Oh, I’m pissed.

I woke up thinking it was a good day but it turned into a very annoying, very bad day.  The main trigger for the bad mood was dealings with Citibank.

My bank account vanished.  That’s to say I logged into my account and there was no account there.  Weird, no?  As a result, I head over to a Citibank branch and speak to a teller and here is the breakdown.

There was a fear that there was fraudulent activity on my account so Citibank froze my account and removed all public access to the account. They didn’t call me, they didn’t attempt to contact me in any way, they just shut the account down.  I could not gain access via the web or via my debit card at a cash machine. 

Turns out there was no fraudulent activity (yay!) so they re-activated my account.  Problem being my FUNDS were not released.  My account was unfrozen but the money was not available.  The branch attempted to have the funds released but was unsuccessful in their attempt.  The theory was that it would take one business day to release the money back into my account and the funds should be available tomorrow.

Since it’s not yet tomorrow and I don’t have my time machine available at this very moment, I don’t know if this is actually the case.  Will my money be available, will I not?  Will I have to continue on with this headache well into next week and, as a result, will I be late in paying some bill because Citibank won’t allow me access to my money?

The teller I was dealing with was very helpful but I still want my money, damn it.

Second…

I go in for a haircut and as for an half-inch off and to leave the back longer as I tend to have a bit of a cowlick.  Wouldn’t you know it, the damn stylist goes and takes off more than I want AND cuts the crown uber short.

Immediately I say “you’re cutting too short” but she continues.  Granted, I was committed to the cut the second she took off more than I wanted.  Really, what could I do at that point.

After voicing my displeasure a few times her behavior didn’t change. I was stuck.  What really gets me is the question she asks at the end: “How do you like it?”

I don’t, you dumb ass.  I can feel the hair sticking up on the crown of my head and it’s about two inches shorter than I asked for.

For the first time in my life I didn’t tip.

Damn it, I just pissed today.

Last evening I was reading my RSS subscriptions, commenting on some threads about the Feds decision to lower interest rates, and I really started to think about the US (and world) economies. Ultimately, the question “is another depression on the way” came to mind yet again…  So I decided to put some things down on paper (and then into the blog) in order to assess the question.

• The speed of current deep recession

The US went from a shallow recession, with low unemployment, to one of the worst financial crises since 1929 in a matter of weeks.  Yes, the events were in the building for months, if not years, but it all came apart in roughly 4 to 6 weeks…. and no one was prepared for how quickly it happened.  

• Credit is hard to come by

The credit industry is contracting, and contracting fast.  Credit Card companies are cutting limits of superior borrowers, for some it’s hard to get a mortgage, companies – solid companies – cannot find funding even though they have revenue to cover their costs, and banks are not lending to each other.  Basically, spending is crawling because the pool of money has shrunk

• Oil is down today, but…

The price of energy (oil, specifically) was on a wild ride the last 4 years, up to almost $150 this past summer and down to $40 the past week.  However, due to limited supplies and production, oil will start to rise over the next year once the economies of the world begin to stabilize, causing pressure on economic growth once again.

• Debt is overwhelming…

The government is so far in debt, it will never be repaid, and our financial institutions are in the same boat . Essentially, we are spending money today that we don’t have in order to solve a problem.  In doing so, however, we may be creating a bigger problem down the road.  

Oh, yea, and the consumer is so far into debt that they have no money and cannot obtain credit (see #2).  If the consumer cannot spend, how will the economy recover?

• Unemployment is on the rise…

Going from historic lows to levels not seen in about 20 years, unemployment will play a big fact in any the economy’s recovery.  If it continues to rise, problems will persists.

• Mortgage meltdown, real estate bubble…

Huge over production of housing, mortgages to anyone and everyone that had a heartbeat and property values inflated beyond true value…. it plays into everything.  Spending, debt, credit…. and if this does not stabilize, how will the credit markets stabilize?

There were initial thoughts…  I do believe the economy is dangerously close to moving into another depression.  While I do not believe any depression will mirror the Great Depression, it is strikingly like the Long Depression on 1873.

Without a doubt, the actions taken by the government will provide some type of recover in the market – I just doubt if it will be a sustained recovery.

Oh, and another random thought… 

I am slightly concerned about how the stock market has been acting the last two weeks.  It is back to trading upward on negative news.  The economic situation has not changed, so why the movement towards the positive?  

Either a bottom has been found or a suckers rally is taking place…. I just hope it is a bottom.

From very early on I have held the belief that we are not in the middle of a banking collapse, rather we are in the middle of a market correction. It is also important to separate banks that are going under from the likes of Freddie Mac, Fannie Mae, Lehman and AIG. While all can be tied to the same cause, they fall into three separate categories.

Category 1

The retail banking industry, where you and I have our money, has seen 11 organizations close to date. Closures were directly connected to bad debt and an inability to provide liquidity for all deposits within the bank. It important to note, deposits in such banks are federally insured up to $100,000 per account.

