May 01

Don’t Do It America

The Federal Reserve recently released its most current Senior Loan Officer Opinion Survey on Bank Lending Practices report. The report indicates that consumers are demanding increased access to credit cards as well as consumer debt, such as auto loans. In response, large and small banks alike have eased lending standards. Approximately 14% of all banks reported having made it easier for new applicants to be approved for revolving credit card accounts in the first quarter of 2012. Smaller banks and credit unions have eased standards at a slower pace, but not by an appreciable amount.

While the banks have moved significantly from tightening lending standards across the board in 2008, to a toes-in-the-water approach to easing lending standards following the crisis, it is only a matter of time before banks begin to ease standards considerably in an effort to boost profits. American households did a great job of paying down debt during the early part of the financial collapse, reducing household liabilities to $865 billion from $958 billion between 2008 and 2009, according to the most recent Federal Reserve G.19 report.

It will certainly be difficult for consumers, whose spending accounts for 70% of the American economy to resist the urge to return to the spending frenzy of the mid 2000′s, but resist it we must. First, it isn’t sustainable. A modern economy can not survive if the vast majority of its economic activity surrounds purchasing goods and services from foreign companies and eating fast food at the local hot shop. Second, it isn’t responsible. With fewer and fewer employer sponsored options available for funding retirement, and health care cost increases, over-leveraging household debt is a recipe for disaster in old age. Moreover, it isn’t fair to your fellow citizen, who will ultimately have to pick up the tab for your health care costs and basic needs.

According to the Federal Reserve G.19 report, consumer debt has risen from the low of $793 billion during the crisis to nearly $800 billion today. With banks and credit union lending standards loosening, that number is certain to rise quickly. We must not forget what it was that fueled the mess that we’re currently in and accept our measure of accountability for it. A return to credit card debt and rampant consumer spending is not the answer. Ignore the news reports you hear begging you to spend your hard earned money to support the greater economy. The American economy requires a structural change from the floor to the ceiling, and much like the fast food that the television demands that you eat, increased consumer spending will fill a short term craving but leave you hungry and sick down the road.

Some Good News


While the federal regulators and the Department of Justice continue to treat the symptoms rather than the cause of the recent housing collapse, the Federal Reserve announced that it will force Morgan Stanley to review thousands of foreclosures processed by a former subsidiary. The goal is to compensate those foreclosed upon improperly.

Among the allegations made by the Fed against Saxon are claims that employees filed foreclosure documents without verifying their contents and that they filed mortgage documents with courts that were not properly notarized.

While each regulator and prosecutorial agency continues to trip all over itself in an effort to avoid going after any of the large banks at the heart of the crisis, something is better than nothing.

Apr 02

Federal Reserve Calls for End to Too Big to Fail Banks

The Dallas Federal Reserve has recently released its annual report, which has Wall Street a tad nervous. In the report, Harvey Rosenblum, the head of the Dallas Fed’s research department, openly encourages  the organized dismantling of America’s mega-banks like Bank of America, Chase, and Citigroup. It is interesting to hear this rhetoric coming from a mainstream banking entity such as the Dallas Fed. Has the widespread consensus that the current banking system can not continue to operate in its own interest and at the detriment of ordinary citizens finally grown up and gone official? Matt Taibbi over at Rolling Stone has a write-up.

The entire report can be read here.