Chapter 7 Featured Submissions

The Dow has just rallied to within striking distance of 11,000 (a level it crashed through a year ago and only momentarily surmounted in April of this year). Corporations are posting record increases in profits (after plummeting for the past 2 years) and the rate of unemployment appears arrested. A slew of new rules and regulatory platforms have been executed promising to protect the greater public against loose and unchecked profiteering at the expense of economic integrity.

Though it may be a nervous smile, at least there has been reason to do so. But, is the crisis over? And, what exactly is the crisis?

If this week’s jobless report of an addition of 95,000 claimants is any indication, then I would say that the crisis is hardly past us (despite the DOW surmounting 11,000). Although, one can’t pin the blame for this crisis on the banking & financial domain entirely, it did lead the way to the precipice and ignite the conflagration.

The crisis, so to speak, is really in two respects: at one level it deals with really just the recession. It’s synonymous with unemployment and the general gloom in the economy and its perception will lift once the elusive robust economic activity resumes. The other respect is that of a broader and deeper nature. There is a crises of repetition.

There is an unshakable frustration that these scandals keep repeating and keep getting bigger. A plethora of reactionary-legislation has been written now and in the past, yet it has never been able to prevent the next disaster. Remember the Junk Bond scandal, the Asian Crises, Savings & Loans, the Internet Bubble, the Enron & WorldComm bankruptcies, the Sarbanes-Oxley Act and countless other legislation. If history is any indicator, the current Banking Reform Act is another piece of after-the-fact fixes that yield little and the industry will work some way around the laws.

In fact, the increased cost of regulation will likely prompt a wave of mergers and acquisitions that will create bigger banks and financial companies with bigger problems (along with too big to fail).

The University of Massachusetts’ PERI Institute has made the following statement after researching the current financial reform…

“While there are positive moves there are some serious omissions as well. First, there is little to no discussion on the reform of off-balance-sheet activities… Indeed, given the importance of the shadow banking system in terms of credit intermediation, fostering procyclicality of the system, and given the high degree of concentration in the market, it is likely that the shadow system will be the fault line for any future bank run. In this event, what will be the appropriate response? Will money market funds be allowed to break the buck? Will the Fed and Treasury once again be called to backstop the system, and at what terms? At the moment, reform legislation is avoiding the question entirely, or leaving it implicitly up to the discretion of the FSOC or other bodies with little or no examination of the pros and cons of alternative arrangements.”

In conclusion, the paper says,

“The Senate Bill is a step forward in financial reform. It is nevertheless seriously lacking in several areas”.

This should not come as a surprise. The crux of the matter is that we are dealing with symptoms of a greater problem while the problem remains unaddressed. We keep promulgating new laws while not resurrecting principles. This should be fundamental and pivotal to every American citizen. I believe one gaping hole is that there is not a robust citizens platform to influence financial reform.

And there remains too deep a complexity/comprehension gap between the layman and the expert with respect to how the a system that is meant to serve the layman works. Here are a couple of principles that should be core to reform:

> The Fed should not be owned by banks. It should remain independent of the government but should have a wide governing body including academics and what we can term as ‘ordinary’ citizens.

> Resurrect the Glass-Steagall Act which separates the Banking, Investments, and Insurance industries thereby avoiding over-complications and retaining a competitive landscape.

> Activities like off-balance sheet accounting should not be permitted at all.

These, among many more. So, the crises, so to speak, remains – past the recession.

Amer Chaudri
Author of “Diatribe: A Scathing Journey Into The Heart Of The Financial and Banking Corporate Culture (And Related Digressions)”
www.diatribe-book.com

I recently received a 4 page letter from the Office of the President for a large banking institution defending a statement I made to them regarding the fact that the systems IN PLACE by this bank are literally designed to steal from the very ones who do not have any money. I was referring to the fees and nsf fees and quick foreclosure responses on particular loan types.

