Federal Reserve Chairman Ben Bernanke is being urged to create stronger regulation of business credit cards. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

Members of Congress are urging the Federal Reserve to do more about regulating business credit card marketing, especially regarding small businesses. Currently, small business credit cards are not subject to the same regulations in the CARD Act that apply to their private counterparts.

Small businesses at mercy of banks and card companies

A group of Congressmen are lobbying the Federal Reserve to implement regulations regarding credit cards extended to businesses, especially those marketed to small businesses, according to the Wall Street Journal. A group of Senate Democrats, including Senator Charles Schumer of New York and Senator Bill Nelson of Florida, are urging Federal Reserve Chairman Ben Bernanke to do something about enhancing disclosure requirements on credit card accounts offered to small businesses. Areas of concern include interest rate hikes, fees for going over spending limits and other types of fees that are prohibited for regular consumer credit cards. Credit card companies are not mandated by law to follow the Credit Card Accountability Responsibility and Disclosure Act when it comes to business credit cards.

Clever dodge of CARD Act

Part of the concern over the non-regulated status of business credit cards is that credit card companies are offering the cards to people who aren’t business owners; all a customer has to do is apply for the account just like a normal credit card and start using it once approved. Card issuers don’t have to ask for a business license number or proof that the card is for business purposes, which Chairman Bernanke is being urged to make mandatory. The senators also are concerned that business cards make up a fair portion of direct mailed credit card offers, according to BusinessWeek, as they cite a Pew study that found 9 percent of all credit card offer mail between 2006 and 2010 was small business card offers. The same study estimated that Americans received more than 2.6 billion pieces of such mail in that period. More than 6.7 million went to senior citizens.

Small businesses grapple with credit card companies

Processing credit and debit card transactions can be a hassle f0r small businesses. Many stores have mandatory purchase amounts that customers have to meet in order to use their debit or credit card because of interchange or swipe fees. Merchants are charged to receive funds from the bank or credit card company, and they have to pay to use credit and debit card processing machines. Many simply pay, but some are finding ways around it. For instance, the Square payment processing system that allows someone to use their iPhone, iPad or Android phone as a card reader is getting 100,000 more users per month, according to Entrepreneur. Square charges 3.5 percent of the transaction, far less than traditional methods of accepting credit or debit payments.

Sources

Wall Street Journal

BusinessWeek

Entrepreneur

A stronger dollar is the key to recovery, not quantitative easing, says investment manager Abigail Doolittle. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Quantitative easing (QE) has been referred to by some economists as the last vestige of an empire in ruin. The idea is to create money, suppress rates, promote liquidity and watch inflation spread. It’s like a plumber who tries to fill a bathtub by pouring in massive amounts of water, without plugging the drain first. According to CNBC, however, the Federal Reserve is reaching toward turning off the tap, and investors have decided to cut back.

Fed sends S&P into downward slide

The S&P 500 was down by 2 percent this week and is in the middle of a 7 percent slide that began May 2. The loss in investor confidence has much to do with drops in a variety of economic indicators, the Federal Reserve turning off the tap being one of those. And the worst may be to come, suggests United-ICAP energy analyst Brian LaRose.

“If you look at what values have been rising over the course of the quantitative easing program, it has been merely commodities and equities, nothing else,” he said. “Reality is starting to take hold.”

Pop goes the golden goose

That reality may be that the gold and oil bubbles will pop, reports Bloomberg. That, in turn, would lead to a surge in the U.S. dollar, which has lost as much as 10 percent against other world currencies since the last time Ben Bernanke and the Fed boarded the QE bus.

The possibility of further bailouts for debt-ridden Greece has dragged the euro down, as has the lack of a unified financial plan between euro-zone nations. The indecision has been less than inspiring to global investors.

In the U.S., consumer worry continues to spill over into the housing market. If people aren’t spending and housing prices continue to fall, the path of disaster for the U.S. is clear, says CNBC.

Finding the bottom with both hands

While analysts like Richard Ross claim that the U.S. economic fix is only beginning to take hold and that, as investment strategist Jeffrey Saut puts it, the market is “bullishly configured” as long as the S&P holds around 1,250, the naysayers remain out in force.

“We have mountainous inflation efforts in place with historically low yields and strong demand for bonds. That’s like a rubber band that’s going to snap at some point, and somebody’s going to get hurt,” says Bill Larkin, portfolio manager at Cabot Money Management in Salem, Mass.

In order to find out where the economic slide will stop, investment firm manager Abigail Doolittle believes the Fed should do much to strengthen the dollar and allow rates to rise. The effect will be slow but lasting.

