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?

A truly great bargain offers an unforgettable experience. I still bask in the glow of getting a designer dress originally priced at over $400 for a mere $52 — and that was over four years ago. But ask anyone — male or female — to recall their all-time best bargain, and within seconds they’ll proudly describe the details of their steal. (In a quick, unscientific survey, four out of five men were able to tell me all about their “deal of a lifetime.” I’m willing to bet the fifth’s girlfriend must do all of the shopping.)

Surprisingly, or perhaps not so surprisingly in this economic climate, one man’s first response was “my house,” and another said “my car.” We’ve been hearing for a while that now is the time to act on a new home purchase if you can afford it. There’s a lot of inventory out there, and many sellers are willing to make a deal — not to mention foreclosure and short-sale bargains. Now it appears that car dealers are backed into the same “must-sell” corner and willing to do what it takes to move overstocked inventory, including selling cars for less than what they paid the factory.

According to MarketWatch, dealers “were selling about 25% of all 2009 model cars below cost” by March 2009.

While I have to appreciate the amazing deals that means for consumers, I also find it somewhat bittersweet. It’s certainly a huge advantage for car-shoppers to score a new car at such a discount, but it’s also another indication of the sad state of the economy. Dealers willing to lose money just to get cars off their lots present staggering economic implications.

When gasoline was priced over $4 per gallon last summer, Toyota dealers couldn’t keep their prized gasoline-electric hybrid Prius models in stock. Consumers were calling dibs before the cars even arrived on the lots and paid thousands over sticker price just to get behind the wheel of these fuel-saving machines. Fast-forward almost a year: Gas prices have dropped by 40 percent, the economy is ailing (to say the least), and those formerly coveted hybrids are sitting on lots with no where to go, even with the energy efficiency tax credits available.

I’d like to think it’s the economy — not apathy towards the environment following lowered gas prices — that’s stalled hybrid sales. But regardless of why, the facts remain the same: The cars simply aren’t selling.

And here’s an interesting illustration of supply and demand: Last July, eager car-buyers were paying up to $4,000 above sticker price to own a 2009 Prius. Today, you can get that same 2009 Prius for $4,000 BELOW dealer cost in some cases.

So if you’re able to cash in on incredible savings, it seems now is the time to do so. Be sure to head to the dealership educated and ready to negotiate, and you too could drive off with the deal of a lifetime.

Since the beginning of the economic downturn, the tumbling stock market, a contracting job market and massive home foreclosures have occupied the nation’s attention. But there’s another effect of the ailing economy that’s just beginning to reveal itself: increasing car repossessions and the violent altercations occurring between repossesser and repossessee.

The economic slide and rising job-loss numbers increase the probability that consumers will default on their car loans, since most consumers will likely put a mortgage or rent payment before a car payment. Some analysts expect the number of repossessions to climb by five percent this year — on top of a nine-percent jump in 2007.¹ Others, however, predict a decrease in car repossessions because the number of financed cars has dwindled 32 percent since the recession began.²

But just because the pool of cars scheduled for repossession is shrinking doesn’t mean violent encounters over those cars will evaporate too. In fact, it’s quite the opposite. Car owners today — very aware that a sickly credit industry will make it much harder for them to replace a repossessed car with a new one — are desperate to hold on to the cars they already have.

While confrontation seems a natural aspect of the repossession process, the escalating resistance by some car owners is quickly turning the parties involved into casualties of the recession.

In a nearly unregulated profession, Joe Taylor, a repossession company insurer, warns the Associated Press, “If a guy is just put right on the street without training, the potential for violence is very, very high.”¹

When the dust settled on a dirt road following one such scuffle between 67-year-old retiree Jimmy Tanks and the men sent to repossess his Chrysler Sebring, one man was left dead and another charged with his murder.¹

According to reports, Tanks heard a noise outside his Alabama home late one night in June 2008, grabbed a gun and ran outside to confront the intruders. Who fired first and what happened next is less clear. What is clear is that a gunshot wound to the chest killed Tanks that night. Now, repo man Kenneth Alvin Smith awaits trial on murder charges for the 2:30 a.m. incident.¹

Since Tanks’ death in June 2008, two repo men also employed by Smith’s company have been involved in separate shooting incidents — leaving one wounded and the other dead.

With no end to the recession in sight, we’re only left to wonder if this violent trend will continue, and for how long.

