“In 2008, we held our presidential election on Sept. 15,” Clinton said. “When the Bush administration decided not to help Lehman Bros … McCain’s chances of winning an election went from 1-in-4 to 1-in-50. The election ended Sept. 15.”

Debating whether the government should have let Lehman fail is a worthy pursuit, and one best debated by economists and policymakers still probing the near-collapse of the country’s financial system. For Clinton, however, it’s a different matter. Blaming Lehman keeps Clinton from giving any credit to Obama for winning on the merits of his campaign. It helps take the focus even further away from Hillary Clinton’s unsuccessful primary campaign, and Bill Clinton’s own role in stirring up controversies that detracted from her effort.

Coming from a more neutral observer, these kind of comments about Lehman might be worth pondering further. Coming from Clinton, they sound more like self-serving revisionist history.

The FT reported over the weekend that banks are using higher fees on overdrafts and credit cards to boost their profits in the midst of the financial crisis. The overdraft fees are nearly double the charges reported in 2000. And, not surprisingly, much of the new revenue is coming from customers already hit hard by the crisis, according to the FT.

The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores.

And yes, those would be the same customers who bailed out the major banks now fingering them as the source of overdraft fee revenue.

The finding is likely to increase public hostility towards the financial sector, which has been under political pressure to ease the burden on consumers by increasing credit availability and lending more fairly after being bailed out by taxpayers.

The FT report comes on the heels of a New York Times piece we wrote about on Friday, which detailed how employers increasingly are using credit scores for background checks on potential hires. Workers behind on their bills or who have faced foreclosures are the most likely to fare poorly. The more dire their financial situations are, the harder it will be for them to get jobs, which traps them in a cycle of debt they can’t get out of.

Both pieces are a reminder of who really bears the burden in this crisis. It’s not cheap populism to point out the huge bonuses some of these banks are paying out, some $18.4 billion in all, even as they charge customers a fee of $35 for overdrawing their accounts by as little as $6.

These days, when your income is limited and you are struggling to pay a mortgage, you don’t get bailed out by the government like the big banks did when they got in trouble. You just pay more for things, and the bar gets set higher if you try to move up the job ladder.

This morning the Press Democrat ran a front page article titled: “Fight Against Blight“. It details the plight of Phyllis Sharrow of Petaluma who has the unfortunate luck of living next to a foreclosed property. Weeds have overtaken the lawn of the abandoned home next door and her property value is being affected. Calls to Bank of America to try to get the place cleaned up go unanswered. This has been going on for 2 years prompting her to put a sign outside her home with an arrow pointing at the foreclosure stating: “Bank of America. Your taxpayer bailout dollars at work. Our home values lose!”

And there’s a bigger shock for poor Ms. Sharrow: According to the Healdsburg Housing Bubble blog, Bank of America issued a notice of foreclosure but never completed the foreclosure sale. In other words, Bank of America walked away, letting the property sit there, in limbo, the owners gone and no one taking responsibility for it.

It looks like the home was never foreclosed on and therefore is not owned by the bank.

Is Bank of America just sitting on this loan and letting the property deteriorate? I’ve heard that banks are reluctant to foreclose because A) this forces them to recognize a loss on the loan, and B) if they do foreclose they are the owners and are responsible for the property taxes.

To me it looks as if that is what is happening here. But how long can this go on? You would think the banks would want to flush out these loans before the mid- to high-end foreclosure crisis is upon us.

Yes, you would think that — especially from banks propped up by a taxpayer bailout. So far, however, servicers are too swamped to modify large numbers of loans and — as this case illustrates — banks are walking away from their properties, even beyond the Rust Belt.

You can’t blame homeowners like Ms. Sharrow for feeling like they are hardly getting their money’s worth from that bailout. Maybe she needs to bring that yard sign to Washington, where few are paying much attention to the problem of bank-owned abandoned homes. Instead, as Sen. Dick Durbin (D-Ill.) pointed out recently, the banks own the place.

And those banks aren’t up against outraged and powerful lawmakers, calling them on the carpet for these practices. Business just goes on as usual. Meantime, in the real world, there’s a frustrated neighbor, a two-year battle, and a yard sign calling for attention.

But then the Financial Times comes along to report that Citigroup suddenly hiked rates for as many as 15 million holders of cards it co-brands with retailers such as Sears. And Citi did so just months before provisions in the new law that would ban such a move take effect.

Citi isn’t entirely alone. Other card issuers have been gradually raising rates as well, in response to increasing default rates. But the FT said Citi’s hikes have been the sharpest. The paper cited sources close to the situation for its information, not any formal announcement of rate hikes by Citi.

Citi’s rate increases emerged on the day the government proposed legislation to create a new regulator with sweeping powers on consumer protection and a week after the bank was attacked by some politicians for raising employees’ salaries.

