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Five Things You Need to Know: Bankers Apparently Unaware of Existence of Credit Cards


Bankers want to have their TARP and eat it too


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Community Bankers Apparently Unaware of Existence of Credit Cards

While the government bailout of the banks continues apace, it appears a number of community banks are now backing out of the plan claiming the conditions for acceptance of funds are too onerous and contain hidden strings and government interference.

According to the Associated Press, about 20 banks that initially applied for or had been approved to receive nearly $1 billion in taxpayer money have now changed their minds and refused the money.

"We drank the Kool-Aid," Michael Ross, president of Fidelity Bank in Dearborn, Mich., which applied for about $29 million in November, told the AP.

"Are you going to enter into a contract that will cost you millions of dollars if you can't live with the rules and you don't even know what the rules are?" Steve Buster, CEO of Richmond, California-based Mechanics Bank, which refused $60 million in bailout money, complained. "I don't know of any other forum that parties can change the contract at will. This is not fair."

Really? Mr. Buster can't think of any other forum where parties can change the contract at will, potentially costing a large sum of money to one party that doesn't understand the rules? Well, I can. It's called consumer banking and credit card agreements. Mr. Buster should just take out his Visa or MasterCard statement and flip it over and read the fine print.

2. Point: The Dollar is Doomed...

I'll be blunt. The US dollar is doomed.

Today, our country (government and private citizens) are carrying a debt load of more than $53 trillion dollars (almost 400% of GDP), and the borrowing is far from over. To put that number in perspective, consider that one billion seconds is about 32 years, but one trillion seconds is nearly 32 thousand years. Our debt is massive.

Remember, the government can't create wealth and productivity; it can only transfer it from one party to another. As a country, where we were once borrowing this money from the rest of the world, mainly China and Japan, we're now reduced to printing this money out of thin air and the end result will be the inevitable devaluation of the US dollar.

Well, that's one way to look at it. But there's another side to this... ahem... coin...

3. Counterpoint: But Wait, Dollars Are Scarce

While the argument in point 2 does seem logical, let's hold off on making funeral arrangements for the dollar just yet.

It may seem counterintuitive, but this financial crisis is precisely why the greenback is increasing in value. It's called deflation. And what's happening is that people who thought they had a certain amount of dollars in assets they own, such as their home, are now finding when they go to sell they aren't getting as many back as they thought they would. This deflation is creating a dollar shortage.

See, as debt and credit are destroyed, whether through higher lending standards, credit line reductions, writeoffs or bankruptcies, dollars become more scarce. And the Fed? Well, they simply can't print fast enough to keep up.

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