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Can Living Wills Prevent Another Banking Collapse?

AMA7-28-14People make living wills – and now, so do banks. To prevent a major financial meltdown like the one that hit the country in 2008, major US banks are now required to create a contingency plan for failure and submit it to government regulators. But because those regulators haven’t been monitoring those “living wills,” the safety net protecting consumers from another crisis is still full of holes.

The Post Collapse Clean Up

The banking collapse of 2008 devastated the country. Mismanagement, fraud and reckless lending crated a bubble that burst in spectacular fashion, leaving the housing market in ruins and the economy on shaky ground. That’s when the nation’s biggest banks, also the worst offenders, were deemed “too big to fail,” and massive bailouts kept them functioning

In an attempt to prevent more scenarios like this, the government stepped in, passing the sweeping Dodd-Frank Act in 2010 to impose more accountability on the banking industry and protect consumers from predatory practices and their own bad judgment.

Among the many requirements of the Act was the “living will” mandate. The country’s biggest banks, including Bank of America, Citigroup and JP Morgan Chase, had come under investigation by the US Justice Department and various state attorneys general for wide ranging fraud and mismanagement that put millions of homes into foreclosure nationwide as well as other financial crimes affecting not just domestic but also international financial activities.

But because those banks were the linchpins of the country’s financial structure, a collapse, either due to bankruptcy or illegal dealings, remained unthinkable. They were still too big to fail, which meant that anther crisis would require more bailouts at taxpayer expense.

The Fed and the FDIC: Banking Regulators

So the Dodd Frank Act required each of these large banks as well as a few other heavy hitters in the financial world to create a detailed plan describing what would happen to the company in the event of a complete collapse. That plan was to be filed with designated government regulators — the Federal Reserve and the Federal Deposit Insurance Corporation, better known as the FDIC.

The job of the Fed and the FDIC was to conduct periodic “stress tests” that would determine whether financial institutions were healthy. One job was to review these plans annually and notify their creators of any shortcomings. Banks were supposed to amend the plans to accommodate the Fed’s recommendations until the plan was deemed credible and viable.

And if they didn’t? The Dodd Frank Act also includes a mandate for regulators to seize and forcibly dismantle stubbornly non-compliant institutions and either kill them entirely or recreate them as smaller entities. This would prevent the need for massive and unpopular bailouts to keep those struggling, and shady, financial giants afloat.

Four years later, none of that has happened.

The Fed’s Standstill

The banks, chief among them the perennial banking bad boy Bank of America as well as its cohorts Chase and Citi, have filed living wills. They were followed by other big financial entities including Prudential and American International Group.

But the Fed and the FDIC have yet to respond. The whole topic became a sore point in recent US Senate Banking Committee hearings, when new Fed chair Janet Yellen blamed her agency’s foot-dragging on a complex documentation process and altogether avoided the question of the mandate to forcibly break up malfunctioning institutions.

The lack of response from the Fed on the entire “living will’ aspect of Dodd Frank worries a number of financial experts. They fear that even if the institutions comply with Dodd Frank and file plans as required, those plans are largely meaningless without timely feedback from the regulators.

Whets more, banking experts say, the reason the Fed is avoiding questions about the mandate to take charge of troubled institutions is that it doesn’t really have any plans of its own in place to address how to do that. If true, that means government regulators have no power to require banks to create credible plans and act on them if necessary.

This creates a situation, they say, that leaves the country vulnerable to another banking collapse like the one five years ago, with megabanks on the verge of collapse and a taxpayer funded bailout waiting in the wings because Dodd Frank’s provisions couldn’t be enforced.

For “taxpayer” read “you” – the ones already paying higher banking fees as large banks pass on their legal costs to customers.

Other provisions of the Dodd Frank act, such as requirements for tighter lending standards and consumer assistance, are in place, and the ultimate fate of the “living will” mandate remains to be seen. But as Jason Hartman says, education is a key part of investing success – and of financial survival in case of a bank’s demise.  (Top image: Flickr/eglobetravel)

Read more from The American Monetary Association:

Who is the Fed and What Is It Doing With Your Money?

Not a Student? Student Loan Debt Still Hits Home

Carla and the American Monetary Association Team

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Who is the Fed and What Is It Doing With Your Money?

What does the Fed do?The Fed, aka the Federal Reserve, has been making more headlines since the housing collapse of a few years ago than at any time in its history, thanks largely to its ongoing but fading stimulus program aimed at keeping interest rates low. But the Fed does far more than that. Like a puppet master in the shadows pulling strings, the Federal Reserve makes decisions that affect the financial health of everybody in the US – and many abroad.

The nation’s central bank is tasked with regulating the flow of money throughout the economy. Its gatekeeper committees and subcommittees oversee everything from interest rates to inflation as it holds back or introduces money into the system.

That’s how the Fed gained its current level of consumer recognition. The housing bubble that peaked and then burst around 2008 had devastating ripple effects throughout the e3conmomuy as a whole. As homeowners across the country defaulted on mortgages and lost homes to foreclosure, the economy as a whole flattened.