“Force investors off of the liquidity high of the last few years, and replace immediate-term gratification with the long-term satisfaction of investing in an economy with a truly solid foundation,” she said.

Quantitative easing: When failure doesn’t sound like failure. (Contains adult language)

Sources

Bloomberg

CNBC

Huffington Post

Quantitative easing Wiki

New homes sales and new home construction have dropped to a new low during February. Image from Wikimedia Commons.

Demand for newly constructed homes and new home sales have been put on ice during the past few months of bitter cold. Sales of new homes dropped nearly 17 percent during February, and the housing industry continues to experience record low levels of activity. The drop in sales has been partially accredited to skittish lending conditions.

Home construction brought to a crawl

The construction and sale of new homes has slowed considerably during the past few months, which has been attributed partially to cold weather, a glut of foreclosure properties on the market and dwindling demand, according to Reuters.

New housing starts, or new housing being built, decreased by 27 percent during the month of February. New home sales from the end of January to the end of February declined by 16.9 percent, and the seasonally adjusted annual rate of sales slowed to 250,000 from 300,000. New home sales have decreased by 28 percent since February of 2010, according to that year’s data.

Winter conditions likely were a factor in delaying construction, but weak demand is certainly a factor as existing home sales fell too. However, it may equally be the case that banks are unwilling to write huge installment loans for homes few are willing to buy.

Head real estate economist blasts sluggish lending

Lawrence Yun, the chief economist for the National Association of Realtors, blasted skittish lenders and “unnecessarily tight credit” at a recent press conference, asserting that there would be greater numbers of sales if “mortgage credit conditions would return to normal,” according to the NAR website.

Ron Phipps, president of the NAR, echoed Yun by saying that though interest rates for mortgages were certainly lower than many short term loans, lamenting that “credit remains a challenge.” However, it is difficult to justify paying for a new home when prices for existing homes are low. At the end of February, the median price of existing homes reached $156,100 compared to new homes, which have a median price of $202,100 for new homes.

Glut of foreclosures

The housing market is currently riddled with foreclosed properties, and the rich are having a field day gobbling them up. Cash sales made up 33 percent of all home sales in February, and 39 percent of all homes sold were distressed properties, according to Bloomberg.

Federal Reserve Chairman Ben Bernanke has also been pessimistic about housing, being quoted recently as saying that mortgages were “difficult to obtain” and that “there’s no demand for construction,” in a recent appearance before Congress.

Housing data has been indicating that for the lucky few who have the cash or the credit, a great bargain can be had. However, those that are trying to become homeowners will likely have a difficult time. The housing industry as a whole will likely continue to struggle until demand and the supply of credit begin to perk back up.

Sources

Reuters

Bloomberg

National Association of Realtors

The Federal Reserve, and chairman Ben Bernanke, have released data on which institutions received installment loans in the bailouts. Image from Wikimedia Commons.

The Federal Reserve has opened up the books on which companies received installment loans in the bailouts. There weren’t too many huge surprises, but the amount of instant cash wired out was staggering. The Fed lent more than $3 trillion in total.

Huge installment loans from the Federal Reserve

The Federal Reserve, headed by chairman Ben Bernanke, was a heavy player in the bailout programs, which lent trillions in installment loans to various banks and investment houses as part of the bailouts. Since it is a loosely federal organization, it does have to disclose some data. Recently, the information about which companies received large money loans from the Fed was released. Between 2008 and 2009, when the Troubled Asset Relief Program, or TARP, was going full tilt, nearly 21,000 different banks, investment houses and companies received loans from the Federal Reserve, according to the Washington Post. In total, those loans totaled more than $3 trillion. Controversial recipients were a number of overseas banks, such as the Development Bank of Korea, which borrowed billions. Deutsche Bank of Germany, and UBS of Switzerland also borrowed heavily from the Fed.

Trillions more in short term loans

The Federal Reserve also lent out an even larger amount of short term loans, though lending overnight loans for banks is within the scope of the Reserve as a lender of last resort. However, the overnight short term loans were not exactly the size of typical short term loans, like payday loans; more than $9 trillion went out in overnight lending, according to CNN. The interest assessed to most entities that were borrowing money from the Fed ranged between 0.5 to 3.5 percent interest, which is far less than most personal loans, to be sure.

The silver lining

The Federal Reserve has a lot of control over the supply and value of American currency, and the amount of money it lent is staggering. However, the Federal Reserve has already been repaid by most of the entities it lent money to and managed to turn a profit on the loans.

Sources

Washington Post

CNN