Daily Archives: December 12, 2014

The Wall Street Takeover of Charity

Donor-advised funds run by huge money management firms are exploding.

Fidelity Charitable runs the second-ranked charity in the United States, according to the Chronicle of Philanthropy, behind United Way Worldwide. Charles Schwab’s is fourth and Vanguard’s is 10th.

People aren’t literally giving to these companies. They are setting up accounts at these firms and then disbursing the money, advising on which charities get how much.

The idea of the funds was to make it easier for individuals to give to charity. People could drop money into the account during flush times, and donate as they see fit, not in a panicked rush to meet the Dec. 31 deadline for contributions.

So far, this has turned out to be a bad deal for society.

For about 40 years, charitable giving held steady at about 2 percent of gross domestic product, while donations from individuals have stayed at around 2 percent of disposable personal income, according to Ray D. Madoff, a Boston College law professor and frequent critic of donor-advised funds.

Over the last few years, the donor-advised funds have grabbed significant market share. The total amount of assets under management at donor-advised funds rose to $54 billion in 2013, up 20 percent from $45 billion a year earlier. Fidelity’s alone have skyrocketed to $13.2 billion.

Contributions to donor-advised funds rose 24 percent in 2013, compared with the previous year, to $17 billion. They only gave out less than $10 billion, so money is building up in them. And the amount paid out each year declined in each of the last three years through 2013, according to Alan Cantor, who runs a philanthropy consultancy and is a frequent critic of donor-advised funds.

This has given rise to several concerns. The money in donor-advised accounts doesn’t have to go out right away. Private foundations have to disburse an average of 5 percent each year. But donor-advised funds have no legal obligation to spend down their money — ever. True, donors cannot get their money back. But they could designate their children as the advisers to the money. And their children could pass that responsibility on to their children.

So people can get their taxable deduction all in one year, but society doesn’t get the benefit of the money right away.

And there’s a tax game. Investors who had a particularly good year can make a big donation to a donor-advised fund and lower their taxes. But charities might have to wait while the money sits in the account for years.

Another significant issue is that the interests of the donor-advised funds and donors may diverge. Fidelity, Schwab and Vanguard all charge fees on the money put into their charitable funds. The charities are notionally independent, but they actually plow money into mutual funds run by the same companies.

There are layers of fees charged on that money. Of the $13.2 billion in Fidelity Charitable, $8.5 billion of it goes into Fidelity mutual funds. Those Fidelity funds also charge fees. And investment advisers can charge fees on some portion of the rest of the money.

Cantor estimates Fidelity makes 0.75 percent in total on its funds, but that’s really just a shot in the dark because Fidelity doesn’t clearly disclose the fees.

Read on.

Why Citi May Soon Regret Its Big Victory on Capitol Hill

WASHINGTON – On its face, the House vote late Thursday to approve a spending bill that included an unrelated provision written by Citigroup was a big legislative victory for the bank and its fellow Wall Street behemoths.

Yet it’s also a victory that may soon come to haunt the largest institutions.

What they won was the repeal of a Dodd-Frank Act provision that requires them to push out a portion of their derivatives business into subsidiaries. Big banks fought against its inclusion in the 2010 financial reform law and have been steadily fighting to repeal it ever since. The spending bill is expected to pass the Senate in the coming days.

But in finally getting what they wanted, big banks also thrust themselves back into the limelight in the worst possible way, simultaneously reminding the public of their role in causing the financial crisis and in their continuing influence over the various levers of the U.S government. In one fell swoop, they undid whatever recovery to their battered reputation they’d made in the past four years and once again cast themselves as the prototypical supervillain in a comic book movie.

Observers said the fight was a public relations nightmare for Citigroup and the big banks.

Read on.

St. Louis area mortgage company executive admits fraud

While major banksters are still out operating and getting board of director positions, one small mortgage company executive faces 30 years for floating checks to keep his business afloat.

St. Louis Today has the story.

Mark Avalos, who had been controller for The Mortgage Store Inc., has pleaded guilty in federal court here of bank fraud in a case related to illicit practices to try to keep the failing enterprise in business, prosecutors said Thursday.

Sentencing for Avalos, 49, St. Peters, is set for March 16 before U.S. District Judge Henry E. Autrey. Officials said Avalos could face up to 30 years in prison and a fine up to $1 million, although he would be expected to receive much less, based on sentencing guidelines and on court documents that reflect his cooperation with investigators.

Officials said TMS, a mortgage broker with main offices in Maryland Heights and Wentzville, employed hundreds of people in four states. It began operating at a deficit in 2008, court documents say, so Avalos and others “floated” insufficient-funds checks between accounts for TMS and another company to conceal the true balances at Enterprise Bank in Clayton and at the First Bank of the Lake, in Osage Beach, Mo.

TMS had a negative balance of about $850,000 in mid-2008, when the banks stopped accepting the checks, officials said. TMS then went out of business.

Jamie Dimon himself called to urge support for the derivatives rule in the spending bill

Yup,  a brought and paid for Congress. Congress might as well have an office for Wall Street… The corporation and Wall Street own Washington.

The acrimony that erupted Thursday between President Obama and members of his own party largely pivoted on a single item in a 1,600-page piece of legislation to keep the government funded: Should banks be allowed to make risky investments using taxpayer-backed money?

The very idea was abhorrent to many Democrats on Capitol Hill. And some were stunned that the White House would support the bill with that provision intact, given that it would erase a key provision of the 2010 Dodd-Frank financial reform legislation, one of Obama’s signature achievements.

But perhaps even more outrageous to Democrats was that the language in the bill appeared to come directly from the pens of lobbyists at the nation’s biggest banks, aides said. The provision was so important to the profits at those companies that J.P.Morgan’s chief executive Jamie Dimon himself telephoned individual lawmakers to urge them to vote for it, according to a person familiar with the effort.

Read on.