Author Dawn Handschuh Archive

Have you ever considered why you bank with Chase or Bank of America instead of your local community bank or credit union?

Now might be a good time to reconsider your banking habits, since we keep hearing how lending has dried up at many of the big banks. According to a recent New York Times story, the nation’s 8,500 community banks have plenty of money to lend and are itching to supply borrowers with needed cash, if only they could find them.

What’s the big difference between a bank like Citigroup, the world’s largest financial services network, and your local savings and loan? For one thing, community banks have come out on the other side of the recession in pretty good shape. That’s because they mostly steered clear of such exotic financial instruments as loan securitizations and credit-default swaps and instead stuck to the basics.

Consider the philosophy of Rusty Cloutier, CEO of Lafayette, Louisiana’s MidSouth Bank, as told by the New York Times:

Cloutier says he believe his job as a banker is to know who runs a business well and thus may survive a downturn. Community banks are well equipped to make that kind of judgment because, as clichéd as it sounds, they really do know their customers. “If a guy owes you seven or eight million dollars, you better know everything there is to know about him,” Cloutier [said]. Cloutier knows scores of people just from coaching local basketball, baseball and football teams. Like most community banks, MidSouth sponsors a long list of organizations and causes; the shelves in Cloutier’s office are lined with awards from civic organizations. And because community banks often sit on the board of nonprofits and local businesses, they know their local industries.

The mega banks, on the other hand, make loan determinations based on mathematical models and mainly measure creditworthiness based on income and a look at the consumer’s credit score.

Why do consumers continue to bank with lenders who accepted billions in taxpayer bailout dollars after their greed and widespread abandonment of standard lending standards dismantled the global monetary system? Many of these same banks are now trying to bilk yet more money from responsible credit card borrowers before more consumer-friendly laws go into effect next year.

As the Times points out, the five largest American banks (that would be J.P. Morgan Chase, Bank of America, Citibank, Wachovia, and Wells Fargo) control 40% of all deposits, yet community banks still make 43% of all small business loans under $1 million. Significantly, less than 1% of all community banks have failed since January 2008.

Simon Johnson, a former chief economist at the International Monetary Fund, said our financial system would be healthier if we abandoned the mega banks in favor of a network of regional banks and community banks, the Times reported.

Meanwhile, back in Lafayette, Louisiana, Mr. Cloutier says that “trying to make a loan today is like trying to feed my 7-month-old grandson green peas.”

All I can say is that if we all act like sheep, we’ll continue to be led around by a halter and collar. Let’s connect the dots between what we read about in the news and how it affects our everyday financial lives. Then let’s decide not to condone or contribute to the mess that big banks have gotten us in by continuing to give them our business, whether it’s in the form of a loan, checking account or credit card.

A lot of things about Texas are big. In terms of landmass, it’s the largest state in the contiguous U.S., second only to Alaska overall. It’s also the second-largest state in terms of population, after California. The Texas economy is also out-sized, with leading oil, biomedical research, aerospace and information technology companies headquartered there.

Texas is also “big” in terms of tuition rate hikes at its state colleges and universities. Those schools have increased their tuition costs by 89% during the past six years, according to ConsumerAffairs.com.

Texas legislators recently said enough’s enough. State senators approved a bill that would limit tuition and fee hikes to 5%. But they would only mandate the 5% limit at those schools where tuition and fees were above the state median.

State lawmakers had established tuition rates at state universities in the past, but as their ability to provide monetary support to the schools dwindled in recent years, they decided to let state schools set their own rates so they could make up for the lack of support from the state.

Many would argue that, when left to its own devices, the state university system in Texas, as elsewhere, went overboard.

Are rate increases at state-funded universities in your state within reason, or rising by leaps and bounds?

Debt collectors, never known for their soft touch, have apparently ratcheted up their offensive tactics (pun intended) once again. An agency in Phoenix, Arizona, called Auto Financing Network (AFN), bullied one delinquent borrower by creating a website using her name as the URL and pronouncing that she hadn’t paid the loan for her Chevy Cavalier.