It’s funny. I never realized this phenomenon even existed until I personally fell on hard times myself. I am an 18 year mortgage veteran. I am an absolute nerd about the mortgage market.I love what I do for a living. Up until recently, the mortgage business had been good to me. I always made good money and financing homes was a noble profession. I made it my mission to become an industry expert, and for the most part, I have achieved this goal.

Because of this, I now find myself facing a dilemma. I now know as a result of my research and consultative services offered to consumers, that the very banks in which I represent are corrupt. I have personally seen (and unfortunately practiced) the abusive practices first hand.

I do not want to participate in these abusive practices, yet, in order to conduct my job, I must.

Allow me to explain what I am referencing. I currently work for a correspondent lender. A correspondent lender typically does not have servicing rights but does have the banks permission to lend money on behalf of the bank. We do not have the stringent corporate guidelines to adhere to which does allow for more flexibility and honesty; however, we are still loaning money on behalf of the large banking institutions. The large banking institutions are “calling the shots” and therefore we must comply. The appraisal rules, income rules, credit score policies, etc. are dictated by the banks. And they are abusive.

The very banks that said YES YES YES to every loan are now saying NO NO NO. NO – we won’t participate in this foreclose prevention option. NO. We will not bring the loan balance down. NO we will not agree to the short sale
negotiation and NO we will not allow you to finance this home.

There was a time when I never stopped to question the bank. After all, I made money from them and invested my money back into them. It took me, finding myself in a place of financial turmoil, to realize why it is so
important to be an advocate for the consumer.

My advocacy now comes in the form of training. I train real estate professionals on how to represent the consumer and I train the consumer on how to find and advocate (as well as the important of advocacy). I am working on a software technology to enable these professionals to find support for the consumer….the technology piece is a big need in today’s market.

In addition, I am writing an e-book entitled, “How To Manage Money When You Do Not Have Any”. The basis of the book is to teach consumers how to get ahead financially despite the tricks of the large banking institutions.

Thank you Jerry for taking a stand -

-G.L., Buford, GA

“As someone intimately familiar with debt and collectors, I have now become much more bold in that I have called my credit card companies, medical offices, etc., and basically said, ‘I want to pay my bills, but I can’t do it under your terms…here’s what I can do…’ and then tried my hardest to negotiate.

I was surprised when American Express accepted my terms (given that they are the ones that require you to pay the full amount and don’t always give you the option of flexible payments).

Of course, they froze my account so I couldn’t use the card until I paid it off, but that’s a small sacrifice to losing out on my credit score because of late payments or no payments at all.

My son’s medical provider also, once I asked about making payments, informed me that they had payment plans [available].

I think in today’s situation that so many of us face – loss of jobs, less projects thus less income (for someone who is a freelancer like me), high credit card rates – we have to be bolder and simply ask for extensions or ways to work out our debt.

It’s worked for me so far and hopefully will continue to work until I hit the jackpot and won’t need to worry about it.”

-D.P., Los Angeles

“A few weeks ago, I was making a deposit and asked the teller to order some more deposit slips for me. When they arrived, I discovered I was charged $9 for them. So, I have to pay the bank to take my money and use it while it is in my checking account without paying me any interest…”

-T.G.

“A little background on the mortgage backed securities market.

I worked for a large broker dealer from 1991 through 2001. They brought out CMO’s (collateralized Mortgage Obligations – i.e. mortgage backed securities) in the mid-nineties as a consumer product.

We were instructed to sell them to our clients as a “CD alternative.” During the early part of this marketing promotion, interest rates were dropping and people were refinancing all the time. The problem our clients faced then was that they were getting principal back in pieces too small to reinvest effectively.

But, now, looking back, the fact that we were told CMO’s were as safe or safer than CDs because they were guaranteed by GNMA, etc., was a terrible misrepresentation of the product.

And, a lot of retired clients were sold this product because they needed higher returns for their savings. The safety aspect was designed to appeal to them.

There were three or four of us at our branch who refused to sell this product after we became familiar with it. We were chastised by our Branch Manager and told to “let the customer make the decision.””

-R.V., Knoxville, TN