Goldman Sachs charged with fraud

The Security and Exchange Commission on Friday charged Goldman Sachs with fraud.

The SEC alleges that Goldman Sachs purposely misled investors into buying a mortgage-backed security that it knew was destined to fail.

Goldman let Paulson & Co., one of the world’s largest hedge funds, choose which  investments to include in the portfolio, knowing that Paulson was betting against it.  It did not disclose to investors that Paulson influenced the selection process – and when it crashed, Paulson made $1 billion from investors, while Goldman raked in the fee money.

“In sum, [Goldman Sachs] arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse economic interests,” reads the SEC’s complaint.

As of Sunday night, two members of Congress and British Prime Minister Gordon Brown have called for investigations into the bank’s role in the 2008 subprime mortgage meltdown.  Germany has also considered taking legal action against Goldman, according to the New York Times.

Is JP Morgan deliberately trying to confuse its customers?

Beginning in July, the new CARD Act will prohibit banks from charging over-draft fees on debit card customers – unless the customer voluntarily opts-in for the ability to overdraft money from his or her account.

Banks have traditionally profited from debit cards by charging overdraft fees of $30 or more when customers withdrew more money than they had from their accounts.  But the new law gives customers the option to decide whether they want to be able to overdraw money in the first place.

Some banks have started to focus marketing efforts on encouraging customers to opt-in for the overdraft service.

But JP Morgan Chase has been accused of purposely trying to trick its customers by making its opt-out question deliberately confusing.

The Consumerist, an online consumer advocacy coalition, posted Chase’s opt-out question on its website, and I posted it below.  (Click to enlarge)

The controversy

The document leads with “the benefits” of opting in to overdraft money.  The first benefit, listed in bright red letters: “Allows you to use your debit card” – as if to say your debit card won’t work unless you opt in.

It then asks two yes-or-no questions: whether you read the legal disclosure, and then whether you want to opt-in for the overdraft service.  But to the left of the second question are the words FREE EXTRA CKING – in an apparent attempt to confuse people into thinking that clicking “yes” will give them access to free checking.

It’s pretty sketchy, but apparently legal.

The real question: is it even possible to prevent banks from misleading customers?  Or do customers need to do their own research, and quit doing business with banks like JP Morgan Chase?

How the new healthcare plan works

President Obama on Tuesday signed into law the Democrats’ historic healthcare reform bill.

Democrats promise the new law will expand health coverage to 32 million more Americans, eliminate egregious insurance tactics and save the country more money in the long-run.  Republicans argue that the law will result in a government take-over of healthcare, force the U.S. into bankruptcy and usher in a new era of increased dependence on the government.

Regardless of what you think of the bill, it is now the law of the land.

Immediate Effects

Among its immediate effects:  it will be illegal for insurance companies to deny children coverage for pre-existing conditions, or drop customers from coverage once they become sick.  Small businesses with fewer than 50 employees will receive tax credits to help finance 50 percent of each worker’s health insurance costs.  Young adults who recently graduated from college can now stay on their parents’ healthcare plans until they turn 26.  Adults suffering from pre-existing conditions can now buy health insurance.

How the insurance industry will pay for it

To off-set the losses insurance companies would experience from having to fulfill these promises, the government has promised the industry an influx of new customers.  Starting in 2014, the government will require all Americans to purchase health insurance – similar to how all drivers are required to carry automobile insurance.

How it plans to lower insurance costs

To keep health insurance affordable, the government will require insurance companies to reveal how much money they spend on bonuses and administrative salaries.  Non-profit insurance companies, such as Blue Cross Blue Shield, must now maintain a medical-loss ratio – in which 85 percent of its income must be spent on medical procedures (rather than administrative salaries and bonuses) in order for it to take advantage of IRS tax benefits.  The government will implement new screening procedures over the next few years to identify and eliminate fraud and waste within the insurance industry.  And whenever an insurance company wishes to change a program, it must now go through an appeals process that gives customers the opportunity to challenge the merits of the new program.

How the government will pay for it

The government will obviously need some money to pay for the initial stages of this new plan.  Starting in 2012, the government will enforce fees against drug companies.  Starting in 2013, the government will raise taxes on single people who make more than $200,000 per year, and couples who make more than $250,000 per year.

