When Business Can’t Foresee Consumer Outrage — Richard Thaler via NYTimes.com

Here’s a great example of why the 99% have lost faith in banks and the US government agencies that are supposed to regulate them:

Richard Thaler via NYTimes.com

The fact that we react instinctively to some company actions can also mean that the public anger may be misplaced. Bank of America’s debit card fee was public and transparent — generally desirable features of a pricing policy, though they may not be good for public relations. Unfortunately, more unsavory actions that are less visible may be less likely to provoke customer fervor.

In a case I consider much more troubling, Bank of America recently settled a class-action lawsuit regarding overdraft fees on debit cards. Two bank policies were called out in the lawsuit. First, when a customer ran out of money and used a debit card, the bank would allow the purchase to go through — as a courtesy, it said — and then charge a fee of $35. Worse, the bank was accused of processing a day’s transactions in this order: from the largest to the smallest, rather than in the sequence in which they were actually made.

This practice could put the customer over the limit with an end-of-day shoes purchase that would then trigger a series of $35 penalties on small purchases made earlier in the day when the customer actually still had money in her account. (Bank of America settled the case without admitting any wrongdoing.)

Regulators now require banks to ask customers whether they want overdraft protection, rather than just assuming that they do. I like this rule, but it is futile to think that regulators can or should try to prohibit every fee that customers find obnoxious. Businesses can think of new fees faster than regulators can ban them.

It’s obvious that our regulators should require banks to inform the public of new fees before they are established, allowing them the option of dropping their bank accounts rather than becoming subject to them. And, banks should have to get approval for such fees from the regulators.

But the banks seek to maximize profits without any sense of fairness, and the government fails to protect us.

It’s time for a fundamental reform: Any person who works for a company that, regardless of its current financial health, would require a taxpayer-financed bailout if it failed, should not get a bonus, ever. In fact, all pay at systemically important financial institutions — big banks, but also some insurance companies and even huge hedge funds — should be strictly regulated.

Nassim Nicholas Taleb, End Bonuses for Bankers

The practice of deceiving stores and forcing them to accept overpriced debit transactions was challenged in a 1996 antitrust lawsuit against Visa and MasterCard, in which I was the lead attorney for the plaintiffs. In 2003, that resulted in a $3.4 billion settlement to stores, a court order to redesign the debit cards and a reduction in the price banks charge stores for common debit transactions — to an average of 42 cents per transaction from an average of 63 cents.

However, that lower price was still much too high, as the Federal Reserve well knew. The Fed had been established in 1913 in large measure to end the then widespread practice of banks’ charging a similar “interchange” fee for the use of paper checks. Those check interchange fees were slowing the growth of interstate commerce, and the Fed quickly prohibited them. The interchange fees that banks now charge stores for debit transactions are economically and functionally identical to the check interchange fees prohibited by the Fed almost a century ago.

When A.T.M. cards were first used at stores as point-of-sale debit cards, no interchange fees were charged. In many instances debit card networks like Shazam and Tyme actually paid stores to accept debit transactions. They did this so banks, which owned the networks, could reap the huge profits of eliminating checks. But Bank of America, Chase and their Visa/MasterCard partners wanted to have their burgers and eat them, too. They instituted the illegal practices challenged and eliminated in the Visa Check antitrust litigation. Later, the Dodd-Frank Act directed the Fed to continue the process of addressing high and anticompetitive debit interchange fees by examining whether the banks could justify those fees on the basis of the costs banks incurred in processing debit card transactions. After initially deciding that debit interchange fees should be lowered from 44 cents to 7 to 12 cents, the Fed, in yet another huge handout to big banks, revised the fee range to 21 to 24 cents.

That is the change in economics which Bank of America cites as it attempts to begin charging a large new fee to its debit cardholders. It’s a free country, but also one where competition is supposed to prevail and prevent companies, including banks, from simply raising the price of their burgers without suffering the competitive consequences.

via Lloyd Constantine, Debit Card Fees Are Robbery

So, we either have to a/ break up and prosecute the members of the cartel of companies agreeing to perpetrate these fees upon the public, and/or b/ provide a public alternative.

