Abacus Bank: The Fighters

Even the smallest victory is never to be taken for granted. Each victory must be applauded, because it is so easy not to battle at all, to just accept and call that acceptance inevitable.

       --Audre Lorde

Mr. Sung, I'm glad they pick on you, cuz you're a fighter.

--from the just released Steve James documentary, Abacus: Small Enough to Jail

Thomas Sung, founder, Abacus Bank

Of the many dire things I've found, thought and written about on EM08, until now there's been little sunshine. Thanks to the great Gretchen Morgenson, as dogged and principled a journalist in the msm as there is - particularly in regard to EM08 - I first learned of the tale of Abacus Bank.

When my initial EM08 research began, no less than Meredith Whitney came into my awareness, and I remember her ominously forecasting how what the government was doing was "saving" the system, but punishing and destroying community banks and credit unions.

In 1995, megabanks — giant banks with more than $100 billion in assets (in 2010 dollars) — controlled 17 percent of all banking assets. By 2005, their share had reached 41 percent. Today, it is a staggering 59 percent. Meanwhile, the share of the market held by community banks and credit unions — local institutions with less than $1 billion in assets — plummeted from 27 percent to 11 percent. 
-The Institute for Local Self-Reliance 

I wrote to Abacus to offer encouragement, and Jill Sung, founder Thomas' daughter and CEO, replied. That correspondence follows below. What's heartening is that Steve James, award winning filmmaker (Hoop Dreams, Life Itself, among others) has undertaken the task of telling the Abacus story, in a doc that evidently is knocking out audiences.

My mind's racing with a torrent of thoughts and emotions:

• At the top, and as usual, there's outrage watching Uncle Scam pick on the small guys while rewarding the biggest psychotic crooks in history.
• As a minority community bank, Abacus' David vs. Goliath story takes on magnitudes of importance, given how crazy America's racial history is.
• An ironic EM08 observation: one of the most infamous EM08 weapon of destruction's name? Abacus. Who were the architects? In the main, Goldman and John Paulson. BILLIONS stolen, with Paulson alone netting a billion and Goldman in eating its own customers, made hundreds of millions. This is what my country has devolved to, a cesspool of crooks with "deals" that, to anyone with a shred of fairness and decency, reads like something out of Abbie Hoffman's Steal This Book for the vampire bureaucrooks. Forget innovation or entrepreneurship. No, let's just erect endlessly opaque bureaucrookery so we can feed off of the helpless, the small, the weak. Here's the REAL enemy, folks. It's not middle eastern, it isn't la cosa nostra, it isn't the Crips or Bloods. No less than Reuters has a highlight reel here.

Those who endure my endless ranting about these psychopaths deserve a break; here's a heretofore unseen ray of sunshine, some great Americans, heroes, really, sticking to their guns.

Abacus: Small Enough to Jail. Can't wait to see it. Our correspondence follows, but in a moment of serendipity, this first short piece, courtesy of Creatomic/Medium, just came to my attention, and deserves a place as preface. It makes me think of the many sacrifices my family went through, just so I could be here, blogging this... it aptly sets up the Sung's battle, while illuminating their resilience, courage and old school values.

Stop telling each other it’s alright. Sometimes, it’s just not.

People’s lives fall apart in a splinter of a second, their dreams get destroyed, they discover that their bodies have been hiding a disease that’s only getting worse.

Businesses fail, and products crash, and people who love other people get their hearts broken, and people who would give anything to succeed wait for their ships to come in long after they’ve lost the strength or the energy to do anything about it.

What’s the first thing we say to each other, when something goes wrong? What’s the first thing we say when the world gets turned upside down, when all of the shit and the tough times and the breakdowns come?

We say, “it’s alright.”

“It’s alright.”

And that’s a default reaction, it’s the first thing that comes out of our mouths, often. It’s the only assurance we can think of, and the only way we often know how to respond to awful things that seem so far out of our control or influence.

“It’s alright.” Or its alternative, “It’s going to be okay.”

But in the end, a great many things never turn out alright. A great many things just aren’t okay. And saying they are, trying to fool ourselves and the people who need us into believing that it’s all a blip on the radar, it’ll all be sorted out — that’s not helping.

Do you know why?

We know it’s just not true.

People don’t want to hear that everything is alright, when they know — deeply and painfully — that it isn’t. They don’t want to be lied to, even if it’s in the nicest way possible.

All they want is for us to be near. Be open. Be awake and willing to listen. Be patient. Be understanding. And most of all, to just be there. Because the greatest gift you can ever give to someone who is mourning a tragedy, a business disaster, anything — is to ensure that they aren’t alone.

That’s why people in a time of crisis often scream out for help or for companionship. It’s not because they want the rest of the world to solve their problems; they understand that nobody has a magic wand. It’s because they want the simple comfort of knowing that they do not walk in isolation when they’re in need.

We don’t want our pain to be minimized.

Because that’s what happens, when we’re told it’s alright. We feel like we’re over reacting, because if everything really is alright — we ask, why are we feeling so much pain, and what is the root and the cause of it, and are we even entitled to our pain?

We want the enormity of our disasters to be recognized by the people around us, so that we know that what we feel isn’t a trick of our hearts and our minds — it’s a reality. And it sucks, and it’s acceptable to feel like it sucks.

Life really does go on.

It does. And sooner or later, no matter what our struggle is, we start to understand that. And sooner or later, things do feel as alright as they ever can, without ever being the same. Life finds a way, in every nightmare, and life keeps on going. But the way we get there is long and hard, and we need other people to be patient and to walk with us, in silence if need be.

