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Twila Van Leer

Will Bitcoins Hit The Mainstream In The US?

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bitcoinDepends on whom you ask. The faithful believe Bitcoins will eventually meld into the mix of worldwide financial options and become a valid — and better — way of transacting business. On the other side of the scale are those who expect the phenomenon to burst like a bubble. In between the extremes are millions around the world who simply don’t know what the approach to virtual money means.

Launched in 2009, the Bitcoins approach has become central to ongoing debate about the feasibility of the use of virtual money that has no central control and seemingly tenuous parameters. Created by anonymous programmers, it seems at bottom to lack the substance you’d expect of a medium that is finding some acceptance in worldwide commerce.

Opinions about Bitcoins range from “speculative mania” to predictions that the initial consternations will be resolved and that Bitcoins will one day become as commonly used as the credit cards that decorate the pockets of people around the globe. Optimists say it will ultimately lower payment processing and make transactions more secure. Financial experts are lining up with conferences, seminars and other forums for looking more closely into what virtual money means and whether it has a place in today’s financial array.

Even as the debate heats up, the concept shows a huge amount of growth. The value of a single Bitcoins topped $700 today recently and the overall network’s worth was hovering around $7 billion.

Part of the problem is that early early experience with Bitcoins shows that it has stepped beyond ordinary purchases and payments and moved into the illegal areas of drugs, weapons and child pornography.

In October, federal authorities arrested principals of an online market that told clientele that they could use Bitcoins to purchase drugs and other illegal products. Silk Road, one of the Web’s biggest purveyors of drugs, phony documents and other illegal items, also was shut down. Bitcoins appealed to Silk Road’s clientele because of the lack of any oversight. The potential for money laundering and other criminal uses has raised the antennae of some regulators and they are making moves that would inevitably, it seems, create some oversight over time.

Some businesses that have considered accepting Bitcoins in payment for products have backed off, even though they see value in the option, while they wait to see how the control issues are going to play out. One of the attractions, from their viewpoint, would be a lowering of payment processing costs. Retailers who pay 2 to 3 percent of the value of a sale when a credit card is used to make the transaction have been looking for options and some see Bitcoins as a possible solution.

One of the hazards of using the new Bitcoins is the wild fluctuation in value. Although a boon to currency speculators, that causes headaches for ordinary consumers. So far, it has attracted the interest of a relatively few merchants who will accept bitcoin in payment for their wares. According to a New York Times article on the phenomenon, these include such diverse interests as a winery in British Columbia, an online dating site and a Seattle lunch truck that specializes in grilled cheese sandwiches.

Beyond its own specifics, Bitcoins has focused the financial spotlight on fundamental issues that surround the potential use of virtual money. With an increasing proportion of the world’s business being conducted via computer, they are questions that need to be answered. It may make a difference in whether you will soon find your “wallet” filled with virtual cash. Stay tuned.

Bank of America Earnings on Uptrend

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Third-quarter earnings for Bank of America showed a hefty rise, suggesting that the country’s leading financial institutions are continuing to pull out of the recent recession, although slowly. The bank’s quarterly profits rose to $2.5 billion – 20 cents a share – over the same period a year earlier. The earlier year was affected by litigation costs and other charges.

Analysts had anticipated a 19-cents-per-share increase in this quarter, but were happy to be making even more progress “in an environment that did have its challenges,” according to Bruce Thompson, Bank of America’s chief financial officer.

The company’s wealth management operations, which include Merrill Lynch, contributed to the quarterly good news, with a 26 percent increase over the previous year. But not all of the banking giant’s components did as well. Large mortgage operations reported a $1 billion loss in the third quarter, worse even than the same quarter last year. Mortgage refinancing has slowed with increasing interest rates. Although there are signs that the American housing situation is improving, it will take a big jump to regain stability.

One bright spot in the report was a 36 percent increase in net income for the unit that does traditional branch bank lending to consumers and small companies. Strong revenue and lower expenses in the unit contributed to the jump.

Overall, there was a slight drop in quarterly total revenues, from $22.5 billion last year to $22.2 billion this year.

This disparity among the company’s businesses is a cause for concern. Whether investors will continue to settle for uneven progress, with some elements waning and others regaining their equilibrium, is a question.

Looking ahead, Bank of America financial gurus predict continuing progress in the fourth quarter. The bank is not alone in its struggle to climb out of the recession abyss. Most of the country’s large financial institutions are fighting the same battles against a flaccid market.

Is 30-Year Subsidized Mortgage In Imminent Danger?

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The federal government is looking for ways to trim its outlay and subsidization of home mortgages has slipped onto the list of possible programs to delete. The possible demise of the subsidies might spell the end to home ownership for many Americans.mortgage-backing

The history goes back more than 40 years to a time when promotion of home ownership led the feds to boost support for potential buyers who couldn’t meet financial guidelines.

Now the tentative talk in the Obama administration is to eliminate Fannie Mae and Freddie Mac, the huge government programs created to administer the program. That would not eliminate 30-year mortgages, but would leave the market to people with modest incomes who could afford to purchase from a private lender. At this point, the 30-year fixed-rate loan is the most popular in the United States. Some 80 percent of mortgages fall into this category, which means that Fannie and Freddie can guarantee them, as long as they’re below a maximum amount. Spreading payments over such a long span costs more in the long haul, but makes ownership affordable for many buyers.

Part of the conversation centers on massive default statistics, in which the government has been left holding the bag as subsidized homeowners opt out before completing payment. Throw in management and accounting scandals at Fannie and Freddie and there seems plenty of ammunition for those willing to scrap the program. The costs to the country’s taxpayers reach into the billions of dollars, they say. But the availability of government guarantees has given many lower-middle-class Americans entrée into home-ownership. How those two factors will balance out as the discussion goes forward remains to be seen.

Critics argue, on the other hand, that subsidization has created the highest-priced housing available in the world. Over-building and selling too-large homes have resulted, they contend. Because down payments are low, it appears that the homeowner is less reluctant to default on a whim. The loss is not great. The financial experts suggest that requiring a 20 percent – or more – payment up front would discourage people from walking away before the loan has been paid down.

Should the government bow out of the mortgage business, 30-year mortgages would not disappear, but they likely would be higher-priced and there would be fewer of them, experts predict. The percentage of buyers seeking these loans likely would drop to the 30 percentage neighborhood, they say.

History shows that the government’s involvement as a provider of subsidies significantly changed the housing market. In the 1920s, for instances, the more common scenario was for a buyer to put down 40 percent of the cost of the house and obtain a low-interest loan for 10 years. Refinancing was common.

Other countries have devised ways to help low-income citizens get into a home, some say, and have higher homeowner rates than the U.S. In some, subsidization is not an option.

As talk heats up in Congress, dozens of arguments will have their bearing. There is little expectation of a fast resolution of the question and when the dust clears, there could be little difference — or a huge revision in how Americans buy or don’t buy their homes.