When the owner missed a payment, the company repossessed the car, informing the owner they were able to do so quickly because they’d hidden a GPS tracking device on the vehicle.

According to the TPMMuckraker’s account of the story, the borrower was apparently able to regain possession of the car after making a payment. But a few months later, when she fell behind on payments again, the company created a website using the borrower’s name with the title, “Jennifer Dicks isn’t paying for her Cavalier!”

AFN President Michael Fischer then began a series of dozens of defamatory and harassing text messages saying things like “I wish you died when you fell off the roof” and calling the borrower a “loser” and “f****** retarded,” said the TPMMuckraker story.

According to AFN’s website, the company’s top three priorities for 2008 are “#1 Treat customer right; #2 Treat customer right. #3 Treat customer right.”

Ms. Dicks has retaliated with a lawsuit.

Have you had an experience — good or bad — with debt collectors?

If you’ve ever missed a car payment — or two — you may have been flirting with car repossession.

For car owners, vehicle repossession can be a stressful, confrontational and even violent experience. Recent accounts have reported on one 67-year-old retiree being shot and killed after confronting a repo man and two helpers who sought to reclaim his vehicle in the wee hours of the morning.

Now, a New Jersey auto finance company is using technology that makes car repossession unnecessary. By inserting a small device inside the vehicle, South Jersey Auto Finance of Glassboro simply transmits a cellular signal to the device remotely to disable the starter. The signal is activated after three days of nonpayment.

In an interview with National Public Radio, General Manager Mark Barr explained that while the newest devices transmit no advance warning of an imminent shutdown, customers are made aware of the device at the time they purchase the car. All of the company’s customers are considered high-risk borrowers, so all vehicles are outfitted with the device.

“Contractually, we have 10 days before charging a late fee, but we’re not looking for a late fee, we just want timely payments,” Barr said. Out of a little more than thousand accounts, Barr said, about 10 or 15 vehicle ignitions are disabled every week due to nonpayment of loans.

Is the recession wearing thin on you? Are you tired of scraping by on unemployment benefits, worrying about your 401(k) balance, feeling stuck because you can’t sell your house or wondering how in the world you’ll finance your next car purchase? Or worse?

Amidst your many immediate worries, hearken back to how this all started — a red-hot real estate market where big banks made big money through their willingness to disregard standard lending practices and substitute poor judgment for credit checks. These Wild West business deals led to high mortgage default rates and subsequent foreclosures that exposed widespread weaknesses in financial industry regulations and ultimately train-wrecked the global financial system.

If you’re looking for someone to throw a dart at, why not put your money where your mouth is and stop doing business with those most responsible for the mess we’re in? There are plenty of healthy regional banks or credit unions that largely steered clear of subprime lending, mortgage-backed securities and other questionable practices, and they’d dearly love your business.

The Center for Public Integrity recently released The Subprime 25, a black list of the top 25 subprime lenders and their Wall Street backers who were responsible for nearly $1 trillion in subprime loans — that’s 7.2 million high-interest loans — made from 2005 through 2007.

“Together, the companies account for about 72% of high-priced loans reported to the government at the peak of the subprime market. Securities created from subprime loans have been blamed for the economic collapse from which the world’s economies have yet to recover,” the report says.

While 20 of the top 25 companies have been sold, closed or stopped lending (I still remain uneasy about employees of these companies simply migrating elsewhere), five of The Subprime 25 remain in business.

#8-ranked Wells Fargo Financial:

Total high-interest loans, 2005-2007: At least $51.8 billion

CEO John G. Stumpf’s 2008 salary: $878,920; $13,782,433 in total compensation

Federal bailout money received: $25 billion

#12-ranked Chase Home Finance (the consumer lending unit of JPMorgan Chase):

Total high-interest loans 2005-2007: At least $30 billion

CEO James Dimon’s 2008 salary: $1,000,000; $19,651,556 in total compensation

Federal bailout money received: $25 billion. JPMorgan also benefitted when the Federal Reserve Bank of New York guaranteed against losses $29 billion in shaky Bear Stearns assets, clearing the way for the company’s sale.

