Why has America’s economy gone down the tubes? Why is it taking so long for it to crawl its way up and out of the porcelain bowl? There are many ways to answer these questions, but most will tell you that a lack of oversight and unwise risk taking have played key roles in the brush fire. Individuals can monitor their finances during tough times with a little bit of help from fast cash payday loans, but on the corporate and government levels, something bigger is needed.

That’s why President Obama is set to unveil “sweeping overhaul” of financial oversight in America. He thinks it’s high time a broken system was made right.

“A failure of a system”

Robert Schmidt reports for Bloomberg that Obama has said his plan to “refashion supervision of the U.S. financial system” is necessary to close gaping holes in the way oversight and risk taking have been managed. His proposal is considered “the biggest overhaul of market rules in more than seven decades,” writes Schmidt. Just one of many significant elements of the change would include a new regulatory board specifically for the biggest companies in America. Obama’s plan also includes the creation of an agency for monitoring consumer financial products, nominating the Federal Reserve as the watchman of companies who “are too big to fail” and a federal group to monitor private equity funds more tightly.

“This was a failure of the entire system,” Obama said. “An absence of oversight engendered systematic, and systemic, abuse.”

Obama would like this legislation ready for his signature by the end of 2009. However, he’s expecting there to be numerous political battles along the way.

The more things change…

Only the Office of Thrift Supervision would get the ax. Much of the current financial regulatory system would remain in place, which President Obama sees as a possible aid to getting future legislation passed, without the political turmoil a full shake-up could bring. However, Obama’s plan does state that “More can and should be done in the future. We focus here on what is essential: to address the causes of the current crisis, to create a more stable financial system that is fair for consumers and to help prevent and contain potential crises in the future.”

Just in time for the new Credit Card Bill of Rights and the cry for sweeping mortgage reform, a new Consumer Financial Protection Agency (CFPA) would monitor those agencies, ever on the lookout for “unfair terms and practices.” The CFPA would have the authority to ban bad practices and punish companies for violations with fines and penalties. It would also be able to raise the standards for banks and non-banks, something which is definitely needed.

Giving the Fed more authority

This prospect scares many who feel the Fed shouldn’t have the control over monetary policy that it already does, but President Obama is committed to giving them more oversight authority. The central bank would oversee all “risky” financial firms. What happened with Bear Stearns and Lehman last year cannot be repeated if America’s economy is to survive, so Obama is proposing that the Fed monitor banks and large financial companies. This includes insurers like AIG and hedge funds, which the current system allowed to run rampant with their financial shenanigans.

“These firms should not be able to escape oversight of their risky activities by manipulating their legal structure,” reads the White Paper report. “Our proposals would compel these firms to internalize the costs they could impose on society in the event of failure.”

Calls for emergency funding will not be filled with the near-automatic speed, which could offer Fed bashers some relief. Obama’s plan will curb some of their emergency lending power. Treasury Secretary Timothy Geithner would be required under the new plan to approve in writing any corporate requests for emergency money, which should streamline the process and (hopefully) weed out bad decisions. In addition to this responsibility, Geithner and the Treasury will be able to propose changes to the Fed’s structure in the interests of improving the central bank’s accountability.

Curing the sickness

I hope that we’ll be able to cure the sickness in America’s financial system soon. The quicker change is allowed to take place, the closer we’ll be to a system that doesn’t feed the rich at the expense of the middling poor. This oversight – this transparency – won’t mean fast cash right away, but a system that works for more of the people more of the time is a good thing. We need this sweeping overhaul. On a personal level, I would be able to make investments that help my bottom line. Payday loans for those little emergencies will still be there, but the health of the whole will be welcome.

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Short term loans are still the easiest ways for qualified borrowers to find cash fast. It used to be banks provided money to people in need. Today things are different. The Treasury just released the results of stress tests done on the 19 largest banks in America. The purpose of these tests was to find out if a lingering recession or harder economy would cause further financial ruin to the banking industry.

The problems began when studying the banking system as a whole. Banks are holding billions of American dollars in loans and assets that are backed by real estate. Since the housing industry remains in a decline, banks cannot sell their assets, or estimate a true value of worth. Recovery is what the industry needs, but there is no way to predict when it will happen. A longer recovery time could cause the prices of real estate to fall even lower, thus rendering banks helpless to figure out how to sell assets.

The Treasury is stating that banks now have “toxic assets”, which are those that don’t “have enough capital to cover losses in the worst-case economic scenario.” In response, banks are stopping their lending, the very thing that would help businesses grow and create more jobs for Americans.

