Does Being Too Close To Money Make People Turn Evil?

The latest scandal in the banking industry has my shaking my head.  For those who haven’t heard, Wells Fargo is in it deep because they basically set quotas for the number of add on services that employees were required to sell.  This was pushing people to go above and beyond normal circumstances, opening accounts without permission, forging signatures, pressuring family and all sorts of fun stuff.  So I have a simple question: Does money make people evil?

Still In The Cycle Of Corruption

Basically, more awful behaviors in an industry that has the stench of a lot of awful behaviors.  I mean, nobody has forgotten the subprime mortgage crisis, right?

It just got me to wondering why this stuff keeps happening.  I’ve heard that we should break up the banks to make them smaller, or taking certain functions (like investing) away from banks.  All sorts of things, but I’m not sure any of that would work.

Does Money Make People Evil?

Maybe it’s not how big the banks have gotten.  Perhaps it’s simpler than that. It could be that people turn evil when they’re around money too long.

After all, money makes people do crazy things.  Even the Bible is full of stories of those who lost their way because of a greed for money.

Money makes people steal.  Cheat.  Lie.  Beg.  It brings out jealousy.  Anger.  Rage.  Sadness.  It makes people kill themselves.  Or others.  Or both.

mb-201312billscoinsAnd all of these things come out for people who don’t work with money.  They just deal with it on the periphery.

But what about those who work around it?  Every day.  They’re consumed with it.  Every spreadsheet they open. Each figure on a screen.  Every conference call they make.  Basically, everything they touch involves money.  Money, money money.

Could Banking Be A Short Term Career?

Maybe bankers should just work in the industry for so long and then be forced to go do something else like farm or build roads or sell clothes or something else.  Anything else that doesn’t drive them crazy as it seems working around it seems to do.

Obviously this is just a crazy suggestion, but I wonder if my underlying thought is correct.  Maybe money is like the sun or alcohol or drugs, all OK in moderation, but harmful, even deadly, if exposed to too much.

What do you think, readers?  Is there any real way to stop the next story that involves greed and corruption in the financial industry or are we doomed simply because of what money does to our minds?  Let me know what you think in the comments below.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Why You Should Ignore The Doomsday Stock Market Predictions

The stock market has not been pretty as of late.  All three major US indexes are in or have at some point recently dropped into correction territory, which is noted as a 10% drop.  Some stock market predictions are coming out that are driven by pure fear.

The bulls that drove the stock market to more than double over the last few years have taken a break, and the bears have been more than happy to step in and finally be right.  However, I think that there are some who are way off the mark.

Is This 2008-2009 All Over Again?

There are many out there who will happily tell you that the stock market is headed for another crash like the one that happened in 2008-2009 when the markets lost over half their value in about an 18 month period.

They claim that the Fed artificially propped up stock prices over the past few years.  They warn that the market will return to those pre-prop levels.

Some claim that the global economy is so dire that the entire world is going to crash and burn any day!

Others just say that we’re in a bubble and it’s going to burst!

To all of that and any related thesis about an imminent market crash, I am very skeptical. Let me explain why.

Here are four reasons that I don’t think the market is headed for a crash.

There are no signs of a foreclosure crisis on the horizon

Remember the early 2000’s, when prices in just about every neighborhood were skyrocketing?  10% increases in mb-201312billscoinshome values a year?  No problem.  People could buy a home and be comfortable that they’d turn a profit in as little as a couple of months.  However, as we now know this was all built on a house of cards caused by bankers giving out loans that they should never have been doing.

Look around today.  While home prices have largely recovered, the volume isn’t there.  There’s less houses being sold.  This is a good thing.  It means people are actually buying and selling because they need to, which removes most of the speculation that drove the previous rise and fall.  While there are flippers out there, the practice is much less common and you have to actually know what you’re doing to make it work.

In other words, this is a fairly normal housing market that has solid footing, and while values could flatten or even decline, the crash in prices and spike in foreclosures seems very low risk.

Banks aren’t built on a muddy foundation

Remember the images of Lehman Brothers closing?  People walking out carrying boxes.  A giant building suddenly with no purpose.  A company that had handled and been responsible for trillions of dollars and in business for well over a century suddenly….gone?  We all saw the images and they hit home.  The fact is, while Lehman was the only major casualty of the giant banks, it could have gone further.

Luckily it didn’t.

When it all shook out, it turns out that very few banks were in great shape.  Most had gotten so consumed with the housing mess that it could have all come tumbling down.  Lehman wasn’t fortunate enough to get another chance, but many still did.

And the results show today.

Banks now must routinely go through stress tests, where a simulated economic disaster takes place, and banks must show that they have the liquidity and the financial strength to weather the storms.  When these stress tests first rolled out, very few banks passed.  Now, all the major banks have showed strength and routinely passed stress tests.

Is every bank guaranteed to survive some economic event that might happen? Of course not.  But, the industry as a whole is now must stronger and is not at risk of collapsing at any moment.

