Monthly Archives: May 2009

In an article called Idea of Consumer Financial Products Watchdog Gaining Traction, head of the Congressional Oversight Panel for the TARP, Elizabeth Warren,

“has been a vocal advocate for the need for a financial product safety commission,”

which in the past few weeks has been getting consideration by the Obama Administration.  Consumers have been over spending money, which has caused a lot of debts in the USA, which is why

“a measure like this, properly done, would represent real progress.”

So the Obama Administration, right now is all about protecting the consumers who are using financial products such as mortgages, credit cards. etc.  If this new project comes about and its approved, it will

“centralize enforcement of existing laws and create a vehicle for imposing tougher rules.”

Some people argue that if you impose these tougher rules that not many consumers will be able to benefit from these financial products.  Others say that it might trigger the Security and Exchange Commission to looser power, and personell and funding.  This means that even more people are going to laid off their jobs.

Warren’s proposal was didnt have much attention in Washington, but now Obamas Administration has shifted because of the financial crisis.

I think that if this project is passed, a lot of consumers will be denied these products because most likely they do not have the credit to take advantage of credit cards, mortgages etc.  I think if they enforce the rules they are also protecting the consumer, that way they wont go into debt, and they can actually pay off their bills and not owe money.  Maybe this program will defenitely help out the financial crisis that way.

By: Armenis Perez

In the past decade, there has been a financialization of poker. The popularity of poker has skyrocketed because of some factors:

1) The introduction of online gambling

2) Television and Film

3) Books and Magazines

But regardless of what the reason is, they all tend to advertise the life of a professional poker player. When you go on to an online poker website, such as Pokerstars.net, the motto of the site is “play like the pros.” When you watch the World Series of Poker on ESPN, they focus on the pros and their earnings. And when you read ‘How to’ books, it also talks about how the professionals play poker.

Because of these many reasons, people now want to pursue a career in poker. In recent years, people have been viewing poker no longer as a game but as a career in investment. An article from Marketstockwatch.com, discusses how poker and stock market investing is similar.

“Many factors run parallel with the game of poker and the game of stock market investing. Luck may play a part but rules, odds and money management are the largest components of the two entities.”

Whether in poker or stocks, players/investors must consider the odds of his/her stock making a gain or making a loss. In poker, if you’re dealt a hand and you know your probably not going to win, there is no need for you to throw in any more money. Same goes for stocks. If you make an initial investment, but you happened to be wrong, there is no need for you to keep your stocks. Thinking as an investor or business man, you’re better off with a small loss and waiting for another opportunity, rather than losing everything.

The article even states: “investing in the stock market and playing poker relates directly to cutting losses short (capital preservation and money management) and my odds of winning the game (in the stock market this could be called expectancy).”

This is why so many people are now viewing poker as a career in investment. They know that, just like in poker, with the proper money management and calculated expectancy, they should be able to get in situations where the odds are in his/her favor.

During late 60s and early 70s, the world economy consisted the relationship between finance and productive capital. This article is about how this relationship has been broken down because of present financial crisis.

Today’s financial crisis seemed to be a result from collapse of the subprime loan and mortgages. However, the crisis gradually got started when world economy began outsourcing. The real engine of the economy is a labour-power. This is a well -known fact that China has developed by taking the lead of cheap labors. Once outsourcing became so popular because of the benefit, global scale of outsourcing got started. On the other hand, many employees who used to get high-wages unavoidably got fired or enforced to quit. Numbers of companies has focused on an increasing of productivity, therefore Chinese mass manufacture took a global market. If those employees had arranged subprime loans during the time of employment, they would be unable to make a regular payment after they get fired. Somehow the global movement of outsourcing related to subprime loan crisis.

What I thought interesting about this article is that they argue the financial crisis got really started since the global economic relied on cheap labor power while so many people argue the cause is the housing crisis. Because obvious phenomena caused of financial crisis was numbers homeless. Like great depression finally ended, the financial crisis has to be ended in near future. “Capital might find a way out of the crisis; it will seek to maintain or increase profitability in the real economy through pressure on wages (although this will perversely have a deflationary effect) the intensification of labour (the increased exploitation of workers). Strategies to increase both relative and absolute surplus value.” 

source: http://sites.google.com/site/radicalperspectivesonthecrisis/finance-crisis/on-the-crisis-of-finance-and-financialisation/the-breakdown-of-a-relationship-reflections-on-the-crisis-by-endnotes

Geithner Plan as Poker Game is an article from the New York TimAfter reading Geithner Plan as Poker Game, I have a clearer understanding of how the plan works.Poker is a form of gambling and so is investing.

