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Horror Stories from the Financial World

In 2008, I started rereading Fark and tripped across some business stories from the mainstream media that made my stomach turn (I haven’t had a good rant lately). Why isn’t the entire financial world imploding into a black hole is my only question?

British Import I Hope Not to See

So there is a “Money Card” branded as a Visa card in the U.K. that ends up charging up to 365% interest on balances. Doorstep lending gives you this card with a positive balance of 300 pounds sterling, which you can use to purchase things. However, the balance is a loan, and you must pay it off before you can use the card after you have used up its credit. If you pay back sooner, you pay more in interest, which is astounding to me.

Naturally, this isn’t a card a person with a good credit rating could use. Instead, this is marketed and aimed at those who cannot get a credit card and thus are less likely to complain about these new usury rates (also less likely to pay it back would be my guess as well).

If this kind of stuff is going on in Canada, I hope the government steps in to stop it. Loan Sharking used to be a crime. I guess now it is just “Good Business Practice”?

Less Foreclosures in the U.S. ?

Well, not really. What is happening is that the banks are so overwhelmed with folks not paying their mortgages on time that they have started to look the other way. Folks are simply staying in their house and seeing if anyone will kick them out, which isn’t happening as fast as you would think?

I get the feeling this whole “low-interest scam” thing is just not going to go away and maybe a much more bottomless pit than I thought it was.

When In Doubt Change the Rules

One of my favourite lines from a movie was, “Just when you thought you understood the game, we CHANGED THE RULES!!!” and that statement seems to be true in the world of Financial Institutions as well. This article from the Seattle Times implies that the Washington Mutual bonus system, which previously relied on things like profitability, is now being re-vectored due to the company’s problems in foreclosures and such.

Let me quote directly:

However, its 2008 bonus plan for about 3,000 top employees specifically excludes the effects of bad-loan set-asides, foreclosures and restructuring costs from the financial criteria used to judge the executives.

Instead, in addition to measures such as operating income, bank fees and “customer loyalty,” the compensation committee will subjectively evaluate “how well our executive management team addressed the challenges in the housing, mortgage and credit markets and the impact of those challenges on our financial results.”

That seems fair if this information is factual.

Feel Free to Comment

  1. … and the actual comment should have been, “Just when you thought you knew the rules, we changed the GAME!” (and it was Rowdy Roddy Piper that said it).

    The game of bonuses and payment for executives always astounds me and sickens me at the same time.

  2. When it comes to bonuses at some companies, the only rule is that top management always gets paid. The details will always be adjusted so that bonuses are paid. One factor you can use to judge whether a company is a good investment is to decide whether management performance deserved bonuses, and compare this to whether the bonuses were paid. I avoid investing in companies that pay undeserved bonuses.

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