Diving For Dollars and The Discount Window

The powerhouse credit card company American Express has just joined the storied list of financial firms converting to bank holding companies. Like Merrill Lynch and Salomon Brothers, American Express is seeking shelter from the subprime storm by converting to the highly regulated Bank Holding Company form. In another economic climate, these voluntary conversions from the largely unregulated corporate forms that shape credit card companies and the minimally regulated and often wild, risk seeking investment bank culture would be inexplicable.

Today, the reason for the conversions are obvious, its all about the Benjamins. Yes, access to large amounts of cold cash from customer deposits, and low-cost borrowing at the discount window offered by the Federal Reserve can turn even firms that have an allergy to government regulation into believers in the benefits of regulatory oversight.

How should taxpayers and bank customers view this growing trend of corporate category-hopping? The irony of this flight to regulation is not lost on us consumers who have weathered the voracious appetite of credit card companies to solicit our business and then treat us like red headed step-children, with sharply escalating teaser rates, universal default rules, industry opposition to bankruptcy protection for consumers choking on a suffocating pile of huge interest costs from high interest rates that never seem to go down with other interest rates. Add to this the confusing minimum payment rules and a foul brew of penalty fees that pile up for the unwary to create balances that balloon far beyond the amount of the original debt.

There is a word for what I am feeling about American Express' flight to regulation: Schadenfreund, or comeuppance. The stress and worry that the highly-compensated executives of American Express, Morgan Stanley and Merrill Lynch are experiencing in this crisis can't be half as intense as the customers of these financial giants who were trammeled by high interest rates, risky investment strategies and huge compensation packages for executives who cooked up the products that caused us all so much financial pain. Like my mother used to say: "what goes around, comes around."

Comments

[americaforme]

I'm one of the Red-headed Step children, great Post Thanks.

[paulita]

I was in a restaurant when on gentleman suggested that the government should give 1milion dollars to each of the 300 million Americans instead of the 750 mil to bail out large corporations. That may have sounded far fetched but honestly it would be such a better idea.

1 million dollars per household would be my suggestion, that is less than 300 million and half the cost of this bail out. It would totally stimulate the economy, people would buy houses, shop, buy cars, pay off mortgages that are foreclosing yet get to keep their homes, buy bigger h omes. Although, President Elect Obama should still seek to fix the health care system, but in the meantime, some medical bills could be paid off, older people could live well, no further need for unemployement insurance..
Mothers or Fathers could take a bit of maternity leave without worrying about having no job,honestly it is a good idea and would "bail out" the correct people.

The markets would skyrocket as people invest money into the market.. seems to me a win/win.


Those who wanted to could waive the money, i.e. Bill Gates, or pledge it to extreme poverty or something.

Unfortunately, we don´t think like that here and people would cry Socialism! Of course it is not Socialism to waste our money on large corporations and wait for them to trickle it down.

I wish someone would just be brave enough to go with this stimulus plan

[Tallllama]

You may wish to reconsider the arithmetic of your proposal, not to mention the inflationary effects of your plan. Who would want to do any work and what would be the effect of that on the value of your 'million dollars'? An who's gonna pay for it?

Now the math lesson: the 700 Billion 'bailout' divided by 300,000,000 of us means we're each in about $2,333. So whether we get a gov check for that amount or it all goes to keep the financial structure afloat, that IS the average amount we just put on the kids' credit card! Grrrr!

[Sundialsvc4]

The answer, Talllama, is "no one will." And, by current reasoning, "no one has to."

"Government debt," you see, "does not have to be repaid. Only refinanced." As a writer in the current issue of The New Yorker observes, the current amount of "money" represented by financial derivatives exceeds the world's supply of actual, production-based capital by a factor of at least 8. "Nobody knows," the article says, "how much it is."

And my personal point is: nobody cares. The only musical note in a game of "Musical Chairs" that anybody cares about is ... the latest one. The Federal government prints more than $1 million a minute, and the accountants dutifully record it as both "debits" and "credits," just like good accountants are supposed to do. More than $2 billion a MONTH is dumped into the Iraqi war. In the next 48 months that this war is quite-sure to go on, this is a cool $84 BILLION in "profit." Where does it "come from?" Who ... cares.

Eventually, of course, someone will say, "Hey! This is just a tulip-bulb!" But once again, nobody cares. "Just don't let someone say that on MY watch."