Edsall starts off by stating

“Normally, a poker player has to pay full value for every chip, $1 for a $1 chip, $100 for a $100 chip, and so forth. In the Geithner game, the rules are different. A player acquiring $84 worth of “chips” only puts up $6. Of the remaining $78 which S/he owes, the FDIC would provide — in the form of a nonrecourse loan — $72, and the US Treasury would put up $6.”

Although Edsall states that the Geithner game is a little different. It actually isn’t. You can relate this concept to the concept of a poker tournament. For example, in a poker tournament such as the world series of poker, you would buy-in for $10,000.

“The remaining $200 would then be split between our talented player and US Treasury, each getting $100, good news for one and all. There are no limits on the upside: if the player has an extraordinary night and makes $10,000, s/he will get $5,000, all from an original investment of $6.”

In the poker tournament, you can also win enormous amounts of money. For your original buy-in of $10,000, your rewards can vary from $50,000- $5,000,000.

“If, however, our player has a terrible night, and loses the initial stake of $84, the downside is just $6. S/he gets to gamble $84 with the worst possible outcome being the loss of $6 — not a bad deal.”

Playing in a poker tournament has the same outcome. If a player loses a tournament, he only loses the initial $10,000 that he/she put up. But if the player wins, they can make up to $5,000,000. Like Edsall stated, “it’s not a bad deal.”

Basically, the Geithner plan is a trillion dollar project, which the U.S. government takes the role as the world’s largest hedge fund company. Their main intentions are to invest money into funds so that they can buy up the bad and toxic assets and hold on to them until the market recovers.

But the problem is that what if the economy and the market never recovers? Then the assets are not fundamentally undervalued and so if they hold on to it, how will the government make back its money?

This post is about an article i was reading, Job-Based Health Insurance: Sick and Getting Sicker, from Dollars & Sense.  The article discusses the recent trends of job-based health insurance and the horrible effects.

In the past having a stable job meant that medical bills was something you never had to think about.  Most companies took a small percentage of their employee’s paycheck to cover the small premium.  Nowadays large portions of your paycheck will never be seen as it is shuffled away to cover huge premium cost.

A report from the Kaiser Family Foundation shows that employee contributions for health premiums increased a remarkable 50% between 2000 to 2003

And that is only if you are lucky.  Increasingly employees do not even have job-based health insurance.  This is because of a change in the labor market.

Workers today are less likely to be in a union and more likely to work part time. In addition, more people work in the service sector, where employers often provide less generous health benefits than in manufacturing.

These workers are then force to seek out health insurance as an individual, a very expense task.  And the price is rising.  Health care cost have been inflating because of the new cost that come along with technological innovations.  These rising cost have also caused more companies to pull their job-based insurance programs entirely.  They, like many of the individuals seeking insurance, simply cannot afford it.

80% of the nation’s 44 million uninsured are in working families.

The figure is a little suprising, but with the increasing drop of employee programs with the increasing premiums and medical cost it unfortunately makes sense.  Less than half of all employed workers now get job-based insurance.

And you thought it was only Wal-Mart, who creating shifts that just barely miss the full-time requirements, that cut corners to avoid having to provide insurance.  Other companies are just as bad, but they use a different, more secretive approach.

Along with raising premiums, co-pays have also gotten more expensive.  The companies raise the co-pay because that means that it is more expensive to go to the doctor, which will lead to less people going, translating into less services for the company to pay.

The higher the front-end costs to workers, the fewer total services used, and the lower the amount companies pay out for insurance. In effect, employers are using point-of-service fees to control overall costs.

It is sick to think that a company would knowingly make their employee, someone who you might have thought they would want to be healthy so that they could perform better, choose between a doctor visit and paying the rent.

This is hinting to a larger problem within the American health care system.  Although it may seem like we are lucky to live in a country where the government does not ration our access to medical care like in other countries with  government-provided care.  We in fact are having are care rationed, but not on the basis of fairness, but rather

Americans’ access to medical care is rationed by their ability to pay.

This in a sense crystallizes the problems with financializing everything.  Things that should not necessarily be profit driven, like basic health coverage, become that way. The scariest aspect of a profit driven medical care is what medical care is destant to become.

Most people in the United States don’t think of medical care as a consumer good, but as a necessity to which everybody should have equal access. As prices rise and coverage shrinks, it might become something else altogether—a luxury item.

The financialization of war has passed under the radar of many. It is easy to see how the economy and everything or everyone dealing with money and investments have become financialized but the problem with the topic of war is that people hardly look at it from the perspective that war itself is an investment in many different ways. It is used as a risk investment with the hopes that something more can come out of it rather than just fighting for peace or humane purposes or whatever other justifying reasons that people give to go to war.

