I received a copy of Mike Mayo’s Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves* a week and a half ago. As the title suggests, the book is about his experience as a securities analyst covering banks.

First things first. Who is Mike Mayo? According to the inside flap of the book, he’s “…one of the top-ranked banking and finance analysts of the past twenty years. Mayo was the only analyst to testify during the Senate Banking Committee hearings in 2002 on conflicts of interest on Wall Street, and in 2010, he testified again, this time as the first analyst to speak on the causes of the crisis.”

My thoughts on the book

Overall, I liked the book very much. It was an easy read and gave a nice overview of what happened in the years leading up to and following the housing crisis. Along the way, the author discussed the problems he had trying to be an honest analyst. When he was critical of banks, they shut him out and wouldn’t give him access to their management. He was even fired for his honesty. I applaud his efforts to put investors first.

Reading the book, it’s very clear that Wall Street is a racket. It’s heavily loaded in favor of the bankers and investors are only important because they provide money. Something needs to be changed.

I enjoyed the personal aspects of the book like when he shared about his struggles to land his first banking job. He ended up working at the Fed in the merger-approval area after working briefly at IBM. He spent five years at the Fed and eventually landed a job at UBS. Mayo’s honesty in his reports didn’t do him any favors with his employers. At one point he was fired from his job a Credit Suisse and spent six months unemployed.

When it came to his discussion of the causes of the housing debacle, I felt he was too easy on the politicians and their role in helping create the crisis. The lack of detail here could be because he was writing about the crisis from his perspective. Whatever the case, he left the impression that politicians (both Democrats and Republicans) played a minor role in the creation of the crisis.

The best part of the book was his discussion on fixing capitalism. From the book:

To fix the banking sector, should we rely more on government regulation and oversight or let the market figure it out? Tougher rules or more capitalism? Right now, we have the worst of both worlds. We have a purportedly capitalistic system with a lot of rules that are not strictly enforced, and when things go wrong, the government steps in to protect banks from the market consequences of their own worst decisions. To me, that’s not capitalism.

I can understand the appeal of certain regulation. If we’d had the right oversight in place, we would have limited the degree of the financial crisis, which included bailouts measured in hundreds of billions of dollars, and millions of people losing their homes due to foreclosures. But we also would have sacrificed innovations in credit and a vibrant financial sector. Over the past century, our economy probably would not have grown as fast or been anywhere near as dynamic. Moreover, the real problem with regulation is that it often doesn’t work very well, in part because it’s always considering problems in the rearview mirror. The financial system today is almost dizzyingly complex and moving at light speed, and new rules tend to address fairly precise things. They ban specific types of securities or deals or trades instead of addressing larger principles.

He goes on…

A related issue is that regulation can sometimes trigger unintended consequences. Another section of Dodd-Frank cut the fees that a bank can charge a store for debit card transactions. As you can imagine, banks are not about to simply shrug that off. It adds up to billions each year. Instead, they’ll make it up somewhere else—most likely by charging consumers for other services, as in no more free checking. The bottom line? Consumers will now pay more for the convenience of using a debit card, and will likely never see the benefits from the lower costs to merchants. This is—let’s face it—price-fixing by the government, and it shows why measures like this don’t really help things in the long run. If the government were to set a cap on how much McDonald’s could charge for Big Macs, it wouldn’t take long before the price of fries went up to cover the difference.

I agree. Unfortunately, our politicians don’t seem to be listening.

Overall, Exile on Wall Street* is a great read. It’s easy to understand and not at all mundane. I highly recommend it to anyone who’s interested in learning more about the housing crisis and the interworkings of the banking industry.

Now you have a chance to win a copy of the book from AllFinancialMatters. If you’re interested, please leave a comment below. I’ll randomly select and announce a winner on Friday. Before you enter, please consider my two rules:

1. You must be a resident of North America (I will not ship internationally).

and…

2. You can only enter one time.

*Affiliate Link

Thanks to Ritholtz for the find.

After I posted The Secret of Oz last week, I went to check out Bill Still’s website, The Money Masters. It was there that I saw John Trumam Wolfe’s book, Crisis by Design: The Untold Story of the Global Financial Coup and What You Can Do About It*. I found the Kindle edition for $5.99 and purchased it. What an interesting read! The book, which is essentially a collection of articles written by Wolfe, makes the case that the debt crisis was planned all along.

