Posts filed under ‘Banking’
Payday Loans Shark
By Getachew Teklu
This is Payday Loan
Payday loans are small loans usually not exceeding $1,500.00 that are unsecured, require no credit check to obtain and are highly controversial. There are lobbyists on both sides that are passionate about the legality and ethicality of payday loans.
How do Payday Loans Work?
In most cases all you need is a checking account and proof of employment to receive a payday loan. The borrower writes a post-dated check to the lender with a fee attached and the borrower receives the cash instantly. The “fee” is usually steep; on an average of 20 dollars for every hundred dollars borrowed. The post date on the borrowers check coincides with your next payday. Either the borrower goes into the payday loan location and pays the debt on the agreed date or the check is cashed and presto! Cash crisis averted and everyone wins. Unfortunately, this “everyone wins” scenario is what is so controversial.
How Much Interest is charged?
Typically the borrower is charged15 to 30 percent of the amount borrowed for the duration of the loan. The duration is usually two weeks. How would this translate into an annualized rate? That’s about 380 to 790 percent! In Canada it is actually criminal to charge more than a 60% interest of any kind on a loan. In the United States it varies from State to State. Some States have made payday loans illegal. Many opposition groups to the payday loan industry believe charging this much interest to someone who is in a desperate financial situation is opportunistic and exploit’s financial hardship for profit.
What is The Argument for Payday Loans?
Most payday loan companies justify the high rates due to high default rates on their loans. They also argue that if they only charged a 21% annualized interest rate for a two week period their profit would be in the pennies and would not justify the administration costs. They could not do business and would not be able to supply their service. They also state that the “annualized” rate is never realized since the loans are for very short terms usually 2 -3 weeks. .
There are many scenarios that may justify the high price of a payday loan. What if missing that next payment on your vehicle, required for employment, would result in repossession? A missed payment on your credit card could result in an increased interest rate costing you a considerable amount more over time than the payday loan.
Conclusion
The payday loan industry supplies a service that is consumed in almost every community in North America. You can even receive payday loans online in mere minutes. If you are trying to manage your debt avoid payday loans like an ax wielding maniac. An alternative would be to manage your income, control your debt and ensure you have some funds set aside for emergencies.
A payday loan can be a prayer answered if you are in dire need of cash. If you are in this type of scenario because of your debts you need to get help with your finances.
The SAFE Banking Act: Break Them Up
By Simon Johnson, co-author of 13 Bankers.
On Wednesday, Senators Sherrod Brown and Ted Kaufman unveiled a “SAFE banking Act” with a clear and powerful purpose: Break up the big banks.
The proposal places hard leverage and size caps on financial institutions. It is well crafted, based on a great deal of hard thinking, and — as reported on the front page of The New York Times this week — the issue has the potential to draw a considerable amount of support.
The idea is simple, in the sense that the largest six banks in the American economy are currently “too big to fail” in the eyes of the credit market (and presumably in the leading minds the Obama administration — which saved all the big banks, without conditions, in March-April 2009). The bill put forward by Senator Christopher J. Dodd, the chairman of the Banking Committee, has some sensible proposals — and is definitely not an approach that supports “bailouts” — but it does not really confront the problem of the half-dozen megabanks.
In the American political system — where the power of major banks is now so manifest — there is no way to significantly reduce the risks posed by these banks unless they are broken up.
These banks are so powerful that they can confront and defy the government, as seen in the twists and turns of the S.E.C. versus Goldman Sachs case. They are also powerful enough to threaten a form of extortion: If reform is tough, according to JPMorgan Chase’s chief, Jamie Dimon, credit will contract, the recovery will slow and unemployment will stay high. Given the size of his bank, that’s a credible threat.
The big banks give a lot of money to politicians on both sides of the aisle and they are now digging in hard to defeat reform. Indeed, there are credible reports of various “front” organizations being used for this purpose.
Under such circumstances, the Brown-Kaufman approach might be thought unlikely to succeed.
But consider how the Republicans are already starting to counterattack the Dodd proposals, the ways in which the broader Dodd-White House approach remains vulnerable, and how exactly the Brown-Kaufman approach can help the Democratic leadership as it becomes increasingly hard pressed.
The Republicans are saying: the Dodd bill does not end “too big to fail.” Most of their reasons are misleading (“it’s all about Fannie and Freddie really,” “there will be a permanent bailout fund,” “the Federal Reserve needs to lose some of its powers,” etc.). But there is no question that this message will seriously confuse people who are only just starting to pay attention.
