TedCo Software Financial Matters Blog

In addition to the Bauerfinancial site which I’ve mentioned in previous posts, another firm that analyzes banks, thrifts credit unions is Bankrate.com’s Safe & Sound® rating service.

Bankrate.com’s Safe & Sound® system evaluates financial firms using 22 tests to measure the capital adequacy, asset quality, profitability and liquidity (or CAEL) of each firm. You can check your bank and find out if it is safe at http://www.bankrate.com/brm/safesound/ss_home.asp

I first mentioned BauerFinancial, Inc. in this blog on June 6, 2006 in a post titled, “How Healthy Is Your Bank?”

I’ve learned something today about my local community bank and the credit union I use. Both are in worse condition this year than last. Instead of “Good”, they’re both now classified as “Adequate” by BauerFinancial, Inc., the firm that has analyzed and reported the performance of U.S. banks and credit unions since 1983.

How do I know how my local bank and credit union are now faring in this down economy? I did the same thing you can do. I visited BauerFinancial’s website and read the current analysis of the two firms.

BauerFinancial reports that health of financial firms using a star rating system. The rankings are:

• Superior
• Excellent
• Good
• Adequate
• Problematic
• Troubled

What will I do with this news? I’ll not act on it right now but I’ll have something to talk about when I next visit my bank and credit union. Competition is a good thing. There’s another community bank in town that has 5 stars and ranks “Superior”.

Find out how your bank or credit union is doing:
http://www.bauerfinancial.com/btc_ratings.asp

The Federal Reserve Board has proposed rules to prohibit unfair practices regarding credit cards and overdraft services that would, among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.

Highlights of the Proposed Rules Regarding Credit Cards and Overdraft Services:
http://www.federalreserve.gov/newsevents/press/bcreg/highlightscredit20080502.htm

The press release and request for public comments is here:
http://www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm

Read the public comments of (literally) 1000’s of other citizens (most seem to greatly favor these new consumer-friendly regulations):
http://www.federalreserve.gov/newsevents/press/bcreg/highlightscredit20080502.htm

The rules, proposed for public comment under the Federal Trade Commission Act (FTC Act), also would forbid banks from imposing interest charges using the “two-cycle” billing method, would require that consumers receive a reasonable amount of time to make their credit card payments, and would prohibit the use of payment allocation methods that unfairly maximize interest charges. They also include protections for consumers that use overdraft services offered by their bank.

“The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” said Federal Reserve Chairman Ben S. Bernanke. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”

If you’ve ever wanted the chance to speak out against unfair practices by credit card companies and banks, this is your chance. Make your opinion known!

Marketwatch.com’s news article, Bank failures to surge as credit crunch slows economy, continues a pattern of news articles I’ve read lately about the consequences the banking industry is facing because of what many call loose lending behaviors.

While there have only been 3 bank failures to date in 2008, some industry projections are that at least 150 banks will fail in the U.S. in the next two to three years. In fact, the Federal Reserve currently has a special hiring program in place to increase the number of bank examiners because of the expected bank failures in our near future.

If you’ve ever wondered what a bank bank examiner does and are looking for a steady job, the Federal Reserve Bank of Chicago offers information about the job requirements. If you want to know what a bank examiner does, read the information on the Federal Reserve Bank of Chicago.

Slate.com has an excellent article titled, “How the mortgage industry nurtured deceit“. It’s the story of “liar loans”, the slang for a “stated income” mortgage. It’s a good read …

It has happened again. Another “Not since the Great Depression” moment.

Not since the Great Depression has the Federal Reserve saved a major investment bank from bankruptcy. MarketWatch.com has the article, “Bear Stearns goes on life support as trading crisis turns dire“.

The New York Federal Reserve Bank is backing JP Morgan Chase’s efforts to keep Bear Stearns afloat.

Not since the Great Depression …

Here’s one to stir you up. Some bankrupt lenders are literally “trashing” the financial documents of borrowers, throwing names, addresses, social security numbers and financial records into dumpsters for any identity thief to find and use.

The consequences for the bankrupt lender? None. How do you prosecute a company that no longer exists? In businesses like these, greed trumps ethics every time.

Read the article: Bankrupt lenders throwing away your privacy

Without prosecution for this behavior, don’t expect fear of legal consequences to stop this type of irresponsible behavior.

An excellent article on Bloomberg.com is titled, “Bankruptcy Law Backfires as Foreclosures Offset Gains“.

It looks like the group of big banks that spent $25 million lobbying for changes in bankruptcy laws to protect their outrageous credit card profits are learning about the law of unintended consequences.

Washington Mutual, JPMorgan Chase, Citigroup and Bank of America are reeling from a surge in foreclosures because people are making their credit card payments instead of their mortgage payments when they must choose between the two.

Over extended home buyers are hurting. Big banks are hurting.

In spite of the popular fiction that “greed is good,” greed is actually an evil that hurts us all.

Fortune Magazine’s senior editor-at-large, Allan Sloan, is asking the proper question about Citigroup. And the question is asked in terms anyone who must pay their bills will understand. Like the home buyers who have found themselves upside down on their mortgages, Citi is upside down, too, for a much larger amount. It’s in the $Billions! The article is “Citigroup: ‘Gimme Shelter’“, subtitled, “Why on earth should we protect banks from their mistakes?”

While foreclosure and repossession occurs for individuals who are upside down and can’t make their loan payments, Citi and other monster-sized banks are working with the Federal Reserve for what appears to be a bail out. Allan suggests Citi and other banks face the risk they assumed by making bad investments just as the banks force individuals to do. Included in his solution is passing the effects of the bad investment decisions to Citi’s shareholders, eliminate the common stock dividend and forcing Citi to raise capital by selling new stock below the recent $42/share.

In short, why not let the marketplace take care of Citi’s bad decisions? It seems like the natural and logical consequence.

Would you like a good lesson on how banking works? Ever wonder where we get money and why there’s not enough paper money to pay for everything?

One of the most easily understood lessons about our banking system is a 47 minute video (and well worth the time) by Paul Grignon titled, “Money As Debt“. It explains money in very simple terms with easily understood graphics. Whether you’re a professional economist or a consumer with a bank account, Money As Debt is one of those must see videos.

Best part? It’s free and online! Check it out. You’ll be glad you did.