Monday, March 30, 2009

Can Obama Regulate Trust in Banks

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According to the Seattle Times, on March 22, 2009, the parent company for Washington Mutual Bank sued the FDIC for its actions in selling their assets to JP Morgan Chase. Then JP Morgan Stanley Chase immediately countersued both the parent company for Washington Mutual and the of America FDIC in an effort to protect their $1.9 billion purchase.

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Meanwhile, according to CNBC, President Obama met with the heads of the banking industry to discuss the overhaul of the United States Financial institutes Friday. Does this stuff make your stomach queasy and head spin? Do you really think these guys care about us?

My familiarity with WA Mutual is based on two different incidents: one that happened to a friend and one that happened to my husband and me. Both incidents taught good lessons about dealing with your money.

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My friend had a sum of money left over from the sale of her home she received as part of her divorce decree. She neared retirement and wanted a nest egg to protect her in her elderly years to augment her social security payments. She didn't really know much about investment or money; she just knew she wanted it saved. She went to her local banker, WA Mutual, and put her trust in them to keep her money safe. They convinced her that they could invest her money for her and give her a small return on her money. She believed them. Every month they sent her a statement. Every month she had less money than before. She went in to talk with them. They told her the loss was temporary and that in the long term her money would grow. She believed them. Her statements continued to show losses. She went back and asked, "I thought you were keeping my money safe. What's going on? Shouldn't I take my money out?" Again the people at Washington Mutual convinced her that her money was safe with them. Eventually she lost it all.

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After hearing my friend's tale of woe, I had tons of questions that she couldn't answer and I suppose to her it didn't matter anymore. To me it mattered because I wondered about someone that was providing bad guidance to someone and why that could continue.

The second incident occurred when I expressed concern about having my money in the same investment bank that my husband had his in. I, too, didn't feel very confident about making my own purchases in the stock market and wanted to have some advice. My husband and I went to WA Mutual to find out about their investment service.

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The first thing we found out was that the services WA Mutual offered cost 300% more than Charles Schwab or other online investment brokers. The second thing we found out was that they only offered a few suggested mutual funds that they managed. The third thing we found out was that they couldn't provide any data or research about other investments.

The lessons I learned from these two incidents amounts to the following:

1) If you care about your money, don't trust someone else to make the decisions.

2) If someone offers a service that doesn't seem like a service, trust your instincts, it probably isn't.

3) If someone offers a service that doesn't consider your own needs, but they sound good because they look slick and wealthy and talk lots about money, chances are that the do know about money and want to make it for themselves, not for you.

4) If you aren't sure that a service is in your interest, look around for alternatives. It is in your best interest to consider a different plan and to pay attention to your gains and losses. At a minimum, a US Savings Bond will keep the amount you started with (your principle) intact and the inflation adjusted US Savings Bonds will protect you against losses due to inflation. Make sure that any alternative delivers better results.

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When President Obama's plan discusses "businesses that are too big to lose" they are thinking about what banks are supposed to be doing—working to provide their customers with services. It seems to me that companies who are more interested in making money for their business by buying and selling more and more banks rather than making a customer's money return interest isn't a company that I want to do business with. I expect I am not alone in thinking this way. I'm not sure that President Obama can convince bankers to just be a bank. And I'm really sure that getting lawyers involved in a big brangling lawsuit will not help former Washington Mutual customers.