Tuesday, December 3, 2013

Hello December: Cats, Goldman Sachs, and Holiday Cheer

A stalkerish shot of the
neighborhood cat! 
Hello everyone! Thanksgiving break is over and Christmas is rolling in. I've been listening to Christmas music for about a month now. . . and well the songs are becoming ingrained in my head. Today is the 3rd day of December and Thanksgiving has past so it's officially acceptable to be in the Christmas mood. I can't really believe that November is over. . . I've gotten that feeling that time is slipping away from me and there's only so much time before embracing a new world.

There is this neighborhood cat in the area and I've talked about it a couple times. I think we're friends now and it spent Saturday following me around as I studied Spanish outdoors. The nice weather is gone now and I'm left with the ravaging cold. . . I don't know how I'm going to do in the East Coast but I'm willing to give it a try :)

I realize I didn't give you guys a state of the union for November so today, to make up for it, is a 2 in one deal! I don't know when I'm going to post next so click below to read about my holiday wish list, and a full on economic rant. We're covering the dark side of banking in Comp. Gov. class and it makes me so angry. I'm wearing my leggings and totally ready for a rant.

My November rate was truly appalling for blog posts and I'm not sure December will be any better. I promise things will start to look up in January! Anyways, here is a holiday wish list!

Holiday Wish list :) 
Patagonia fleece 
Hunter rain boots
long cardigans 
moccasin slippersss 
basil & rosemary garden! 
a cat... and a pug...
gingerbread cookies
Daisy by Marc Jacobs (it smells so wonderful and it's so pretty)
a college interview...
a college acceptance...
a ski trip
Kate Spadeeeee
more hot chocolate
cute mugs :) 

And now on to more serious things. Banks. I always had this naive idea that banks were supposed to be institutions to help the American public save and invest money in worthwhile causes. I thought banks helped the economy and worked WITH the people. Oh, I couldn't be more wrong. I'm sure not ALL banks are evil and profit minded but it seems like a lot are... it reminded me a lot of the health care situation. I wrote a post on this so you guys should definitely check it out! I'm just so disgusted that banks would do everything for profit for themselves. 

Take for instance... Goldman Sachs. (My least favorite institution in the world). They actually make money when their clients (like AIG) go bankrupt. It's in their best interest to see their clients failing. Not only do they misinform their clients about risky endeavors, they bribe people to make sure that their clients are following bad advice. 

Short mini econ lecture:
So at a party wait I mean conference, young bankers at JP Morgan created something called credit derivatives. It separated the risk from the actual loan. So for example, imagine that JP Morgan loaned a company $100,000. If the company only paid back $50,000, JP Morgan would have to cover the rest of that if the company went bankrupt. When credit derivatives are in place, another client would have to pay the $50,000. This client would make the interest of the risk, it's basically a stock. It was supposed be used only with other banks: informed people who understood the full implications of credit derivatives. However, once the idea registered that the bank could make loans out of thin air now (since they don't need to keep the money on hand if the client goes bankrupt), they applied this to consumer mortgages.

Introducing the housing bubble! With banks created bundles of mortgages that companies and hedgefunds could invest in, people were getting a lot of loans approved since the bank no longer has responsibility for the mortgage and client's ability to pay for it. A lot of people who had bad credit ratings were getting mortgages. They of course bought houses and everything seemed to be going super well. Until, the crash was imminent. You can't just get rid of the risk. When people weren't paying for their mortgages, the clients were left to deal with the everything. Banks just made money since they created so many loans. 

Goldman Sachs was the only bank that made money with the housing crash. When the government bailed out AIG, Goldman Sachs RECEIVED money. 
Since the risk exchange couldn't be traced, there was no way of making sure this system was working correctly. 

Remember the whole Europe crisis? Ah, another situation of US banks taking advantage of people who didn't fully understand the concept of credit derivatives and banking jargon. Greece is in financial trouble from all this spending but they need to join the euro. The EU doesn't want to admit countries with low credit ratings. Well JP Morgan goes to Greece and lends them 2.8 billion euros under the interest rate of Germany because apparently you can do that. So everyone is buying bonds from Greece because they think these bonds are super safe. Greece spent irresponsibly because they think they have a ton of money. The market changes and suddenly Greece is left to pay 5.8 billion euros to JP Morgan. It's just awful. The other banks, hearing about this, do not say "Oh no! How could JP Morgan do such a thing?" but they say "Oh! Why didn't we think of doing that? Is it too late to exploit others?"

There are countless stories of greed ruining countries, counties, and people's lives. Banks just don't have any kind of morality or heart. Yes, business is not done with a heart, but excessive exploits could be avoided. I don't understand why banking has to be done under such a shrouded cover. There is no transparency or regulation in the banking departments. Banks, that make huge profits, do not pay taxes most of the time either.

I'm a general supporter of Obama but I feel like he could've done things a bit differently. He says he's for Main Street but helps out Wall Street. I know politics is more complicated than that, but I'm frustrated with how much power Wall Street exerts. He could have set some rules and made an example out of say, Bank of America, but he let them off with an easy warning. It frustrates me that he blew his one and only chance to change how things were done on Wall Street. There's not much politicians who don't like the banks can do though. The bank lobby is so powerful because banks do make so much profit. There's no easy way to stop this but I'm still waiting for a politician who isn't afraid to stand her ground (can I hope for a woman president? please?) and clean up the way business is done. 

It's capitalism yes, but is it really if these banks aren't being punished for what they do? Why should the government bail out these banks that too huge to fail? The banks argue that it would cause a spiraling economic depression (and I do think the balance is fragile) and the government NEEDS to intervene and bail them out. Is that capitalistic? No. The market should be able to battle it out. You can't just take the wonders of capitalism without worrying about the risks. As the banks learned (I HOPE, although nothing major has changed after the housing crash), risk does not just disappear. 

In short, large banks "too huge to fail" really piss me off. Have a great week! I hope this got you think or at least taught you something new. All this information can be found on the Frontline series! 

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