As the Republicans have astutely spotted, the Dodd-White House proposals will not actually reduce the size or seriously limit the activities of the megabanks — and a broad cross-section of society completely understands that these institutions brought us into the trauma of September 2008, have become even bigger since then, and still have the incentive to take on an excessive amount of risk.
The S.E.C. case against Goldman has created a great opportunity for the Democrats because it exposes details regarding exactly how big banks are mismanaged and why they treat many of their customers in an unreasonable manner. The electorate now completely understands — even more clearly than a week ago — that the attitudes and compensation structure of the largest banks lie at the heart of our current macroeconomic difficulties.
The Brown-Kaufman bill therefore addresses not just the substantive financial issues of our day but also the tough political situation now facing Democrats. If their SAFE banking bill can come to the floor of the Senate (for example, as an amendment to the Dodd bill) and be voted on — up or down — then we will really get to see which of our elected representatives support overly big banks and which want to bring them down.
The bill might fail, of course, on that basis — but then anyone who opposes it can be branded as a “too big to fail” fan in November and beyond. This would be a clear identifier that would cut through the noise and the disinformation. Did this candidate vote for or against the too-big-to-fail banks? It’s a simple yes or no.
As political logic inserts itself more and more into the economic debate on banking, there is a real possibility that Senators Brown and Kaufman have exactly what the Democrats (and the country) needs.
This post appeared this morning on the NYT.com’s Economix; it is used here with permission. If you would like to reproduce the entire post, please contact the New York Times.
Source: The Baseline Scenario
Books to read: 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (Hardcover)
13 Bankers
| By | C. E. Selby |
I grew up in the home of a banker. But Dad was a small-town bank president in what we call “community banks.” And the bank still exists and is doing well in Vermont. But my dad, when he retired in the early 70s, said, “Banking isn’t banking any more.” I had no idea what he was talking about, mainly because I was never much interested in banking. But I have become quite interested in it now that this country has become economically handcuffed by these so-called bankers.
This is a very well written book with a very comprehensive set of notes (footnotes) at the end. In other words, anyone writing comments about these authors being conspiracy theorists is simply ignoring the content of the book. Having said this, however, I want to acknowledge that the book isn’t written for people who don’t have at least a little knowledge about how the world of finance works. In other words, I found myself lost in many places. But I cannot fault the writers or the writing. I simply don’t have what we English teachers would call “prior knowledge,” the essential tool to reading.
The authors are not bashing anyone. The book is structured so the reader is provided with some history (and it is sourced history) before being presented with what happened and how it happened. I like how objective Johnson and Kvak are. To use a phrase that I captured from a cable channel I would never watch, this is “fair and balanced.”
What most interested this reader is the case the writers make for “The American Oligarchy.” Indeed that is what we have with these “financial elites” that run Wall Street. They are so tightly tied into our non-functioning Congress (and to some degree a too-tied-to-Wall-Street White House and to five very-tied-to-Wall-Street on the Supreme Court).
I intend to give this book as a gift to a few people I know who really need accurate information. But do “tea baggers” read I wonder.
What is T-bill anyway?
By Getachew Teklu 
Do you know what it means?
A short-term debt obligation backed by the U.S government with maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturity of one month (four weeks), three months (13 weeks) or six months (26 weeks).
T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder.
The smallest face value for a T-Bill is $1,000 US Dollars (USD). The T-Bill is sold at a discount, which is determined by the Bureau of Public Debt, but the Treasury pays the full face value when it is redeemed. For example, an investor might purchase a 90-day T-Bill for $900 USD, and earn a $100 USD return on the investment when the T-Bill is redeemed. Unlike many other securities, a T-Bill does not bear interest, but the return on a T-Bill is highly predictable and very stable, barring complete financial collapse of the United States Treasury.
Investors may choose to include T-Bills in their profiles because they are highly stable investments with a pre-set time to maturity and a dependable return. Unlike more risky investments, a T-Bill is unlikely to return a substantial sum, but when they are traded on large volume, they can represent a substantial return. Investors can potentially purchase millions of dollars worth of T-Bills, assuming that they possess the available capital. They are also extremely liquid assets making them a versatile and useful addition to a diverse investment portfolio.