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent – or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

Citigroup told the FT that despite the fishy timing of the move, raising rates for no particular reason on millions of customers had nothing to do with a new law that would soon prevent it from such an action:

“We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles. [...]

“These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.”

Yes, it’s that “availability of credit” argument again. For the past decade, whenever anyone dared to mention putting curbs on high interest rates for credit cards or mortgages, the lending industry always warned that any restrictions would lead to less availability of credit.

Things didn’t exactly turn out that way.

If Citi’s strategy of jacking up rates prior to a new law taking effect catches on, consumers with Citi cards would do best to vote with their feet and find another issuer who isn’t playing that game. But it’s not only consumers who might act. Citi famously remains the recipient of government largesse, and this new development has the potential to rank right up there with purchasing a luxury corporate jet right after being bailed out by taxpayers, in terms of public relations damage potential.

Maybe next time Congress takes on legislation to rein in the credit card firms, it should make sure its restrictions go into effect by the time the ink dries on the President’s signature — and not a minute later.

–

You can follow TWI on Twitter and Facebook.

AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.

The figure Ashooh offered was, in turn, substantially higher than company CEO Edward Liddy claimed days earlier in testimony before a House Financial Services Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: “I think it might have been in the range of $9 million.”

“I was shocked to see that the number has nearly quadrupled this time,” said Cummings. “I simply cannot fathom why this company continues to erode the trust of the public and the U.S. Congress, rather than being forthcoming about these issues from the start.”

I wonder if the higher figure will again spur the kind of public outrage brought on by the earlier bonus disclosures. Good thing for AIG that it’s not getting back in line for another bailout.

Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements.

If that pace continues all year, the money set aside for compensation suggests that workers at many banks will see their pay — much of it in bonuses — recover from the lows of last year.

“I just haven’t seen huge changes in the way people are talking about compensation,” said Sandy Gross, managing partner of Pinetum Partners, a financial recruiting firm. “Wall Street is being realistic. You have to retain your human capital.”

Brad Hintz, an analyst at Sanford C. Bernstein, was more critical. “Like everything on Wall Street, they’re starting to sin again,” he said. “As you see a recovery, you’ll see everybody’s compensation beginning to rise.”

The only hope here is that corporate boards do a better job of policing this sort of thing than they did in the past, and that the public pays closer attention to it — as it should, considering the billions of taxpayer dollars that have gone to bail out many of these banks.

You might think that some sort of lesson would have been learned from a crisis this severe. But not on Wall Street, I guess. If financial executives truly want to understand why the public is so angry with them, here’s yet another reason.

Warren, who has spent the better part of a decade fighting for the rights of the maxed-out American family, finds herself with a new mandate: protecting the largest investment of tax dollars in history. Yet if we could place all of these troubled and toxic bad apples on a rocket and blast them into outer space, Warren cautions, we would still be left with deeply troubled American households. “I suspect,” Warren recently told me, “there are many people, particularly in the financial services industry, who wish we could hit the reset button, and it would be 2005 again. They would make great profits and the country will continue to hum along. But this crisis has shown us that not only were millions of middle-class Americans left behind; much of the great wealth at the top was part of a pyramid scheme.

Scurlock’s praise for Warren comes as she increasingly draws fire from the right, which perceives her as an overly zealous consumer advocate who supports more regulation of the financial services industry. Yves Smith at Naked Capitalism has called the attempts to paint Warren as biased, cutting into her credibility as she oversees the troubled government bailout program, “a nasty bit of work.”

Scurlock seems to be hitting right back with his piece. Looks like TARP — already mired in controversy — is becoming even more contentious.

The committee overseeing federal banking-bailout programs is investigating the lending practices of institutions that received public funds, following a rash of complaints about increases in interest rates and fees.

Since the Troubled Asset Relief Program was launched last October, banks bolstered by capital infusions have boosted charges on a wide range of routine transactions, hiked rates on credit cards and continued making loans criticized as predatory by consumer advocates. The TARP funds are intended to open lending spigots and make it easier for people to borrow money.

I hope the committee doesn’t stop here. The way banks handle their bloated inventories of foreclosed homes, or Real Estate Owned (REO) properties, should also be looked into. As TWI has reported, some banks maintain their REOS, but others leave them to fall into disrepair, creating neighborhood blight and causing property values to fall. Congress never attached any conditions on TARP money regarding REOs – so there’s been nothing so far to stop banks from this practice.

It’s finally time someone is looking into bank lending abuses – but let’s hope the REO problem doesn’t continue to be ignored. Leaving foreclosed homes behind in already struggling neighborhoods only adds to their decline. And the fact that the damage comes from banks receiving taxpayer funds makes it even more of a scandal.