Unemployment numbers are solid

One argument that the mega-bears use is to point out that economic recovery is slowing.  This is true, but when you compare it to a few years ago, is this really a big surprise? We were just coming out of the biggest economic catstrophe in 80 years, so when things started going in the right direction, it was no surprise that things started picking up quickly.

Unemployment stands at just over 5% today.  That’s the lowest in years, and while employment gains are shrinking, I believe that it’s because of what the numbers show, that many people have jobs.

Many people will counter that argument by stating that the unemployment number is flawed, because many people simply dropped out of the workforce.  To me,  by empirical evidence alone, it’s pretty clear that more people are back to work these days.  I just don’t see the Facebook posts of people sitting at home looking for work.  I have automatic alerts about jobs in my area for my profession, and I see the number of opportunities getting bigger in number.  The current unemployment numbers don’t indicate a problem.

On top of that, I also think that the fact that unemployment has grown slowly and steadily over the last few years is a reason for strength right now.  Many past recoveries saw job numbers grow very quickly after a recession, only to see the large gains get undone at the first sign of trouble.  I believe in our current economy, employers have added jobs as they are truly needed, and the risk of them quickly unwinding the hires of the past few years is low.

Other countries do not drive us (though they can ride shotgun)

But….but…..China….and….Greece……yeah….they go down, we go down.

Isn’t that what many fear mongers have been preaching over the last year?  Every time China slows or Greece slows, the market goes into panic mode and the perma-bears pat themselves on the back in satisfaction.

Whatever.

The fact is that while we now have a global economy where things in other countries will impact us from a financial perspective, we still drive our own economy.

Let’s think about this?  The last time the situation in Greece came about, the stock market lost more value than the entire annual GDP of Greece!  Again, I understand the situation was no laughing matter, but perspective sometimes gets lost, and those who want to see doom and gloom will latch onto any little bit of news and make it seem like the entire country was going to basically fall into the ocean and all economic activity would cease.

Greece, China, and other countries will all have issues.  Will they impact us?  Sure.  But are they going to blow our economy out of the water?

Not likely.

So what does it all mean?

Am I here to tell you that the stock market shouldn’t have fallen?  No.  Am I hear to tell you that it won’t fall more?  No.  In fact, I could be completely wrong about everything I’ve said.  Maybe the market will tank.

But, I don’t think it will.  I’m keeping my portfolio aligned with that opinion (and that’s all it is).

I don’t see the perma-bulls getting hold anytime soon.  Will the Dow hit 20,000 this year?  Probably not (though wouldn’t that be nice!).  But will it go under 10,000 like many seem to love to call for?  I just don’t see it happening.

There will likely be a lot of volatility.  I think right now this is caused more by the market sensing fear and trying to shake out the weak hands.  Unfortunately, if this is true, a lot of people will get shaken out, suffering losses, and then they’ll miss out on the upside again.

That’s what the fat cats on Wall Street loves to do to the retail investor.

Before you make a big market move, make sure you look past whatever people are saying.  Everybody has their own agenda, and it may not match yours.  Understand for yourself what’s going on.  Make your decisions from there.

You might be right and you might be wrong, but at least you won’t be trusting someone else.  Because let’s face it, all those ‘someone elses’ don’t have the best interests in mind for your money despite what they say.

Readers, what do you think? Is the market headed for a crash or a rise or somewhere in between?  I’d love to hear your predictions and thoughts on what’s driving the market these days.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

A Simple Bank Account Is Out Of Reach For Most Egyptians

Expats from the United States, Europe or elsewhere should find little difficulty in opening a personal bank account in Egypt. It’s a matter of producing the required official documentation – passport, work visa and residence certificate. A letter from the bank back home should also help in the application process as will a couple of recent bank statements. And that’s about it. Of course, you’ll need to be earning a decent monthly salary; too, otherwise the application is likely to end up in the waste paper bin.

mb-201401egyptSadly, for the great majority of Egyptians, a simple bank account remains well out of reach. At first glance, that may seem surprising given the large number of bank branches and cash machines visible in the major cities, towns and major tourist attractions. Appearances, however, are a little bit deceptive. The truth is the handsome salary you may – or may not – be earning is likely to be unusual when compared to the earnings power of most of Egypt’s citizens, especially those living and working in the remoter rural communities.

For there the average monthly wage earned is likely to be well shy of $100, and therefore representative of a market considered much too small to invest in and to develop by the major banks. So there are no branches to serve Egypt’s rural citizenry. Given the political and economic challenges faced by the country over the last year or two, it’s a situation that appears hardly likely to change any time soon. Or is it?

Recently, the Egyptian banking sector has come in for some criticism over its reluctance to lend to institutions other than large corporate firms or government entities, both areas regarded as traditional safe havens. Understandable, perhaps, given all that’s happened since the January 2011 revolution.

According to John Beck, writing in The Banker, the world’s premier banking and finance resource which is read in over 180 countries around the world, conditions have not been easy for Egypt’s banking sector. Currency woes and a flight of foreign capital have inevitably impacted an industry that had been enjoying several years of double-digit growth up until early 2011. But the industry has also proven remarkably robust and a number of banks have continued to perform strongly.