Because of the lending freeze, many people are looking to short term loans as a financing option. The recession is affecting people’s abilities to pay debt and they are looking for ways of managing through the economy until it improves.

What do banks do now?

It’s estimated that when the full results of the bank testing come out, approximately half of the 19 banks will need to raise more capital. Giants such as Bank of America, Wells Fargo and Citibank are all under orders to find tens of billions of dollars in capital. To do this there are basically two options:

1. Sell assets
2. Issue more common stock

The government is giving banks 6 months to raise this capital. If they can’t, the Treasury will convert the government’s special “preferred shares into common stock”, which essentially means they will have stock ownership in banks in need. There are some critical of this plan. One Boston investment banker, Frederick Lane stated, “For the shareholders of Wells Fargo or Bank of America, I think it’s an outrage…If equity needs to be raised, it’s going to be raised under perceived duress. Having these banks sell into a firestorm is difficult.”

It’s no wonder why consumers are looking to non-banking options for potential funding such as short term loans. Bank stocks have lost more than half their value since the beginning of the banking crash. Even worse, the hardest hit banks such as Bank of American and Citigroup have seen their stock prices decline more than 90%. If they try to sell more stocks, they essentially drive down the prices of each share of their own stock. Existing shareholders lose and the banks lose. Without government intervention, these banks will have a difficult time regrouping.

Intervention

The government is doing what it can to help shore up the banking system, however it is going to be a long drawn-out process. With 19 major banks under testing and only three in the clear so far, consumers need to be ready to utilize alternative funding options, such as short term loans, for a bit longer. Hopefully as the recession passes, the banking industry will find ways to recover and return to lending.

United States Federal Reserve headquarters

The United States Federal Reserve said today that it will spend another $1.2 trillion to stimulate the economy. The Fed’s announcement has already caused stocks and oil prices to rally.

The Fed said in its announcement that it is trying to lower interest rates and contain the recession.

Project lower mortgages

The Fed plans to purchase an additional $750 billion in mortgage-backed securities. It will also double the amount it planned to spend on debt purchases from Fannie Mae and Freddi Mac. That will now cost $200 billion. That move is intended to lower mortgage rates.

Interested in interest

The Fed will also purchase $300 billion in long-term Treasury bonds. That will lower interest rates for the government, which should translate into lower borrowing costs to businesses as well as individuals seeking personal loans.

Market activity

The Fed announcement regarding the Treasury bonds caused oil prices to climb back upward today after the market on oil futures had closed. After-hours electronic trading spiked immediately following the Fed announcement.

Activity on the stock market also rose sharply, and Treasury bond prices were particularly affected.

Following today’s announcement, Treasury bond prices spiked and yields on those bonds declined, as traders anticipated the Fed bond purchases. At 2:30 p.m., 15 minutes after the announcement, the yield on 10-year Treasury bonds had fallen half a percentage point, to 2.53 percent, according to the Washington Post.

Why the change?

U.S. Federal Reserve Chairman Ben Bernanke

The Fed had earlier expressed reluctance to buy Treasury bonds, so many were surprised by the announcement today. In its statement the Fed admitted that they were concerned about the risk of deflation. The Fed also changed its official policy statement.

The statement originally said the Fed expected the economy to recover later this  year. However, in the Fed announcement today it was clear that is no longer the expectation.

President Barack Obama today announced a plan to help get “the heart of the American economy” beating regularly again. Much of the effort is aimed at encouraging banks that received bailout money to give small business loans.

Why small businesses?

Obama stressed that small businesses were responsible for 70 percent of the new jobs that were created in the past decade. That’s why, he said, the White House is dedicating $15 billion toward unfreezing the secondary credit market and giving small businesses tax breaks.

Obama said the administration will also require the 21 largest banks that got bailout money to report on long- and short-term loans and other credit they give to small businesses.

Tax cuts in the works

Treasury Secretary Timothy Geithner outlined the tax help that small businesses will be eligible for. He said small businesses:

• That earn up to $15 million will be allowed to claim losses for the past five years in the current tax year.
• May write off up to $250,000 in investments this year.
• Can reduce estimated tax payments to 90 percent of the previous year’s filing.
• Are allowed to take larger depreciation deductions within the first year of property purchases.
• And will see 75 percent of capital gains excluded for those who invest in small businesses.

More help on the way

The money for the mall business aid comes from the economic stimulus package and costs a total of $730 million. The plan also includes reducing lending fees for small businesses.

