It’s Good To Be “Big” In America – Dan Mangru Exclusive WorldNetDaily (WND) Commentary July 20, 2010Posted by Admin in Dan Mangru, Market Commentary.
Tags: bank of america, banks, ben, bernanke, billion, borrowing, Chairman, citigroup, corporate profits, dan mangru, dow, entreprenuers, federal, fitch, goldman sachs, Harvard, howard silverblatt, interest rates, JP Morgan Chase, lending, mangru, mangru report, MIT, monetary policy, moody's, reserve, S&P, Small Business, trillion, william dunkelberg
It’s Good To Be “Big” In America
By Dan Mangru
It was the best of times. It was the worst of times. It was the age of record profits. It was the age of bankruptcy and corporate cuts. It was a season for bailouts and free fed cash. It was a season for depression and the disappearance of credit.
These sound like two wildly different economies, don’t they? Two wildly different circumstances, two wildly different places. Yet sadly, they are but one United States of America, the land of the haves and have-nots, the big and the small, bailouts and all.
In fact, big is the American way. Big cars. Big houses. Big government. Big everything. We are Americans and we like things big.
So when it comes to big banks and big corporations, we say the bigger the better. Let the good times roll.
And if you are a big company, the times couldn’t be better.
Big corporations and big banks have easy access to credit and low interest rates. This has helped them leapfrog any appearance of a depression.
For Q2 of 2010 analysts are projecting a 42-percent jump in profit among S&P 500 companies. For Q3 of 2010, which ends September 30, analysts are projecting only a paltry 31-percent jump.
It’s not just profits though. Big corporations are stockpiling their reserves with billions of hard cold cash.
In March 2010, cash on hand at S&P 500 companies rose to a staggering $837 billion – roughly 18 months’ worth of profits amongst those companies.
S&P senior analyst Howard Silverblatt expects that record-breaking number to be even higher when the Q2 April-June 2010 figures are reported later this quarter.
Now you might say, “Well, what about big banks that were supposed to fall, like Bank of America and Citigroup. They are still in trouble … right?”
The answer to that question is absolutely not. Not after the government spent hundreds of billions of dollars to bail out the largest banks.
Want proof? Just look at Citigroup’s balance sheet. Citigroup currently is sitting on $757.68 billion. That’s right, three-quarters of a trillion dollars for one of the weakest banks on Wall Street.
Thank you, Ben Bernanke.
Yep. It is good to be big in America. Big banks and big government all working together in harmony.
So what’s the big deal (no pun intended)?
Well, that little thing we like to call small business is anything but small. You see, small business plays a vital role in our economy.
Small businesses employ human capital as opposed to offshore human capital like the big boys do.
According to Federal Reserve Chairman Ben Bernanke small businesses employ about half of all Americans and account for 60 percent of job growth.
To boot, the newest of small businesses, those two years and under, account for about 25 percent of all job creation, even though the newest of small businesses employ less than 10 percent of the American workforce.
Essentially, what that means is that small-business jobs are new jobs, and, in an economy which has roughly 10-percent unemployment, the U.S. could use some new jobs.
You are probably thinking, well if all of the big banks and corporations are flush with so much cash then they must be lending to small businesses.
WRONG. Even as big banks have padded their balance sheets to record levels, lending to small businesses is on the decline. Small-business lending has gone from $710 billion in Q2 2008 to less than $670 billion in Q1 of 2010. All of this while bank profits and cash reserves have never been higher.
Banks make money by lending money, but if they are not lending money how are they making money? Big banks essentially borrow money for nothing from the Federal Reserve and then buy U.S. treasuries at roughly 3.5 percent interest. They have virtually no risk.
Whatever money that they have left over from buying treasuries they lend out to other big companies that are bailout-protected by the U.S. government just so there’s no risk involved.
Why, lending to those pesky entrepreneurs, innovators and small-business men, that’s all a bunch of hogwash. They are too great a risk to the perfect bank plan of no-risk lending and government payouts.
To support that plan, banks have floated the idea that small businesses don’t need money and actually don’t want it.
They have guys like William Dunkelberg, chief economist at the National Federation of Independent Business, who has gone around the country touting the idea that in a slow economy, businesses that may be losing customers may not want to hire new workers, focus on new technology or expand their businesses.
Because, when times are bad, we shouldn’t focus on new technologies, or investing in new human capital to grow our businesses. Of course not.
I want the big banks to produce all of these small businesses who are refusing to take money. I want to meet them. In fact, I challenge the big banks in America to provide the names of 1,000 small businesses that refuse to take their money.
But, just to placate the American public, the big banks decide to lend to pesky entrepreneurs every now and then.
In fact, a couple of the big banks are trying to claim that they are lending more to small business. Bank of America claims to have lent $19.4 billion to small and medium businesses in Q1 of 2010, up some $3 billion from that same period a year ago.
Keep in mind that same period a year ago, the Dow was approaching 6,500 and the world seemed on the brink of utter financial ruin.
But nevertheless entrepreneurs and innovators get a bone from Bank of America. I guess Bank of America thinks they will all just shut up now.
Some among you might say, “Well, what about interest rates? Are small businesses getting the same interest rates as the big guys?”
Of course not. According to the Federal Reserve’s “Terms of Business Lending,” the average rates on small-business and industrial loans worth approximately $500,000 were 3.5 percent higher than the federal funds rate.
Now 3.5 percent may not seem that high to you but the difference is the highest it has ever been since 1986, which is when those numbers were first tracked.
