Friday, July 16, 2010

Unintended (and Totally Predictable) Consequence of FinReg: Cap on Debit Card Fees Will Hurt Consumers

(Or was it 'intended'?)

Consumers on the losing end, and this is just one of so many thanks to the financial "regulation" bill that's now ready to be signed by the vacationing golfer in chief.

Cap on debit card fees, aka the Durbin rule, has been lauded as protecting the consumer by lowering the transaction cost. It does no such thing, as it has nothing to do with the consumer. The beneficiary is the retailers who accept debit card payment, who now don't need to pay as much to the banks.

The banks, particularly the big banks who issue huge chunk of debit/credit cards - J.P.Morgan Chase, Citigroup, Bank of America, Wells Fargo - are bracing for the reduced revenue and profit resulting from this particular rule alone. As Bank of America made it very clear this morning,

"Bank of America’s debit-card revenue could shrink by $1.8 billion to $2.3 billion starting in the third quarter of next year because of restrictions on fees merchants can charge for each swipe of a debit card, Chief Executive Brian Moynihan said in a presentation today. The bank is seeking ways to replace some of the revenue lost to the Durbin rule, named after Sen. Richard Durbin, the Illinois Democrat who sponsored the amendment, Moynihan said.

"The bank also expects a goodwill charge of $7 billion to $10 billion in the third quarter tied to the value of the business after President Barack Obama signs the regulatory reform law approved by Congress this week, Chief Financial Officer Charles Noski said on a conference call. Goodwill is the difference between the price paid for an asset and its fair market value.

"Banks had lobbied against the Durbin amendment, while retailers touted the changes as being pro-consumer. “It’s regulating a transaction between two businesses,” Noski said. “This isn’t going to benefit consumers at all.” [Emphasis is mine.]

Put the price control on, and see the goods and services disappear. It has been the case ever since ancient Egypt and imperial Rome. In this case, these economics-ignorant politicians put the price control on the service (use of debit cards), and voila! free checking accounts disappear.

Don't believe me? Check this article out:

Banks Seek to Keep Profits as New Oversight Rules Loom (7/15/2010 New York Times)

"...Free checking, a banking mainstay of the last decade, could soon go the way of free toasters for new account holders. Banks are already moving to make up the revenue they will lose on lower overdraft and debit card transaction charges by raising fees on other services.

"Banks like Wells Fargo, Regions Financial of Alabama and Fifth Third of Ohio, for instance, recently began charging new customers a monthly maintenance fee of $2 to $15 a month — as much as $180 a year — on the most basic accounts. Even TCF Financial of Minnesota, whose marketing mantra championed “totally free checking," started imposing fees this year in anticipation of the new rules."

As Jamie Dimon, CEO of J.P.Morgan Chase, says in the article,

"If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger."

Wait till the Congress hear about this. They will force the banks to offer free checking accounts. What will disappear, then? Maybe they will lower the interest on CDs. Maybe they will put new restriction on who can qualify for free checking accounts (low-income families and union workers, my guess) and you will have to show the proof of income or union membership card to get free checking accounts.

The NY Times article also says so-called "regulations" to be imposed on the banks will be easily circumvented by the banks.

Who's the designated loser? We (small people) are. As always.

Anything is possible in this changey hopey world of Obamanation for groups with political clout with the administration (unions, big banks, big pharmas, big oils, big anything).

Thursday, July 15, 2010

Slap on the Wrist for Goldman Sachs, As Expected

Strange buoyancy of Goldman Sachs' shares today had a very good reason. And here it is:

Goldman to Pay Record $550M SEC Settlement (7/15/2010 CBS News)
"Wall Street Firm Agrees to Reform Business Practice to Settle Charges Goldman Sacs Misled Investors"

Misled investors??? How about "swindled the US taxpayers"? How about "help crash the housing market and the economy"?

Of $550 million, $300 million will go to the SEC the regulator who doesn't regulate (busy watching porn). $250 million will go to the investors who lost money investing in the securities that Goldman peddled - i.e. fellow international bankers.

(Here's the SEC announcement on the deal.)

Goldman's investors are celebrating the "slap on the wrist" in the after-hours market by sending the stock up another $8. (During the regular session, GS shot up $6.)

Enron's top executives went to jail and the company went bankrupt for "accounting fraud" - setting up special purpose entities to hide losses. But that's what big Wall Street banks have been doing for all these years, and not one executive has gone to jail, not even on a trial.