In addition, the government will guarantee some loans through the Small Business Administration to the tune of 90 percent.

Parting words

Obama discussed the plan in a speech at the White House today. The small audience was mostly made up of small business owners.

“As president I will continue to do everything in my power to ensure that you have the opportunity to contribute to your community, to our economy and to the future of the United States of America,” Obama said.

H. Rodgin Cohen

President Obama’s trouble filling his cabinet appears to be far from over. Three candidates for top positions in the United States Treasury have withdrawn from consideration.

Deputy Treasury Secretary pick H.Rodgin Cohen was the most recent to drop out of the process before he was even officially nominated.

Tangled web

There’s no official word on why he is out of the running, but its possible that his role as counselor to just about every major player on Wall Street, which complicates his relationship with the Treasury. He was a partner in the New York law firm Sullivan & Cromwell LLP.

Because the Treasury is involved with Wall Street through purchases of shares in big banks and mortgage companies, some may view Cohen’s former role as a conflict of interest. The Treasury is backing personal loans and mortgages by buying securities.

Those that came before

Cohen rose to the top of the list of candidates for Deputy Treasury Secretary after another pick, Anette Nazareth, stepped down earlier this week. Nazareth worked for the Securities and Exchange Commission during the time Bernie Madoff conducted his . She dropped off the list after it was made clear that she’d be extensively questioned about that time period.

Help still wanted

Also this week, Caroline Atkinson was in line to be nominated to serve in the Treasury as Undersecretary for International Affairs. Atkinson had to withdraw, per officials’ requests, after a tax problem was revealed during the vetting process.

About that economy problem …

Critics have argued that leaving empty positions in the Treasury must be hampering the Obama administration’s response to the economic crisis. The Treasury is heavily involved in implementing the economic stimulus package and the foreclosure prevention plan, among other economic efforts.

The Obama administration says they have come far in the appointment process and made ample progress on housing, stimulus and bank stabilization.

Well, it seems the feds are so fed up with the lending world, they’ve decided to take matters into their own hands.

The Federal Reserve and the U.S. Treasury have started a new program through which consumers and businesses can take out loans directly from them.

Know your acronyms

The program is called the Term Asset-Backed Securities Loan Facility, otherwise known as TALF.

Through TALF, people can borrow money based on ABS (asset backed securities). That means they can get business loans or personal loans backed by consumer loans, auto loans, student loans, credit-card receivables or small-business loans.

Not a new idea

This program was first announced in November, but it was delayed. Now, owners of ABS can apply for loans starting March 17. The first TALF loans will be issued March 25.

Making a mint

The program could provide up to $1 trillion in loans for consumers and small businesses. It is designed to make a profit through interest and fees.
The plan is to stimulate the economy without relying on traditional credit channels, which are now blocked up, the government said.

A reluctant industry

Banks are unable or unwilling to lend, and even customers with high credit scores are finding credit hard to obtain.

“Issuance of consumer ABS has remained near zero since October,” the Treasury said, adding that the stress in the market for extending credit to consumers “is one of the causes of the deepening recession.”

Optimistic on economy

Tony Crescenzi, chief bond-market strategist for Miller Tabak & Co., believes the country will quickly see positive results because of the TALF. He believes it will restore confidence in the economy.

“If it works, a swath of economic data will be impacted, probably by the end of the second quarter or early in the third quarter, altering perceptions about the economy and boosting household, business and investor sentiment,” Crescenzi said.

At what point will the government step in and take control of failing banks? That’s a question that a lot of Americans have been wondering about lately, and all we’ve known up to this point is that President Obama has made reference to a “stress test” that will be the determining factor.

Now the wait is over. The Treasury has revealed what the “stress test” will entail.

Their eyes are on you

David Ellis of CNNMoney.com reports that Obama’s plan to monitor and judge the health of America’s 19 largest banks was hinted at when the White House introduced its financial recovery plan. Designated banking regulators will watch banks like Citigroup, Bank of America and JPMorgan Chase and “estimate firmwide losses for the next two years if economic conditions worsened and the bank’s ability to absorb such losses.”

The Office of Thrift Supervision and the FDIC specifically will address asset performance – which shall include loans and securities like collateralized debt obligations – and judge it under two scenarios. The first would look at consensus economic expectations, while the second would assume a worst case scenario where unemployment went above 10 percent and home prices went down another 20 percent over the following two years.