One very common belief to many people is that Bush went to war with Iraq for oil. Oil in the 21st century is considered to be black gold since there is a wide belief that the world will soon run out of it.

Randy Martin, author of “An empire of indifference,” examines the theories of other researchers and shows various links to how the world, people and wars have become sucked into the system off financialization. He examines ideals suck as race, indifference and power to explain why exactly war is becoming financialized.

According to Martin, Bush went into the war with Iraq for far more than an investment on oil. He went to war to win the hearts of the people; something that Martin points out to be “winning over domestic power.”

Since the war on Iraq seemed to be a largely preemptive war, Martin believes that “preemptive war is a domestic strategy, rooted not only in calculations of American global power, but in calculations geared to storing up the Bush’s regime’s domestic power and it’s ability to pursue it’s domestic agenda.”

Since the “War on terror” started, Bush has had the support of many politicians to pass laws like the patriot act which empowered the federal government in many ways to get into people’s private lives. I also believe that if this war was won easily, the support for Bush would have been off the charts, but, just like any other risky investment, it acted like a backlash and Bush was looked down upon by many.

As I examined the financialization of war, there were more relations to politics than I thought. But why would anyone discuss war without discussing politics? They are actually so closely related that we can look at them as one thing.

Like an investment, Americans widely believed that “it was worth it going to war.” On April 9th, 2003, 76% of Americans had that belief. One month later, that number fell to 44%.

“The idea that war is won before it is joined undermines the steady state of support needed to continue to endorse a war without end”

In the beginning, Bush had all the support he needed, but everything changed when the war went on and wasn’t won as everyone anticipated.

If we look at war as a risky investment and our country as fictitious capital, we can invest our country in a war and hope to win. Winning a war in more historical terms often meant taking over that place financially and using them much like bigger countries used their colonies for a financial return on their investment.

This is still a work in progress, but I will be back!!! Comment please!!

According to financial experts Nouriel Roubini and Kenneth Rogoff in an interview with CSNBC explained that we will not be getting out of the recession anytime soon.

“People talk about a bottom of the recession in June, but I see it more like six to nine months from now,” Roubini said. “The green shoots everyone talks about are more like yellow weeds to me.”

The recent resurgence of the stock market is just a reaction to the larger than life stimulus package the government has put into place.

“I think there will be a bounce in the second half of the year from the massive stimulus package,” Rogoff said. “But I think the longer run trend is very slow, so we’re vulnerable to dipping down again sometime in the next couple of years, like Japan.”

These men believe that inevitably our country will need to truly hit rock bottom to rise to greatness again.  The path that we are taking will most likely prolong the recession to to the constant dips in the market.  I believe that it is a very good thing that the second quarter can be a positive quarter for the market but we must keep it in the green.

“Roubini said that the financial crisis was more than a crisis of confidence. “It was a crisis of excessive leverage of housing and the corporate sector,” said Roubini. “We’re not reducing the leverage, we’re pushing the losses from the private sector on the government and increasing public debt. That’s going to be a drag for growth.”

To continue to grow our country needs guidence and leadership when it comes to spending the governments money.  As an American citizen I can say that I feel comfortable that our country under the leadership of President Barrack Obama will prevail and succeed.

http://www.nakedcapitalism.com/search?updated-max=2009-05-16T10%3A48%3A00-04%3A00&max-results=5

Ga Young (Gina) Jeon

Blog post topic: Credit Card Delinquencies Reach Record Level

Author: Yves Smith

                We have stretched our limits. We are finally experiencing the “feared crash” that the finance sector hoped and prayed wouldn’t come.

Hello Reality.

                Smith constructs an analysis from the Financial Times composed on Thursday, February 5, 2009. The outcome has simply been what we had feared, yet foreseen years ago. The whole economy deteriorates as the economy slows down and unemployment increases significantly.  We are now seeing visible proof:

                1. Payments at least 60 days late rose almost half a percentage point last month to a record of 3.75 per cent

                2. Credit card lenders increased “charge off” rates in January by 40 percent than a year ago… and were expected to increase more in the second half of 2009.

                3. Late payments and defaults on credit cards have been closely linked with levels of unemployment, which have risen dramatically.

               4. Rising late payments and defaults on credit card loans would hurt the performance of securities backed by credit card receivables, Fitch said, but downgrades would be limited in the near-term because of lower funding costs.

                5. Securities backed by credit card receivables have rallied in recent weeks because of such lower cost funds

The economic deterioration continues to manifest.

I have constructed an easier model to enhance your understanding of this complex situation.