All of this and Ben Bernanke still doesn’t know why small businesses aren’t borrowing. It doesn’t take a rocket scientist to figure out that, when smallbusiness has to pay an additional 3.5 percent more on interest than everyone else, they probably will borrow less.
That’s just banking 101. But apparently Bernanke didn’t go to class that day when they taught that at Harvard. Maybe he slept through it at MIT.
Bottom line is that he doesn’t get it.
Until the banks have financial incentive to lend to small businesses, they will continue to buy U.S. treasuries and play it safe when it comes to lending.
Big banks are staying close to the federal government, which subsequently is allowing them to make record profits with virtually no risk. That’s a no-brainer for the banks.
Currently, bank minimum reserve rates are roughly 8 percent of overall deposits. The Fed easily could make that 8 percent somewhere between 6 and 7 percent. Along the way it could shut down direct lending and free-money policies that it has extended to Wall Street’s elite.
Those are two simple ways to get the banks moving toward lending and away from being beholden to the federal government.
But who needs solutions when we have a crisis, and, as White House Chief of Staff Rahm Emanuel says, never let a good crisis go to waste.
So instead of lending to small businesses, which is the traditional role of community banks, we are going to give all of the privileges to the big banks, burden the community banks with interest payments they can’t meet (see my previous article) so that they can go bankrupt and be bought out by big banks. That way the big banks can be even bigger.
Same thing goes for big corporations. Why invest in loaning money to small and medium businesses when we can just wait for them to go under and buy them cheap? That way the big corporations in America get even bigger.
That’s the plan for America. The big get bigger and the small get thrown to waste. Since 2008 some 250 banks have gone out of business. None of those banks was named Citigroup, Bank of America or Goldman Sachs.
For those guys it’s the best of times. Sadly for us, it is becoming the worst of times.
When Work Doesn’t Pay – The Judy Lederman Story June 5, 2010Posted by Admin in Panel Discussion.
Tags: banks, Chase, credit, dan mangru, Foreclosure, Judy Lederman, late payment, Making Homes Affordable, obama, pay, The Mangru Report, Wamu, work
Judy Lederman and Her Daughter Casey.
As mentioned on today’s show, I had the privilege of meeting Judy Lederman while traveling to New York City for the Robert Kiyosaki interview. For the Forbes article that they ran on Judy CLICK HERE. Judy was also kind enough to write us an update on her situation:
*From a letter dated May 19, 2010 in response to my 12/09 application.
Chase Home Finance LLC is writing in response to your recent request regarding a loan modification on the above-referenced account. After researching your account, we have determined that you do not qualify for a modification through the Making Home Affordable modification program or through other modification programs for the following reason: Because you are less than sixty days past due on your mortgage Loan.*
I’m a three-time loser. Three times I have applied for help from WAMU, later Chase, to try and keep my house. Three times, I have been denied. The simple reason, as it was explained to me by one of Chase’s attorneys who told me that I could never quote him (oops) is that I have consistently paid my mortgage on time. If you want us to help you, you have to stop paying your bills.
I thought by applying for the modification before I hit rock bottom I could preserve my credit rating and bail myself out. Isn’t that what the program was supposed to do?
I come from a family that never used credit cards – that believed if you borrow money, you must pay it back. I’ve always promptly paid my bills. And so, somehow, after getting laid-off from my job three years ago, I have watched my bank account dwindle to practically nothing while I scramble to pay the bills. I work overtime, twice as hard making half the money, to try and stay afloat in the hopes that maybe, this time, the bank will heed and my mortgage rate would be reduced to something that keep my checking account from hitting rock bottom. If only that were the case, I could go out there and be productive – use my business building skills to create jobs for others…
But alas, the time has finally come. In trying to stay afloat, I’ve whittled away my savings to nothing. I am still working – consulting jobs – but I finally made it to the bottom of the hole. I can’t refinance – there isn’t enough income coming in. With a 5-year interest-only ARM that is due next year, I feel like I’m in quicksand. And the only way to save myself is to do what the lawyer said: STOP PAYING THE MORTGAGE! Become a debtor. Watch my good credit rating slide into the muck!
I’ve never been one to take bailouts. I’ve worked since I was a teenager. I kept working while having and raising three-children and I always proudly brought home a paycheck. After my divorce, I never qualified for Alimony, nor did I ask for it – I was happy to be employable and eager to work for my wages.
I guess I don’t understand how a bank – or a government – creates a situation that makes it impossible to do anything BUT sink. The life preserver does no good to a victim who is lying on the bottom of the ocean. The only way to qualify for help is to be so deeply in debt that you will never, ever climb out.
The Mangru Moment – On Ben Bernanke and Deficit Reduction – The Mangru Report – Episode 3 May 21, 2010Posted by Admin in Dan Mangru.
Tags: bailout, banks, barack, ben, bernanke, dan mangru, federal reserve, geithner, government, lecture, mangru, Moment, mortgages, obama, president, report, secretary, spending, tim, treasury, wall street
In this edition of The Mangru Moment, Dan Mangru tackles Federal Reserve Chairman Ben Bernanke. Recently, Bernanke has been lecturing Americans about the need to reduce deficits. What Bernanke fails to acknowledge is that he has spent more money on bailouts and toxic mortgages than any other Fed Chairman in history. Combine that with low interest rate policies and we are seeing how Bernanke is reflating the bubble all over again.