Footnotes
¹ “Violence between repo men, car owners on the rise,” FoxNews.com, Feb. 27, 2009

² “The Recession’s Gotten So Bad, Even the Repo Man’s Singing the Blues,” Phillips, Michael M. Wall Street Journal, March 10, 2009

Contrary to popular opinion, a recent MarketWatch story reports that so-called “sin” industries like tobacco companies, casinos and distillers haven’t been faring well in this recession. A few stock funds that espouse Catholic values, on the other hand, have done better.

It’s often been said that during tough economic times, liquor sales and gambling continue to thrive because consumers turn to them for cheap entertainment or escape from their problems.

For those non-investors out there, you may be surprised to learn there’s a mutual fund called The Vice Fund (VICEX), which invests solely in “sin” industry companies like those mentioned above. That fund posted a 42% loss ⎯ 4 percentage points worse than the S&P 500 ⎯ over the past 12 months, MarketWatch said.

Compare that performance to that of the Ave Maria mutual funds, which avoid investing in things that involve abortion or benefit Planned Parenthood; the family of funds as a whole handily bested both the Vice Fund and the S&P 500, a broadly-used stock market benchmark.

The Ave Maria Growth Fund, for example, earned 23% for its investors since its inception about six years ago, better than average losses of about 7% for the S&P 500 during the same period.

This recession seems to be busting a lot of conventional wisdom about what’s supposed to happen in an economic downturn.

Can you think of any products or services that are still thriving in this economy?

With a chronic shortage of affordable housing in many cities and an abundance of foreclosed properties, advocacy groups for the homeless in some cities have been quietly moving homeless people into vacant, foreclosed homes, often the ones they previously lived in. Some groups operate as a kind of modern-day underground railroad, according to one advocate quoted in a New York Times story, while other groups do their work openly, sometimes with the support of neighbors in low income neighborhoods who are tired of seeing vacant homes become derelict, vandalized and increasingly unkempt.

In Miami, Philadelphia and other cities, volunteer advocates not only encourage organized “squatting,” but coordinate civil disobedience whereby owners or renters of foreclosed properties refuse to leave the premises. Overworked police departments don’t always take aggressive action.

According to the director of one such group in south Florida called Take Back the Land, those who are moved into foreclosed homes are screened for drug problems and mental illness and are also required to clean up the property and keep current paying the utility bills.

Other groups, like the Metro Atlanta Task Force for the Homeless, are thinking about making overtures to banks to ask them for legal title to abandoned properties; in exchange, they promise to rehab the buildings.

Do you support the work of homeless advocacy groups in reclaiming foreclosed properties? Does it make a difference whether the squatters who move in to a foreclosed home were the previous owners, or not?

Tent cities are cropping up in southern California, one of the regions hardest hit by the sub-prime mortgage and foreclosure crisis. Various news reports estimate anywhere from 300 to over 1,200 people, many of them whole families, living in tents in Sacramento. With homeless shelters full, many of the homeless are victims of job losses or foreclosures and have nowhere else to go.

The makeshift tent city, which lies within sight of Sacramento’s skyscrapers, has no electricity or plumbing.

Residents include a husband and wife who worked for the same company and who were both laid off on the same day¹, as well as a Vietnam veteran whose leg operation allowed him to walk after years in a wheelchair, but which also caused his disability payments to stop. Once the payments dried up, he could no longer afford to pay his rent.² Other residents said they were there because they could no longer afford their mortgage payments. Many of the homeless include those who worked in construction.

The state of California, faced with its own budget crisis, believes the tent city may be a permanent structure.³ Sacramento mayor Kevin Johnson said, “Our shelters have seen an increase, four-fold, there are not enough shelters, and I believe as a city, we need to look at every option, and tent cities are something we should consider.”⁴

Another tent city has existed in Ontario, California, since 2007. While the city pays for trash pickup and portable showers, city officials decided to limit residents there to Ontario residents only after hundreds of people flooded in from other areas, threatening to overwhelm facilities. Dog bites, theft and access to drinking water are problems.

It’s shocking to see one of the world’s wealthiest nations unable to stem the rising tide of homelessness exacerbated by the recession’s lethal one-two punch ⎯ foreclosures and unemployment. The homeless people’s tents of 2009 look eerily similar to the old photographs of shantytowns that cropped up on the fringes of American cities during the Great Depression.

Homelessness has always existed in America, and while government provides shelters with a warm bed and a hot meal, many homeless people prefer the relative safety of life on the streets to sharing shelter space with addicts and mentally unstable roommates.

Should the government step in to do more? Where does our responsibility begin and end?