Democrats hope that by 2014, the huge influx of new customers for the insurance industry, the new drug company fees, and the higher taxes on the wealthiest Americans should enable the new system to sustain itself – and save the country money over the long-term.

How the new system plans to save money

Democrats project that by expanding health insurance to more Americans, it will lower the cost of each individual’s health insurance overall.

This is because under the former system, patients who visited the emergency room without health insurance forced hospitals to foot the bill, which passed the costs on to the insurance industry, which passed the costs on to everyone else in the form of increased premiums.

By expanding health insurance to everyone, individuals will pay less because the responsibility is now spread out to more people – instead of forcing only those who pay for health insurance to pay for everyone else.

The new PR health campaign

The new healthcare bill also includes a PR campaign aimed at encouraging Americans to live healthier lives.  Fast food restaurants will now be required to disclose nutritional facts on their menus – similar to food in grocery stores.  The government will enforce a sales tax on tanning salons.  And the bill allocates $1 billion in credit for firms to research new techniques and therapies for preventing diseases – instead of relying on drugs.

The Politics

Many Americans remain skeptical after an emotionally charged debate in which fear embodied the primary force of opposition.  Republicans will likely use their remaining fear juice to win some Congressional seats in November.  But as for restructuring the way our healthcare system operates – it’s mission accomplished for the Democrats, and the Republicans cannot repeal it.

Kansas City nominated for Google’s new ultra-fast Internet project

Google will soon pick a city to test its multi-million dollar “ultra-high speed broadband network,” and Kansas City is now a candidate.

According to a statement released by Google, its networks will make the chosen city’s Internet 100 times faster than what most Americans have access to today.

The project would not only increase the city’s Internet speed and efficiency; it could bring thousands of jobs by turning it into a favorable spot for Internet-based businesses.

To support Kansas City’s nomination, you can go to, or

Health insurers plan to raise premiums, even if it means losing customers

The health insurance monopoly has become so concentrated in some areas that insurers can now jack up rates as high as they want – even if it means losing customers – and still continue to drive profits even higher.

Wall Street broker Steve Lewis told investors during a conference call organized by Goldman Sachs last week:

“Not only is price competition down from a year ago… but trend or (healthcare) inflation is also up and appears to be rising. The incumbent carriers seem more willing than ever to walk away from existing business resulting in some carrier changes…”

He went on to say that rate increases could go up as high as 50 percent in some areas, adding: “I think most people would acknowledge that there’s a need for healthcare reform.”

Sec. of Health and Human Services Kathleen Sebelious released a letter to insurance executives last week asking them to post justifications for rate increases on their websites.

But Talking Points Memo reported that AHIP CEO Karen Ignagni said Tuesday that criticizing the insurance industry for jacking up rates would not improve the situation.

“Our industry strongly supports health care reform because we recognize that the current system is unsustainable,” Ignagni said. “The current debate about rising premiums has demonstrated that, in fact, we have a health care cost crisis in this country. Unfortunately, the path that has been followed is one of vilification rather than problem solving.”

Despite her remarks, AHIP is set to pour $1 million into television advertising aimed at derailing healthcare reform.

The proposed healthcare reform bill gives the government the authority to limit excessive premium increases.  The provision was added after Wellpoint, a massive California insurance company, jacked up its rates by 39 percent.

Health Care for America released this new ad (below) in the wake of recent insurance rate hikes.

Wall Street controls the SEC

President Barack Obama needs to kick down the door to the SEC, and start slamming nerds through computers.


Harry Markopolos, a former financial securities industry executive, led an independent investigation into Bernie Madoff’s ponzi scheme in 2000.  He wrote a letter to the SEC entitled “The World’s Largest Hedge Fund Is a Fraud.”

The SEC never responded.

Markopololos and some fellow financial people investigated the scheme for eight years, followed Madoff’s crew across two continents, and wrote countless letters urging the SEC to intervene.

The SEC ignored him.

The 2008 financial meltdown inevitably shed light on the ponzi scheme, and Madoff now sits in prison.

But Markopolos said last night on the Daily Show that everyone who worked at the SEC during that time is still working at the SEC… more than a year after it became obvious that the SEC did not lift a finger to investigate the biggest ponzi scheme of this decade.

