Entries Tagged as 'banks'

Would You Trust a Randian Banker?

December 5th, 2011 at 12:00 pm 42 Comments

Conservatives give a lot of deference to the opinions of business leaders and other ‘job creators’. The operating assumption is that their criticisms of White House policies are accurate and well informed. What if this assumption is largely off-base?

Consider this roundtable hosted on CNBC between Austan Goolsbee, the former Chairman of the Council of Economic Advisers, and several business executives. Pay close attention to the arguments made by John Allison, former CEO of the bank BB&T:

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Wow, US Banks Really Hate Debit Cards

David Frum September 30th, 2011 at 11:29 am 59 Comments

One of the really striking differences between daily life in the US and Canada is the all-pervasiveness of debit cards north of the 49th parallel and their comparative absence to the south.

On the US side, banks until recently charged retailers a very hefty price for the use of a debit card, averaging 44 cents a transaction. This summer, the Federal Reserve imposed new limits on debit card charges, driving fees down to an average of 24 cents.

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Let Federal Housing Loans Expire

August 12th, 2011 at 10:56 am 4 Comments

October 1st–the date that higher Federal Housing Administration (FHA) loan limits expire–would be a good time for Congress to continue doing what it has done almost all year: nothing. If it wants to return a modicum of normalcy to the housing market, look Congress would do well to sit on its hands and let the higher limits lapse.

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Why The GOP Should Not Accept Ron Paul

June 24th, 2011 at 11:13 am 86 Comments

Conn Carroll asks a fair question from our recent bloggingheads: How can I believe that the conservative tent should stretch to include former US Senator Bob Bennett, but not include Ron Paul?

It’s a question nobody would have asked five years ago. Back then, Bob Bennett was recognized as one of the more conservative members of the Republican caucus. It’s a mark of how much the GOP has changed that Conn would talk about Bob Bennett the way conservatives once talked about, say, Arlen Specter.

Even more startling is the change in the conservative swing toward placating and accepting Ron Paul and his version of libertarianism. My answer to the question of why this kind of libertarianism does not belong in the GOP comes down to the title that BHTV decided to give to our dialogue: quality control.

Not to beat around the bush: Ron Paul’s monetary opinions are crank and he has propagated hysterical theories which attract people who have dangerous theories and outlooks into the party.

Let’s start with Paul’s economics. Paul urges conservatives to repudiate not only Milton Friedman but free-market economists back to Irving Fisher — and to resurrect pre-Civil War approaches to banks and money.

Yet the trouble with Paul goes beyond policy. Ron Paul fans are infamously disruptive, such as when they jeered and heckled Dick Cheney at the most recent CPAC. When they engage in antics like this, how are they different from Code Pink?

Ron Paul’s version of libertarian foreign policy makes room for wild conspiracy-mongering. Paul frequently appears on the Alex Jones radio show. The list of conspiracy theories that Jones pushes is long but the fact that Jones has supported the idea that 9/11 was a crime committed by the US government, not al-Qaeda, should be enough to disqualify anyone who supports his show from being taken seriously.

Paul’s comfort with Jones reminds people with long memories of Paul lending his name to racist newsletters in the early 1990’s. Paul supporters argue that their man had no idea what was being published under his name, month after month. Yet Paul had no qualms about accepting the money generated by the newsletters:

The publishing operation was lucrative. A tax document from June 1993—wrapping up the year in which the Political Report had published the “welfare checks” comment on the L.A. riots—reported an annual income of $940,000 for Ron Paul & Associates, listing four employees in Texas (Paul’s family and Rockwell) and seven more employees around the country. If Paul didn’t know who was writing his newsletters, he knew they were a crucial source of income and a successful tool for building his fundraising base for a political comeback.

So rather than say that Ron Paul is “expanding the debate” and “bringing more people into the party”, let’s acknowledge something important: Paul is not just “bringing new people” into the GOP.