#15-ranked CitiFinancial (part of Citigroup)

Total high-interest loans, 2005-2007: At least $26.3 billion

CEO Vikram Pandit’s 2008 salary: $958,333; $10,815,263 in total compensation

Federal bailout money received: $45 billion in direct investment and federal guarantees on $306 billion in assets

Settlements over lending practices:

2002: Citigroup agreed to pay $215 million to settle Federal Trade Commission charges that Associates First Capital Corp., before it was acquired by Citigroup in 2000, had practiced systematic, widespread, deceptive and abusive lending.

2004: CitiFinancial was hit by a $70 million civil penalty by the Federal Reserve for subprime lending abuses.

#18-ranked American General Finance (part of AIG)

Total high-interest loans, 2005-2007: At least $21.8 billion

Former CEO Martin Sullivan’s 2007 salary: $1,000,000; $14,330,736 in total compensation

Federal bailout money received: $187 billion in federal loans, guarantees and direct investments

Settlements over lending practices:

2007: AIG subsidiaries agreed to pay $128 million after the Office of Thrift Supervision found they ignored borrowers’ credit when making loans and charged excessive broker and lender fees. AIG also agreed to contribute $15 million to financial literacy and credit counseling.

#20-ranked GMAC Financial Services

Total high-interest loans, 2005-2007: At least $17.2 billion

CEO Alvaro G. de Molina’s salary: Not available

Federal bailout money received: In 2008, the Federal Reserve approved GMAC’s request to become a bank holding company so it could obtain a $5 billion investment from the Treasury Department.

Settlements over lending practices:

2004: GMAC-Residential Funding Corp. and other companies agreed to cough up $41 million to settle a federal class-action lawsuit over predatory lending claims.

2005: Homecomings Financial Network Inc. (a GMAC subsidiary) and Fairbanks Capital agreed to forgive $11 million in debt and pay $773,000 in restitution, account credits and refunds to West Virginia homeowners.

When it comes to finding ways to save money in a tight economy like this one, nothing — I repeat, nothing — is safe from scrutiny by cost-cutting zealots.

With the overall cost of college tuition, room and board easily exceeding six figures at many private four-year schools, school administrators at some universities have taken the axe to one familiar school item that will, in one fell swoop, save millions of dollars, do the environment a favor and make students feel more at home.

The ubiquitous cafeteria tray is disappearing from schools like Skidmore College, Williams College, Rochester Institute of Technology (RIT) and Cornell, the New York Times reports. In trayless cafeterias nationwide, students simply carry their plates heaped with food, and guess what? No one’s grumbling about it.

Don’t snicker. Aside from potentially helping students avoid putting on the abhorrent “freshman 15″ pounds, Williams College estimates it’s saved 14,000 gallons of water annually since eliminating the trays. Administrators at RIT attribute a food bill that’s 10% lower (despite generally rising food costs) to reduced food waste brought about by going trayless.

School administrators elsewhere claim that students waste less food because they choose more carefully when they can’t load up as easily. Others add that it makes the dining hall ambience less “institutional.”

Someday, years from now, many of us folks over the age of 40 may fondly remember college cafeteria trays (along with those conveyor belts) in the same way we muse about other dining trends that have since lost favor. You know, like the Automat, those cafeterias with the chrome-and-glass-operated machines that dispensed meals in lieu of waitresses.

Reminiscence aside, you’d probably be loony to think that creative cost-savings like this would actually cause school admissions offices to lower tuition bills. But, hey, you never know — maybe one day they’ll rein in some over-the-top new construction projects and pass the savings on to students.

The federal government recently required 19 of the nation’s largest banks to undergo “stress tests” (administered by the banks themselves) to gauge how well the banks would perform under extreme recessionary conditions. We’ve now learned that bank executives have been lobbying Washington to boost their scores before the results are finalized on Friday and released to the public on Monday, USA Today reports.