While private investors can and do purchase T-Bills, banks and other financial institutions are capable of purchasing them on a much larger scale, and thus make up the bulk of the trade in T-Bills on the day of the initial offering. Once purchased from the Treasury, a T-Bill can be sold or traded before it matures and is ready to be redeemed, and many individuals purchase T-Bills on the secondary market, from banks and institutions which purchased the bills from the Treasury. As compared with other Treasury securities, the T-Bill matures much more quickly, creating a rapid turnover investment, as opposed to the Treasury note, which matures in two to 10 years, or Treasury Bonds, which take 10-30 years to mature.
T-bill are backed by the full taxing power of the US government and therefore the risk of default is essentially zero. However they are subject to interest rate risk. As interest rates rise the value of the portfolio will go down and as interest rates fall the value of the portfolio goes up. If you hold the portfolio to maturity you eliminate the interest rate risk. I have no idea how the Ethiopian T-bill is backed by in case of default. More info needed.
It’s a new day for credit cards
By JENNIFER WATERS
For the first time in three years, credit-card issuers are ramping up their mailbox solicitations. But don’t expect to see your father’s credit-card appeals. Variable interest rates, higher annual fees and a host of new charges will be hidden in the fine print of these offers.
With new consumer protections in the Credit Card Act (officially called the Credit Card Responsibility and Disclosure Act) set to take effect Monday, the nation’s largest credit-card issuers upped their direct-mail solicitations to consumers by more than 45% in the fourth quarter from the prior quarter, according to two leading market-research firms.
![[marketwatch wsj]](http://si.wsj.net/public/resources/images/OB-HP824_sun022_DV_20100219161555.jpg)
Tom BloomBut a new credit card these days will cost you. The average annual percentage rates, which climbed steadily most of last year, are now at the highest level in five years. Some 35% of cards now have annual fees and a number are raising or imposing new charges for balance transfers and inactive accounts.
“Issuers are looking for ways to recoup potential lost revenues from the new regulations,” says Andrew Davidson, senior vice president at Mintel Comperemedia.
In the fourth quarter, the average annual percentage rate stood at 13.5%, well above the year-ago rate of 11.8%, according to Synovate Mail Monitor. Last week’s average APR, according to CreditCards.com, was about 14.2%, up from 12.1% just six months ago. Interest rates for subprime borrowers were significantly steeper at 24.9%, compared with 14.3% six months ago.
It’s also worth looking at the spread between the prime rate, currently at 3.25%, and the variable interest rate the issuer applies to the credit card, says Anuj Shahani, director of competitive tracking for Synovate’s financial-services group.
The prime rate is three percentage points above the Federal Reserve’s target rate for fed funds, which now is 0% to 0.25%. Variable rates are tied to the prime rate, meaning that as rates change, the APR on a variable-rate card changes, too.
The gap between the prime rate and the average APR of 13.51% is 10.26 percentage points, the widest variance in 10 years. In 2007, the spread was less than half that, at 4.8 percentage points.
As the economy recovers, the Fed will eventually raise interest rates, which will then raise the variable rate on those types of credit cards, no matter what your credit history is. For example, if the Fed raises interest rates by a quarter of a percentage point, that average APR from CreditCards.com’s 14.1% rate would rise to 14.4%.
“We’re expecting APRs to average in the high teens by 2010 and expecting them to touch 20% and higher by 2011,” says Mr. Shahani, who is assuming the Fed will raise rates this year. There are others, however, who believe the Fed won’t do so till 2011.
If Mr. Shahani is right, people who now have variable rates at 29.9% — and many do — will be looking at rates that top 30% when the prime rises. “It does sound crazy and shocking, but if you think of it, some of those subprime folks can be looking at 35% or more this year,” he says.
Meanwhile, many customers will see the return of annual fees. In the fourth quarter, 35% of cards charged an annual fee, the highest level in the past decade, according to Synovate, which expects more issuers to tack on annual fees in the coming months. That could come back to haunt some card issuers. A recent Synovate study found that three out of every four credit-card holders will either cancel or consolidate cards that carry an annual fee.
Here are the things you need to watch out for should you be tempted by any of the credit-card offers you receive:
Average annual interest rates: They will be higher than you’re used to and could get higher yet. Most, if not all, credit cards will offer an attractive introductory rate for 12 months before it shoots up to something not so pretty. Make sure you know what you’re getting into.
Rate increases: The new law prohibits card issuers from escalating rates during the first year. Rates cannot increase without a 45-day notice — and the opportunity for you to opt out and cancel the card. But it you’re more than 60 days late on payments, all bets are off.