Senate Passed FinReg, 60 - 39

Consumers and small businesses, welcome to servitude under the private banking cartel (the Federal Reserve).

Big Wall Street banks, rejoice.

(Look no further than the stock price of Goldman Sachs today. It is celebrating, up over $2 in a generally negative market.)

What's in Financial Reform Bill? Most Americans Don't Know (7/15/2010 Reuters/CNBC)

Most Congressmen and Senators don't know either, but that's nothing new.

Vote out all the incumbents in November. Even the good ones. Vote in anyone who will nullify this bill, the health care "reform" bill, and any bill that the lame-duck Dem Congress dare passes.

Wednesday, July 14, 2010

7/13/10 CBS News Poll - Another Low Marks for Obama

Most important issues - jobs and economy
Condition of the economy - bad
Stimulus package - no effect
To get the economy moving again - cut taxes
Health care reform - disapprove
New Arizona immigration bill - just about right

One optimistic number I saw in the poll: Over a quarter (27%) of the respondents said their local job market was GOOD.

Question 3 "What do you think is the most important problem facing this country today?": 2% responded "Barack Obama". (Page 10)


Something Weird Going on Again on Gold, Intraday

My wild guess: some hedge fund trying to meet collateral/margin call from the broker, or liquidating position to meet redemption request from the customer...

The chart is that of GLD, a gold ETF, intraday today.

OT: Running on Empty

by Jackson Browne. (It should be the theme song for the US stock market.)

It should be the theme song for the federal government, too. $1 trillion-plus deficit in the first 9 months of the fiscal year 2010, just like the last fiscal year. Receipt from individual income tax is set to be 4.4% LOWER than last year. So much for "economic recovery". Of course there will be no double-dip. The economy as experienced by Main Street hasn't even recovered the first time yet.

Monday, July 12, 2010

OT: Emanuel Brothers

Three of them, in totally different fields.

Rahm Emanuel is Obama's Chief of Staff, who seems to have gone rather quiet since the Blago's trial started.

His older brother, Ezekiel Emanuel, is a medical doctor who some allege advocates healthcare rationing.

His younger brother, Ari Emanuel, just dumped Mel Gibson from his Hollywood talent agency over Gibson's alleged "N-word".

Oil Rigs Departing the Gulf as Obama Defies Court and Renews Offshore Drilling Ban

Bloomberg reports:

"U.S. Secretary of the Interior Ken Salazar directed the Bureau of Ocean Energy Management, Regulation and Enforcement to issue new suspensions of deepwater drilling on the outer continental shelf, according to an e- mailed statement.

"Salazar said a pause is needed to ensure that oil and gas companies implement adequate safety measures to reduce the risks associated with deepwater drilling operations and are prepared for blowouts and oil spills."

Good luck figuring out the risks in your committee of partisan non-experts, Mr. President, not to mention how this oil spill occurred.

In the meantime, Diamond Offshore's Ocean Endeavor drilling rig became the first rig to depart the Gulf, and won't be the last. Once they leave, they won't be back for at least 5 to 10 years.

First rig sails away over drilling ban (7/9/2010 Houston Chronicle)

"WASHINGTON — Diamond Offshore announced Friday that its Ocean Endeavor drilling rig will leave the Gulf of Mexico and move to Egyptian waters immediately — making it the first to abandon the United States in the wake of the BP oil spill and a ban on deep-water drilling.

"And the Ocean Endeavor's exodus probably won't be the last, according to oil industry officials and Gulf Coast leaders who warn that other companies eager to find work for the now-idled rigs are considering moving them outside the U.S.

"Devon Energy Corp. had been leasing the Endeavor to drill in the same region of the Gulf as BP's leaking Macondo well, which has been gushing crude since a lethal blowout April 20.

"But Diamond announced Friday it will lease the rig through June 30, 2011, to Cairo-based Burullus Gas Co., which plans to send the Endeavor to Egyptian waters immediately.

"...It was unclear how many U.S. jobs could leave with the Ocean Endeavor, but typically more than 100 workers are on the rig at any given time, doing everything from drilling to cooking meals. Onshore, a network of businesses supplies the rigs with groceries, equipment, uniforms and drilling materials.

""It's not unusual for an energy service company to have 1,000 vendors that they buy from or purchase services from," noted Rep. Kevin Brady, R-The Woodlands. As a result, Brady said, the economic damage from the moratorium stretches far and wide.

