Let's Become a Bank So That We, Too, Can Participate in the Bailout!

Recently I talked here on my blog about credit limits being reduced, first with HELOC's, then credit cards. Well it appears that the media, a little late to the party, are now beginning to report on this.

Some media reports are now saying that there are a couple of criteria that some banks are using. For example, if you live in an area hit hard by real estate value drops, chances are your limits are going to be reduced. You could always have paid all your bills on time, have had the accounts for years and you can still find you credit lines reduced. It also appears that if you’re in a category where others are defaulting you will be affected, regardless of your personal history and payment record...so if the percentage of females age 20 - 29 defaulting on credit cards is going up, if you’re a female age 20 - 29 your credit card limits will be cut.

And think about this. If someone had a credit card with a $15K line with WaMu and also one with a $15K line with Chase the risk would have been distributed. Now that the banks are one and the same I would think the exposure of $30K would make Chase more aggressive about either closing one or at least reducing the credit lines wherever possible; after all, Chase would have qualified the card holder for a $15K line, not a $30K line.

In my personal experience some are just looking at the total credit line and comparing it to the outstanding balance and cutting the credit limit back to that. It's obviously what they did when they cut one of my credit card lines by only $1,240! American Express is really coming down hard with this; they reduced my credit line, and the lines of several people I know.

BTW, maybe American Express' strong-arm approach is because today they just got the OK to be a bank? Different guidelines to meet? http://www.bloomberg.com

From the news story: "New York-based American Express said last month that credit-card holders failed to repay loans in the third quarter at almost twice the rate of a year earlier." And it seems that by becoming a bank "American Express, the largest U.S. credit-card company by purchases, joins securities firms Goldman Sachs Group Inc. and Morgan Stanley in gaining "increased liquidity support'' as part of a $700 billion bailout of the banking system. American Express said its conversion won't require "significant divestitures.''

So...now we just have to figure out how to become a bank so WE can participate in the $700 billion bailout!

More on Banks in the Bailout Paying Big Bonuses

I wrote a few days ago about this being on CNN and wondered why it wasn't getting more play (see October 25, 2008 post)...well finally someone in the UK is writing about it.

Here is a snippet...read the full article at: http://www.guardian.co.uk/business/2008/nov/01/royal-bank-scotland-vincent-cable

"Several US politicians have seized on an investigation by the Guardian last month which showed six Wall Street banks - Goldman Sachs, Citigroup, Morgan Stanley, JP Morgan, Merrill Lynch and Lehman Brothers - had set aside $70bn ... in pay and bonuses for the first nine months of the year. (emphasis is mine)

Five are in line to benefit from a $700bn US taxpayer bail-out. The sixth, Lehman Brothers, has collapsed - though not without securing considerable bonus payouts for staff in the US.

Henry Waxman, chairman of the House oversight committee, wrote to chief executives of America's nine largest banks this week asking them to hand over information about their pay and bonus plans.

In his letter Waxman cites the Guardian report and says: "Some experts have suggested that a significant percentage of [bankers' pay] could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds."

Staff costs at RBS's investment banking division include salaries already paid in the first six months of the year, national insurance and profit-sharing contributions as well as funds earmarked for end-of-year bonuses. The sum set aside is 20% lower than the equivalent figure for the first six months of 2007.

Banking sources privately acknowledge that the sight of these bonus accruals may provoke anger. They concede the industry's pay and bonus regime is under unprecedented strain as it fails to reflect profitability, asset writedowns or share price declines." (Emphasis is mine!)

UH, YEAH! $70 BILLION in pay and bonuses to the people that caused this financial melt-down?

What Are the Banks Doing With the Bailout Money?

I'm at the Phoenix airport waiting for my flight home after my seminar and thought I'd comment on some things I've seen about what the banks are doing with the money they got from the $700 Billion Bailout.

I had CNN on in my room the other night and a banner went by indicating how much in bonuses was going to be paid by several of the banks. Huh? Bonuses for messing up? And these were BIG numbers. I searched the internet and couldn't find any more information, even at CNN.

Then last night they were talking about how one of the banks used some of the money to buy another bank (probably one in trouble, right?). The question in my mind is why there were not more caveats attached to the use of the bailout money. I understand that we don't want the government running private banks, but come on, giving banks huge amounts of taxpayer's money and not putting restrictions on what they can use it for (I understand they did limit "golden parachutes," but I'm not sure to what extent) doesn't make sense to me. This was supposed to be for our benefit in some way, wasn't it? If they use the money in ways that don't directly benefit us who's to say the same people who mucked things up won't make poor decisions with this money?

Let me be the first to say I'm not well-read on the provisions in the Bailout Bill, and if someone is able to comment from a more well-read position, please do.

What's Wrong With This? WaMu New CEO Gets $20 Million for 17 Days Work

I can't find words to comment on this I am so blown away. Read for yourself:

WaMu Gives New CEO Mega Payout as Bank Fails

Friday, September 26, 2008

Nice work — if you can get fired from it.

That's just what one Alan H. Fishman might have thought when he woke up Friday morning.

Fishman was the new chief executive officer for Washingon Mutual — WaMu — the nation's largest savings and loan, which was taken over Thursday night by federal bank regulators and quickly dumped in a fire sale to JPMorgan Chase for the Wal-Mart-like price of $1.9 billion.

But don't cry for Fishman, who reportedly was sky-high — literally — last night, on a flight from New York to Seattle, when WaMu collapsed. Even though he's only been on the job for less than three weeks, he's bailing out with parachute worth close to $20 million, according to an executive compensation analysis conducted for the New York Times by James F. Reda Associates.

That's right, $20 million for 17 days on the job ... and his company failed.

Fishman, who formerly was chairman of Meridian Capital Group, apparently was much coveted by WaMu, which was counting on him to lead the failing thrift out of mortgage troubles that pushed the bank to a $3.3 billion second-quarter loss.

According to filings with the Securities and Exchange Commission, WaMu threw a $7.5 million bonus at Fishman when it hired him on Sept. 8, and guaranteed him an immediate cash severence of $11.6 million — both of which he gets to keep.

He also was eligible for annual bonuses of up to 365 percent of his annual base pay — set at $1 million — to go with millions of shares of company stock.

Fishman does lose out on a big bonus that would have kicked in had he remained on the job through 2009.

Documents show WaMu was going to pay their new boss $8 million to simply not screw up and get fired — all negotiated as the Seattle-based banking giant's loses climbed to an estimated $20 billion.