I remember in one of the roughest periods of my life, when it felt as though more things were ending than could ever begin again — I was floundering and struggling and I could barely keep my head above water.

My partner, Emily, told me this.

“I’m not going to say it’s alright, because I know it’s not. And it might never be. But I’m always going to be here, whether you like it or not, to make the best of it, even if that’s not much. I promise.”

5 years later, I’m happier than I ever thought possible. I got through things that seemed insurmountable. I got through things by recognizing that they just weren’t alright. And they weren’t okay.

If your startup fails? It’s not alright. But you can get through it.

If your freelance career bombs? It’s not alright. But you can get through it.

If your relationship comes to an end? It’s not alright. But you can get through it.

If your dreams burn out? It’s not alright.

But you can get through it.

July 23, 2015

Thomas Sung

Jill Sung

Vera Sung

Abacus Federal Savings Bank

via: onlinebanking@abacusbank.com

Dear Thomas, Jill & Vera Sung,

As an Asian-American whose grandparents came to this country with nothing, I, and all of my cousins – over 25 of them – are testament to their and our parents' sacrifice for the better good, the big picture … the future. It's difficult to reconcile my family's history and the America of my youth with the America of today. When the events of 2008 occurred I was blindsided, but the history major in me was determined to find answers. Soon, Michael Lewis, Matt Taibbi, Nomi Prins… and Gretchen Morgenson, would broaden my view of what I call “EM08”: the economic meltdown of 2008.

So it was with this background I came upon Abacus Bank's story – I wish I could say that I was surprised, but no less than Meredith Whitney, years ago, predicted the woes for smaller lending institutions. What was so interesting to me was the way in which our legal system is front-loaded as a financial dis-incentive for small businesses.

Isn't it remarkable, what the America of my grandparents has devolved to? The last presidential campaign set a new fund record of over a billion dollars, and the 2016 circus will set yet another; some analysts forecast a new high of $2 billion. No clearer message to everyday, working class Americans (and the world) exists.

Yes, it's entirely fixed on behalf of the wealthy, but what can we do? Be decent. Your fellow New Yorker, Spike Lee, popularized the slogan, “Do the Right Thing,” and it's something my family was steeped in. The storm is coming, and while the practical necessities of protecting ourselves are in play – what finance calls “hedging” – I'm convinced that having principles and a morality based upon decency is at the core. It's like William Holden's Pike Bishop says in The Wild Bunch: If you can't do that, you're like some animal. You're finished. We're all finished.

This is why I am writing to you; KEEP YOUR HEAD UP. I was very proud listening to your story, and for what it's worth, want you to know that the great silent majority of decent Americans are out here. People like my ancestors and you are what this country used to stand for, and it's needed now more than ever. Don't ever let go of that.

Very truly yours,

JP Kaneshida

Los Angeles

8/3/15

Dear JP,

Thank you so much for your below email!  We are very fortunate to have supporters like you and we are proud to share a heritage of immigration, hard work and entrepreneurship with you.     

I am impressed that you have taken the time to understand what caused EM08.  The causes are numerous but the effects were devastating for small banks like ours where the resulting regulation created to stop the harms caused by big banks, ended up choking small community banks.  The ironic result is that we now in an even more dangerous situation than before –  more power concentrated in the monetary system in the hands of few.  

They say “that which does not kill us makes us stronger.”  This is a mantra my family and I have repeated over and over to ourselves these past several years.   Now with the trial over, we are focused on just that – rebuilding our small institution to make it stronger to meet the many challenges that still face us.  We feel that we have no choice but to continue to fight this fight and feel blessed that we have been given this opportunity to do this.

I hope we will be able to meet in person one day.  Until such time, we wish you and your family  peace, good health and success in whatever you do.

Best Regards,

Jill Sung

CEO & President

Abacus Federal Savings Bank

Great Americans: Vera, Jill & Thomas Sung

Plastic People

Frontline has done it again; they've managed to make my head explode.

I'd been putting off watching The Card Game which is Frontline's further explorations on these shitheads that are more commonly called bankers. Of course I succumbed, and like I said, my head exploded.

Then I found the following NYT piece, coincidentally with the same title as Frontline's documentary - in both cases, one of the most astounding facts was the uncovering of processing by the banks. The way the bankers are gaming the system is a procedural one, and it goes like this; so you move away from using your credit card(s) because you opt for the more sane debit card. However, the second you go over your limit, in this case, over your deposit amount, you are assessed a fee. Logical enough, right?

But here's the catch; say you make 4 debit card purchases throughout the day, and here listed chronologically; one for a $2 coffee at 8am, one for a $10 lunch at 12pm, one for a $50 mp3 player at 3pm, and one for a $125 pair of shoes at 4pm. The bankers will actually tally your purchases in non-chronological order so that it throws you over your limit more rapidly.

Let's say you've $150 in the bank now; you have a deposit as of yesterday for $400 that's yet to clear. As the days go on, the bankers are actually tallying the larger amounts first, even if they are in non-chronological order - if it gets you over the limit before your deposit clears!

The above is just a scenario, but generally speaking, this strategy is all about getting you to bust over the limit as quickly as possible so that they can assess penalty fees.

Chickenshit, right? Yup.

This is why I will never bank with a major bank again, and every single American should withdraw right now and go with your local community bank or credit union (pending due diligence, of course).

If a group with a head of steam would call for that, it'd be a real sea change, revolutionary in spirit if not action, and it'd be something I could throw my lot in with. In fact, as of earlier this year, I already have, withdrawing from one of the majors and depositing in my credit union.

