Searching for Sanity Wall Street’s business model is broken. The high stakes game of Russian Roulette which Wall Street never seemed to lose, is taking them down one by one. Commercial banks aren’t in much better shape either. In fact, the business model of the entire financial system is broken. And the pain is only going to get worse.
Facing pressure from the Federal Reserve and the SEC, in July the Financial Accounting Standards Board withdrew a newly passed rule requiring banks to book their assets at current market value. Why was this rule rapidly withdrawn? Quite frankly, because it would have made every major bank insolvent.
You see, banks are still highly leveraged, some as high as 30:1. In other words, for every dollar in assets they hold they have borrowed $30. The problem is worse because as the value of the debt decreases, the leverage rises higher. And much of this debt is tied into mortgages so you can imagine how worthless much of has become.
The banks hold billions of dollars in securities that have not been marked to market to reflect their current value. They are still recording the initial inflated value. But the perceived value is so low that there is no demand so these securities don’t even trade. They just sit there with no volume similar to a shady Pink Sheet stock. No one wants them. Who would?
Do you really think Chase would put bids in for mortgage securities offered by Bank of America or Citigroup? These banks know their mortgage paper is worthless, so you can bet there’s no way they’d want to buy the same trash offered by other banks…at any price. So what does all of this mean? The rule change has only bought the financial system some time. In the end, the Fed is going to pump another $1.5 trillion so these banks can recapitalize. This is likely to lead to even more inflation.
The New Wall Street
Now when you open up a simple savings or checking account, you get profiled by some kid. They want all of your financial information – your mortgage, your investments, your IRAs – everything - because they plan to tap into everything. The days of personal financial assistance are coming to an end. Things are rapidly being institutionalized. Good luck finding personalized and valuable investment guidance.
Advice for Consumers
Having worked on Wall Street, I witnessed the greed – greed that lead to fraud, deceit, lies, and extortion. That is why I left. While Wall Street will soon be dead, the problem is that the same people will be working for commercial banks and will play the same games.
If you did not like Bank of America, Chase and other members of the banking cartel before, you’re really going to hate them in the future when you are subjected to the games they inherit from Wall Street. In addition to getting ripped off by undisclosed or hidden fees and other gimmicks, you’ll get screwed in the next stock market bubble.
Americans must release themselves from the claws of banks. For many years, we lived by the sword. Now we are dying by it. While it is impossible to completely detach yourself from banks, my advice moving forward is to minimize your ties with them. I advise the following:
First and foremost, you had better see in print that your accounts are FDIC-insured. I recently experienced a near horror story with Wells Fargo. I don’t have time to get into it right now, just make sure you have something that states in writing that your exact account type(s) are FDIC-insured. And of course, know the FDIC limits at your bank. Most are $100,000 for all accounts you have. Joint and business accounts are treated separately. Finally, money market accounts are usually NOT FDIC-insured. If the bank rep insists yours is, you need to see it in writing. It’s not that you can’t trust bank reps. They’re just so incompetent.
When you buy a home (even your first home) pay at least 50% down and take out a 10 to 15 year fixed-rate mortgage. This applies to the future. I certainly don’t want you to think I am advising you buy now because I’m not. You want to minimize dealing with banks as much as you can. If you don’t have the money to make such a large down payment, save more. You’ll have it once you stop spending so much. If you still don’t have the money, you’re probably better off renting anyway. You won’t have to pay the ridiculous property taxes, homeowner’s insurance and maintenance costs. And you won’t be stuck trying to sell a home in a down market like millions are today.
Only use your credit card for online purchases or other transactions requiring credit cards such as airline ticket or events purchases. More and more online merchants are offering alternative methods of payment.
When you do use credit cards, pay off the balance at the end of the month.
Don’t use debit cards. Your money will quickly disappear due to impulse buying. I have never used a debit card and I don’t plan to ever. If you do use them, do not sign up for these marketing gimmicks like the one from Bank of America that rounds off your purchases to the next dollar and deposits the difference in a savings account. This is a psychological tactic used to get you to spend more money. And when you spend more they make more in merchant fees.
Pay with cash as much as you can. Not only will this release you from finance charges, it will also force you to be more prudent as consumers. Using cash for purchases, you’ll soon find that you have more money. Banks don’t want you to be prudent. If you are they won’t make money. Buy only what you can afford. If you cannot afford it don’t buy it. You probably don’t need it anyway.
Just say no to banks. Tell them to stop the lies, the fraud and the deceit. Tell then you are sick of it. Tell them to find someone else to prey on. Save all the junk mail solicitations for credit cards and other trash and hand deliver it to the nearest bank. Tell them you didn’t ask for it and you don’t want it.
Remember, in my opinion all banks are the anti-Christ. Regardless how you wish to categorize them, in my opinion, they do more harm than good. They get away with massive fraud and exploitation because they buy off Washington just like the energy, insurance, healthcare and other big industries.
Release yourself from the grasp of banks and you will be much better off. It will take some time and discipline, but I can assure you it will well worth it.
Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher.
These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.
Article 19 of the United Nations' Universal Declaration of Human Rights:
Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.