Let’s take manufacturing for instance:

Manufacturing

Revenue                                                                         ($10)

– (minus amount of $ to produce                               ($2)

Gross Income                                                                 ($8)

= pretax income

Net income

The Bank

(Functions in a similar way)

One of the main sources of revenue for a bank is interest.

Smith says that credit card lending has historically accounted for between 15 and 25 percent of pretax income at JPMorgan, Bank of America and Citigroup, according to Moody’s Analysts expect these businesses to shrink as lenders tighten credit standards and cut credit lines.

So, out of 100% revenue, 15 and 25 percent were from credit card interest; while 75 to 85 percent of the revenue came from loans, mortgages, and much more.

In money terms,

BEFORE:

If there was $100 revenue, credit cards made up an average of $20.

NOW:

If there is $100 as revenue, credit cards only make less than $10 or $15.

OUTCOME:

Not only are credit markets failing, the housing market, and everything else is crumbling as well.

My analysis is that the banks are now experiencing the exhaustion of the market. The credit industry in particular has created this fictitious capital that ultimately caused the bubble to burst. Now, banks, credit companies, housing markets, the government, investors, and many others are trying to clean up the spilled beans. The documents presented in the beginning passage above clearly shows the outcome of the destructive competitive market field. So many people are unemployed, without homes, facing foreclosures, and most importantly, in SO MUCH DEBT! Our complacency has driven us directly into the shackles and chains of the large financial storm that is preparing to swallow all of us as a whole!

Ga Young (Gina) Jeon

Blog post Topic: Quelle Surprise! Credit Card Companies Opposed to Proposed Regulation

Author: Yves Smith

                To whom does the power belong? The tables have turned as the push for power has shifted.

                A continuous imbalance in the financial sector has brought upon greater burden on the financial life cycle as a whole. As a matter of a fact, its creditability was clearly on the risk of becoming endangered. Foreseeing the detriments of their choices the credit card companies continued to savagely eat away at everything that they were able to lay their hands on. It was a war where every weapon of destruction was used to destroy its enemy; in our case, hidden charges, bumped interest rates, “gotcha” fees, and much more. This destructive pattern continued to wrap its complacent citizens under their web. It continued on and on… eventually showing some of the financial sector’s major weaknesses. It was time for the government to intervene. “Gee, I wonder what took them so long.”  In every effort to construct a method in which they could save the financial sector, the government began “imposing stringent controls” ( so they say…..).  I’ve come to reach the conclusion that ultimately, money is power.. and those who have it have full leverage to control. That being said, changes and implements made by the government that seemingly targeted the credit issuers actually targeted low and middle class consumers.  But it became a different situation this time, because those who have once held hands realized that the downfall was soon to come. Smith mentions the MBNA bankruptcy law that was imposed on 2005, which actually drained another $100.00 out of the people who filed for bankruptcy, making another profit of $85 million per year.  He said that this time, maybe the credit card companies will be at their knees giving back the money collected during this time frame. This way, the government is hoping for a more strict regulatory policy on credit lenders from lending carelessly to those who cannot afford it.

                In addition, the frequent flyer offers that the credit card companies have promised are very close to dying due to the imbalance of oil prices. (Many customers who were in for this treat will no longer stay.)

                Smith quotes the New York Times (June, 2008) that now card holders are beginning to recognize their inability to pay back such large amounts of money that have accumulated over time from fees and high interest rates that the financial industry received a smack in the face. Now, they foresee many more regulatory changes on which they had never enforced before.

                Before, credit card companies and banks literally pulled interest rates and fees out of their butts. However, this is the reason that our economy has plunged. Many have been pushing for government regulations in which the government would spell the specific regulatory standards for all the banks. Smith mentions that the two regulatory branches: the Office of Thrift Supervision and National Credit Union Administration (Federal Reserve) to formalize the legislation and bring these measures to the table.

                The few solutions have been at hand; (and Smith quotes):

                                1. The “double-cycle” billing, in which interest is charged on some already repaid debt, and all would extend the time required.

                                2. Lenders may only increase interest rates if payments are more than 30 days late.

                                3. Protecting younger consumers by not offering loans to them, unless they are fully capable of paying it off.

                The problem is recognized, but the credit companies refuse to comply.  In the following, I will discuss a few of the credit card company’s argument against legislation, and express my reasoning to why they are flawed: (the following content will be directly quoted followed by my personal opinion.)

                1.  Capital One Financial Corporation testified in House hearings in March that “it would be unwise-especially at this time- to enact broad legislation that sets payment formulas in statute, redefines critical product features and limits the tools of risk management for consumer credit.”