Also, if you noticed, I most purposefully wrote "bankers" instead of "banks." This is because I'm more than tired of "banks" being faceless. Corporations shield individuals and that's a law that needs to be changed. Let's not forget, "banks" don't go after you like sharks in a feeding frenzy, BANKERS do. They and their support system of boards and investors.(~*~) You can shame a "bank," sort of, but we should never forget, bankers and their cronies sit in dungeons with the tortured hanging in cuffs from the walls, pleased by the screams. Call out the bankers, the people, by name, not some amorphous entity called a "bank."

If you need names, email me, or look here or here to see what these jerkoffs look like. At least.

Last, I agree with Peter Schiff on many, many things, economically. There's tons of stuff on him but I have been planning a post that is now coming to fruition soon. I've added him to my EM08 Dream Team, and here's - despite its Fox origin - a really good video of him talking truth to power, followed by the NYT article. He disagrees with one of the EM08 Dream Team-ers, Meredith Whitney, on credit cards in regards to taking them away from consumers. I love Meredith, but also thought that was funny logic when I heard her break down credit cards before. There's a qualitative difference between allowing people to go further into the hole - which, although not a certainty, given the history of Americans is a pretty safe bet - versus doing what needs to be done in terms of correcting a bubble that's at a trillion, and tick tick ticking like the time bomb it is.

There. Add that to the big pile of crap that is the post dumbya and present Barack world.



NYT at:
http://www.nytimes.com/2009/09/09/your-money/credit-and-debit-cards/09debit.html?_r=1

September 9, 2009
The Card Game
Overspending on Debit Cards Is a Boon for Banks
By Ron Lieber and Andrew Martin

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge.

Banks and credit unions have long pitched debit cards as a convenient and prudent way to buy. But a growing number are now allowing consumers to exceed their balances — for a price.

Banks market it as overdraft protection, and the fees it generates have become an important source of income for the banking industry at a time of big losses in other operations. This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance.

In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards.

But because consumers use debit cards far more often than credit cards, a cascade of fees can be set off quickly, often for people who are least able to afford it. Some banks further increase their revenue by manipulating the order of a customer’s transactions in a way that causes more of them to incur overdraft fees.

“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.

Debit has essentially changed into a stealth form of credit, according to critics like him, and three quarters of the nation’s largest banks, except for a few like Citigroup and INGDirect, automatically cover debit and A.T.M. overdrafts.

Although regulators have warned of abuses since at least 2001, they have done little to curb the explosive growth of overdraft fees. But as a consumer outcry grows, the practice is under attack, and regulators plan to introduce new protections before year’s end. The proposals do not seek to ban overdraft fees altogether. Rather, regulators and lawmakers say they hope to curb abuses and make the fees more fair.

The Federal Reserve is considering requiring banks to get permission from consumers before enrolling them in overdraft programs, so that consumers like Mr. Means are not caught unaware at the cash register.

Representative Carolyn Maloney, Democrat of New York, would go even further by requiring warnings when a debit card purchase will overdraw an account and by barring banks from running the most expensive purchases through accounts first.

The proposals carry considerable momentum given the popularity of credit card legislation signed into law in May. They also have a certain inevitable logic, since the credit card legislation requires a similar “opt in” decision from consumers who want to spend more than their credit limits and pay the corresponding over-the-limit fees. Overdrafts are simply the reverse, where the limit is zero, and the bank charges a fee for going under it.

But with so much at stake, the banking industry is intent on holding its ground.

Bankers say they are merely charging a fee for a convenience that protects consumers from embarrassment, like having a debit card rejected on a dinner date. Ultimately, they add, consumers have responsibility for their own finances.

“Everyone should know how much they have in their account and manage their funds well to avoid those fees,” said Scott Talbott, chief lobbyist at the Financial Services Roundtable, an advocacy group for large financial institutions.

Some experts warn that a sharp reduction in overdraft fees could put weakened financial institutions out of business.

Michael Moebs, an economist who advises banks and credit unions, said Ms. Maloney’s legislation would effectively kill overdraft services, causing an estimated 1,000 banks and 2,000 credit unions to fold within two years. That is because 45 percent of the nation’s banks and credit unions collect more from overdraft services than they make in profits, he said.

“Will they be able to replace it with another fee?” Mr. Moebs said. “Not immediately and not soon enough.”

They will certainly try. For instance, some banks have said they might slap a monthly fee of between $10 to $20 on every free checking account. At the moment, people who pay overdraft fees help subsidize the free accounts of those who do not.

Banks may also have to answer a question that many consumers ask and that Ms. Maloney has raised in her proposal: Why can’t banks simply alert a consumer at the cash register if they are about to spend more than they have in their account, and allow them to say right then and there whether they want to pay a fee to continue?

The banking industry says that simply is not possible without new equipment and software, costs that would be borne by consumers.

“If you think about when you swipe your card at, let’s say, Starbucks or at the Safeway or the Giant, there is no real sort of interaction there,” said Mr. Talbott. “It’s just approved or disapproved. So how logically would that work? Would a screen come up? Would someone at the bank call the checkout clerk and say, ‘That customer is overdrawn?’ Logistically that would be very difficult to implement.”

No one could have imagined this controversy decades ago, when the A.T.M. card was born. Back then, it was simple: when money ran out, the card was usually rejected by the banks.

But then A.T.M. cards started acquiring Visa or MasterCard logos, allowing users to “debit” their bank accounts for purchases. A thorny issue soon sprang up. What if there wasn’t enough money in a cardholder’s account to cover a purchase?

For years, banks had covered good customers who bounced occasional checks, and for a while they did so with debit cards, too. William H. Strunk, a banking consultant, devised a program in 1994 that would let banks and credit unions provide overdraft coverage for every customer — and charge consumers for each transgression.