The problem, he said, is two-fold:

“No. 1… the  institution is captive to the industry it is supposed to regulate.  They work for Wall Street; not for us investors,” Markopolos said.  “And No. 2: they’re over-lawyered.  Lawyers can never chase finance people; [finance people] will outsmart them every time… I’d love to get in there – I’d fire most of their staff on day one, and replace them with finance people.”

When asked why the SEC doesn’t already consists of financial experts, Markopolos replied, “because lawyers won’t catch any of the financial crimes, and that’s the whole point.”

Warren Buffet: Current healthcare system eating away U.S. economy (Video)

The current healthcare system is like “an economic tapeworm” eating away at the U.S. economy, Billionaire Warren Buffett said Monday in an interview on CNBC.

“What we have now is untenable over time,” He said, citing that the cost of U.S. healthcare has jumped from 5 percent of the country’s GDP to 17 percent of GDP.  Most other developed countries maintain healthcare systems that cost about 10 percent  of GDP, he said.

“If you want to get the very best; you want to spend a million dollars to prolong your life another three months… you can probably do it better here in the United States than any place else,” Buffet said.  But, “We have a healthcare system that, in terms of cost, is really out of control, and if you take this line and project what has been happening into the future, we will get less and less competitive,” Buffet said.

Buffett said he thought the proposed healthcare bill does not do enough to address the cost situation.

“We need something that will end the constant increase in medical cost as a percentage of GDP,”  Buffett said.

When asked if President Obama should scrap the current healthcare bill and start over, Buffet responded:

“If I were President Obama, I would just show this chart of what’s been happening and say, ‘this is the tapeworm that’s eating at American competitiveness.  And I would say that, ‘one way or another, we’re going to attack cost, cost, cost; just like they talk about jobs, jobs, jobs…

“I would try to get a unified effort and say, ‘This is a national emergency to do something about this – we need the Republicans; we need the Democrats… We’re going to get rid of the nonsense and we’re just going to focus on cost, and we’re not going to dream up 2,000 pages on other things…’

“I believe in insuring more people, but I don’t believe in insuring more people until you attack the cost aspect of this… And I admire people for tackling it because it’s so tough politically.  But I’d really like to see [Obama] get the job done.”

Fed to investigate Goldman’s debt contracts with Greece

Federal Reserve Chairman Ben Bernanke told Congress Thursday that the central bank would investigate Goldman Sachs’ use of derivatives contracts with Greece.

“We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece,” Bernanke said Thursday before the Senate Banking Committee.

Goldman Sachs helped raise $1 billion for Greece in 2002 using credit default swaps, which compensate investors when an investment (in this case, Greece) defaults.

European Union regulators have said that they knew nothing about the swaps until very recently, and an investigation has opened into whether Goldman Sachs intentionally helped conceal Greece’s debt.

Sen. Chris Dodd asked Bernanke whether there should be limits on the use of credit default swaps to prevent “the intentional creation of runs against governments.”

Bernanke responded, “Using these instruments in a way that intentionally destabilizes a company or a country is — is counterproductive, and I’m sure the SEC will be looking into that.”

The new debit card marketing campaign

The CARD Act is forcing banks to rethink the way they market the debit card.

Banks have traditionally profited from debit cards by charging customers an “overdraft fee” when they withdraw more money than they have in their accounts.

Customers who pay attention to their balances and rarely take out too much money, rarely have to worry about the fee.  But customers who frequently exceed their account balances and pay more in penalty fees, naturally become the most profitable for banks.

The only problem was that some banks weren’t giving customers the option to decide whether they wanted to be able to overdraw money from their accounts.

The new CARD Act prohibits banks from charging an overdraft fee unless customers voluntarily opt-in for the ability to overdraw money.

Banks have now launched a new aggressive marketing campaign aimed at encouraging customers to opt-in for the service.

The New York Times reported that Chase Bank, for example, has sent out warning letters in red print, which read:

Your debit card may not work the same way anymore, even if you just made a deposit.  If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency,” with even in an emergency underlined, according to The New York Times.

Their obvious strategy is to scare customers back into their old system by associating the “freedom to overdraw money” with “security.”

But many financial analysts also warn that banks plan to raise their various fees to offset the profits lost from customers who choose to opt-out.

So when your bank offers you “freedom” with your debit card, remember to ask how much that freedom costs.