Do-it-yourself first

Depending upon how the banks rank in these scenarios, the government will know which ones need the most help and perhaps additional stimulus. However, if it is determined that a bank needs help, they are first given six months to find private backing. If that fails, then the government will step in and buy convertible preferred shares. In time, the banks would have to convert that into common stock, which would boost capital to the necessary degree.

To avoid investor panic, the government said they won’t reveal the names of banks that require extra help, but how will they honestly be able to hide it? If they look for public funds, the cat’s out of the bag…

The money will be there… but only if they LEND

If banks are going to receive more funds, they’re going to have to increase lending. Credit must flow. After too many banks hoarded TARP money, it’s clear that this must be rigidly enforced before bank executives put their mark on the funds. Not changing their outlandish spending habits didn’t go over well with the public, either.

Good news! News of the stress test caused share prices to go up at Bank of America, JPMorgan Chase and Wells Fargo. Only Citibank went the other way. All of this is good news in the minds of investors, however, who fear complete government takeover. That could be on its way, despite President Obama’s denials…

Payday loans are a useful tool for emergency funds, but they should not be used as a crutch upon which a person relies in order to make ends meet. To suggest otherwise would be irresponsible; they are a short-term tool, not a long-term safety net for your budget.

This kind of “bail me out, world” mentality is distressing on the consumer level, but it is even more troubling when an entire country looks to its government to provide an escape hatch from strife when the best solution is to accept responsibility for mistakes and enact change. A sense of entitlement and the idea that government will always be there to bail us out of difficult situations is quite common today in America. Yet the “addictive dependency” that develops in society as a result of what Scott Olin Schmidt of Spot-On calls the “Sugardaddy state” is an inevitable result.

Who’s your sugar daddy and what does he do?

Schmidt sees President Obama as America’s sugar daddy. His government has disposable income (or pretends it does) and is ready to pull everyone up by the bootstraps. It places Obama in a position of dangerous power, Schmidt believes. Whatever help is given, there are strings attached.

Recent examples abound in the auto and banking industries. Obama has agreed to give money to the automakers, but new regulations were required. Unfortunately, the industries can’t afford to make the most important changes – but they can even less afford not to comply, as Washington would surely turn off the money faucet. In the banking industry, government is positioning itself to take over. No private enterprise, no choices given to taxpayers who are footing the bill. Banks won’t have to learn how to fix their own problems. It’s a giant no fax payday loan, without all the trappings and provisions that go with the “loan” part of the deal.

State governments love the sugar, too

Schmidt gives the example of California, which is on the precipice of financial collapse. President Obama and his sugar daddy state will be their connection, too. Government money flows and deep down, the sugar daddy and the recipient are feeling good. It’s nice not to have to be responsible for problems in the short run – but in the long run, this is a path that could lead to ruin. The author tells us the score:

With money comes power, and there seems to be only one source of money these days: the Department of the Treasury’s printing presses. And President Obama seems eager to consolidate the federal government’s power as he writes convenience checks against future generations’ credit limits.

Go on a diet, America

Consumers who take out payday loans are required to repay their debts. They are required to be responsible. Cash Advance Mojo and Scott Olin Schmidt hope that eventually, car-makers, banks and everyone else who habitually shirks responsibility for their lots in life will cleanse their palettes of that taste of sugar and bite on reality’s nail.

Related articles

Steve Parker: Republicans to auto industry: “Drop dead.” (huffingtonpost.com)
• Which ex-president is Obama most like? (slate.com)
• Chavez doubts U.S. can shake oil needs (cnn.com)

The United States Treasury is busy bailing out banks with TARP funds.

The Treasury seems to be determined to make good on its promise to report all the cash advances it gives to banks using bailout money. Today it reported that it has dispersed $1.15 billion between 42 banks within the United States.

Biggest cash advances

Banks in 25 different states got a piece of the Troubled Asset Relief Program funds. Flagstar Bancorp of Michigan received $266 million. The Treasury gave PrivateBancorp of Illinois $243 million. W.T.B. Financial Corp. of Washington and Anchor BanCorp of Wisconsin each benefited from the TARP money to the tune of $110 million.

Grand total

The Treasury started out with $700 billion in TARP money, which was approved last fall. Initially $350 billion was released to help stabilize the financial system, stimulate the housing market and encourage banks to start lending again. Congress granted President Barack Obama access to the remaining $350 billion last month.

“The Treasury said it has now invested $195.3 billion in 359 institutions in 45 states and Puerto Rico,” according to CNN Money.