Annual fees: Yes, they’re back, but not on every card. If you’re the type who pays off credit cards every month, then consider this the credit-card issuers’ payback for not contributing to top-line sales. Of course, you can choose another card or consolidate on another household charge account.
Application fees: These are new to most people. It’s a charge for the opportunity to apply for a card, whether you get the card or not. Annual and application fees cannot exceed 25% of your credit limit. But don’t get fooled by them. They can represent another form of interest on your account.
Hybrid cards: Synovate’s Mr. Shahani expects to see innovation take over the card space as issuers look for new ways to raise money. Watch out for low-fee cards that could have other high-interest charges or fees.
Late fees: They haven’t gone anywhere and could now come in different packages. Many issuers are looking at tiered payments such as $29 for balances below $500 and $35 for those above $500.
Over-limit fees: You have to let the card issuers know you’re willing to pay a fee should you go over your limit. If you don’t, you’ll be turned down at the cash register. Some issuers such as American Express and Discover have done away with over-limit fees.
Write to Jennifer Waters at jennifer.waters@dowjones.com
Ethiopia Expects Economy to Expand by 10.1% This Year
By Jason McLure
ETHIOPIA
Feb. 4 (Bloomberg) — Ethiopia’s economy is expected to grow 10.1 percent in the year to July 7, from 9.9 percent the previous year, a finance ministry official said.
“Our economy has been the fastest non-oil and non-mineral economy in sub-Saharan Africa in the last six years,” Getachew Adem, head of development planning and research at the Ministry of Finance and Economic Development, told reporters today. “The financial crisis has not affected us much, but there was impact indirectly on our manufacturing sector.”
The financial crisis and power outages did keep growth last year below the government’s 11.2 percent forecast. The economy should expand by at least 10 percent through 2015, Getachew said in Addis Ababa, the capital.
The International Monetary Fund projected economic growth of 7 percent this year, according to a September report from the Washington-based lender.
A 14 percent expansion of the service industry led growth last year, Getachew said. Agriculture increased 6.4 percent while industrial output grew 9.9 percent.
The government may lift lending caps on banks that have slowed credit to the private industry by December if the annual inflation rate can be held at about 6 percent, he said. The inflation rate climbed to 7.1 percent in December from 0.6 percent the month before, according to the Central Statistical Agency.
“Banks cannot extend credit as they wish, and that is biting, but there is always a compromise,” Getachew said. Controlling inflation “is the government’s overriding objective in the medium and short term.”
Foreign currency shortages continue to hurt manufacturers and importers, he said. The government has rebuilt reserves from about $800 million November 2008 to $1.9 billion today, he said.
To contact the reporter on this story: Jason McLure in Addis Ababa via Johannesburg on pmrichardson@bloomberg.net.
Source: Bloomberg.net
Can I trust my ATM Bank balance
By Getachew Teklu
You cannot trust the balance that the ATM gives you. The banking system operates on a system of holds, while money is transferred from your account to other places. Even your debits are not automatically deducted from your checking account. For this reason it is important to keep a running balance of your account at all times. When you make a deposit the bank gives you credit for the deposit, but the check is set to a clearinghouse. The clearinghouse is regional, and if the check is from out-of-state it may need to be sent to another clearinghouse, before the bank actually receives the money for your check. When you deposit a large check from out-of-state the bank may put a hold on it until funds are collected. This protects you from spending the money before you actually get it. If you do this you will have to pay the bank back. Similarly checks do not clear your account the moment that you write them and send them off in the mail. Once the person or company receives your check, they must deposit in their bank and then wait for the money to be transferred from your account. Checks usually take the longest to clear, because it depends on how quickly they company takes the checks to your bank. Debits are not automatically deducted from your account. When you first use your debit card a hold is placed on your account. This hold lasts a few days, and then will drop off. The merchant that accepted your debit card has to send in its transactions in order for the debits to be transferred to them. Although most merchants do this on a daily basis, some small businesses may take longer. When this happens the hold may drop off before the amount is deducted from your account, and your balance would say that you have more than you do. Since you have all of these factors working against you, you should keep a running balance of your account. You cannot simply trust the ATM balance to be the correct one. Similarly just because a debit transaction goes through, it does not mean that you currently have the money to cover the transaction. To keep a running balance you simply record your transactions as you go, then you add and subtract them from your balance in order to get the amount that you really have.
