In November of 2006, the office of the New York State Attorney General initiated an investigation into the financial agreements between New York universities and student loan providers as part of an effort to eliminate practices that created conflicts of interests in the lucrative $85 billion student loan industry. [1] However, this investigation did not receive a high degree of publicity or momentum until February of 2007 when the newly appointed New York Attorney General Andrew M. Cuomo expanded the investigation to include more than 60 universities nationwide and major student loan providers and banks. [2] Attorney General Cuomo's investigation revealed questionable practices within the student loan industry whereby universities were receiving illegal kickbacks for including certain lenders in their "preferred lender" list. [3] This discovery has led to a nationwide reaction and the student loan industry has been under significant probing from several lawmakers as well as the U.S.
Problems With Interest Only Mortgages
I. Introduction:
In
the microwave generation, everybody wants things right away. Things
that our elders used to dream of having and save up for are now
available instantly using credit. Credit cards give buyers the option
of purchasing more than they can presently afford and paying back only
interest. But while it may sound like a good idea to have everything
now, for most living at the edge of their means, credit gets out of
control and they get stuck in bankruptcy. A buyer overextending himself
using a credit card is chaos on a small scale compared to the abuses of
credit going on now.
In
recent years, banks have been marketing interest-only mortgages to a
crowd of buyers that want bigger houses, but couldn't otherwise afford
it. Interest-only mortgages allow home buyers to pay a monthly payment
that consists of only interest, no principal. [1] The option to pay
Subprime Slump: Will the Economy Follow?
On February 7, 2007, the Senate Banking Committee heard testimony
which indicated that nearly 20 percent of subprime mortgage loans
obtained in the period from 2005-2006 will result in foreclosure,
affecting over 2.2 million families in the United States over the next
few years. [1] On Monday, April 2, 2007, the second largest provider
of high-risk, subprime mortgages, New Century Capital Corporation of
Irvine, California, filed for Chapter 11 Bankruptcy protection and
fired 3200 employees in the wake of its own "financial missteps" and
trouble with the SEC and U.S. Department of Justice over financial
statements which failed to accurately account for financial losses the
corporation was suffering, as well as mismanagement of the
corporation. [2] With more than 25 subprime lending companies
shutting down over the past few months [3], many are wondering about
the implications for the future of both the subprime market and the
economy.
Subprime mortgages… Read the rest
Loophole in the U.S.A. Patriot Act enables Financial Institutions to provide services to undocumented immigrants
Bank of America recently announced its plan to nationalize its pilot program which provides credit cards to individuals who do not have credit histories and social security numbers. These individuals only need to have maintained overdraft-free checking accounts with Bank of America for at least three months and have a taxpayer identification number.[1] This program, which has been the target of criticism, is the latest of a series of programs commenced by various financial institutions that allows undocumented immigrants and other non-U.S. resident aliens to obtain certain financial services that would not have otherwise been available to them. Although Bank of America has asserted that its program complies with U.S. banking and anti-money laundering laws, many critics argue that this program opens business to illegal immigrants and undermines the anti-money laundering efforts of the U.S.A Patriot Act of 2001. [2]
The U.S.A. Patriot Act of 2001 is a comprehensive anti-terrorism
Virtual Bank, Real Scam?
Second Life is a popular “virtual world” in which people across
the real world interact with each other using “avatars.” [1] Avatars
are three-dimensional alter-egos that can be completely customized;
users can change their avatar’s clothing, height, weight, and even add
features like wings. [2] Unlike other virtual worlds, which are
basically interactive computerized versions of fantasy role-playing
games, Second Life is not a game in the traditional sense. [3] It does
not have goal or end; there are no monsters to fight, mysteries to
solve, or princesses to rescue. [4] Rather, Second Life provides its
users with a toolkit with which they can create items within the
virtual world. [5] Users can create pretty much anything they want:
buildings, vehicles, clothing, even games. [6]
Much of the activity in Second Life centers on commerce with users
“buying” and “selling” “land” and each other’s creations. [7] … Read the rest
China Makes Plans to Diversify its Currency Reserves
People’s Bank of China Governor Zhou Xiaochuan announced at a
meeting of central bankers in Frankfurt this past Friday that his
nation plans to diversify its $1 trillion currency reserves. [1] Zhou
stated that China has a clear diversification plan that includes
“currencies, investment instruments, [and] emerging markets,” but does
not include the sale of any of its dollar denominated assets, which
make up approximately 70% of China’s total reserves. [2] Despite Zhou’s
assurances that China would not be selling off its dollar denominated
assets, the dollar fell to a two and a half month low against the Euro
and gold prices rose to a two month high. [3]
Many
analysts believe that China is unlikely to sell off a large amount of
its dollar denominated assets; as to do so would be against China’s
interests. [4] If China were to make such a sale, the sudden influx of
U.S. … Read the rest
Banks Cheating Workers Out of Overtime Pay Are In Trouble
Introduction:
There is
a common practice among banks to classify their brokers in such a way
that makes them ineligible to receive overtime pay, and now their
brokers are fighting back to receive the pay that they feel is
rightfully theirs. Morgan Stanley, Citibank, Wachovia, and Bear Steams
have all been sued for failing to pay overtime to eligible employees.