So the Fed stepped in with a large-scale stimulus program known formally as Qualitative Easing version 3, a plan that involved the buying of billions of mortgage backed securities from the nation’s big banks each month. That. The Fed argued, would allow those banks to keep interest levels low and encourage the recovery of housing and other aspects of the economy.

But while the progress of the stimulus has gained the Fed some public scrutiny in recent months, it’s done little to lift the veil on the Fed’s relationship to those megabanks deemed too big to fail, the world’s money markets and you – yes, you, the American taxpayer.

The Fed and Interest Rates

The stimulus and its effect on interest rates touch everybody who’s looking to take out a loan, particularly for a home mortgage. Because QE3 was originally aimed at propping up the housing industry after the collapse, mortgage interest rates fell to historically low levels and have remained relatively low even as the Fed takes steps to taper down the stimulus thanks to improving job rates and consumer indexes.

Those low rates also trickle out into other kinds of loans as well, since the stimulus allows banks to adjust rates down on consumer credit purchases of items like cars and appliances too. But critics of the stimulus, some of whom are employees of regional branches of the Fed, point out that the nations large banks can still set their own rates and charge customers higher fees on transactions as well.

The Fed and Inflation

Probably nothing the Fed does has more of a direct effect on consumers than adjusting rates of inflation and deflation – the value of the dollar relative to its purchasing power. While it may seem that the best rate of inflation is no inflation at all, the Fed actually considers mild inflation to be completely acceptable. And it has the power to adjust those rates accordingly.

That’s not all bad, as Jason Hartman points out. As the value of the dollar goes down, so does the value of debt –meaning that a person with a home loan can end up paying less on that loan than its original value, since the dollar is worth less than it did when the loan was new.

The Fed and the Big Banks

Whether or not you hold an account with one of the country’s biggest banks, such as Citigroup, Bank of America, Wells Fargo or JP Morgan Chase, you’ve been affected by the malfeasance of those banks in the recent past. They’ve all been implicated in bad behavior stemming from the housing collapse that includes misrepresentation, fraud and outright criminal activity.

The Department of Justice, backed by the Fed, launched a number of investigations that led to multibillion-dollar fines and settlements on the part of Bank of America, Citgroup and Chase as well as a number of smaller satellite institutions. Victims in some pf the suits got settlements too.

But because a fine in the millions of dollars is mere pocket change to an institution that can’t be allowed to fail, those banks continue to operate, passing along the costs of those legal actions to customers in the form of fees and rates.

Those bad banking practices led to the creation of the Dodd frank Act in 2010 – a sweeping piece of consumer protection legislation aimed at protecting consumers and imposing tighter standards – and penalties – on the banks themselves.

Because of the Dodd Frank Act, the Fed now conducts annual “stress tests” – a review of a bank’s assets and outlay to determine its overall stability and health. The test allows the Fed to pinpoint problem areas and intervene before the bank is in danger of failing. Though the Fed’s stress tests are aimed at the bank itself, not consumers, the results are passed along in the form of customer service, accountability and even the opening and closing of bank branches in various parts of the country.

The Fed, LIBOR and International Currency Exchanges

Think that global money markets don’t affect the average American with o offshore assets? Think again. The Fed is active in the world’s currency exchanges too, with ties to the international banking rate setter LIBOR and others. Those rates set the value of the dollar relative to the currencies of other countries and the related interest rates. And that affects the rate and costs of importing and exporting goods as well as the exchange rates for currency conversion and other international financial activity. Whether you’re a tourist, entrepreneur or investor, the Fed’s behavior on the world scene affects your financial decisions.

The Fed isn’t omnipotent, though. Its recent actions – or inactions – about requiring banks to comply with stress test mandates recently came under sharp scrutiny by the Senate Banking committee. But its reach is long and its decisions small and large can affect the way we all conduct business both personal and pubic both at home and abroad.  (Top image: Flickr/anthonyquintano)

Read more from The American Monetary Assoiation:

AMA84: Vodka Diplomacy with Phaedra Fisher

Bitcoin For Real Estate: a  New Frontier

Carla and The American Monetary Association Team

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AMA 85 – The Future of 3D Printing with Christopher Barnatt


The 3D Printing Revolution is about to transform our lives. While traditional laser and inkjet printers only make marks on paper, 3D printers build up solid objects in a great many very thin layers. Already pioneers are 3D Printing production tools, prototypes, jewelry, sunglasses, works of art, toys and vehicle parts. But this is just the beginning, with digital manufacturing destined to change how we create, transport and store a great many things.

Within a decade, some products may be downloaded from the Internet for printout in store or even at home. Already DIY enthusiasts are building their own 3D printers, while consumer models for the rest of us are just starting to arrive. Meanwhile doctors are learning how to 3D print kidneys and other replacement human organs.

In this book, futurist Christopher Barnatt explains how 3D Printing works, overviews the 3D Printing Industry, interviews some of its pioneers, and highlights how 3D Printing may help to save the planet. Also included is an extensive glossary of 3D printing terminology and a 3D printing directory.