"...Although the administration on Thursday lost its second bid to keep the ban in place while it appeals a federal court's decision to strike down the moratorium, federal regulators plan to try again with a revised version soon.

"Dan Pickering, a financial analyst with Tudor, Pickering Holt & Co. Securities, said the legal uncertainties surrounding the ban - and the administration's plan to issue a new, revised moratorium - ensure that no companies will resume deep-water drilling in U.S. waters anytime soon.

"..."There are two types of rigs in the deep-water Gulf today: those that are leaving the country and those that want to, because with this moratorium hanging over their heads, they simply can't go back to work," Brady said. "I'm afraid this is the first of many rigs and many American jobs to leave the Gulf."

"Once the rigs relocate, it could be a minimum of five to 10 years before they return, predicted Rep. Pete Olson, R-Sugar Land." [Emphasis is mine. The entire article at the link above]

One of the last remaining good-paying jobs is thus leaving the US, thanks to the administration who claims it has created so many jobs despite the mess it inherited and wants to create more.

Once jobs leave the American shores, they don't come back. Manufacturing jobs have gone to China and creating more millionaires there than in Great Britain, high tech and software programming and call centers to India.

Fishing and tourism are bust in the Gulf states, thanks partly to the oil spill and partly to the federal government's obstructionism against the efforts by the affected state and local governments. If Obama's Pay Czar cum Oil Spill Escrow Fund Czar Kenneth Feinberg has his way (I don't see why he doesn't), cash-based fishermen won't get a dime, and tourism industry won't get a dime because vacationers are canceling their trips to the Gulf coast based on their "perception" of the oil spill, not based on actual oil blob on the beach they were planning to visit. So he cannot pay on such a subjective "perception", can he?

We'll see how BP's latest effort to cap the well finally succeeds, and if it changes the mind of the administration officials and the president about the drilling moratorium. I doubt it, but never say never.

Treasury Auction This Week

I just noticed a minor anomaly: schedule.

The US Treasury Department usually does not auction longer dated bills and bonds on Monday. But it did today, auctioning 3-year note at a record-low yield.

10-year note, which is normally auctioned on a Wednesday once a month, will be auctioned tomorrow Tuesday. 30-year bond, which is normally auctioned on a Thursday once a month, will be auctioned on Wednesday. No auction is scheduled for Thursday.

Just curious why.

For details, visit my Treasury Auction Watch blog later. (I'm updating with the results now...)

Secret Gold Swap Between BIS and Commercial Banks

People noticed something strange had been going on when they saw a footnote entry of 380 tonnes of gold in the annual report of B.I.S., Bank of International Settlements - the central bank for the world's central banks.

The news has been floating around in gold circles since last week.

UK's Telegraph reports:

"It takes a lot to spook the solid old gold market. But when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion.

"The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20pc of the world's annual gold production and the possibility of a sell-off.

"In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month.

"Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. It appears to have raised $14bn for whoever's been doing the swapping – small fry on the currency markets, but serious liquidity in the gold market." [The article continues.]

The transaction looks like a tripartite one, involving BIS, IMF, and commercial (bullion) banks, whose names include the usual suspects who have wrecked havoc in the global financial markets in the past two years - Goldman Sachs, Deutsche Bank, JP Morgan, HSBC, Barclays, UBS, Societe Generale.

The Telegraph article, citing a gold expert, says it is just a "swap" and not a "lease", and therefore gold is not going to be released into the market.

I'm not so sure. Instead of sitting on the gold for the duration of the swap, BIS could make good use of the gold by leasing it to commercial bullion banks earning additional interest, and the bullion banks would sell it in the market for higher-yielding debt instruments.

Why now?

Jesse's Café Américain says and I agree:

"I think the answer can be found in the setup of the market. Gold was knocking on the door of resistance at $1260, a key point that could have triggered a break away rally. At the same time, according to figures provided in his daily Comex commentary, there were an extraordinary number of contracts standing for delivery in silver and especially gold. Indeed, if the numbers are correct, a breakaway rally would have encouraged almost 2 million ounces of gold to be demanded of the Comex, a call on their 2.64 million ounces of dealer supply that could have literally 'broken the bank.'

"As Volcker and Greenspan have both said, the central banks must stand ready to sell gold into the market to prevent its price from rising and displacing the confidence of the markets in the power of the central banks to manage their currency markets."