Footnotes

¹ “Struggling Americans Call Tent Cities Home,” ABC News, March 12, 2009
² “Tent City Highlights U.S. Homes Crisis,” BBC News, March 14, 2009
³ “Pictured: The Credit Crunch Tent City Which Has Returned to Haunt America,” Mail Online, March 6, 2009
⁴ “Tent Cities Pop Up in Area Hard Hit by Economy,” ABC News, March 10, 2009

The recession is creating job losses across a wide swath of America and in every industry group. A recent New York Times story took a closer look at which demographic and ethnic groups (and states) are disproportionately feeling the pain of what’s been coined The Great Recession.

The Winners
• Renters, who had no equity to lose in real estate or the ability to take on risky mortgages
• Retirees who rely on Social Security income rather than personal investments
• Young families, who stand to benefit if their investments in the current, depressed stock market normalize in coming years

The Losers
• Day laborers and other workers who found work plentiful during the now-extinguished housing boom
• Hotel and retail employees and others without a college degree (most families cut back first on travel and shopping when money’s tight)
• Men, who tend to make up most of the workforce in troubled industries like manufacturing and construction
• Homeowners, who have seen real estate values plunge
• Investors, many of whom lost as much as half the value of their retirement funds or other investments
• Latinos, more so than any other ethnic group; the national unemployment rate now stands at 7.1%, compared to 11% for the U.S. Latino population
• El Centro, California, ground zero of the recession with an unemployment rate of 22.6%; this southern California agricultural town normally depends on Mexicans for picking the crops
• Michigan, North Carolina, Rhode Island and other states that rely heavily on manufacturing jobs
• Wall Street, where thousands of jobs will fall by the wayside
• The currently wealthy, who will pay higher taxes under Obama’s plan to bring more income equity to lower- and middle-income families

Can you think of other groups who are uniquely positioned to benefit or lose big in this recession?

Given the state of the economy and the frequent references to “the worst economic decline since the Great Depression,” I must admit to a new fascination with learning as much as I can about what the Great Depression was really like and whether what we’re going through now even approaches the hardships endured by Americans then.

What’s one difference between now and then? The food we eat at home.

Researchers analyzed 18 recipes that appeared in all seven editions of the enormously popular The Joy of Cooking, a cookbook that’s been around for 73 years. According to the New York Times, all but one of the recipes has increased in calories per serving, by an average of 39%. Researchers attributed 62% of the caloric increase to the use of different ingredients today and 38% to bigger serving sizes. Greater affluence today, the study said, permits families to use more fat, sugar and meat to replace potatoes, as well as more sauces.

So maybe when the government talks about sacrifices and making cutbacks, we should just replace the sour cream and the butter with leaner alternatives.

Barack Obama’s presidential inauguration understandably overshadowed pretty much everything else in the news for the last week or so.  His presidency represents a stark change from the policies and approaches of the past, both from the perspective of the White House and the perspective of the American people.  This country faces dire, urgent problems, and President Obama’s ascension to the White House offers many people a sense of hope that maybe we can start to address those problems and dig ourselves out of the holes we’re in.

Unfortunately, the concentrated spotlight on Obama meant that even the parting words of then-President George W. Bush got little play in the media.  That’s unfortunate because, as Tom Engelhardt, founder and editor of TomDispatch.com, noted in a recent Tomgram, President Bush dropped a bomb on the media at his final press conference (or “exit interview,” as he termed it).

Take a look at what President Bush said:

“Now, obviously these are very difficult economic times. When people analyze the situation, there will be — this problem started before my presidency, it obviously took place during my presidency. The question facing a President is not when the problem started, but what did you do about it when you recognized the problem. And I readily concede I chunked aside some of my free-market principles when I was told by [my] chief economic advisors that the situation we were facing could be worse than the Great Depression.

“So I’ve told some of my friends who said — you know, who have taken an ideological position on this issue — why did you do what you did? I said, well, if you were sitting there and heard that the depression could be greater than the Great Depression, I hope you would act too, which I did. And we’ve taken extraordinary measures to deal with the frozen credit markets, which have affected the economy.” [emphasis added]

Um … wow.  The leader of this country and the free world was warned by his chief economic advisors that we could be headed for something worse than the Great Depression?  Did you know that?  Did you read about it anywhere?  See it on TV?  Hear it on talk radio?

Yes, Bush and Cheney were virtually booed off the stage at President Obama’s inauguration, and no, his administration didn’t exactly drape itself in glory over the last eight years.  Still, when Oval Office discussions start centering on economic conditions that could make the Great Depression seem favorable by comparison, shouldn’t that be brought to the attention of the American public?  And don’t we have a right to know whatever it was that caused Bush to “chunk aside” his “free-market principles”?

For a detailed analysis of what this may mean to all of us, I recommend that you read Mr. Engelhardt’s Tomgram in full.