Broke Like Me

If you're anything like me, you've got your money spread out between several financial institutions. Among my current banks are Piggy, Almost-A-, and Bank of America. It should go without saying which one of these banks I'm least happy with, but I'll say it anyway. But not without some prologue.

If you've spent any time in Virginia in the past year, I'm sure you've heard about the legislative push to ban what must be Hampton Roads largest financial institution, the check cashing place. This is not hyperbole. Were the check cashing place an actual bank, Jefferson Ave would be Wall Street. And like Wall Street, Jefferson Ave is facing backlash and tough new oversight after years of little oversight and deregulation.

The idea behind the new laws are simple: people who need money in a pinch shouldn't have to pay insane amounts of interest to get it. And like most simple ideas, it was conceived by simple minds. Being a Virginia Legislator is a part-time job. When you're not writing laws, you're back to your regular job. So given the pay of the average Delegate and Senator, these people may have some familiarity with needing a little extra scratch between direct deposits. Legislating check-to-check is no doubt embarrassing enough without having to deal with paying up to 400% in annualized interest on top of everything else.

I have a problem with the logic being used to argue the merits of this law. The triple digit interest is a arithmetic reality manipulated into a fuzzy math fantasy. For every $100 you borrow from on of these establishments, you pay $15, with a maximum borrowable amount of $500. So the most you can pay for a loan is $75. The loan and interest is due the next time you get paid. So the actual interest for the duration of the loan is 15%. That's not inconsequential, but it's certainly not 400% .In fact, it's in line with credit card interest rates and actually less than getting a cash advance on your credit card. But more importantly than that, no real bank is going to lend you money until payday. Just try calling up your current bank and asking for a loan for $500. *Spoiler Alert* You're not getting one.

Especially if you're with Bank of America, which is for all intents and purposes is bankrupt and is only still able to open it's doors due to a huge backstop of taxpayer money. Most people will make a big deal out of the TARP funds that will ultimately dilute shareholders if the bank recovers and be a complete waste of money if the bank fails regard of either outcome. But I'm more concerned about the $118 in loan guarantees our heroes in Congress bravely made possible by Creating this TARP mess in the first place. Keeping in mind that the enitre company could be bought outright for less than $40B and that the Treasury has given BoA $45B in straight cash over the past four months and they still managed to post a 4Q loss, a reasonable person might think it's time to pull the plug of this nonsense. But then again, reasonable people don't make it to Washington, now do they? On top of the $45 billion that has already been given to BoA, the taxpayer is on the hook another $10 billion in writedowns and then 90% of their mortgage loan losses after that.

So from here on at 0K+3$ Bank of America will be known as Bank Owes America. Big Time.