Christopher Barnatt’s 2012 book, 25 Things You Need to Know About the Future, was reviewed by The Futurist as “an exciting, yet realistic and believable, vision”, and by New Scientist as “a worthwhile read for anyone curious to know what may await us”.

Check out this episode!

AMA 84 – Vodka Diplomacy with Phaedra Fisher

Phaedra Fisher visited Russia back in 1994, and witnessed the privatization and inflation firsthand. Her book, Vodka Diplomacy, explains her experience and life in Russia as several events unfolded.

Check out this episode!

Not a Student? Student Loan Debt Still Hits Home

Student debt still hits homeYou’re not a college student. You don’t have a child in college. But the escalating crisis of student loan debt still affects you, in ways large and small. In the spring of 2014 the total student debt load in the US had reached $1.1 trillion – and that burden of debt is stifling entrepreneurship, threatening the economic recovery and sparking fears of another recession.

The cost of college has been steadily rising over the past half-century or so. From lowly community colleges to prestigious Ivy League schools, institutions of higher learning have been raising tuition costs and other fees. At the same time, scholarships and grants from private and government sources have been drying up.

That means more and more students hoping to get the degree that would lead to a lucrative long-term career have had to turn to loans to get through school. Because the traditional government funded student loan programs still aren’t enough to cover all the expenses associated with college, private lenders have stepped in to fill the gap, with higher interest rates and shorter terms than the old standbys. Even Pell grants, which could support a lower-income student through a two or four year degree program at a community or small state school, are falling short, which means those students who can least afford another burden of debt are also turning to private lenders for help.

The result? On average, American students leave school with a debt load of about $30,000. And while increasing numbers of students are finishing degree programs later in life, the bulk of the burden falls squarely on the fastest growing segment of the US population: the so-=called “millennials,” people ranging in age from early twenties to early thirties.

In the traditional paradigm, these twentysomethings might have been expected to graduate, get a good job, marry, buy a house and settle down to raise a family funded by a solid career. But increasingly, economic circumstances paint a very different picture.

Student Loan Debt Stifles Economic Growth

Saddled with large amounts of debt, recent graduates are opting not to take on more – and that includes the “good debt” of a home mortgage as well as the general consumer debt of cars and other high-end purchases. Even with near record low interest rates, these young consumers are wary of taking on more debt – especially if they’re struggling with lower paying jobs than they expected to have with their degrees.

Fewer home sales and consumer purchases mean a sluggish economy overall. What’s more, the student debt problem also ripples through the world of employment, with serious implications for job growth and new startups. And that in turn affects the country’s global competitiveness and ability to innovate.

Student Loan Debt Crushes Employment Opportunities

The problem of student loan debt affects the job market – eve among those who don’t go to college. A recent study found a relatively large subgroup of individuals who could go to college but are choosing not to, precisely because they don’t want to take on the burden of thousands of dollars in debt. Instead, they settle for whatever lower-wage jobs they can get with less education. While some may advance to better opportunities and better wages, most don’t.

Another group often overlooked in studies of student debt includes those who enroll in college, but then drop out – usually after they’ve gotten financial aid to attend. These individuals are left in worse trouble than those who do finish. Not only do they end up without a degree and with limited job options, they’re faced with repaying the debt they’ve incurred.

Among students who do finish their degrees, competition in some fields is fierce, leaving many still stuck in low-wage jobs that aren’t connected to their field at all. The old cliché of the PhD driving a taxicab isn’t far from the truth. Limited financial options leave more and more of these new graduates living with family or friends in an effort to make ends meet.

For many, the threat of post graduation debt affects the choice of career, too. Students increasingly gravitate toward majors that promise higher paying jobs upon graduation, such as business or law, rather than the ones that lead to public sector or nonprofit work, like social services ad education. That leads to potentially damaging shortfalls in those key areas.

Even if they are able to land a reasonably well paying job in their chosen field, some of these graduates can expect to be paying down their loan debt for the rest of their working lives. Student loan debt isn’t discharged in bankruptcies, so many simply default – and the resulting blot on a credit report can chill any other efforts to take out a loan.

Student Loan Debt Affects US Global Competitiveness

The student loan crisis isn’t just choking the economy at home. Much of the country’s job growth comes from startups and new small businesses. But recent graduates coping with heavy debt loads may not want to – or be able to – take on the additional debt needed to launch a business. That means that good ideas go undeveloped, key innovations never get off the drawing board, and bright thinkers don’t get the support they need to keep the country ahead of the curve in a competitive global market.

A Turning Tide?

Recognizing the problem is the first step toward fixing the problem, and new – and old – efforts to tackle the student loan debt problem are trying to do just that. New programs aim to help money strapped students understand the loan process. Lower cost online programs aim to make the cost of an education cheaper. Some colleges have even (gasp!) scaled back on some fees and charges, and made more scholarship aid available.

Still, that $1 trillion in student debt won’t go away quickly. As Jason Hartman says, awareness is the key to making changes — and it doesn’t take a college degree to see that student loan debt affects us all.

Read more from The American Monetary Association:

The Future May Be Brighter Than You Think: Here’s Why

Bitcoin for Real Estate: A New Frontier

The American Monetary Association Team

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