Maybe the real outrage is the covert second bailout to Goldman Sachs, Bank of America, and other investment houses that were AIG’s trading partners. And maybe there’s more fury to come this week, when the administration rolls out its new plan to provide subsidies to private investors to buy up toxic assets from banks.

First, on the covert bailout, Joe Nocera at The New York Times summed it up this way:

There is a much bigger issue that has barely been touched upon by Congress: the way tens of billions of dollars of taxpayers’ money has been funneled to A.I.G.’s counterparties — at 100 cents on the dollar. How can it possibly make sense that Goldman Sachs, Bank of America, Citigroup and every other company that bought credit-default swaps from A.I.G. should be made whole by the government? Why isn’t it forcing them to take a haircut?

What’s worse, some of those companies are foreign banks that used credit-default swaps to exploit a regulatory loophole. Should the United States taxpayer really be responsible for ensuring the safety of European banks that were taking advantage of European regulations?

Yves Smith at Naked Capitalism made exactly this point earlier this month, when AIG’s rescue details were becoming clear:

Bottom line: covert subsidies were given to bank via AIG. Remember, Henry Paulson, who had perilously few inhibitions about shoveling money at banks, even when the pretexts were often dubious and the checks non-existent, nevertheless was afraid to overpay openly for dud assets, which is why he retreated from his original conception of the TARP as as way to hoover up bad debt.

But AIG? No problem. CDS are arcane, and these were bi-lateral contracts (while the dud TARP asset were in most cases securities, so in many cases, third parties could formulate a rough view as to where they might trade).

Wake up and smell the coffee. The public purse is being looted and we the great unwashed are being fed pablum. Just because the perps work for once esteemed institutions and are typically treated with deference does not change the nature of the undertaking.

It was the AIG bonuses that first aroused populist rage, with the lavish homes of the bonus recipients an easy and convenient target. Now, it seems, more details of the AIG rescue are coming to light, with more reasons for anger. And just wait until Treasury Secretary Timothy Geithner formally unveils this week the administration’s plan to buy up toxic assets from banks. AIG bonus outrage, I think, will be supplanted by mounting unhappiness over who, exactly, we keep bailing out: Unsecured creditors and private investors, apparently.

Some details of the plan leaked over the weekend. Yves Smith called it “a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for crappy paper.”

Paul Krugman went ballistic:

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

I guess the best that can be said is the plan will at least take some attention away from anger over the AIG bonuses. But it won’t stop the questions about our government’s generosity toward AIG’s trading partners — or why the government is going out of its way to subsidize private investors.

We should all have jobs like that.

My favorite non-explanation comes from AIG’s leader Edward Libby, who said in a letter to Treasury Secretary Timothy Geithner that AIG had to pay those big bonuses to keep all of its super-talented staff, The Washington Post explained. Those highly prized folks might leave the firm, Libby said, “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”

Those employees might actually have a point. When a company takes $170 billion in taxpayer money to keep itself afloat, there’s always the possibility the government might have a few things to say about how those funds get spent.

And this is one of those times.

Clearly, the Obama administration is ticked off about this whole thing, or they wouldn’t have leaked the bonuses payments all over the media. But that’s not enough. This whole mess raises a raft of concerns that aren’t assuaged simply by knowing that Geithner is really, really mad.

Let’s start:

1. Compensation contracts are renegotiated all the time in corporate America. Surely, some court or judge would be open to the reality that circumstances changed greatly after those bonuses were initially promised, before the financial crisis began.  AIG could tell the employees to go ahead and sue. The company might either win, or its legal costs and possibly lower bonus payments still would be less than the $450 million. And AIG would set a precedent – this isn’t the way the world works now. We could be on the precipice of a depression. You don’t get a bonus just for showing up for work anymore.

2. Geithner could say this to Libby: Fine. You pay the bonuses, we take our money back. This would be my preference. It also would severely lessen the chances another bailed out firm would try to pull this stuff.

3. Geithner could say to Libby: Fine. Let those employees walk.

I’ve raised this point before: where are the companies out there dying to hire these people? The most recent experience on their resumes is at a company that failed spectacularly. They worked in the financial products unit — which totally blew it. What firms, exactly, find themselves in dire need of someone highly skilled at devising credit default swaps? Where are the feature stories in Fortune about the race among corporations to get their hands on prized former AIG employees?

Call their bluff. If they all go, there are enough other unemployed or underemployed people out their with financial services experience that I don’t see the difficulty in filling the jobs. And next time around, maybe AIG should look a little closer at character issues and ethics awareness. Just a suggestion.

AIG may have thought it won this round, but I suspect it badly miscalculated. This story is not going away anytime soon, and angry lawmakers and the public will be pushing for even more punitive measures. Government officials are said to be “exasperated” with AIG over the bonuses. That’s nothing. Wait until it sinks in with the rest of us.