Top Finance Blog

Last August I wrote a post talking about this study that said 416 banks were in trouble. It seems that the news is much worse about six months later, as the prediction now is that 702 banks, which is one out of every 11 banks in the country, are in trouble. That also includes a couple of big banks, my whipping boys Citigroup and Bank of America; isn’t that a shame?

To what are they attributing all this bad news? The three main criteria are finances, operations and management. We all understand the finances part; if banks don’t have enough money to conduct business, that’s obviously not good. Operations is where we look at the specific areas that banks might be having major problems with, such as mortgage debt, credit card debt, and loan defaults. Management also speaks for itself, although I wonder how the FDIC evaluates the competency of management.

A statistic that came out said that usually only 13% of banks on the watch list end up being seized, as they usually will find ways to extricate themselves out of their difficulties, even if it’s just to merge with another bank. That’s good news if you ask me. Something they didn’t talk about, though, is if some of the banks that are on this list are those who invest heavily in commercial real estate. That’s still a major worry as well.

So far this year, 20 banks have been closed, putting it on the same pace as last year, but FDIC Chairman Sheila Bair believes the number of banks being closed will escalate as the year goes on. That’s bad news, but maybe this is what’s needed to reign in banks across the board. Seems to be a long process in fixing things, doesn’t it?

With the new credit card legislation came another new provision that effectively takes a lot of non-voluntary money away from banks.

Overdraft fees were a big thing for banks. At some point, they started charging fees to people while still paying bills if you happened to go over your limit. The same goes for credit cards, which allows people to go over their credit limit for a minimum period of time. Banks didn’t mind because they’d hit you with fees that generated more than $20 billion in revenue a year across the board.

Now that is gone. Banks have to get people to opt into the program. Some banks are being very aggressive with this, such as Chase, while others are either still working out the logistics or will probably be sending up some kind of notice in our next statements, which I’m betting the majority of people won’t even read unless it’s sent separately.

Let’s face the fact that all of us have missed this every once in awhile. A deposit didn’t clear as quickly as you thought it would and suddenly you’re hanging because the payment did clear on time. Or you bought gas after making a payment on your credit card that didn’t clear yet and suddenly you’ve gone over by a few dollars.

Do you want to accept these fees or not? The question depends on just how close to the vest you usually are with your money and whether or not you pay attention to what’s going on. If you never overdraw, or very rarely do, you shouldn’t sign up for this protection because you don’t need it. Sure, you may be shocked those couple of times if something does happen, such as being out trying to buy something and having your card decline because you don’t have enough money in the account, but that’s preferable, in my opinion, to getting hit with a big fee later on because you were never informed you didn’t have the money on your credit card to cover it.

If you overdraw all the time, or are always right next to the line, then continue paying banks for the overdraft protection. Sure, it can add up, but it’s less embarrassing than trying to pay for things and getting denied all the time.

Just make an informed decision, then live with it. but gauge how high those fees are, because banks will be raising them, as it’s just one way they can recover from all those other ways they’re cheating customers nowadays. You did know about the credit card with 79.9% interest, right?

Health care took a major beating last year in this country. Sure, I understand that the first thing the President should have concentrated on is the economy, most specifically jobs. I also understand what his position was on health care. I don’t know that either he or the Democrats in Congress explained well enough what the issues were, and the other side didn’t even try. They just wanted to beat it down because it was a Democratic proposal. Sure, I thought what was presented later on was lacking, and probably not the best plan in the world, so I’m not upset it collapsed. But at some point we need to seriously consider health care for all in this country.

Why? Two big things have come out over the past week, and both trump my recent post on Medicare Advantage Plans.

The first concerns Wellspring in California, which is also known as Anthem. It was reported that there’s going to be a rate hike of their premiums that could be as high as 39% for some of their subscribers. What they’re blaming it on, oddly enough, is that more younger people have dropped insurance coverage because it was too expensive or they just determined they didn’t want it, which leaves less money for those who are left, who are supposedly sicker, so they need to raise more money. This is a moronic thing and for them to think anyone believes it is insulting. The why it’s insulting is contained in the next paragraph.

The second thing that came out this week is that across the country, health insurers enjoyed 56% profit margins while the rest of the country’s industries suffered drastic losses. The five largest health insurers enjoyed profits of $12.2 billion. Wellspring, whom I mentioned above, recorded a profit of 91%; you saw that right, 91%!. You can bet they didn’t pass any of that money on to hospitals, otherwise it wouldn’t have been profit. And the number of people they stopped covering dropped only 3.9%; doesn’t seem like much of an offset, does it? This has prompted a call for the CEO of Wellspring to show up and talk to Congress as to how they can justify all of this.

By the way, Wellspring wasn’t even the biggest profiter in the group. Cigna’s profit increased, ready for this… 346%! Humana “only” increased a measly 61%.

I ask one more time, you sure you don’t want any kind of health care reform?

At the beginning of the week, I proclaimed that the stock market, most specifically the Dow Jones, was going to go down based on how things had closed on the previous Friday. Therefore, imagine my surprise when the Dow ended the week up close to 400 points.

It’s a funny game, this Dow, and it proves why most of us shouldn’t be in it. The news was so bad leading into the week that I figured there was no way it was going to go up. Even during the week, there was the bad news about Walmart and the negative prognosis about jobs over the next five years. Still, the Dow went up, the price of oil went up, and frankly I don’t get any of it.