Category 2

The recent bankruptcy of Lehman Brothers, a money center bank, falls into the commercial category. They are not a retail bank, nor did they do retail business, which means the government did not need to utilize the Federal bank insurance fund to cover monies. Again, the failure was tied to illiquidity due to bad debt.

Category 3

AIG is neither a retail bank nor a money center bank (brokerage) but an insurance provider to a number of industries, including banking. The liquidity crunch currently facing this organization is due to the insurance underwritten to cover banks debt (both retail and brokerages). No FDIC coverage, no “man on the street” unable to obtain his or her money because of the situation.

Retails banks will continue to fail due to bad debt, and would even fail in good markets due to mismanagement, I think it would be hard to say we have a banking collapse unless people were having difficulty obtaining their money. At that point we would truly be facing a banking collapse, which is why I am concerned to see that the Federal bank insurance fund dwindling and regulators consider options for replenishing it.

From the article:

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation’s largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

Basically, if a large retail bank goes under the FDIC is out of money and needs to find additional funds, most likely in the form of a loan from the treasury. What happens, though, if several large retail banks collapse at the same time?

The FDIC predicts difficulty with one large retail institution; several closings could cause a shortage of funds available to the public. Take it on step further – what if the FDIC cannot obtain the money from the government in order to cover the deposits?

This is what a true banking collapse would be.

In an effort to prevent the proverbial house of cards from falling in the financial industry, the Federal Reserve is providing an 85 Billion dollar loan to AIG in exchange for an 80% stake in the company.

Here is what will now take place:

1. AIG obtains a 2 year, 85 Billion dollar loan
2. Certain lines of business will be sold in order to repay the loan
3. The company’s management will be replaced, former Allstate Corp. CEO Edward Liddy will take the top spot within AIG

Most likely the entire company will be sold, in the long run, to repay the debts owed to the Federal Reserve; however, the two years allows the new management to orderly sell of the company, repay debts, and not cause panic in the financial markets. The major reason the Fed stepped in with AIG, and not in the case of Lehman, was due to the chance AIG would bring down financial institutions in the U.S., as well as overseas financial institutions.

What is unknown at this point is what happens to the company, and any equity holders. Does a much leaner AIG come out to the market place, or does this entire process simply mean here is 85 billion dollars to orderly disband the company leaving employees, equity and bond holders with nothing.

But what does this mean to us, the bag holding public? Nothing. The assets of AIG will have to be sold off in order to pay a loans coming due and thereby protecting the taxpayer.

So, no, this is not like Fannie Mae and Freddie Mac… that is the deal that will hurt the tax paying public.

Others:

Ankle Biting Pundits – The Financial Meltdown
Let’s talk Money – Fed’s $85M loan to AIG; Time to fire Paulson
Lehman collapse – AIG on the way
A Time to choose – $85 Billion to AIG, oh my god
Jon Taplin’s Blog – The AIG Rescue

Wall St. woke up and saw the writing on the wall for Lehman Brothers (LEH) this past week.  Thinking bankruptcy was a distinct possibility; investors sold off the stock letting the price fall roughly 77.4% in the last five days alone.  So, where does this leave us?

Starting Friday evening, members of the Federal Reserve and Senior Management of Large US banking concerns were meeting to discuss a purchase of Lehman.  The Government made it clear no funds would be provided to save the bank, nor would they subsidize the purchase for any interested party.  Does that mean anything at this point?  Just a few weeks ago they said Freddie Mac and Fannie Mae were not going to be supported with Government funds either.

As the weekend continued on Barclays bank, out of the U.K., emerged as a potential buyer of Lehman but decided against the purchase when the U.S. government would not offer to limit the potential losses. This means, as of right now, no known buyer is stepping up to make the purcahse.

Right now it looks as if Bankruptcy is the only way out, but what other possible – all be it slim fates – may await Lehman?

• Another buyer is found who is willing to pick up all liabilities
• Another buyer is found but the Federal Reserve will help support the purchase by funding a portion of the sale or accepting some of Lehman’s liabilities
• No buyer is found; bankruptcy takes place, causing possible panic on Wall St.

The big reason the Fed wants to resolve this issue over the weekend really means a Lehman collapse has the potential to throw the market into a panic and bring other banks down in the process, but the Street seems to think otherwise.  With the pending collapse of Lehman is that the money markets do not seem to be concerned with what is occurring.

Is it a bankruptcy?  Is it a buy-out?  Is it a buy-out with government support?  Let’s see what Monday brings…

Others covering:

Chartsandnumbers – Lehman Brothers Fate
Lehman Brothers Weekend Opera @ Ruleboy
nahnopenotquite.com – Lehman to be Liquidated?

Another bank hit the skids today – Silver State Bank in Nevada.