New states take cash advances

Banks in two new states joined the ranks of financial institutions taking advantage of cash advances from the TARP funds. Nebraska threw its hat in the ring with Farmers and Merchants Bank. The Nebraska bank’s customers are mostly farms and rural businesses.

Wisconsin also made its first appearance on the bailout list with two local banks. Anchor BanCorp and Legacy Bancorp both received cash advances through TARP investment funds.

Related articles

• Review Board For Massive Financial Bailout Program Promised By Obama (huffingtonpost.com)
• The Bank Bailout is Broken (businessweek.com)
• New Bank Bailout Could Cost $2 Trillion (huffingtonpost.com)

United Stated Federal Reserve Chairman Ben Bernanke

Your online payday loan store keeps you informed about the nation’s financial crisis.

The Federal Reserve recently has changed its focus from interest rates to emergency credit programs. Today it announced it is ready to start buying Treasury securities in order to resuscitate lending. The federal interest rate last month was dropped to nearly zero, and for the time being the powers that be intend to keep it that way. Now the organization turns its attention to improving conditions in private credit markets by buying long-term Treasuries.

The Fed also warned that the nation is facing the threat of inflation falling too low. Some economists are concerned that  a long recession could even result in deflation. Check out this article from your online payday loan lender to read about the causes and effects of deflation.

Market stimulation

Thought the Fed has said it is prepared to buy Treasury securities, it has stopped short of saying that it will actually begin the process. Any purchases made between now and the Federal Open Market Committee’s next meeting must be put to a vote. The FOMC meets next in March.

While the Fed’s focus on emergency credit programs is lessening panic in the markets right now, it does not promote growth. As long as the federal interest rate stays so close to zero the markets will not experience growth.

Not enough inflation

Economists predict that inflation will go up only 0.78 percent this year, which is about a point below the normal level. Regular inflation fosters economic growth and helps keep prices stable. Without inflation, the gross domestic product will continue to decrease or stay stagnant, and the recession will continue.

Some economists are still concerned about the threat of deflation, which will cause more business closings and job losses. The only real defense against deflation is consumer spending. The theory is that if financial institutions resume normal lending, consumers will resume a level of spending that is closer to normal.

So what do you think? After the country’s recent financial hardships, will consumers go back to their old ways of borrowing and spending? You can leave your comments here, on your online payday loan source.

The Troubled Asset Relief Program was meant to aid homeowners in avoiding preventable foreclosures, the panel says, and there is no evidence that the bailout money went toward that effort.

Poor bookkeeping

The $700 billion program, TARP, was approved in mid-October. The oversight panel, headed by Elizabeth Warren, says the Treasury hasn’t even released a strategy for stabilizing the financial system.

“Treasury needs to be clear as to what, if anything, it has done,” Warren said.

Warren says Congress gave $350 billion to the Treasury and specified it was meant to help borrowers refinance their homes. The Treasury set up the system and did not put in place a tracking mechanism to monitor whether it was meeting Congress’ requirements. Homeowners, with mortgages that exceed the value of their homes, may still be taking out payday loans to pay their mortgage so they don’t get thrown out of their houses.

The other half

In order to access the other $350 billion, the Treasury needs congressional approval. Whether the Treasury requests these funds remains to be seen. And whether they receive the funding will be up to the discretion of President-elect Obama’s administration. Obama’s economic team is now overhauling the remaining fund to speed the flow of credit to consumers.

The initial deadline for approval for bailout money was Dec. 31. The Treasury has extended the deadline to Jan. 15, five days before Obama’s inauguration. This gives regulators extra time to process and approve requests, and it potentially gives more financial institutions time to apply for funding. So it will likely be a while before we find out just exactly what the Treasury did with the money.

Hello? Anybody home?

To aid in drafting its report, the panel had submitted 45 questions to the Treasury. Several of the questions were not answered, according to the panel.

A Treasury spokesman gave no comment in response to the panel’s report, which was released today. He said he had not seen it.

Keeping an eye out

The Treasury apparently has nothing to say in response to the report at the moment, but sometimes these things take time. I’ll be watching the news for a response, so check back for updates.

My thoughts? It may be too late for the bailout funds to help average Americans keep their homes. Sure, home foreclosures have gone down since TARP was approved, but is that just because so many people have already been kicked out? The funding still may be able to help some people, but now that the deadline to approve institutions for funds has been extended, there are probably some panicked homeowners out there taking out payday loans so they can pay their overpriced mortgages.