Thrre is really no reason that Americans won’t simply defect from large commercial banks, who don’t want us except for our fees, and decamp for customer-owned credit unions. I am going to pull all my funds from commercial banks into my two credit unions.

Can you remember the last time you felt a national leader looked us in the eye and told us there is no easy solution to our major problems, that we’ve gotten into this mess by being self-indulgent or ideologically fixated over two decades and that now we need to spend the next five years rolling up our sleeves, possibly accepting a lower living standard and making up for our excesses?

- Thomas Friedman, The Whole Truth and Nothing But

Friedman does it again. Once again he looks at the financial ruin of America and blames the victims. Why do we have to accept a lowered standard of living, and rolling up our sleeves for five years of austerity? The rich 1% own 90% of everything! We’ve been robbed systematically for 30 years, and now the GOP wants to institutionalize it with more tax cuts.

But Friedman never talks about the burglar, living up at the top of the hill. He keeps shaking his head, telling us that we have to pay for the broken window the burglar broke, and pay higher taxes for the cops that didn’t protect us, and then buy another set of silver to replace what the burglar stole. It’s time for the President, he says, to tell us to roll up our sleeves.

We have a culture where individualism has become so pathological that we cannot heap up our collective experience as victims and craft it into solidarity

What I want to know is this: when will the President — or any other credible leader, for that matter — stand up and say that those who have become billionaires by rigging a system to impoverish everyone else are our enemies, and we need to restructure the system — a completely new social contract — so that their wealth is redistributed.

And the working and middle class of America — and the growing ranks of the poor and unemployed — will not accept new privations, new austerities.

We have a culture where individualism has become so pathological that we cannot heap up our collective experience as victims and craft it into solidarity. As Steinbeck said, ‘Socialism never took root in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires’, which is why so many poor people in America vote for the GOP: they identify with the rich, even though the rich are screwing them over.

But a sufficient dose of austerity — once the street lights are turned off, school class size grows to 50+ because of layoffs, and cities and town cannot afford to rebuild streets after floods and fires — that might start to mobilize people.

But we have to reject the implicit individualistic self-loathing, that we brought this on ourselves, by accumulating too much personal credit card debt and buying houses we couldn’t afford in a down market. That we stole our own future from ourselves.

No, Tom, we are not the ones that did this. We borrowed on the credit cards when real wages dropped in the ’90s, when two worker families were already the norm. We bought big houses in the ’00s to grab onto the American dream, and to own an asset that everyone — including the banks and our leaders — promised us would appreciate. But they all lied to us.

The banks have been bailed out, but now we are told we have to pay our own debts, plus the new debts that our government has taken on to write down the costs of the housing bust. Oh, and a few wars in Asia where we are busy spreading ‘democracy’, which loosely translated means global free trade, making billionaires happy again.

Enough. We won’t accept it. We want our money back. We want our future back. We want our country back.

And Tom, stop saying we have to accept what the leaders, the billionaires, and the banks decide for us. This is our world too.

Obama Is All For Bonuses

Barack Obama, the moderate Republican president of the United States, sided with the the million dollar bonuses of bank execs while the US Senate and House have been unable to move forward on jobs programs:

- Helene Cooper, Obama Says He Doesn’t Begrudge Bank Executives’ Bonuses

President Obama channeled the anti-populist side of his character, telling Bloomberg/BusinessWeek in an interview on Tuesday that he didn’t begrudge Wall Street executives their big bonuses.

Mr. Obama, responding to a question, termed the $17 million bonus awarded Jamie Dimon, the chief executive of JP Morgan Chase, or the $9 million that went to Lloyd Blankfein, the Goldman Sachs chief executive, as “extraordinary,” but compared the amounts to what some athletes make. He said, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Mr. Obama said of Mr. Dimon and Mr. Blankfein. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.”

