Another government lawsuit against Bank of America related to $850M in bad mortgages

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Sure Bank of America (BofA) has been sued a time or two by the government.  Just take a look at my Cadence of Finance presentation slides 9 and 11. But they were also bailed out by the government.  Are we being forced to watch and participate (via our tax dollars) in some sick (and expensive) good-cop bad-cop show?  Nevertheless, if you like reading about BofA’s latest lawsuit, checkout this Forbes article.

As mentioned in the Cadence of Finance presentation, BofA was already sued for misleading investors about $16.5B (that’s B as in Billion). They eventually settled for a $315M judgement.  What about the other $16.2B dollars?  Where did that go?  Nevertheless, it appears the only differences this time are the “lower” amount of bad mortgages ($850M) and their source (from “wholesale channels” rather than originated by BofA).

I hope everyone has made, or at least begun, the transition to banking with credit unions. See page 26 of “The Cadence of Finance” for a few reasons to make the switch.  Those are in addition to the fact BofA laid off 30,000 workers after being bailed out, paying bonuses, and settling for pennies on the dollar (page 11).

Revamped home page, financial crisis presentations

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First, I would like to thank all of those who follow my blog.  I hope you find the material interesting and thought provoking.  To make material more accessible to students, businesses, and curious readers alike I have revamped the homepage.

After a discussion regarding the debt ceiling this weekend I asked myself: “didn’t I write something about this before?”  It turns out I did!  You will notice a “2011 Debt Ceiling Crisis” presentation under the “Seminars” column on the home page.  That presentation was created two years ago.  It turns out the debt ceiling is in the news again.

If you like the debt ceiling presentation also take a look at “The Cadence of Finance” and the “2008 Financial Crisis” presentations.  It appears that observations and concerns in those presentations keep coming up again and again.

Enjoy the reading!

Netflix Approaching Its Apple Moment (AAPL, NFLX)

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Netflix is cool technology but how does it increase productivity in a Schumpeterian context?  In that context productivity enhancing technological progress leads to economic growth.  How is getting the [relatively few] remaining Americans who are not Netflix subscribers going to lead to productivity enhancement and subsequently economic growth?  The same argument applies to Facebook.

Perhaps streaming video saves time and money related to driving to Blockbuster and picking up a movie.  But do we do anything with the time and money savings?  Do we just spend that saved time and money consuming more Netflix content?

http://www.fool.com/investing/general/2013/07/22/netflix-approaching-its-apple-moment.aspx

BBC News – South African chef ‘too fat’ to live in New Zealand

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Here is one approach to making socialized health care work: kick the unhealthy people out of your country.  Personally, I would think a rehabilitative plan with wellness goals is a better alternative.  But then again, I have never run the health care system of an entire country.

http://m.bbc.co.uk/news/world-asia-23475583

USA TODAY – Has facebook figured it out?

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A 30% jump in value in one day because of one earnings report?  Something is fishy here.  Buyer beware, and I am referring to stock investors and advertisers on Facebook.  I still don’t have a Facebook account.  For others, when was the last time you clicked on an advertisement and spent money?

http://m.usatoday.com/article/news/2587117

LA Times – At a Rio favela, Pope Francis’ upcoming visit brings side benefits

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So when the Pope visits one slum in Brazil some basic services are established.  Specifically, the road the Pope will travel on is repaved,  the electrical grid is fixed to allow lighting on that street, and more electrical work is ongoing to restore power to the chapel he will visit.  This brings a few questions to mind:

  1. Do more “VIPs” (and I use quotes intentionally there) need to visit every street of every slum in Brazil to get basic services restored?
  2. Does the fact that so much work being done so spur of the moment negate the “we don’t have the resources” argument?
  3. What about the schools and hospitals?  Are they just as important as the street and chapel that will host the Pope?

Brazil, with all of its recent economic growth, is leaving the masses behind.  This smells a lot like the widening wealth gap going on right here in the United States  See slides 14 and 15 of The Cadence of Finance for example.

Make no mistake, Brazil has a 99%/1% problem as does the United States.  Hopefully the U.S. will win the race towards shared prosperity.  Hopefully we will be the first to begin reversing the widening wealth gap…

Here is the LA Times article.

Goldman Profits Double, but How Does It Make Its Money? | The Business Desk with Paul Solman | PBS NewsHour | PBS

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The article suggests Goldman makes money by executing trades for the house before executing trades requested by clients (front running).  I wonder what would happen if all Goldman clients left Goldman and executed their trades elsewhere.  Perhaps all firms executing these complicated trades on behalf of clients are front running.

What if people purchased stock directly from corporations without a broker?  In that sense, investors would truly invest in corporations for the long term.  Would that serve as a closer approximation to pure capitalism than program trading? Just a thought…

http://www.pbs.org/newshour/businessdesk/2013/07/goldman-profits-double-but-how.html

Goldman Sachs doubles profits

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The monetary policy was supposed to boost the economy via quantitative easing (QE).  However, unemployment and under-employment are relatively high.  Wages for the 99% are flat or declining.  Yet profits at Goldman Sachs doubled.  This is likely due to Gold-man’s ability to borrow at low rates (QE) and gamble with that borrowed money.  But when those gambles don’t work out (e.g., the depression and recent recession) we taxpayers bail them out. 

Meanwhile, the 99% earn near zero interest paid on savings accounts.  QE, unemployment high, wages flat, deposit rates zero, and Goldman Sachs profit doubles?  Sure seems like wealth transfer from the 99% to the 1%…

http://m.usatoday.com/article/news/2519533http://m.usatoday.com/article/news/2519533