NOTE: Because the book is a collection of articles, one thing I found annoying was the repetitiveness of some of the pieces. I would have preferred that the author cleaned up the redundancies.

What I found interesting was his thoughts on the World Bank and the International Monetary Fund. From the book:

…I started following the activities of the World Bank and the International Monetary Fund (IMF). These are “sister” organizations that were set up at the end of the Second World War essentially to help rebuild war-torn Europe with low-cost loans (the World Bank) and to foster stability in the international currency markets (the IMF).

Despite their altruistic-sounding charters, these two organizations have become nothing less than global financial predators that have turned three-fourths of the planet into debt-ridden junkies.

Sometimes evil is hard to confront. But I tell you without equivocation that the activities of these two international banks have been motivated by a cold, calculated plan to control the populations of Earth.

I know, I know—conspiracy theory and all that. But if you study their trail of financial bondage across the planet, their real intentions become all too clear. And it is not a matter of studying their conduct for a year or two; their strategic plans started decades in the past and run decades into the future.

He continues later on with an example what this might look like…

Having tracked them now for more than three decades, I can tell you that their pattern of operation repeats itself, country to country.

First, they covertly facilitate a currency crisis in the targeted country. This is not difficult to do if one understands that currencies are commodities and can be manipulated on the exchanges on which they trade. It takes capital to do it, but the mechanics are not difficult to put in place. In recent years, people like George Soros have been involved. Think Indonesia, late nineties. Soros and well-placed media outlets push the message about how weak the targeted currency is. Because of this, he is able to sell the currency short8 (“betting” it will go down). In this way he drives the value of the currency even lower while making a killing. As the currency crashes, the country experiences growing economic chaos, riots, and internal strife.

With the country now trying to participate in international trade and commerce using a currency that has all the attraction of pet food from China, their credit rating nose-dives faster than a Nancy Pelosi popularity poll. They can’t borrow from traditional sources. Business falters. Unemployment skyrockets. And in some cases, again like Indonesia, riots ensue and blood flows. When the politicians have their colons sufficiently puckered, one or both of the twin sisters of the Apocalypse (the IMF and World Bank) ride in on a white horse.

“Gee, Mr. President. It looks like you’re having a problem here. Perhaps we can provide some assistance. Would, say, five or ten billion help to tide you over?”

“Yes, well, the New York bankers have turned their backs on us for no reason at all. This currency issue is temporary, I assure you. How much did you say?”

“Five or ten billion, but we’re flexible. Our concern is for the people of your great nation.”

“Yes, of course. Who controls how the money is spent?”

“You do, sir.”

The president suppresses a smile as he thinks of his private yacht moored in the south of France and his young mistress sunbathing on the foredeck in her topless bikini.

“And what would the terms be?”

“Interest only for the first three years and then we would work out a mutually agreeable repayment plan for the principal. And, of course, you would have to execute our standard loan agreement.”

“Certainly. Do you have a copy of that handy?”

One of the bankers pulls a multipage document out of a Gucci briefcase of shimmering Italian leather and hands it to the president. He begins to scan through it. His brow furrows. He looks up.

“Eh . . . why is there a clause here that mandates how we must educate our young women on matters of family planning and contraception? That has nothing to do with the country’s economic strength.”

“Well, Mr. President, we feel it does. The population level of the country certainly has a bearing on the nation’s prosperity. Wouldn’t you agree?”

“I . . . eh, suppose so. But I can’t agree to these stipulations regarding our agricultural production or our tax policies. Those are strictly internal matters.” The president stands and straightens his back.

The two bankers stand as well. “We’re sorry to hear that, Mr. President. We were hoping we could help you reduce those unemployment figures.” They head for the door. One of them turns, “And Marseille is . . . so beautiful this time of year.”

Two weeks later headlines blare: President Signs $10 Billion IMF Loan Agreement.

The president puts a cool $500 million in his Swiss bank account. A frenzied pack of federal bureaucrats feast on the balance until only the remains of the bloodied carcass are left for state and local vultures. Perhaps 10 percent will reach the people.

The country will never be able to repay the loan, which, of course, is exactly what the IMF wanted in the first place—control of the country’s assets and the ability to dictate social engineering policy.

One other thing I found very interesting was all the ties between Goldman Sachs and the government. Scary indeed.