Mr. Obama has been straddling a divide, sometimes delivering a message that tries to project anger on behalf of American taxpayers, who don’t like the idea of bonus money being doled out to the same executives whose institutions received federal bailout funds. At other times, Mr. Obama has made an effort not to come across as anti-business, tempering his remarks when speaking directly to a business audience, as with the Bloomberg interview.

A true ‘let them eat cake’ moment.

The Banking System Is The Devil

- David Stockman, Taxing Wall Street Down to Size

The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class. To be sure, it was lured into these unsavory missions by a truly insane monetary policy under which, most recently, the Federal Reserve purchased $1.5 trillion of longer-dated Treasury bonds and housing agency securities in less than a year. It was an unprecedented exercise in market-rigging with printing-press money, and it gave a sharp boost to the price of bonds and other securities held by banks, permitting them to book huge revenues from trading and bookkeeping gains.

Meanwhile, by fixing short-term interest rates at near zero, the Fed planted its heavy boot squarely in the face of depositors, as it shrank the banks’ cost of production — their interest expense on depositor funds — to the vanishing point.

The resulting ultrasteep yield curve for banks is heralded, by a certain breed of Wall Street tout, as a financial miracle cure. Soon, it is claimed, a prodigious upwelling of profitability will repair bank balance sheets and bury toxic waste from the last bubble’s collapse. But will it?

In supplying the banks with free deposit money (effectively, zero-interest loans), the savers of America are taking a $250 billion annual haircut in lost interest income. And the banks, after reaping this ill-deserved windfall, are pleased to pronounce themselves solvent, ignoring the bad loans still on their books. This kind of Robin Hood redistribution in reverse is not sustainable. It requires permanently flooding world markets with cheap dollars — a recipe for the next bubble and financial crisis.

[…]

The baleful reality is that the big banks, the freakish offspring of the Fed’s easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed. This is why the Obama tax is welcome: its underlying policy message is that big banking must get smaller because it does too little that is useful, productive or efficient.

To argue, as some conservatives surely will, that a policy-directed shrinking of big banking is an inappropriate interference in the marketplace is to miss a crucial point: the big Wall Street banks are wards of the state, not private enterprises. During recent quarters, for instance, the preponderant share of Goldman Sachs’ revenues came from trading in bonds, currencies and commodities.

Tax them until their ears bleed. Break them up to avert another crash. Reenact Glass-Steagall.

How to Clean a Dirty Bank

And he never says the N-word (nationalization).

[via NYTimes.com by Andrew Rosenfield]

‘There is a simpler, sounder and fairer way to recapitalize an insolvent bank. The government should seize it, as it is already authorized — indeed, compelled — to do. Then it could inject cash (in the form of Treasury notes) as equity in the bank and, at the same time, remove the toxic assets the bank holds. Bank regulators might perhaps swap Treasury securities for toxic assets “at par” — that is, in an amount equal to the original purchase price of the assets removed. This would be a fair transaction, and it would cost nothing, because the government would own both the bank and the bonds. The toxic assets could then be placed in the basement of the Treasury building while we wait to see what they turn out to be worth.

The government could then quickly — say within a month — auction off the bank. Speed would be critical: If Treasury were to hold a large bank for a long time, it would be difficult to retain the most talented employees, and it is the people, along with a clean balance sheet, that make a bank valuable.

If markets work at all (and if they don’t, Treasury’s new plan is doomed to fail), such an auction would produce a new privately owned “clean” bank, with ample capital to lend. It would also generate proceeds from the sale that would be at least as great as the value of the securities injected into the bank as equity — and likely greater.

If the recapitalized bank could not be sold at a price that amounts to (at least) the new cash injected, then the bank would be worthless, but not because of the toxic asset problem. It would be because the bank has been mismanaged or has other bad loans unrelated to the mortgage crisis, and such a bank should be allowed to fail.

If the sale succeeds, however, the government would have created a fully financed private bank at essentially no incremental cost to taxpayers, and Treasury would still hold the toxic assets on its books — to be sold whenever it becomes economical to do so.

This is a simple and fair plan. And unlike the Public-Private Investment Program, it would not reward bank investors for their folly or inject too little capital when more is needed.’