“You are doing them a favor here,” said Mr. Strunk, adding that overdraft services saved consumers from paying merchant fees on bounced checks.

Some institutions do not see it that way, and either do not offer overdraft services or allow their clients to decline the service. “We’ve never subscribed to the notion that individuals who overdraw or attempt to should be allowed to do so without the opportunity to opt in,” said Gary J. Perez, the president and chief executive of the University of Southern California Credit Union.

A Source of Easy Money

But many of the nation’s banks have found that overdraft fees are easy money. According to a 2008 F.D.I.C. study, 41 percent of United States banks have automated overdraft programs; among large banks, the figure was 77 percent. Banks now cover two overdrafts for every one they reject.

In all, $27 billion in fee income flows from covering overdrafts from debit card purchases, A.T.M. transactions, checks and automatic payments for bills like utilities; an additional $11.5 billion arrives from bounced checks and other instances in which banks refuse to pay overdrafts, Mr. Moebs said.

By contrast, penalty fees from credit cards will add up to about $20.5 billion this year, according to R. K. Hammer, a consultant to the credit card industry. For instance, customers incur penalties for paying their bills late or by spending beyond the credit limit the bank has set for them. Banks also make billions in interest from credit cards.

Most of the overdraft fees are drawn from a small pool of consumers. Ninety-three percent of all overdraft charges come from 14 percent of bank customers who exceeded their balances five times or more in a year, the F.D.I.C. found in its survey. Recurrent overdrafts are also more common among lower-income consumers, the study said.

Advocacy groups say banks are making a fortune because consumers are unaware of the exorbitant costs of overdraft services. And banks, they argue, have an incentive to keep it that way.

That is what Mr. Means found when he approached his Wells Fargo branch in Fort Collins, Colo., to redress the $238 in fees he was billed. An employee explained that her ability to waive fees had been revoked by the bank because she had refunded fees for too many customers, Mr. Means said she told him.

Rory Foster, a former branch manager in Illinois, said that Wells Fargo based its compensation for managers in part on overall branch profitability. Fee income, including that from overdrafts, is part of the calculation.

A spokeswoman for Wells Fargo, Richele J. Messick, said the bank did not tie branch manager pay directly to fee collection.

‘I Can’t Afford That’

Yet fees, and how they are generated, remain a mystery to many consumers. Because regulators do not treat overdraft charges as loans, banks do not have to disclose their annualized cost to consumers.

And often, the price is enormous. According to the F.D.I.C. study, a $27 overdraft fee that a customer repays in two weeks on a $20 debit purchase would incur an annual percentage rate of 3,520 percent. By contrast, penalty interest rates on credit cards generally run about 30 percent.

“People would be shocked at how brutally high those fees are relative to the costs of a credit card,” said Edmund Mierzwinski, the consumer program director for the United States Public Interest Research Group.

Ruth Holton-Hodson discovered that the hard way. She keeps close tabs on the welfare of her brother, who lives in a halfway house in Maryland and uses what little he has in his account at Bank of America to pay rent and buy an occasional pack of cigarettes or a sandwich.

When the brother, who has a mental illness that she says requires her to assist with his finances, started falling behind on rent, Ms. Holton-Hodson found he had racked up more than $300 in debit card overdraft fees in three months, including a $35 one for exceeding his balance by 79 cents.

Ms. Holton-Hodson said she spent two years asking bank employees if her brother could get a card that would not allow him to spend more than he had. Though Bank of America does not typically allow customers to opt out of overdraft protection, it finally granted an exemption.

“I’ve been angered and outraged for many years,” she said. “When there is no money in his account, he shouldn’t be able to pay.”

Anne Pace, a spokeswoman for Bank of America, said the case was “complicated issue without any simple solutions,” but declined to elaborate, citing privacy concerns. She added the bank allowed customers to opt out of overdraft services on a “case-by-case basis.”

And when a consumer does overdraw an account, banks have found a way to multiply the fees they collect by rearranging the sequence of transactions, critics say.

Ralph Tornes, who lives in Florida, is pursuing a lawsuit against Bank of America for charging him nearly $500 in overdraft fees in 2008 after it rearranged his purchases from largest to smallest. In May 2008, for instance, Mr. Tornes had $195 in his account when he made two debit purchases for $8 and $13; the bank also processed a bill payment of $256.

He claims that Bank of America took his purchases out of chronological order and ran the biggest one through first. So instead of paying $35 for one overdraft fee, he was stuck with three, for a total of $105.

Mr. Talbott, of the Financial Services Roundtable, said some banks reordered purchases based on surveys showing that consumers want their most vital bills, like rent and car payments, which tend to be for larger amounts, paid before items like a $3 coffee.

Consumers who have been slapped with large fees as a result of this practice have a different perspective. “There is no reason they should get the little guy because he’s only got a few bucks in his account,” said Ryan Pena, 24, a recent college graduate who has filed suit against Wachovia, now part of Wells Fargo, for what he says are abusive practices, including reordering his purchases. “I can’t afford that.”

Officials at Bank of America and Wachovia declined to talk about specific complaints, but echoed Mr. Talbott’s remarks on processing payments.

The Debate in Washington

These lawsuits open a window onto the questions that government officials and banks are now trying to answer. Do consumers actually want overdraft service? Can they use it responsibly? If so, what is the best way to deliver it?

Federal regulators have acknowledged problems with overdraft fees since at least 2001 but have done little aside from improving disclosure and issue voluntary guidelines they hoped the industry would follow. That year, Daniel P. Stipano, deputy chief counsel for the Office of the Comptroller of the Currency, wrote that a company that markets overdraft programs to banks showed a “complete lack of consumer safeguards.”