My next read will be Ellen Brown’s Web of Debt*.

*Affiliate Link

The Two Step Plan to National Economic Reform and Recovery

Step 1: Directs the Treasury Department to issue U.S. Notes (like Lincoln’s Greenbacks; can also be in electronic deposit format) to pay off the National debt.

Step 2: Increases the reserve ratio private banks are required to maintain from 10% to 100%, thereby terminating their ability to create money, while simultaneously absorbing the funds created to retire the national debt.

These two relatively simple steps, which Congress has the power to enact, would extinguish the national debt, without inflation or deflation, and end the unjust practice of private banks creating money as loans (i.e., fractional reserve banking). Paying off the national debt would wipe out the $400+ billion annual interest payments and thereby balance the budget. This Act would stabilize the economy and end the boom-bust economic cycles caused by fractional reserve banking.

I’m still not sure how you can pay off the national debt with money created by the government out of thin air and NOT cause inflation. I’m not against this idea by any means but I just don’t see how giving congress the power to print money at no interest will not lead to more overspending.

Thoughts?

Oh, and if you haven’t done so yet, WATCH THE VIDEO!

Why the new fee?

According to the article, the fee is in response to a part in the Dodd-Frank Financial Reform Bill that will limit the amount banks can charge businesses for transactions (“swipe fees”). Those fees have been capped at $.24 per transaction. They are currently $.44 per transaction. This change will supposedly cost banks $6 billion per year in lost revenue.

What’s funny (maybe funny is the wrong word) is this quote from Dick Durbin:

Sen. Dick Durbin (D-Ill.), who championed the legislative provision that led to the caps, said in a prepared statement: “After years of raking in excess profits off an unfair and anticompetitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers. It’s overt, unfair, and I hope their customers have the final say.”

Come on, Dick! Do you honestly think banks will just accept $6 billion in lost revenue? HARDLY! This is simply another case of how government involvement leads to unpleasant consequences (I was going to say “unplanned consequences” but I can’t see how new customer fees could be an unplanned consequence of new regulations).

This is a relatively small issue for me but one of the retailers I visit, Spec’s Liquor, has a two-tiered system for charging customers. Customers who pay with cash or debit card, receive a discount. Those who pay with credit card, do not. So, I’ll either have to pay with debit and incur a banking fee, pay with cash (I seldom carry cash), or use my credit card and forgo the discount.

I am happy to report that Christopher Dodd, Barney Frank, and Dick Durbin will be happy to reimburse you for your fees. Just send them the bill. (Unfortunately, that was a joke.)

It’s a nice story. It’s also made possible by the fact that the bank is small and it owns 75% of the mortgages it services. That’s the difference maker.

Some of the nation’s biggest banks are imposing a variety of new fees on people who withdraw money from automated-teller machines.

The move is the latest example of the burgeoning new fees that banks are imposing on customers accustomed to years of free services. Banks are scrambling to replace billions of dollars in revenue expected to be lost from new federal regulations on overdraft charges and debit cards.

As far as I can tell, this is only a big deal for those who use an ATM outside of their bank’s network. In other words, it doesn’t appear that banks will charge customers for using their bank’s ATM machine.

Of course, people can avoid (or at least lower) ATM charges by either not using the machines or limit the number of transactions by withdrawing more money each time.

Their nine reasons:

1. Financing your purchases doesn’t teach self control.

2. Financing your purchases means you aren’t sticking to your budget.

3. Credit card interest rates are expensive.

4. Credit card interest rates increase when you can’t pay off your balance in full.

5. A poor credit score can affect your insurance rates, being accepted for a job or the ability to finance meaningful purchases like a home.

6. Poor financial habits can jeopardize your relationships.

7. Financing purchases can lead to higher spending.

8. In a worst-case scenario, the habit of financing your purchases can lead to bankruptcy.

9. Avoiding financing can bring peace of mind.

I agree with all of the above. BUT…

A smart person can use credit to their advantage. If you have the option to pay cash or get 0% financing, check to see if you can get a discount for paying cash. If not, take the 0% offer. Then, put the cash in an interest-bearing account and set up automatic payments to pay off the purchase within the interest-free period. Sure, interest rates aren’t good right now but you will earn a little something.

Although mismanaging credit can hurt your credit score, managing credit properly (rather than not using it at all) can help it.