With a number of banks set to repay TARP money back to the government, one question in many people’s mind is, “Did the taxpayer make money from the government’s initiative?” Well, the New York Times estimates that the government earned around $4 billion in profits from the repayments made by JPMorgan Chase, Goldman Sachs Group, Bank of New York Mellon Corp, BB&T Corp, US Bancorp, Morgan Stanley, American Express Co, and Northern Trust Corp. In addition, the government gained another $35 million from smaller banks. The banks issued Treasury warrants to purchase common stocks at a fixed price in the next 10 years and preferred shares that carry 5 percent dividend rate. In essence, the government derived its profits from increases in stock prices and the dividends it will receive.
But are the conditions really as good as it sounds? It should be noted that nothing about the deal is fool-proof. Also, a number of large banks have not yet repaid the government. Citigroup and Bank of America, for example, can hardly pay back the government with the state of their finances right now. The two large banks each received around $45 billion from the government. Some smaller banks might not be able to repay the government at all. And aside from banks, the government has infused billions of dollars into mortgage companies Fannie Mae and Freddie Mac as well as insurance company American International Group Inc. Even the auto industry has received more than its fair share with General Motors and Chrysler Group receiving a combined $65 billion. The government carries all these risks and more.
Mark Zandi, an economist from Moody’s Economy.com estimates that the government will break-even from bank bailout. It might incur losses from its capital infusions in other industries. Overall, “the crisis is going to cost taxpayers money – but still less than a complete financial collapse and cratering of the economy would cost”. The US government’s biggest losses might come from the rescue of the auto industry as well as Fannie and Freddie. Right now, the government owns around 80 percent of Fannie Mae and Freddie Mac. Analyst estimates that it will take years before debt relief help for consumers can be seen, if that happens. More capital injections are expected because “there is no fundamental value remaining” in these companies.
There might be a chance for taxpayers to get more returns though. In particular, it can make money from the stocks it owns from the bailed out companies. However, policy makers and even officials want the government out of the companies even if it means losing a potentially big return if it waits for the value to rise. According to Martin Zimmerman, a former chief economist at Ford Motor Co. “the best solution is for the government to get out as soon as possible”.
Many people might take it for granted but identity theft is a real risk for everyone with a bank account, social security number, and other financial information. It is something you don’t think about until it happens to you. Well, it is important to start taking precautions now by looking at identity theft comparisons because its consequences may be more than you ever bargained for.
There are stories of victims losing everything simply because another person used their identity to make purchases, rack up debts, and mislead other people. The blog posts outlined here talks about identity theft, its consequences, and tips on how to prevent it. Hopefully, these stories and guidance will guard you against identity theft:
Tom @ Truston wrote a post titled “Close a Huge Loophole for Credit Card Fraud”. The premise of this article is that criminals will find a way to take advantage of the loopholes on your credit card. Simply by getting your home address, contact number, and account number, they can commit fraud and you’ll be left with a mountain of debt. He advises you to choose paperless account statement over the mailed ones to avoid certain risks.
Michelle @ Identity Theft Blog said in her article “Online Credit Card Theft Affects 130 Million: Learn to Protect Yourself” that as much as 130 million people can actually be victims of identity theft. Recently, two men were indicted in connected to their activity. They stole 130 million debit and credit card numbers in what was called the biggest identity theft case in United States history. This incident serves as a wake-up call for individuals who are still laid back on identity protection.
The Fight Identity Theft Blog featured a story about Fed Chief Ben Bernanke in the post titled “Ben Bernanke – Identity Theft Victim”. Technically, it was his wife who was the victim because her purse was stolen at Starbucks. Later, they discovered that the thieves tried to steal $9,000 using Bernanke’s checks.
It comes as no surprise in the financial circle: Federal Reserve Chairman Ben S. Bernanke is set to be nominated by the President Obama to a second term. Having led the economy out of the biggest slump since the great depression, Obama notes that “because of his background, his temperament, his courage, and his creativity”, the Fed Chief is “responsible for preventing another (Great Depression)”.
Pro and Anti Bernanke
Despite Obama’s glowing commentaries and the results of his work in the economy, Bernanke still has to have tough questioning by the Senate. A lot of lawmakers believe that he had been too slow in identifying the severity of the mortgage problem and that he did not protect consumers as much as he has helped struggling financial firms such as the American International Group Inc. and Bear Stearns Co.
Bernanke is already endorsed by the Banking Committee head, Christopher Dodd. According to Dodd, “While I have serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice”. Other officials that recommended Bernanke include National Economic Council Chairman Larry Summers, Treasury Secretary Tim Geithner, and Chief of Staff Rahm Emanuel. For his part, Obama wants to reappoint the current Fed Chief because he wanted to keep the team that helped the US weather the crisis to remain intact.
Guiding the Economy Back to Growth
It’s undeniable that there’s still a cloud hanging over everyone’s head because of the financial crisis. In spite of government assurances, it is still definitely not over. A few signs of hope are starting to appear though. For example, Standard & Poor’s 500 Index Futures showed improvement due to reports that the decline in US house prices is slowing down.
The Fed Chief is most noted for slashing the interest rate to near zero and pumping around a trillion dollars into to banking sector. If he is reappointed, he will need to reduce an unemployment rate that is almost 10 percent, guide the economy back to shape, and shrink the Fed’s balance sheet to avoid uncontrollable inflation.
It is true that Americans still have a hard time making ends meet and paying their obligations but the pressure seems to have eased up last July. According to Moody’s Investor Service, more people were able to pay their bills in July; this is a reversal of the earlier trend wherein defaults and delinquency rates continually increased.
Charge of Rate Down
US charge-off rate on credit cards dropped to 10.52 percent in July from 10.76 in June. The charge-off rate is annualized percentage of the total outstanding principal balance that is written off as uncollectable. While the improvement may not seem like much, it is actually the first month-on-month improvement since the September of last year.
Payment Rate Up
Moody’s Index reveal that payments have risen sharply in July across six major credit card companies including Citibank, American Express, and Discover. Payment rates have even reached 17.43 percent which is the highest point since October of last year. The payment rate is measured as the percentage of total outstanding principal balance that cardholders pay back each month.
Overall, the delinquency rate for July is 5.73 percent, the lowest level in 2009. This figure is on track with the improvements seen in the months of April, May, and June. According to William Black, Moody senior vice president, “July tends of mark an inflection point with respect to seasonal trends”. That means that delinquency may be in the horizon because of back to school expenditures and holiday spending. The amounts included in the delinquency rate are monthly balances that are over 30-days delinquent.
Projection Still Bleak for 2010
The charge-off rate is expected to hit 12 to 13 percent by mid-2010. This coincides with the expected peak in unemployment rate of around 10 to 10.5 percent. However, it is important to note that these projections are simply that: projections. These presumptions can easily change if the charge-off rate and delinquency rate lowers in the next months. Comparisons of debt relief programs tell of the same tale.