Maybe it was the news that health care showed a profit of 56% for 2009 that did it. If that’s the case, then things are much worse off than I could have imagined. I still tend to think it’s a lot of speculation and faith that we’re ready to rebound, and there’s nothing in reality telling me that’s going to occur, but hey, the market went up, people made money, and I guess we’ll just have to accept that as reality.

But I’m still confused as sin.

Did you think we were done talking about health care?

A report came out this week saying that, on average, Medicare Advantage plans across the country had gone up an average of 14.2% over the past year. Although my first response is “yawn”, because I’m used to seeing those kinds of jumps o a regular basis for traditional insurance, Medicare Advantage plans don’t usually go up as fast, only increasing 5.2% last year.

For the uninitiated, Medicare Advantage plans are insurance coverage for seniors that goes above and beyond traditional Medicare coverage, or at least that’s the idea. Instead of just sticking with Medicare, which all seniors qualify for (well, that’s not exactly true, but it’s true enough for the moment), a senior can decide to pay a little bit more for an Advantage plan to hopefully gain coverage for services that Medicare might not pay for, such as foot issues. They may also reduce inpatient deductible amounts that Medicare recipients have to find the money to pay.

Medicare in general has one major rule for coverage, that being that a patient must always be getting better in some fashion. Medicare doesn’t pay for maintenance services. If a patient gets physical therapy coverage, has 10 sessions, then the therapists writes that a patient is as good as they’re going to get, but could maintain mobility with more physical therapy, Medicare won’t cover any more physical therapy, but an Advantage plan might.

Still, even with the government ponying up some of the money for the Advantage plans (oh yeah, since these patients opt into the private plan instead of Medicare, the government pays the insurance company some money to help defray the costs, which is why the plans are attractive to both patients and the insurance company), thus helping to keep the amount seniors have to pay down, seeing that there was such a dramatic increase last year points out just how much health care coverage costs are rising, and why some were hoping for an overall government health plan although, to be truthful, it might not have made much of a difference for seniors.

This is why the debate on overall health care coverage in this country still continues.

Would you trust this guy? Seems a lot of people did, to the tune of more than $1.2 billion dollars that are now gone. And this guy, Scott Rothstein, is heading to jail for probably the rest of his life, or at least 25 years of it, giving up all his assets of $300 million, putting his wife and children out on the street, and singing like a canary as to how he did it all, pulled off his own version of a Ponzi scheme.

Talk about a Bernard Madoff wannabe. This guy was big; he’s got pictures with celebrities and politicians. He was truly living the high life, and he wasn’t hiding himself like Madoff kind of did. He was giving all sorts of money away, as well as helping to raise other money. Of course, it turns out none of the money was his to give away, and many of those charities are having to give it back.

Of all things, he wasn’t even a financial guy like Madoff was; he was a lawyer. He didn’t tell people he was investing money that he was never going to invest. Instead, he told people that he had clients waiting for settlement money who were willing to accept less of it if they could get a lump sum payment now. As in, tell someone that a client was waiting for a $500,000 payment to come in, but would accept $250,000 and when the lawsuit was settled the donor would get the $500,000, making money on the deal. Those are my figures, but that’s how the scam was run. Of course, the more investors he got into it, the more he could pay certain people off.

Of course, it didn’t stop there. He then told these guys that instead of just taking the money, to let him invest their money in a hedge fund, where they could make even more money. You guessed it; no hedge fund. All money again came from new investors.

So, they’re now selling off his stuff, knowing that there’s no way they’ll ever come close to the amount of money he got from all these other people. However, unlike the investors in Madoff, this time I believe the people were stupid and greedy. I can’t imagine giving someone money for anything like this unless I got to meet the clients and saw the paperwork for the lawsuit, which they didn’t get to do. So trusting and naive; who said rich people were intelligent?

On Monday, the CARD law that was passed last May finally goes into effect, which is supposed to offer lots of protections to Americans that these greedy banks have been throwing at us. Well, at least things the law addressed before banks had time to change some things up before this law went into effect anyway, none of them good. It’s going to be a dicey road, that’s for sure.

What do we have to look forward to? One, there will probably be very few 0% interest rate offers anymore. That’s because one trick banks used to do was to get you into that interest rate, then raise it after six months to the rate that your other balances were at if you hadn’t paid it off, or jacked everything up if you were even one day past payment or if you had gone over your credit limit. Since they can no longer do that, they have no incentive to give you that introduction anymore.

Something else you can start expecting are more bank fees, and they’re probably going to be higher than they used to be. I don’t actually have a problem with that, since it’s better than floating interest rates, and at least you know what you’re paying for the right to use a card. I do have a problem with some of the ways they’re going to have fees. For all you people who have been used to paying your credit card balances off every time you got the bill, there will now be a fee for that, since they can’t make any money off you from interest.

Oh yeah, interest rates will be going up for new card requestors. I doubt you’ll see 4.9% interest rate cards anymore because banks need to make money from things since they can’t do some sneaky stuff anymore like just closing your account or raising your interest rates without really informing you that they’re doing it.

It’s definitely about to turn into a ‘buyer beware’ game when it comes to credit cards. Make sure you read everything before you apply, then obtain, a new card, and if your credit card bill shows up and is a little thicker than the previous time, check it to make sure there’s nothing new you’re being hit with as well.