The Wall Street Journal says that Bank of America and Citigroup were among those banks that were told they have insufficient capital reserves.

There’s a lot at stake for the banks. If it’s determined that their capital reserves are too low, government regulators intend to make them buck up.

“The government could convert its stake in them to common shares, force them to raise money from investors or eventually release more funds from the Treasury Department’s $700 billion financial bailout,” USA Today said.  The idea is to make sure that banks have enough money to absorb ballooning losses from bad loans.

“They don’t want to do any of this,” Karen Shaw Petrou, managing partner at Federal Financial Analytics, told the paper, “because banks think they can make smarter business decisions when the government doesn’t intervene.” She added, “It’s disastrous for shareholders.”

Those banks that regulators decide do possess sufficient capital reserves aren’t exactly free and clear to do their own thing. They may or may not be allowed to repay the billions of dollars they received in taxpayer-funded bailouts. Most of the largest banks want to do so, mainly to avoid being hamstrung by executive compensation limits.

The actual usefulness of the stress test is already doubtful, for a variety of reasons. When the stress tests were devised a few months back, the Financial Times reports that an “adverse scenario” was defined as one where unemployment rose gradually to peak at 10.4% in late 2010.  Unemployment, as it turns out, has increased more rapidly than was projected, calling into question the relevance of what could already be an obsolete formula.

Even if you ignore the problems with the original adverse-scenario model, if banks succeed in tinkering with their scores, they’ll have succeeded in circumventing the purpose of the stress tests and turned them into a meaningless exercise. They’re kicking and screaming all the way, but since they have only themselves to blame for getting into this mess, I, for one, have little sympathy for them.

What’s your take?

American families aren’t yet willing to give up the family vacation, no matter how tight their finances, and state parks and campgrounds are being rediscovered.

Whether it’s a humble tent, cozy cabin or super-deluxe RV, vacationers are forgoing pricey resorts for the simple pleasures of communal showers and roasting hot dogs over an open fire. As the Maryland State Park Superintendant put it, “It’s extremely affordable when compared to the Magic Kingdom.”

In 2008, Kampgrounds of America reported a 21% increase in the first-time camping rate, while tent camping rose 16% at its 500 campgrounds nationwide.

The Baltimore Sun reports that this could be a very good year for the camping industry. Still, to lure more families who aren’t diehard campers, some private campgrounds are adding restaurants, fitness centers, free Wi-Fi, cable TV hookups, dog-walking services, movie nights and golf carts as transport.

Even state campgrounds are loosening their pet policy restrictions.

How about it? Will you be packing a sleeping bag this summer?

The Pleasance

If you’ve ever watched construction of new strip malls, residential subdivisions or industrial development, you know that one thing’s pretty certain: Once developed, most properties stay that way — forever.

But in cities like Flint, Michigan, which are coping with widespread blight brought about by massive foreclosures, streets, blocks and even whole neighborhoods of now-vacant properties may be razed, returning portions of this 34-square-mile city to something approximating “Flint Forest,” according to a fascinating New York Times story.

Turning back the hands of time could be a better alternative, city officials say, than watching empty homes become litter and dumping magnets taken over by drug dealers, prostitutes, squatters and opportunists who’ll strip anything of value from the homes.

Flint city officials are considering demolishing houses on selected streets even before they’re foreclosed on. There are about 75 neighborhoods throughout the city. The idea is to consolidate residential and retail centers inside city limits to a more viable size, centered around the heart of the city and potentially saving the city millions of dollars on police and fire departments and garbage collection.

The city of Flint is having a rough time of it, reeling from police and fire layoffs and a $15 million budget deficit. Some public schools will likely close. Roughly a third of the city’s population lives in poverty, the Times reports. The head of the local land bank says about 900 foreclosed homes in Flint have been acquired.

The concept of “planned shrinkage,” the Times says, became possible after the state changed its laws so that once properties become foreclosed on, they fall under the jurisdiction of county land banks. Other cities, like Little Rock and Indianapolis, have done the same thing.

