Our Readers Write

Support schools when shopping for groceries

When shopping at Vons in La Cañada and Montrose during the next three weeks beginning Saturday, Sept. 18, you can help raise money for La Cañada Unified School District PTAs by putting your register receipt into special containers at Vons.

A Back-to-Schools program sponsored by Vons donates 10% of the price paid for designated products to local PTAs.

A redemption code appears at the bottom of your receipt if you purchased those products, and the PTAs need the redemption code to claim the money.

The money raised from the receipts will be split among the district’s PTAs — the high school (7-12) and three elementary schools. A shopper can designate a particular La Cañada public-school’s name on the receipt before putting it in the container.

Information about the Vons 10-Percent-Goes-Back-to-Schools program is available at backtoschools.eScrip.com. Information about registering your Vons Club card to benefit a school is available at escrip.com.

Thank you for supporting LCUSD schools. And thank you to Vons managers Tom Gasca and Jenn Alquitela and Vons for supporting our schools.

Lori Moody

La Cañada

Editor’s note: The writer is the chairman of Passive Fundraising for La Cañada High School 7-12 PTAs.

Another view on financial reforms

In last week’s letters to the editor Lauren Oakes wrote a rebuttal to a previous letter. In commenting on the “financial reforms” legislation, she neglected to mention that some of the most egregious activities of the banks have been outlawed by this new legislation. One is changing interest rates at will for existing credit card balances. No other business is allowed to change prices after the purchase and this single item brings some sanity to credit card interest charges.

The comment about reading fine print terms of a credit card or checking account agreement (and understanding it) to shop for a ‘better deal’ is nearly impossible. Just walk into any bank and ask them for a copy of their credit card terms. See if they even have it.

When those changes in terms from a credit card company arrive I try to understand them. The best way is to start at the ending paragraphs and read them first. Wouldn’t it be great if the first paragraph said: ‘This notice is to inform you we are raising your interest rate, shortening the period from billing to payment date, lowering your credit limit from $10,000 to $8,000 because we can, and raising late fees to…” Well you get the idea.

I have never understood why an overdraft fee is so high. The system is automatic so there is no employee involvement. Most overdrafts are nothing more than a short-term loan at an absurdly high interest cost (the overdraft fee being the interest cost).

Oakes makes a huge leap of logic by saying the financial-reform legislation will not prevent another crash. Then she moves to problems with real-estate loans. The large numbers of real-estate loans that have defaulted were just another symptom of an unaddressed problem.

While there are massive amounts of loans guaranteed by the two government entities (FNMA and Freddie Mac) those loans will be worked out — yes, with losses, but those loans did not lock up the financial system. And the current lending standards have been changed to prevent a repeat of that problem.

An unaddressed problem is the insurance industry’s unregulated status. Pools of money (your mutual fund, pension funds, government funds waiting to be spent and hundreds of other pools of money) are always looking for a higher yield. But many are restricted on the quality of the interest bearing instrument they can invest in. Most must invest in A-rated or better paper. Some are restricted to AAA paper.

Never doubt the ability of Wall Street to satisfy a demand and if necessary be creative. Statistically if you take a random group of 1,000 mortgages you know a certain percentage will default, a certain percentage will be paid off in seven years and a certain percentage will continue to pay to maturity. Now take those statistics to a rating agency and do a little statistical alchemy by saying, based on the lending standards (that were in many cases fraudulent) and the application that we know that a specific number of loans are highly unlikely to default. Take 100 of these loans (of the 1,000 total loans)and segment them loans into a separate pool and rate them AAA and sell them to XZY pension fund. The same can be done with the next group of 100 and so on. Not a problem with the first several hundred. But as you get into the lower-quality loans (based on the supposed lending standards) the rating agency would not grant the AAA rating.

So what Wall Street would do to get around this hurdle was go to an insurance company and purchase credit default insurance that allowed Wall Street to sell the group of substandard mortgages as AAA-rated because they were now guaranteed by an insurance company with an AAA rating. With a quick twist, suddenly lots of low quality mortgages became part of AAA pools paying a higher interest rate than other AAA-rated paper. Demand soared.

Why was this so bad? Because there was no requirement for the insurance company to hold any of the premiums they charged as a reserve against default. Lax lending standards, lax underwriting standards, absolutely no oversight and you have the makings of a major crisis.

The crisis unfolded when it became apparent some of the mortgages would default and insurance claims could not be paid. A holder of the AAA mortgage pool found that his financial instrument was not liquid. With no idea of what the mortgage pool was worth, the market for this paper disappeared. Quickly, not only the paper became suspect, but the institutions that held the paper became suspect and the rush for cash began.

Finally the government had to step in and provide the liquidity necessary by providing cash and guarantees to get the financial markets functioning again.

Why would any insurance company (remember it had to be an insurance company and had to be a AAA rated one) issue such guarantees? Because they did not have to use any cash to issue the credit default insurance. And they received a premium immediately. The return on their capital was infinite (no capital used to generate a premium).

Oakes is 100% correct. We have not addressed the problems with the financial system. Insurance companies continue to under reserve for some of the risks they assume, especially in the world of derivative securities. It is time for a national regulatory authority of the insurance industry similar to what we have for the banking system.

John Marshall

La Cañada