However, the conservative nature of the banking sector’s portfolios has led some to criticise its reluctance to lend outside the large corporate or government arena and its traditional disregard of a sector that could drive growth in the Egyptian economy – small-scale business.

Hoda Selim, an economist with Cairo-based Economic Research Forum, is quoted in The Banker article as saying, “The financial sector is just lending to the government. It prefers, in general, to invest in Treasury bills than in the private sector.”

And Dalia Abdel Kader, head of sustainable banking and director of marketing and mass communication with Arab African International Bank, says lending to businesses outside the top tier of corporates could help the rest of the economy climb out of a rut, boosting growth and employment levels.

Egypt’s small businesses are not the only ones to be under-served by the banking industry. Less than 15% of its 80 million population have bank accounts. Here too, says Ms Kader, benefits are multi-faceted. Catering to a population that has been largely ignored by the banking sector boosts financial inclusion, but also unlocks many potential customers from what she describes as “the bottom of the pyramid”.

Editor’s note: I am happy to share the information provided by my guest writer today.  Information about Egypt and the ways of life always interest me.  I had a friend, years back, who was laid off from his 9-5 job, and decided to make a big leap.  He moved to Egypt for several years and taught English to Egyptian young adults.  His stories were eye opening, and it was always interesting to see the differences in the way of life, including many of the things that we take for granted.  Like a bank account.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Why Higher Interest Rates Will Not Lead To Recession

It’s amazing all the panic I see when reading the news pertaining to higher interest rates.  Mortgage rates have gone up about 0.5% in the last few months, and stock markets have lately been hit by fears that the Fed will not only taper off Quantitative Easing, but will eventually raise the discount rate, which is pretty much the standard rate that many lending activities are based from.

The naysayers proclaim things like:

“Higher mortgage rates are going to kill the housing market recovery.”
“Higher interest rates will pop the housing bubble.”
“Higher lending costs will lead to recession.”

I’m sure you get the point.

Personally, I’m not buying it.

Demand fell.  Let’s look back to the reason that rates fell to the point where they did?  It was the economy.  Basically, companies and people stopped borrowing as the housing bubble popped, people were losing their jobs, and wealth was disappearing in the stock market crash.  All of that meant that credit was simply not in demand, which by the economic laws of supply and demand meant that rates had nowhere to go but down.

And they did.

But, now, they’re going back up, which is actually a good thing.  It means that there is more demand.  People want mortgages.  Companies want to borrow money.  These are not the signs of a fragile economy, but instead are indicators that the economy is indeed finding stable ground.

No permanent solution.  Low rates were never meant to be a permanent solution.  When the Fed stepped in and basically made the discount rate zero, meaning banks could borrow at no charge, this was meant to stop the free fall that the economy was in.

Now that we’re no longer in a free fall, the underlying reason for making the rates so low simply isn’t there.  Jobs may not be getting created as robustly as many would like, but we’re not shedding hundreds of thousands of them per month.  Housing prices are going up.  The actual number of homes being sold still has a ways to go in terms of recovery, but with the market showing such pent up demand, do people honestly believe that another bubble is right around the corner?

No more dirty work.  As the Fed tightens up their policies, it means that they are no longer responsible for shouldering the workload involved with our economic recovery.  Let’s think about that for a second.  With the Fed doing all the work, it’s been pretty easy for companies, including those in the financial industry, to sit back and let the Fed do all of the work.  The Fed has taken a lot of heat for getting so involved, but even if they become less involved, this shouldn’t mean that the economy will just collapse.  Instead, it means that the private sector now has to get back to hard work that they’ve been able to avoid for the last few years.

Since profits are at stake, you bet someone will do it.  Don’t believe for a single second that just because the Fed ‘backs off’ that nobody will pick up the slack.  Someone will see the opportunity to get back to business and will take charge.

This is a test.  This is only a test.  The stock market has been tested quite a bit since the Fed announced that they’ll taper things off (which leads to speculation that interest rate jumps aren’t far behind).  As I watched the stock market react day after day, I could sense that a lot of the ‘fears’ and ‘jitters’ and ‘uncertainties’ were merely posturing.

In fact, it felt to me like Wall Street was trying to needle the Fed into backing off from their plan to back off.  After all, if the stock market did a little mini-tank, wouldn’t that show that the market wasn’t ready for the Fed to back off of their control over the economy and maybe they should stick with it a while longer?

Am I saying that Wall Street was purposefully manipulating prices?  Well, it does seem to me that the activity for multiple days following the announcement should have already been priced in to a large degree.  So, if you follow the markets, draw your own speculation on that.  I’ll also say that I hope that the Fed doesn’t back down because of a few bad days.

In short, the Fed has made it clear that the days of free and easy money are coming to a close.  While this sends many people into a panic, I think it’s a great sign for our economy and indicates that even better days are ahead.

Readers, have interest rate changes spooked you or do you see it as a sign of opportunity ahead?

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