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Crisis in the U.S. Financial Industry

Included for your perusal, a historic piece from back during the great Stock Market Crash of 2008. Note the tone, the kind of fraud perpetrated had not been seen in years. Today we know more about it, but, are we sure it will not happen again?

What else should I be writing about right now? Every news outlet is telling of the end of the U.S. Financial system and the collapse of the economy. Speaking as someone who is unemployed, and looking for a job, this worries me. As the wise International Analyst said of Canada, “When the U.S. sneezes, Canada gets a cold”, so any kind of economic turbulence in the U.S. does not bode well for Canada, in the services area at least. I believe Canada’s economy may weather this storm better, simply due to our heavily resource laden economy, but again, only a guess on my part.

Bush’s Own Words

The scary thing is, President Bush seems to inadvertently hit the nail on the head with the following statement:

“… It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America’s financial system is back on track…”

American consumers need credit to meet their daily needs? If that is the case, the U.S. economy is in dire trouble. Americans are living on credit and now the whole system is collapsing under the weight of this credit load? Not sure that is completely accurate, but given the President mentioned this, it’s an interesting point to consider.

Fraudulent Securities?

President Bush also mentioned:

“… Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk…”

So you are implying that there was a fraud on investors, or you are saying there are some very stupid investors out there. I think both of those statements have a ring of truth to them as well.

Blame Canada?

No, but it’s a funny headline. Will this affect (effect?) Canada? Yes, but how much remains to be seen. There is now panic statements about how the Canadian housing industry “bubble may burst”.  Given I am living in a house, that I bought a while ago, I am not that worried about this, but for new home buyers this could be a big issue. Being saddled with an enormous mortgage, with possibly much higher interest rates (to deal with that 3.5% Inflation I mentioned yesterday), could slow spending from these folks, causing yet another interesting economic ripple in the pool.

Now is the Time To Panic?

I would suggest going out and buying some Eagles or maybe some Jackson Browne, slam it into your Impala’s 8-track tape player and drive ’til the music stops. Sorry, I waxed poetic, no it is not time to panic, but it is time to watch and see what might actually be going on here. I suspect we are living in very interesting times, to quote a Chinese proverb.

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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.

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Random Thoughts

Friday has come again, and it has been an interesting week:

    • BCE stock price continues to lower slightly and is around $35 right now, even though the sale to the teacher’s union (et al) has effectively been ok’ed. The rumors now are that the union may not be solvent enough to pull off this kind of a deal, and it may all go down the porcelain deal disposal.
    • Banks and financial stock seem to be recovering for now, TD Canada Trust recovering from a near $60 price per share last Friday and now is up to around $64 per share. Does this mean banks are safe to invest in? I always thought so, but that is just my opinion too.
    • I complained about the Hidden Prices of Education again. Am I expecting changes? Not really, but it feels better to complain.
    • Our friends in the Pay Day Loans business are under even closer scrutiny from the Ontario government, with new regulations being proposed capping their fee structures and forcing them to show their customers where the fees are being charged. Way to go Dalton, guess even an ugly dog has the sun shine on his butt every day or two.

Enjoy your weekend, hopefully the snow is melting where you are (but not too fast).

Construction This Weekend

I will be doing a little work on the site this weekend, so if I disappear for a short period of time, don’t give up hope, I shall return with my odd view on Finances.

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April Fools Jokes and Nice Police Folk

Yesterday most of the financial blogs took time out and had an April Fool’s post of some kind, a few caught me off guard, but then I realized what day it was, and laughed along with the authors. I don’t typically post April Fools stuff too much, because I am so gullible and might read my own posts and then believe them.

Be Nice to the Police Person (off topic kind of)

Sunday night I got yet another example of speaking to someone in a contrite and apologetic way when you know you were in the wrong, can sometimes help you out. I was returning from a basketball tournament very late and was in a big rush to get home.

Between Highway 407 and 401 in Toronto is a bit of a goat path (called Brock Road), which has a very low speed limit.  I came over a rise and barreling down a hill at what must have been 100 km/hr and the posted speed limit was 60 KM, and the policeman had me dead to rights. He ignited his lights and I pulled over kicking myself for being in such a rush to get home, but was very polite, contrite and apologetic to the officer. He seemed very reasonable and polite as well, but when he went back to his patrol car and was there for what felt like 15 minutes, I thought I might be getting nailed with the new Ontario “Street Racing” law (because 40 KM over is a HUGE fine, street racing is 50 KM over the speed limit).

He returned he said that the penalty for 32 KM over the speed limit was 4 demerit points and an over $200 fine (I think my jaw dropped open as he said that, because that most likely would mean a large insurance premium bump as well), BUT, that since this was a first offense (effectively), he was going to let me off with a fine for going 15 KM over the speed limit ($60 and no demerit points).

I was very thankful to the policeman for his leniency. I found out later another friend had the exact same thing happen the previous day on Highway 7, so being polite is always a good thing!

Advice for the day: Always talk nicely to the policeman or woman.

Pay Day Loan Fees Capped

In Ontario the provincial government did something of value, by capping the “fees” the payday loans companies have been subjecting their clients to. Along with the cap the legislation will also:

If the legislation passes all payday lenders must also:

  • Be licensed by the province
  • Provide customers with a total that includes all charges the consumer is required to pay when borrowing
  • Contribute annually to a fund to pay for public education about payday lending.

I applaud the Provincial government for this action against these modern day loan sharks. As my regular readers know, I loath these institutions, and their trickery to steal as much money as possible from the people who can least afford it.

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New Pay Day Loan Rules In Place in Ontario

Glad to see that the Ontario Government has finally taken aim at the modern day version of Loan Sharks and Usury, the “Pay Day Loan” companies that are doing unspeakable financial damage to the working poor.

Specifically the Ontario Government has said:

As of August 1, 2007, Ontario regulations come into force that will
require payday lenders to:

  • Prominently display posters that disclose the cost of borrowing for payday loans
  • Use a standard form and content credit agreement disclosing the details of a borrower’s payday loan and
  • Provide funds to the borrower immediately upon signing their credit agreement.

These measures will improve the consumer’s ability to compare rates prior
to borrowing, fully understand the terms of their loan, and ensure that all
charges are included in the disclosed cost of borrowing.

Good for the Ontario government for doing this, but I think the fact that these companies are allowed to charge what they charge is despicable at best. The Government is also looking for more feedback on what other measures they might need to do, to regulate this industry, maybe licensing these firms would be a good idea (you license banks don’t you)?

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