In 2005, after intense industry pressure, the Federal Reserve ruled that overdraft charges should not be covered by the Truth in Lending Act. That meant bankers did not have to seek consumers’ permission to sign them up, nor did they have to disclose the equivalent interest rate for the fees.

That same year, the Federal Reserve said that some banks had “adopted marketing practices that appear to encourage consumers to overdraw their accounts.” It issued a list of “best practices” that asked banks to more clearly disclose overdraft fees, let customers opt out of overdraft programs and provide an alert when a purchase occurs that would put the account below zero. But critics said the recommendations had no teeth.

“No regulator has made any of their bank examiners adhere to best practices,” said Mr. Halperin, of the Center for Responsible Lending. “The result is over that time period consumers have paid probably upwards of $80 billion in overdraft fees while the Federal Reserve considers and considers and considers whether or not they are going to do anything.”

Officials at the Federal Reserve dispute that they have not taken sufficient action on overdraft fees, noting that they imposed tougher disclosure requirements in 2004 and are now considering additional regulations to address abusive practices. They will disclose their intent before the end of the year.

What no one disputes is that the stakes in the coming battle on overdraft fees are enormous. Ms. Maloney said she did not push her overdraft legislation this spring because the uproar from the banking industry could have jeopardized the credit card bill.

“It was very important to provide more tools to consumers to better manage their credit cards,” she said. “And now I think they deserve the same treatment with debit cards.

=============================

~*~ When corporations do bad things and are caught, they have armies of lawyers and banks of connections in order to work the odds in their favor. Instances like Enron's Ken Lay or Jeff Skilling, Tyco's Kowslowski and Bernie Madoff shown in court on the hot seat or getting sent to the joint are the exceptions. These kinds of exceptions serve the American System's purpose of The Big Game, which is to further the illusion of justice being practiced fairly. In other words, it's pr.

The real truth lies in "throwing money at problems," or fines. This is where the other corporate army comes into play, this time in the form of accounting pinheads. Here's how it works;

Say there's a malpractice case against "Big HMO" (BH). First, BH uses its lawyer army and political payoffs that garner connections to set a cap on payouts. They of course have help in the payout and lobbying realms from BI (Big Insurance) and who knows who else.

Second, and once the payout cap is set, let's say at $200k, now they have a number to work with. This is key.

Once the cap is set, and if BH sees its odds of winning as on the negative side, all the number cruncher pinheads have to do is figure out how long to prolong a case in order to payout from interest. This is part of the reason why, procedurally, cases are protracted and bog down; economic imperative.

Examples exist of corporations doing harm and getting caught, then paying what sounds like huge fines. In reality, the fines are often nothing compared to profits as well as in some cases, damages incurred. One need only look at Exxon destroying the livelihoods of the working class in Prince William Sound as a result of the Valdez oil spill.

The recent examples of the government bailouts are the most glaring examples of the way politicians, the judiciary and legislative branches, together with corporate lawyers and lobbyists all work toward creating goodwill for extremely bad, criminal people and business models. In fact, not only does "the system" support well-positioned bad people and business models when they fall on hard times, as we've seen with the TARP and auto welfare, the American system actually rewards bad behavior and bad business models!

The other salient aspect to "The Big Game" is the financial reporting and journalism by the mass media, itself a conglomerated mass of super corporations. (Of note as of this writing, mass media is about to conglomerate down even further, as it looks like the takeover of NBCU - itself a fairly recently conglomeration from Vivendi-Universal - by Comcast is about to go down.) By concentrating mass media down to a handful of corporations whose main objective is profit, elements of fair journalism are slashed; local bureaus and germane to covering corporate malfeasance, investigative journalism.

Thus, highly conglomerated mass media works against probing, concentrated and sustained journalism on corporations such as Halliburton, Goldman Sachs, JPMorgan/Chase... let alone the super conglomerates that control mass media. Meanwhile, there will be plenty of coverage about shootings, rapes, murders, car crashes, celebrity sex scandals, and all of the "run-of-the-mill" public gawking sans peeking around the wizard's curtain that would constitute hard looks at the American System.

This last point is but another expression of the American System that focuses resources on watching "the little people" in order to keep them in check. At universities and colleges, sociological studies aren't probing into the super rich elites and the American System that works on their behalf, let alone their political assumptions and they way they see those through to reality. They're more concerned with "Why do kids in the barrio have a 35% drop out rate?" There must be something wrong with "those people." On the street level, cops, let alone surveillance cameras, aren't going after nor watching politicians and corporations doing sweetheart tit-for-tat deals, let alone monitoring bankers and their machinations, they're sitting at speed traps or setting up cameras at intersections (both huge cash cows to cities, which, once again, intersects economics and justice), because, as everyone knows, and to paraphrase Dillinger, that's where the criminals are.

The Insider: Nomi Prins

As I've said, what's going on in terms of EM08 is sick but is the stuff of talk for forever. It really is unprecedented, and uncle scam has set new standards for theft.

One of the gratifying things about all this mess is discovering those that are getting down and telling it like it is, which here translates into seeing things as I do. Therefore, I must add to the list of recommendations I posted a bit ago, and add to it EM08's #1 draft pick, Nomi Prins.

I'm not excusing my unawareness of her, but I am an irregular listener to Pacifica Radio - apologies to my homeboy Don Bustany - where evidently she's held court a few times now with Amy Goodman on Democracy Now.

What makes people like Meredith Whitney so interesting to me are their bona fides, and Prins' cred is stellar in terms of this mess. Her econ blueblood is easily found on the web, with none other than Goldman under her belt.