Something similar to this happened in my own hometown, albeit on a much smaller scale. An abandoned gas station sat in the heart of town, right on Main Street, for years. As I remember, the underground storage tanks had leaked; the property may have been a Superfund site. It became a real eyesore. I’m not familiar with the details of how the property changed hands, but the publisher of our local newspaper purchased it. He turned a few acres with a grungy garage and weeds springing up through broken asphalt into a manicured public park with a bocce court, gazebo, gurgling fountain and walking paths. Local landscapers donated their time, trees and shrubs. Fittingly, what had become known to town officials as a nuisance is now called “The Pleasance.”

Is tearing down unkempt properties a viable option to control blight? Could doing so on a large scale, like in the city of Flint, transform magnets for crime into public spaces that enhance city life instead of detracting from it?

I planted a vegetable garden.

In my mind’s eye, it will be brimming over by mid-summer with a bounty of string beans, yellow wax beans, tomatoes, potatoes, zucchini, spaghetti squash, acorn squash and other delectables.

Right now, it’s a barren-looking rectangle, newly planted with my cool-weather crops — lettuce, snap peas, radishes and spinach.

Despite living for 14 years on well over an acre of land with good-looking topsoil, it’s just the third time I’ve attempted an in-ground vegetable garden. I was foiled early on by resident woodchucks who demonstrated their aptitude for razing beds of delicate coral bells, astilbe and other perennials in a single evening. But they’re not fussy, they’ll eat almost anything.

Of course, it’s a rare Connecticut homeowner who doesn’t have deer problems, and I, unfortunately, don’t fall into that hallowed category. The deer are comfortable enough in my backyard to give birth in the blackberry brambles. For a time, I was mesmerized by the fawns that raced around the lawn in circles; they were so close I could hear the sound of their pounding hooves. By that fall, my fascination with what a co-worker once called “rats on hooves” had worn a bit thin, as did my azaleas.

So my gardening of recent years was limited to a few potted tomato plants and a lone basil plant that nonetheless delivered up some great homemade pesto sauce.

Last year, I hastily threw some vegetable plants in a bare patch of earth and surrounded it all with plastic fencing. I made the mistake of anchoring the tomato seedlings to the fence itself, but as the tomatoes grew — hugely — their weight caused the fence to slowly implode toward the center. I could no longer walk inside, but I still collected a bounty — 130 tomatoes, 35 or so cucumbers and a half-dozen bell peppers.

This year, I decided to get serious, encouraged by woodchucks who seemed to consider the front yard beyond their God-given territory. So I expanded the original footprint of the 5′ x 5′ garden to 11′ x 18′, investing in a more durable 6-foot-high metal fence and posts.

While I’ve always enjoyed gardening just for the fun of it, my little experiment this year will be to measure how economical it is to grow my own produce. So as the garden grows, I’ll be tracking my output, weighing everything I get on my kitchen scale and calculating what it would cost to buy comparable veggies at my local supermarket.

I’ll share my progress with you from time to time, and by season’s end, I’ll report back with my final tally, weighed against expenses. (They were considerable, thanks to that fencing, which only comes in rolls of 50 feet. I needed 59 feet but couldn’t expand the garden further due to some serious tree roots and pre-existing shade.)

The garden will be planted with radishes, lettuce, snap peas, spinach, cucumbers, tomatoes, red potatoes, string beans, yellow wax beans, garlic, basil, acorn squash, spaghetti squash, zucchini and bell peppers.

Elsewhere on the property I have asparagus, chives, strawberries, cherries, gooseberries, blueberries, black raspberries and blackberries growing. Assorted critters usually get to the strawberries, blueberries, cherries and gooseberries first, partly because their output is not huge and it’s often not worth the trouble to do more than snack on a berry or two if I’m in that area. The wild brambles, on the other hand, cover a huge area in the backyard and during their peak in July, I feast on wild raspberries and blackberries with my morning cereal, bake berry crisps and drink berry smoothies.

There’s nothing like using the resources in your own backyard.