Free money from the Fed intended to boost lending was used to pad bank profits with sweetheart bond deals instead. Image: Flickr/DoGoLaCa CC-BY-SA

The Federal Reserve loaned billions to big banks at near-zero interest to bail them out during the financial crisis. Those billions were intended to maintain the flow of credit and prop up the economy. Instead of loaning the money to individuals and small businesses, the banks reaped outrageous returns with the money by investing it in government bonds, a new study has found.

Free money, no strings attached

It was no secret that banks gorged on easy money provided by the Fed during the financial crisis and used the cash to buy Treasuries. A new study released Tuesday by the Congressional Research Service reveals the degree to which banks abused the privilege. The Fed lent more than $3 trillion to banks at interest rates as low as 0.0078 percent with no strings attached, according to the report. The banks pledged junk-rated securities as collateral for the the taxpayer-backed loans. Instead of reinvesting the money in the economy, the banks parked the money in Treasuries and took an easy profit–effectively borrowing money from one branch of the government and loaning it back to another at a much higher rate. Sen. Bernie Sanders, I-Vt., who commissioned the study, called it “direct corporate welfare to big banks.”

Abusing U.S. taxpayers for profit

Some of the taxpayer-financed arbitrage outlined in the CRS report includes a Fed loan of more than $48 billion to Bank of America at rates from 0.25 to 0.5 percent during a three-month period of 2009. In the same period B of A, the largest U.S. lender, tripled its holdings of Treasuries yielding 3.5 percent to nearly $15 billion. In the third quarter of 2009 B of A took $2.9 billion from the Fed at 0.25 percent and bought $12 billion in Treasuries paying 3.2 percent. Also in 2009, J.P. Morgan Chase, the second-largest U.S. bank, borrowed $29 billion from the Fed at 0.3 percent and bought $20 billion in taxpayer-backed U.S. debt yielding 2.1 percent. In 2008, Citigroup took $15.8 billion from the Fed at 1.2 percent; $11.6 billion at 1.1 percent and $4.9 billion at 2.7 percent. At the same time it held $24 billion in Treasuries with an average yield of 3.1 percent.

While banks count cash, credit dries up

While the big banks were adding hundreds of millions of taxpayer dollars to their balance sheets using free money from the Fed, lending decreased. According to Fed and Federal Deposit Insurance Corporation data, credit contracted at nearly the most rapid rate ever recorded. In 2009, outstanding credit to U.S. households declined by $234.5 billion. For non-corporate businesses, credit dropped by $296.1 billion. Small businesses closed. Foreclosures skyrocketed. Millions of Americans lost their jobs. For banks, it was business as usual.

Sources

MarketWatch

Huffington Post

Firedoglake

Lawsuit lenders convince cash-strapped plaintiffs to give up most of their future settlement in exchange for money now. Image: CC mrmaccc/Flickr

Lawsuit lending involves investing cash in a legal case for a percentage of the proceeds if the plaintiff wins. Lawsuit lending has exploded in the last decade as banks and hedge funds look for lucrative investment alternatives. Lawsuit loans are unregulated in most states and the practice is being called “legal loan-sharking” by consumer advocates.

Lawsuit lenders deny making loans

Lawsuit lenders shell out more than $100 million a year in bets that plaintiffs will win their cases. Lawsuit loans escape regulation by lending laws because companies engaging in the practice contend they are not lenders. Lawsuit lenders call their transactions investments, not loans, because a client doesn’t have to pay the money back if they lose their case.  Because they are not subject to limits on interest rates, lawsuit lenders charge APRs as high as 215 percent, claiming that lawsuit loans are riskier than other forms of lending.

Lawsuit loans billed as quick cash and easy money

The claim by lawsuit lenders that lawsuit loans are risky is challenged by certain facts. Lawsuit lenders scan legal notices for prospects and saturate late-night television with ads promising quick cash and easy money. They cherry-pick opportunities to look for sure things such as pharmaceutical class action suits and cash-strapped plaintiffs involved in personal injury cases. A personal injury lawyer told the New York Times that when he was hired to screen applicants for a lawsuit lender he was told to never mention the cost of the loan, which could go as high as 99 percent of the lawsuit loan amount.