Plus, her books have entertaining titles, a'la, It Takes a PIllage.

Right now, I can't think of much in filmmaking I'd rather do than assemble my dream team - David Cay Johnston, Meredith Whitney, Muhammad Yunus, Vinod Khosla, Prof. William Black, Matt Taibbi, Michael Lewis, and now, #1 draft pick Nomi Prins - take them to a resort for a month and have all kinds of discussions about EM08, from the run-up, the players both business & political, the companies, the machinations, and recommendations to the Obama administration for moving forward.

Of course, shoot everything.

Such a project would of course be massive, but would be great to have available via a site where updates and forums could be integrated into the process. And then, every year, have an annual confab of the participants, probably via webcam.

Oh well, the stuff of dreams and money; There's plenty of vid stuff of hers out there, which I may get to later, but I'm going to end this entry here with two articles in an inside/outside format, from that very smart gal, Nomi Prins.



Mother Jones, at:
http://www.motherjones.com/politics/2009/07/how-you-finance-goldman-sachs%E2%80%99-profits

How You Finance Goldman Sachs’ Profits
An insider’s view of Wall Street’s rebound.
—By Nomi Prins

Tue July 28, 2009 12:28 PM PST

This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie. In a normal time, the fact that the numbers generated by the nation's biggest banks can't be trusted might not matter very much to the rest of us. But since the record bank profits we're now hearing about are essentially created by massive federal funding, perhaps it behooves us to dig beneath their data. On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did just that, writing a letter to Federal Reserve Chairman Ben Bernanke questioning the Fed's role in Goldman's rapid return to the top of Wall Street.

To understand this particular giveaway, look back to September 21, 2008. It was a frenzied night for Goldman Sachs and the only other remaining major investment bank, Morgan Stanley. Their three main competitors were gone. Bear Stearns had been taken over by JPMorgan Chase in March, 2008, Lehman Brothers had just declared bankruptcy due to lack of capital, and Bank of America had been pushed to acquire Merrill Lynch because the firm didn't have enough cash to survive on its own. Anxious to avoid a similar fate, hat in hand, they came to the Fed for access to desperately needed capital. All they had to do was become bank holding companies to get it. So, without so much as clearing the standard five-day antitrust waiting period for such a change, the Fed granted their wish.

Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks'. That's the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.

Goldman didn't like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what's called the Market Risk Rules that bank holding companies adhere to when computing their risk.

Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG's free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there's the $29.7 billion it's used so far out of the $35 billion it has available, backed by the FDIC's Temporary Liquidity Guarantee Program, and finally, there's the $11 billion available under the Fed's Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman's request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks. Using VaR gave Goldman more leeway to, well, accentuate the positive. Yes, Goldman is a more risk-prone firm now than it was before it got to play with our money.

Which brings us back to these recent quarterly earnings. Goldman posted record profits of $3.4 billion on revenues of $13.76 billion. More than 78 precent of those revenues came from its most risky division, the one that requires the most capital to operate, Trading and Principal Investments. Of those, the Fixed Income, Currency and Commodities (FICC) area within that division brought in a record $6.8 billion in revenues. That's the division, by the way, that I worked in and that Lloyd Blankfein managed on his way up the Goldman totem pole. (It's also the division that would stand to gain the most if Waxman's cap-and-trade bill passes.)

Since Goldman is trading big with our money, why not also use it to pay big bonuses? It's not like there are any strings attached. For the first half of 2009, Goldman set aside $11.4 billion for compensation—34 percent more than for the first half of 2008, keeping them on target for a record bonus year—even though they still owe the federal government $53.6 billion, a sum more than four times that bonus amount.

But capital is still key. Capital is the lifeblood that pumps through a financial organization. You can't trade without it. As of June 26, 2009, Goldman's total capital was $254 billion, but that included $191 billion in unsecured long-term borrowing (meaning money it had borrowed without putting up any collateral for it). On November 28, 2008 (4Q 2008), it had only $168 billion in unsecured long-term borrowing. Thus, its long-term unsecured debt jumped 14 percent. Though Goldman doesn't disclose exactly where all this debt comes from, given the $23 billion jump, we can only wonder whether some of it has come from government subsidies or the Fed's secret facilities.

Not only that, by virtue of how it's set up, most of Goldman's unsecured funding comes in through its parent company, Group Inc. (Think the top point of an umbrella with each spoke being a subsidiary.) This parent parcels that money out to Goldman's subsidiaries, some of which are regulated, some of which aren't. This means that even though Goldman is supposed to be regulated by the Fed and other agencies, it has unregulated elements receiving unsecured funding—just like before the crisis, but with more of our money involved.

As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent for the second quarter of 2009 vs. the same quarter last year, but a lot of that also came from trading revenues, meaning its speculative endeavors are driving its profits. Over on the consumer side, the firm had to set aside nearly $30 billion in reserve for credit-related losses. Riding on its trading laurels, when its consumer business is still in deterioration mode, is not a recipe for stability, no matter how much cheering JPMorgan Chase's results got from Wall Street. Betting is betting.

Let's pause for some reflection: The bank "stars" made most of their money on speculation, got nearly $124 billion in government guarantees and subsidies between them over the past year and a half, yet saw continued losses in the credit products most affected by consumer credit problems. Both are setting aside top-dollar bonuses. JPMorgan Chase CEO Jamie Dimon mentioned that he's concerned about attracting talent, a translation for wanting to pay investment bankers big bucks—because, after all, they suffered so terribly last year, and he needs to stay competitive with his friends at Goldman. This doesn't add up to a really healthy scenario. It's more like bad déjà vu.