It looks like gold selling continues this week. Gold is again below $1,200, down $13.

Sunday, July 11, 2010

OT: "Cardinal Climax" and Stock Market

Since I wrote several posts on the Mercury Retrograde and the stock market performance, I thought it only fair to mention another cosmic/astrological event that may, for some unknowable reason or another, severely and adversely affect the stock market and the world in general in coming weeks.

I'm not saying I believe this; I learned about it only yesterday. I'm simply passing the information on, for what it's worth. You can read about it in the link below.

Rare “Cardinal Climax” Planetary Alignment This Summer Puts Stocks at Risk, says Veteran Sky Watcher (Hewitt Heiserman, 3/31/2010 Seeking Alpha)

"This summer the planets form a rare “Cardinal Climax” alignment, which puts financial markets at risk, says Arch Crawford. Publisher of Crawford Perspectives since 1977, the veteran sky watcher uses a mix of technical analysis and astrology to gauge which way equities and other asset classes are headed. To learn more about this unorthodox investment process, I recently spoke to Mr. Crawford about some of his best calls, what day the Cardinal Climax strikes, and how to prepare for the turmoil he expects. Here is an edited version of our conversation.

"We want to talk about the upcoming Cardinal Climax, which you say puts stocks—and perhaps humanity—in jeopardy. But first, explain to Seeking Alpha readers how you invest?

[The following paragraphs are comments from Mr. Crawford. Emphasis is mine.]

"Certain planetary alignments put people under extra stress. And one way this stress manifests itself is in financial markets. After all, financial markets are a mix of fundamentals and emotion. Since astrologic events affect our emotions, I find it profitable to study the planets."

"It is common knowledge that when there is a full moon, there are more car accidents and other forms of aggressive behavior. Since financial markets partly reflect our hopes and fears, these markets are prone to mood swings. If you can anticipate these mood swings, you gain an edge over investors who focus solely on interest rates, growth forecasts, debt loads, and other traditional yardsticks."

"I have examined every substantial move in the Dow Jones Industrial Average since 1896, and I find that when planets are at difficult angles, then owning stocks and commodities is riskier."

"When two planets form a 45-, 90-, 135-, or 180-degree angle, with earth as the midpoint between the two planets."

"I once did a study of the worst days in the stock market. Two-thirds of those days occurred in one-third of the calendar year, centered on the Fall Equinox, around Sept. 22-23. Maybe there is a symmetry that governs the universe that we haven’t yet figured out."

Then, Mr. Crawford cites specific incidents - stock market crashes, natural/man-made disasters - that he was able to predict using his astrological analysis.

So when is exactly this Cardinal Climax going to happen?

"On August 1, give or take a week, we’ll have the most five-planet alignments in perhaps thousands of years. Known as the “Cardinal Climax,” this is the meanest, nastiest, most challenging and most transformational of any planetary phenomena in all of written history!

This [Cardinal Climax natal chart; you can view it at Seeking Alpha link above] is the view of the planets from New York City on Aug. 1, at 6am. We have the most planets in the tightest alignments and at the supposedly 'sensitive' Zero degrees of Cardinal signs. It makes the hair on the back of my neck stand up.

"I looked at records going back to the 1800’s, and this is the most difficult alignment I found. When I was at a conference in Boston last month, someone said this was the most difficult alignment they have seen in the last "1,000 years." Another person told me this is the worst alignment in "10,000 years."

"Worst cases include a nuclear accident. Nuclear war. Massive societal collapse. Maybe a pole flip, which can wipe out nearly everything.

"Cardinal Climax is especially intimidating because of the proximity to the widely touted Mayan Calendar End Date. Plus, the Christians are looking for the Return of Jesus and/or the Rapture, the Muslims await the return of the umteenth Imam, the White Buffalo has been born, and Jews are fighting over the right to rebuild Solomon's Temple on the 'temple mount' in Jerusalem. These are all signs of “end times” by many different cultures."

He says if Cardinal Climax manifests itself in the stock market, the market crash will be global. He also says picking the right investment vehicles for the occasion will be the least of your worries.

Now you know. Again, I am not promoting this idea. I'm just linking. But his comment (the last one I quoted above) that the end of the world as we know it may come as the result of great number of people looking for the sign of the end times is intriguing. Self-fulfilling prophecy, in a way.

In heaven, as on earth? Or on earth, as in heaven?