                My analysis:

                Long-term solution is not generally sought after, but regulation is needed in order to stabilize the financial sector as a whole. Because we need consumers to be stable just as much as any credit card company, it is necessary to promote safe market conditions; not risky ones. Surely, the term “risk free” does not exist in our market today; however, the term and conditions of “low risk” must come into play, even if it means short-term losses on the bank’s behalf. Thus, I feel that is the best, if not the wisest of all times to enact laws that would promote stability.

                2.  Ken Clayton, senior vice president for card policy at the American Bankers Association, in Washington, contended in an interview that “regulation can have unintended consequences, including reductions of popular low introductory-rate balance transfer offers and higher prices for prime borrowers.” Fewer balance transfer offers could stifle job creation by entrepreneurs who use credit cards to borrow at the lowest possible cost.

                My analysis:

                In response to this, firstly, we would not be feeding off of fictitious capital as we are now; and secondly, regulation will only bring about “unintended consequences” if the federal government leaves margins for the banks to make unstable market decisions of their own. Nevertheless, credit card companies will be making money; and in enacting these regulations, we will see an overall change in the stability of the market.

( A Different Perspective)

                On the contrary, a professor at the University of Maryland and a bankruptcy expert, called lenders’ warnings about unintended consequences “severely overblown.” Nothing in the proposed legislation would prevent the card industry from continuing to be profitable, Professor Ausubel said: “One can even tell stories where it enables more consumers to emerge from one financial trouble without declaring bankruptcy, so collections might go up and profits improve,” he said.

BUT. . . Those Stinky Selfish credit card companies are SNEAKY SNEAKY!!

                Adam J. Levitin, an associate professor of law and credit specialist at Georgetown University, said the proposed rules don’t go far enough. He continues by saying that credit card companies will find a way out of it. Here’s the funny metaphor he uses: he says it becomes a game of Whack-A-Mole, where they put the kibosh on one, the industry finds another way out.

Mr. Levitin continues by saying that they impose certain regulations upon them, and then let them compete their hearts out. The flaw is here. Where they don’t propose enough legislation upon the banks and credit companies… and they DO NOT intend to do so any time soon.

Ga Young (Gina) Jeon

Blog Post: 2005 Bankruptcy Law Changes Have Worked to Detriment of Credit Card Companies

Author: Yves Smith

            The ongoing battle was coming to reach its stretch point. Smith addresses some of the many reasons for the credit industry and its suffering debtors.

Seemingly, the monstrous banks and its partner, politics have learned to function in any way possible to keep themselves alive, while the rest of the citizens suffered helplessly at the cost of their luxuries. The law passed in October, 2005 proves my hypothesis to be true. After months of effective lobbying, the result of this law became largely favorable to the credit card issuers.

“MBNA estimated that passage of the bill would enable it to collect an additional $100 per month per bankrupt, which would increase its profits $85 million a year (Smith, 1).”

Smith expresses that the credit card companies took these “newly enhanced rights (1)” to lend more money (fictitious capital) to the ones who were bound for bankruptcy as a means to extract every last penny out of them, and to increase their own profits.

This was the very seagway into the credit card’s deterioration process; and most certainly, the credit crisis we see today. Smith states the following reasons:

1. Credit cards lenders expanded their business with hope to somehow make fictitious capital become real in their favor, despite the foreseen crisis.

2. Irresponsible borrowers continued to engage in conspicuous consumption in hope of fulfilling the American Dream, which ultimately shackled them into invisible enslavement to the banks and work.

3. Credit Card companies “milked every dollar out of their preferred customers,” ( the ones who carried some balance, and make some payments) while raising their fees and interest rates.

4. Some banks, like Amex, use methods to clear out their risky customers; ofcourse, in favor of their status and safety.

Smith constructs a conclusion that the crisis was foreseeable. Smith says that:

“Credit card companies have purposely dumped layers of fees and excessive interest rates on their borrowers. Instead of addressing the consequences of high, complex, poorly understood credit card costs, though, the high default rates were simply explained away by declaring defaulting borrowers as deadbeats. Now that there won’t be another round of bankruptcy reform that could be sold as salvation, credit card lenders will have to come to terms with the fact that their practices were actually detrimental to their own financial health (Smith, 3).”

My analysis:

Metaphorically, we can think of it as the environmental deterioration we are experiencing today. We’ve abused and exhausted so much of nature’s ecosystem that we are now experiencing its downfall. Similarly, in attempt to win in this market field, credit card companies have exhausted the consumer’s wallet, and literally pushed them to their limits. Now, the whole market is trapped as a consequence of everyone’s mistakes.