As a recent New York Times article (and many other publications in different words) said, "For the most part, the worst of the financial crisis seems to be over." Sure, the crisis may appear to be over because the major banks of Wall Street are speculating well with government subsidies. But that's a dangerous conclusion. It doesn't mean that finance firms could thrive without the artificial, public-funded assistance. And it certainly doesn't mean that consumers are any better off than they were before the crisis emerged. It's just that they didn't get the same generous subsidies.

Additional research by Clark Merrefield.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Mother Jones, at:
http://www.motherjones.com/politics/2009/09/obama-banking-too-much-banks


Obama Banking Too Much On Banks

In his Wall Street speech, the president outlines reforms—but they don’t go deep enough.
—By Nomi Prins

Mon September 14, 2009 8:53 AM PST

On Monday—one year after the once-mighty Lehman Brothers collapsed in the nation’s biggest bankruptcy—President Obama addressed the state of the economy and again outlined his proposals for what he calls reform. The location—Federal Hall at 26 Wall Street, near the New York Stock Exchange and New York Federal Reserve Bank—was fitting. George Washington took his presidential oath there, a precursor for how intertwined Washington and Wall Street would become. And Obama’s speech indicates that he’s still making the grave error of mistaking the health of Wall Street for the health of the American economy.

Obama chose not to deliver his speech on, say, the streets of Bend, Oregon, or Fresno, California, which provide different indicators of our economic predicament. That’s because Washington’s approach to the crisis has been to focus on the banking system, throw a few crumbs to citizens, and hope everything else will magically work itself out.

The problem with concentrating on the banking system is that it allows the administration to present an overly optimistic assessment of its actions. "The storms of the past two years are beginning to break," Obama pronounced, attributing this to a government that "moved quickly on all fronts, initializing a financial stability plan to rescue the system from the crisis and restart lending for all those affected by the crisis." He continued: "By taking aggressive and innovative steps in credit markets, we spurred lending not just to banks, but to folks looking to buy homes or cars, take out student loans, or finance small businesses. Our home ownership plan has helped responsible homeowners refinance to stem the tide of lost homes and lost home values."

Those steps were certainly aggressive. Under both the Bush and Obama administrations, the government, from the Federal Reserve to the Treasury Department, has flushed the banking systems and other components of the financial markets with $17.5 trillion worth of loans, guarantees, and other forms of support. About another $1 trillion has been provided to citizens through the recovery package, first-time homeowner tax benefits, auto purchase credits, and approximately $800 billion to help guarantee the loans of certain lenders—which somewhat helps borrowers, but helps lenders more.

But these measures have hardly brought the economy back from the brink. They brought Wall Street back from capital starvation and prevented the possibility of more big banks going bankrupt—instead of the slew of smaller and mid-size ones that have since met the same fate as Lehman Brothers. Taking credit for stabilizing the financial system after feeding it with massive amounts of federal money is like a teacher bragging about turning around the academic performance of a failing student after handing them all the answers to the big tests.

Here’s how the economy is really faring (and how Washington is failing to take adequate steps to fix it):

* National unemployment is at 9.7 percent, higher than last year’s 5.8 percent, with double digit jobless rates in 139 metropolitan areas this July, compared to 14 last July.
* The number of foreclosures is greater than last year: nearly 2 million new foreclosure filings occurred in the first half of 2009, up 15 percent from the same period in 2008.
* While homes in some areas have begun to slowly sell again, they are doing so at deeply depressed prices, in many instances below their mortgage value.
* Wall Street bonuses are back to pre-crisis levels. For some firms, such as Goldman Sachs, they are even higher.
* Bank leverage, or excessive borrowing on the back of risky assets—a major cause of the meltdown—is rising again.
* Geithner recently reported that his program to enable private financial firms to buy up toxic assets with government help will wind up costing less than the $1 trillion he had first envisioned. However, he did not mention that there are less toxic assets available to buy partly because the Fed has allowed banks to use some toxic assets as collateral in return for cheap loans.
* Big banks are bigger than they were last year. Since the Fed blessed more mergers last fall, the nation’s three largest banks—Bank of America, JPMorgan Chase and Wells Fargo—hold the maximum percentage of legally permissable US deposits or more.
* Mid-size and smaller banks keep closing. This year, the Federal Deposit Insurance Corporation (FDIC) has closed 92 banks and depleted its deposit insurance money in the process.
* We still don’t have detailed information on the trillions of dollars of loans the Fed handed out to the banking sector or about the quality of the collateral banks provided in return.



Obama did acknowledge that the picture isn’t entirely rosy. He also outlined his ideas for avoiding another catastrophe: reshuffle the decks of regulatory agencies, slap a few trading constraints on some derivatives, and create a Consumer Financial Protection Agency (CFPA). But while Obama's rhetoric was stern—"normalcy cannot lead to complacency," he vowed—the proposals themselves are hardly sweeping.

Obama’s plan calls for eliminating the Office of Thrift Supervision and providing greater oversight by the Fed of “systemically important” institutions. The Senate is trying to water that down, in part because some members of both parties in Congress remain skeptical about the power of the Fed itself. The Senate also wants to consolidate regulatory authority into fewer entities, but leave oversight to a council of regulators. Of course, consolidating regulatory oversight only works if regulators are doing their jobs and the banking system is transparent enough to allow them to do so.

The last leg of Obama’s proposal would be establishing the CFPA, which would monitor financial products in an effort to protect consumers from risky instruments such as subprime mortgages. Legislation to create such an agency is expected to be taken up this year by the House Financial Services Committee, chaired by Rep. Barney Frank (D-Mass).