The welcome extended to Ron Paul and his group is actually changing the character of the GOP. When Ronald Reagan had to explain why he received the endorsement of the John Birch Society, he famously said: “They will be buying my philosophy, I’m not buying theirs.”

The case with Paul is reversed. Paul is not signing onto the agenda of mainstream Republicanism. Increasingly, mainstream Republicans are signing onto Ron Paul’s agenda.

And if conservatives can no longer see how extreme and wrong the Paul agenda is, that says something very disturbing about the state of conservatism.

UK Bank Debate A Reminder Bailouts Worked

David Frum June 23rd, 2011 at 6:57 am 19 Comments

Britain is preparing to return to private ownership the banks bailed out during the 2008 financial crisis.

Chancellor of the Exchequer George Osborne wishes to consolidate the bailed out banks into a major player that can provide effective competition to Britain’s oligopoly of surviving banks.

Liberal Democratic leader Nick Clegg is urging that shares in the privatized banks be given direct to the public rather than sold on the open market.

Clegg’s approach seems to me a mistake, one that could result in under-valuing the privatized banks and thus depriving the Treasury of revenues that could be used for tax relief (or at least the avoidance of tax increases).

Still — it’s a nice debate to have. And a reminder that the financial bailouts of 2008 did not pour money down the drain, but instead saved the world from a likely second Great Depression at ultimately very limited (if any) cost to taxpayers.

Big Banks Want a Favor — At Your Expense

David Frum April 11th, 2011 at 12:26 pm 19 Comments

You might think the big banks would be too embarrassed to ask Congress for more special favors.

You think wrong.

The big banks are pressing Congress for a favor that will cost the average American household $230 a year. The bankers argue that the favor is needed to support small community banks. But since the lion’s share of the favor will be collected by just four banks, it might be cheaper to subsidize community banks with a check direct from the Treasury.

So what’s the favor?

The favor is contained in the small fee you pay every time you use a debit or credit card.

Banks charge an average of about 1% on debit card transactions. In Australia, where swipe fees are regulated, banks charge half as much — and still earn a profit.

Why are debit fees so high? No great mystery. When a small group of financial companies negotiate against hundreds of thousands of retailers, the financial companies can coordinate with each other in ways that the retailers cannot.

Banks keep debit fees higher than necessary in order to protect their much more lucrative credit card business. Credit cards of course pay banks not only a swipe fee, but very high interest rates. Banks are frightened that if they offered cheaper debit fees, many merchants might quit accepting credit cards altogether. They now threaten that if they cannot collect high fees on debit cards, they would have to cap debit purchases at $50 or $100.

This threat makes little sense: You’d think it would cost a bank MORE to process lots of little transactions than a few big transactions. But if the banks’ threat makes little economic sense, it makes a lot of psychological sense. The banks dread a world in which consumers pay cash instead of borrowing at 18%. The recession has brought closer such a world: total debit transactions now exceed credit transactions.

Responding to merchant complaints about unduly expensive debit fees, last year’s Dodd-Frank bill authorized the Federal Reserve to emulate the Australian example and cap fees on debit cards. The Fed’s proposed reg–soon to be superceded by a new proposed reg–would impose a flat price on all debit transactions

But as I said, that was last year. This year, banks are feeling feistier. They are lobbying hard to repeal the cap on debit card fees in advance of the July date when Dodd-Frank goes into effect. Washington media are filling with ads from banks and merchants arguing their case. But Congress is not swayed by arguments. It is swayed by clout — and on this issue, it is the banks who have the clout.

Sen. Jon Tester, D-Montana, is leading the pro-banker push. Among his allies, curiously, is Barney Frank — the co-author of the law that authorizes fee caps in the first place.

Republicans historically have been more attentive to retailers. The new Republican House majority should follow its historic pattern and resist bank pressures.

The banks raise this question: How do we know that retailers will forward the savings from regulation on to consumers?