States catching up with lawsuit lenders

Lawsuit lenders have escaped regulation by successfully lobbying state legislatures to exclude lawsuit loans from laws that regulate the credit and lending industries. But a law exempting lawsuit lenders from regulation was blocked Jan. 7 in the Illinois General Assembly. In December, Colorado filed a lawsuit against two of the nation’s largest lawsuit lenders, Oasis and LawCash. Colorado attorney general John W. Suthers said that since borrowers are charged interest once they receive a settlement, lawsuit loans are indeed loans, and Oasis and LawCash are violating Colorado lending laws.

Sources

New York Times

PointOfLaw.com

LawWeekOnline

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Installment loans serve any purpose in this economic meltdown

With the economic meltdown we are living in, a time period that is causing much distress in everyday lives, many bankers and lenders offering installment loans understand that you need help. Traditional ways of getting a loan have changed dramatically. Lack of a great credit score is not an issue anymore; most short-term lenders today require no credit checks, nor do they typically require faxing of personal information. This is a benefit to all customers in need of a loan.

New strategies banks and lenders are using for loans

As mentioned, many lenders do not require credit checks in order to qualify people for an installment loan or personal loan. This has resulted in more approvals of customers in need of immediate financial help. An installment loan, personal loan and even a cash advance can be processed in two hours or less, with no delay upon approval. In order to further assist our clients, online support is also provided for any communication purposes.

No required credit checks or faxing for an Installment Loan

Lenders understand that getting your credit checked is not a positive mark on your credit, but rather a damaging hit to your credit score. Every positive mark on our credit score helps. Many banks and lenders are testing newfound ways to help customers get installment loan or personal loans much more easily.

When life’s unexpected financial problems come knocking on the door, you can feel at ease knowing you can get an installment loan, personal loan or a cash advance in no time.

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Payday loans are a valuable tool if used properly. They aren't found money. (Photo: flickr.com)

This is a question that all people seeking a payday loan should ask themselves. Payday lenders are like any other businessmen who are looking to make money on a commodity that is in short supply. Remember, they did not create the shortage; they are only serving people that face the same. If you stop to take a close look, you will find that most lenders are only going by the customer’s requirements. They never force a person to roll over a loan or refuse to accept repayment of money borrowed. They would be more than happy to relieve you of the burden.

It Takes Two to Shake Hands

A payday lender sets up his/her business hoping to lend money to people in need at a cost. They do so at a profitable rate, yet at the same time they do away with numerous requirements that traditional banks and institutions claim are mandatory. Payday lenders are taking a risk by lending out the money and want to get it back with interest and charges which will help them stay afloat. Consumers, on the other hand, look for the money at short notice without many hassles. They are looking for the money to cover a short term need and are willing to pay the price. Life would be so much easier if both parties stuck to their commitments. However, things do not always work that way.

Part of the Blame Lies with Consumers

Easy money is always hard to attain. Price does not matter when the need for the money is urgent. Despite the information that a reputable payday lender provides, some consumers still fail to realize that the loan has to be paid on the next payday and that the payday lender is well within his/her rights to demand the same. Such consumers may think of a payday loan as an added form of cash flow into their accounts. They pay off one loan, only to take another. Some consumers are also guilty of applying for more than one payday loan at the same time. It is only over a period of time that they realize that they are paying a lot more in terms of interest and charges. The complaints start following thereafter.

Is There a Solution to the Problem?

Applying just a little thought to the issue indicates that there is a solution. As mentioned earlier, the payday lender is in no position to enforce a loan upon the consumer. Therefore, it is up to the consumer to take stock of the situation before making an application for a loan. There are times when such a situation cannot be avoided. There are also people who have taken the money just to impress guests or friends. The consumer has to make a hard decision as to whether the loan is really required. If it is and needs to be taken, the consumer then has to think on two fronts: first the repayment and second the shortfall that they will face the next month. Rather than leave things for the last moment and get trapped into a debt situation, the consumer should start making plans to cover for the shortfall expected in the next month. Taking this one simple step will help the consumer utilize the facility that the payday lender offers and also stay out of debt in the future.

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