A strong CFPA is a sensible plan. Right now there is no other body imbued with the power not just to protect consumers but also to foster the general economic stability that would be achieved by closely monitoring the integrity of financial products. This proposal has drawn the most ire from the banking community, so you know it’s good. The Chamber of Commerce launched a $2 million ad campaign to convince people that a CFPA would mean that local butcher couldn’t extend credit to his customers without government interference.

But Obama's reforms do not strike deeply enough. The banking crisis has been subdued, not fixed, because of enormous amounts of government assistance. Ignoring that fact, and failing to overhaul the sector, leaves us open to another crisis. And the next round will be worse, because there is now so much more federal money invested in the banks.

Simply funding the banking system without reforming it is an expensive and dangerous game. Obama is capable of truly fixing things—by dividing up the Wall Street mega-banks with a new Glass Steagall Act, thereby enabling the success of more extensive regulatory reforms. Or, he could introduce a set of cosmetic changes that allow banks to keep doing what they did before last year’s crisis and that put us on the path for the next one.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Nomi Prins is an economist and frequent contributor for Mother Jones. Her most recent book is It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street. To read more articles by Nomi Prins, click here.

Meredith Whitney on Small is Beautiful

Barack needs to kick his econ team to Pluto. He needs to listen up and make the following the econ generals leading the fight:

David Cay Johnston
Meredith Whitney
Muhammad Yunus
Vinod Khosla
Prof. William Black

Under them should be Matt Taibbi and Michael Lewis as special advisors or whatever fancy junior cabinet sounding names you want.

Meanwhile back in reality, EM08 continues to barf all over us, but one of the key things for Americans to keep their eyeballs glued on is the mass-media (mis)handling of it. It is absolutely nuts the way they are shooting Krugman and Roubini blanks everywhere. Oh wait, this is Bizarro world.

Right on time, here's Meredith Whitney breakin' it down on the credit crunch, small business, small banking, and the crucial role both should be playing at this turning point, with chirps from yours truly.

Before I turn you over to Meredith, I'll make the point that one of the important things completely absent in mass media coverage of EM08 are the messages that are being sent out to Americans. Think about the TARP, GM & Chrysler bailouts, AIG bailouts, and the utter madness of banks who, with public money, didn't help the public but instead helped themselves. The executive/management bonuses while reprehensible are just mis-direction by mass media; the TRUE damage is in the further conglomeration the banking system has undergone. Thus, welcome to the era of the super banks, led by JP Morgan/Chase and Goldman Sachs. As I've said but will say again until everyone knows, if you think mass-media conglomeration is bad, think about the unprecedented power these super banks now wield.

Is the irony of "too big to fail" lost on you...?

Meredith Whitney's following take makes me think about those small banks and community oriented credit unions that didn't buy into all of the toxic mortgages much less the ultra high risk gambling committed by the banks and AIG (Well, it was risky... for TAXPAYERS).

Then these law-abiding small banks and community oriented credit unions had to stand by and be humiliated as the government dumped free money on these criminals in the biggest heist in history.

Here're the questions;

How do you think those banks and credit unions feel?

As an American, how do you feel about that?

What kind of message is that to be sending?

Why isn't the mass media addressing this?

Will you continue to bank at a large bank? (Disclosure; I don't anymore. I bank at my local credit union exclusively now)

One more thing I'll say about Whitney's take; I stand and applaud her, because it's easy to see that she's sticking up for the little people and, lest we forget, sounder economic practices. But in her own way, she's really talking about communities. I believe that is one of the things Americans desperately need to get back to.

I said it before and here again; That Meredith Whitney - she's one smart gal.

Meredith Whitney

* The Wall Street Journal
* OPINION
* OCTOBER 1, 2009, 6:58 P.M. ET

The Credit Crunch Continues
Taxpayer dollars have supported institutions that are 'too big to fail.' Small business has been left out in the cold.

By MEREDITH WHITNEY

Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

jp: Emphasis mine. In textbook journalistic inverted pyramid form, there's the theme, in perfect accord with TARP strategy. In Bonzo Ronnie's time it was "trickle down" economics. Today it's "too big to fail."

Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source to small businesses) have been cut by 25% since last year.

Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages.

Why do small businesses matter so much? In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.

What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt. [Emphasis mine]

As is true in most recessions, banks' commercial lending portfolios shrink as creditworthy customers pay down their debts and the less-worthy borrowers are simply denied loans. Banks, in other words, want to lend only to those that don't want to borrow. Challenging as that may be, in the last cycle small businesses at least had access to their credit cards.

Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been cancelled. According to the most recent Federal Reserve data, small business lending is down 3%, or $113 billion, from fourth-quarter 2008 peak levels—the first contraction since 1993. Credit cards are the most common source of liquidity to small businesses, used by 82% as a vital portion of their overall funding. Thus, it is of merit when 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially.

Incentives should be provided to smaller banks to step up small-business loans on a greater scale. Smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer." [Emphasis mine]

I believe that we are only in the early stages of the second half of this credit cycle. I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010. This includes not only the large lenders reducing exposure but also the shuttering of several major subprime credit-card lenders. Beginning in the fourth quarter of 2007, lenders began reducing available credit by zip code. During the past four quarters, lenders have cut "inactive" accounts (whether or not the customer viewed the account as a liquidity vehicle).

The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act.

Regulators should be mindful that regulatory change during the midst of a credit crisis often ends with unintended consequences. Those same consumers that regulators are trying to help are actually being hurt by a vast reduction in available credit.

Main Street represents the foundation of this country. Reviving it should take priority over any regulatory reform or systemic overhaul. [Emphasis mine]