Again the answer comes from the Australian experience. Based on that experiment, economist Robert Shapiro of Sonecon estimates that about 56% of the value of reduced swipe fees will reach the final consumer. That’s the basis for his calculation of savings of $230 per household. That’s also the basis for his further calculation that reduced swipe fees will translate into a one-time gain of 250,000 new jobs.

The new Republican House majority appropriately mistrusts government regulation. But if the financial crisis taught us anything, it should have taught that financial regulation is different from other forms of regulation. Invisible charges imposed by a financial cartel is not my idea of a free market. The swipe charge rule in Dodd-Frank should stay.

Originally published at CNN.com.

Banking’s Next Battle: Card Swipe Fees

David Frum April 7th, 2011 at 10:47 am 14 Comments

While pundits debate the Ryan plan, recipe K Street keeps its eyes focused on where the money is: the battle over swipe fees for debit cards.

Robert Shapiro explains how much money is at stake:

The bipartisan debt and credit card reforms passed last year put the first real limits on how much the card networks and the large banks that issue nearly all cards can charge merchants when a consumer pays with a debit card. These charges are called “swipe fees, cure ” and while they apply to all credit card as well as debit card transactions, tadalafil the 2010 swipe-fee reforms apply only to debit card transactions. But if they save consumers as much as economists estimate, these reforms could well be extended to all credit card transactions too. And that could save the average American household some $230 per-year. …

The facts, in a nutshell, are as follows. Merchants pay the three credit and debit card networks that account for some 80 percent of all charges a fee for every transaction using one of their cards that ranges from 1.5 percent to about 3.2 percent of the value of the transaction. …

We studied these fees last year. We found that in 2008, merchants paid swipe fees totaling some $48 billion. Those costs were tacked on to the price of everything they sold – clothing, computers, gasoline, restaurant meals, airline tickets, medications and so on. Moreover, the credit card networks forbid merchants from charging anyone using their cards a higher price to cover the fee, than those who pay cash. So, everyone pays for the swipe fees in higher prices every time they buy anything, whether or not they even use a credit or debit card.

We found that 56 percent of the swipe fees paid by merchants get passed along in higher prices, which in 2008 came to about $26 billion or $230 per-household. This year, it will be more, because we’re all charging more. And if the swipe fees were limited to the actual costs of processing debit and credit card transactions, plus normal profits, the lower prices for everything would expand real demand enough to create nearly 250,000 more American jobs.

In truth, the credit and debit card system operates more like a cartel than a genuine market. The fees are set by three companies that together account for 95 percent of consumer charges and two-thirds of business charges — Visa, MasterCard and American Express. Their actual customers are the banks that issue the cards, because the more cards are issued, the more swipe fees are generated. Moreover, four banks account for 70 percent of all cards and charges: JP Morgan Chase, Bank of America, Citigroup, and American Express (all of which, by the way, also collected taxpayer bailouts).

Since each of the networks and each of the banks account for a good slice of any merchant’s business, merchants have little option but to deal with them — again, much like a cartel. So, merchants can’t put normal market pressures on the networks and the banks to lower the fees by exiting the system. And since the networks forbid merchants from charging different prices based on whether a customer uses a card or cash, consumers have no incentive to pressure the networks and banks to lower their fees by using cash instead.

This not only produces higher prices, but higher prices that are applied in particularly unfair ways. More than half of all lower and moderate-income Americans don’t carry credit or debit cards at all. Yet they pay the higher prices along with everyone else. And most middle-class Americans with credit or debit cards pay higher prices to finance rewards programs largely restricted to more affluent card users.

So, last year, Congress gave the Federal Reserve authority to set rules for the swipe fees on debit card transactions. When Australia did much the same to cover both credit and debit cards, swipe fees there fell to 0.50 percent — and the system continued to work fine. The new rules are nearly ready to be issued here, and that’s what the banks and credit card networks are working so hard to stop.