

As we all know credit is still shrinking, not growing. They have tried every trick in the Keynesian book to loosen credit but to no avail. I’m sure this new legislation will be different.

[I]n early November the president signed into law a measure that would provide relief and spur job creation by adding additional weeks of unemployment insurance, cutting taxes for businesses, and expanding and extending the home-buyer tax credit. …

That must have worked really fast, because unemployment, according to the Bureau of Labor Statistics, dropped from 10.2% to 10% in November. Wow, that’s great legislation. But, as we all know, Things Are Not What They Seem. As David Rosenberg pointed out in one of his reports, the government stats look funny because they are so different from what ADP reported. 

Despite these positive developments, the job market remains very weak. … American businesses appear hesitant to hire, and are producing more with fewer workers. …

Didn’t she just say that things are getting better?

Tomorrow [the President] will convene a meeting of business and labor leaders, small-business owners, economists and community representatives to discuss our ideas and solicit others for accelerating hiring. … [W]e need to harness the private sector, bringing large and small firms in off the sidelines to boost job creation. …

This is the part that really upset me. First, this is a typical political move. “Let’s all get together and come up with some great ideas!” No offense to the community organizers out there, but getting a bunch of people in a room like this gets nowhere. The best thing they could do is cancel all meetings, and get the hell out of the way.

But what really got me was the “harness the private sector” comment. I hope she didn’t mean it in the way I’m thinking, but if she didn’t then it’s even worse because she doesn’t realize the implications of her policies. When government gets together with business and labor to create policies for political benefit, it is called fascism, or national socialism. The words she used were rather telling: a “harness” is not something I would want to be in. You know who has the whip.

While the words seem innocent, it is all about losing our freedoms. Here’s the conclusion from a piece I wrote about the takeover of GM (in homage to Ayn Rand):

Sometimes it’s hard to see what is happening in front of your eyes. It seems rather benign and logical when you read about it, but it’s not. Nationalizing GM is just good old fashioned fascism–just like what happened in Italy in the 1920s and ‘30s … And now us. If you think I’m exaggerating, it’s probably because you think everything the government does is OK because we’re having a crisis. As Wesley Mouch said in Atlas Shrugged, “We’ve got to act!” That’s how we are losing our freedom, by a thousand cuts.

*Since that event followed this one, that event must have been caused by this one.

… pour used oil in your mouth.

Well, not literally.  But Congress might, if the EPA doesn’t cut this crap out:

The Obama administration is warning Congress that if it doesn’t move to regulate greenhouse gases, the Environmental Protection Agency will take a “command-and-control” role over the process in a way that could hurt business. 

The warning, from a top White House economic official who spoke Tuesday on condition of anonymity, came on the eve of EPA Administrator Lisa Jackson’s address to the international conference on climate change in Copenhagen, Denmark.

Oh really?

Did you forget, Lisa, where your operating budget comes from?

That would be Congress.

Guess who can close your agency – in an afternoon?

That would be Congress.

Threatening them – assuming this isn’t just more kabuki theater intended to divert public anger from the skull-<censored> that is about to be served upon them – is rather unwise.

Should this not be just another game of misdirection and should Congress (e.g. Sensenbrenner and other reasonable minds on The Capitol – clearly in the minority, but heh, there are a few) decide that your pie hole makes a good used oil receptacle I’ll drain my CO2-producing boat engines just to make sure they have plenty to use for this purpose.

I wouldn’t want the dirty oil to be in them, you know…..