The U.S. Department of Labor is now chiming in to say which employees
must be paid overtime, and it is not looking good for the banks.
Morgan
Stanley has agreed to pay up to $42.5 million to settle a class action
suit against 4,000 of their employees and former employees for failing
to pay overtime to them even though they were eligible for overtime pay
under the law. [1] Similar cases have been filed against Citibank,
Wachovia, and Bear Steams Cos. [2]
The plaintiffs alleged that improper deductions were taken
Bank of America Settles Money Laundering Suit for $7.5 Million
The Bank of America recently settled a money laundering suit brought
by Manhattan District Attorney, Robert M. Morgenthau for $7.5 million,
$6 million in penalties and $1.5 million in costs, ending an almost
three year investigation conducted in coordination with foreign
authorities. [1]
District
Attorney Morgenthau said that a series of transfers, totaling more than
$3 billion, prompted the investigation because they possessed some of
the ear-marks of terrorist financing, much of which comes from South
America. [2] The transfers originated in offshore shell companies owned
by illegal Brazilian money services and were routed through the Bank of
America account of a Uruguayan money remitter. [3] Although officials
do not know the identity of many of the recipients, District Attorney
Morgenthau believes that some of the transferred funds went to Mideast
terrorist organizations. [4]
Under the terms of the settlement, Bank of America admitted that it
failed to adequately asses … Read the rest
China Approves Citibank-led Consortium’s buy-into Guangdong Development Bank
China’s approval of the Citibank consortium’s buy-into Guangdong
Development Bank ends a year-and-a-half battle for control of the bank.
[1]
The Citigroup consortium, which includes China’s largest insurance
company and one of China’s largest electricity distributors, offered
approximately three billion dollars for an eighty five percent stake in
Guangdong Bank. [2]
The
Citibank consortium beat out its closest rival a consortium led by
France’s Societe Generale. [3] U.S. based, private investment firm, The
Carlyle Group, pulled out of the bidding. [4] Despite a last minute
attempt to get back into the race, Ping An Insurance's bid was hobbled
when they tried to make large donations to the Guangdong provincial
government a portion of their bid. [5]
Despite their leadership position in the consortium, Citibank will
only take a 19.9 percent stake in Guangdong Development Bank, as
Chinese law currently forbid a single foreign bank from owning more
than 20 percent … Read the rest
Insider Trading Scandal at Goldman and Merrill
Prosecutors recently charged three employees at Goldman Sachs and
Merrill Lynch with participating in a $6.7 million insider trading
scheme. [1] Authorities claim that Stanislav Shpigelman, an analyst at
Merrill, sold inside information on upcoming mergers and acquisitions
to Eugene Plotkin, an associate at Goldman, and David Pajcin, a former
Goldman analyst. [2] Plotkin and Pajcin then used this information to
buy stocks before the public announcement of the deals and then sell
them after the announcements for a significant profit. [3]
The trio also recruited
two employees of a printing plant in Wisconsin that publishes Business
Week. [4] The plant employees stole advance copies of the magazine and
informed Plotkin and Pajcin of companies mentioned favorably in the
“Inside Wall Street” column. [5] As a favorable mention in the column
usually leads to an increase in the price of those stocks, the
conspirators were able to purchase the stocks … Read the rest