Silver State had 12 branches in Nevada and Arizona as well as loan offices in Nevada, Utah, Colorado, Washington, Oregon, California and Florida.  As of June 30th, Silver State had $2 billion in assets and $1.7 billion in deposits.  All insured deposits will be assumed by Nevada State Bank and brances will be open on Monday.

Ok, a small bank isn’t too bad but there is news that Fannie Mac and Freddie Mac will be taken over by the government this weekend.  In terms of big business events, this one is HUGE.  According to the article the cost to the tax payer is yet known but you can be 99.999% sure that any share holder equity will be wiped out.  (Translation – the stock will be worthless)

While I would never have been a long term share holder of either company, I think it is highly irresponsible for for Treasury Secretary Henry Paulson to come out and claim there would be no Bail Out of either company. Also, in July, each company said they had plenty of capital to withstand the mortgage meltdown.  Either conditions drastically changed or the companies were lying to investors, as well as the public.

Expect banks to continue to fail over the next several months but, remember, we are not in a banking collapse, we are experiencing a correction.

Another bank found itself closed by the Government today.  Integrity Bank of Alpharetta, Georgia, is the 10th to be shut down due to liquidity issues.

It turns out Integrity Bank was ordered to raise capital in May of this year but was unable to find the 40 million in financing they needed.  As a result of the closure Regions Financial Corp. will purchase the roughly 34 million in deposits and continue to serve the failed bank’s customers.

Without a doubt, it must be scary to have your money in a bank that goes under.  I would hate to be in that position myself.  While institutions will continue to report losses as well as go under for the next year, this is not a financial collapse.

Earlier this year my wife and I decided to consolidate all banking and brokerage functions to one institution. After evaluating a number of options and a load of doing tedious research we decided on eTrade. Our decision was driven by no ATM fees, a superior brokerage trading platform and a high rate of return on the savings account. Thus far, the banking experience has been less than satisfying.

The first annoyance was due to our unlimited ATM refunds disappearing from our account. Even though we meet the requirements of:

“for customers with an average monthly balance of $5,000 or more in either their E*TRADE® Money Market Account or Independent Checking Account or for customers who maintain a combined balance of $50,000 or more in linked E*TRADE Securities, E*TRADE Bank”

After contacting eTrade support, they claimed our account is not eligible for the ATM refund and no further explanation was given regardless of how many times I asked. Since it took a significant amount of effort to move all of our financials we came to conclusion we would eat the fees.

Our next really annoyance was tied to the deposit process. We noticed that our account balance didn’t match our deposits. No problem, we though someone bounced a check and we will simply contact that person to let them know. Well, it turns out eTrade Bank does not notify you, nor do they return the bounced check, when there is an issue with your deposit. If you submit a deposit with multiple checks, with the same value, at one time, there is no way to tell what check bounced! Calling support doesn’t help as it appears they have no ability to few the deposited checks.

At this point we are thinking long and hard about switching banks and then the big one hit – my name changed on the account. I logged into the website to check our balance when I noticed I was no long listed on the account. In my place was some woman neither of us knew or ever heard of.

Pissed, I immediately get on the phone with eTrade support to explain my problem. “Yes, we understand…it must have been an error on our side… I’ll submit a name change request to fix the problem” the support rep says. Within seconds of the phone call, I receive a confirmation for a name change request. Foolishly, I think the problem is solved. After a week of waiting my support request was canceled and I am still trying to resolve the issue.

Etrade, the brokerage, has an incredible trading platform and provides a good level of research for investors. As a bank, however, they leave a lot to be desired. If you are thinking of becoming a banking customer, think long and hard before you do so.

UPDATE: 8-28-08 10:30

An e*trade support rep who has been working on this case since this morning just called me back, they do not yet have a resolution but are working to solve.

UPDATE: 9-09-08

The e*trade rep from 8-28 NEVER called me back and never solved the issue.  I’ve attempted to resolve this three times with NO luck.  Make of this what you wil just be aware before using their services.

UPDATE: 9-25-08

It took over a month but e*Trade corrected the issue.  At this point I have major quesitons about their ability to run their business.

As of follow up to my post from yesterday, I wanted to highlight data just released from the FDIC.

Here is a quick summary:

• bank profits are down 86%
• 117 banks and thrifts are considered to be in trouble
• 8500 banks reserved $50.2 billion to cover losses from bad mortgages

By no means are the results stellar and, frankly, they are down right ugly; however, the industry is NOT on the verge of collapse.

The most interesting quote from the entire article was glossed over, contained to only one line:

The majority of U.S. banks “will be able to weather” the economic and housing storms, with 98 percent of them still holding adequate capital by the regulators’ standards, Bair said.

Interesting how single piece of good news, the bit of information that is the most pertinent, is given no real attention or priority. The FDIC Chairman is telling the world that 98% of the US banks are fully funded as of today but the press doesn’t seem to care about that. Why? It doesn’t grab your attention, it doesn’t “sell papers.”

Look past the doom and gloom fed by the press and you’ll see that, despite the hard times the industry is facing, it is not the end of the world.