The political posturing over bank fees for overdrafts is an insult to the vast majority of people who do not write checks that overdraw their accounts. Once again, the government is attempting to protect people from the results of doing things that they should not be doing.
And the proposed “solutions” do not make any sense. The proposal is to require that the banks get permission from their customers to pay a check which would over draw the account. The alternative is to bounce the check. This is to save people who write checks on money they don't have from paying overdraft fees.
First, when people write checks they presumably want them to be paid.
Second, if they know they don't have money to cover a check but write it any way, it is a crime.
Third, if a check is not paid it will be returned to the merchant who deposited it along with a returned fee. That certainly will not help businesses as they will get hit with additional bank fees in addition to getting stiffed for the original purchase amount. Then they have to go collect the original amount.
The results of this brilliant bit of populism are that any merchant who accepts checks will have their fee expenses increase, their collection costs increase, and their bad check losses increase. Bank processing costs will increase since they will have to contact people individually, as will the cost of more government reports.
On the other side of the coin, the minority of people who write checks they can’t cover will be saved from the fees resulting from their poor choices. To make up for these losses, merchants and banks will simply raise their prices.
People who do not bounce checks will be paying for the ones who do. Brilliant!
Wednesday, February 3, 2010
The Best & The Brightest
Somewhere out there is the best CEO in the world. This person has the leadership skills, the imagination, organizational skills and ideas that are needed to make a company successful. This best CEO in the world now has a choice of working for the government at a capped salary or a company in the free market where compensation is based upon ability and results.
Some change is not for the best.
Some change is not for the best.
Barney Swings the Other Way
Someday, but perhaps not soon enough, it will be common knowledge that the mortgage mess started when Barney and Co. decided that “everyone should own their home”. For most people, this meant they had to get a mortgage and Fannie and Freddie were the prime sources. Avoiding the debate over whether these agencies should exist at all, they did work well when there were guidelines regarding who was eligible for a mortgage. Things like 20% down, no more than 1/3 of income (which you had to prove) going to the debt, and a good credit history were requirements to get a loan. Barney and crew saw this as an impediment to “everyone” owning their own home. So, he and his friends got the agencies to change (read as eliminate) the guidelines and it became 105% LTV, any credit history, and, no income checks. The Banks made loans on this basis and sold them to the agencies who packaged them into securities (MBS). Remember, loans made according to agency guidelines are backed by the full faith and credit of the US Treasury. So, the banks made these loans and were strongly encouraged to do so by the various regulators. Banks are supposed to make prudent loans and what is (was?) more prudent than a loan guaranteed by the Treasury.
While all this was going on, those Treasury backed Mortgage Backed Securities (MBS) backed by loans guaranteed by the Treasury were being traded and carved into various subsidiary investment instruments. Then the bubble bursts, the value of the (now “toxic”) securities plummets and banks are on the brink. Missed that part where the Treasury covered their guarantee and bought back the securities dollar for dollar.
Now Barney wants to eliminate the agencies that he been cheerleading for years. Two weeks before they blew up he is on record as saying that there was no problem. The checks that they sent to him last month must have bounced.
While all this was going on, those Treasury backed Mortgage Backed Securities (MBS) backed by loans guaranteed by the Treasury were being traded and carved into various subsidiary investment instruments. Then the bubble bursts, the value of the (now “toxic”) securities plummets and banks are on the brink. Missed that part where the Treasury covered their guarantee and bought back the securities dollar for dollar.
Now Barney wants to eliminate the agencies that he been cheerleading for years. Two weeks before they blew up he is on record as saying that there was no problem. The checks that they sent to him last month must have bounced.
The Line Between Us
In his State of the Union address, President Obama has perfectly defined the Administration’s approach to the current economic situation. The primary proposal is to provide businesses a financial incentive to hire additional employees. No statement could more clearly delineate the difference between a government solution and a market based one. The Administration seems to believe that it would make sense for a business to hire a worker to obtain a $5,000 government grant. That would only be true if the worker made less than $5,000 and the government subsidy continued for as long as the employment.
In the real world, businesses hire more people when more people are needed to make/sell more product to meet demand or to expand markets. As Steve Martin discovered in The Jerk, “It’s a profit deal”. Hiring someone that is not necessary is something only a government would do and only people completely ignorant of the how businesses operate could possibly think would work.
In the real world, businesses hire more people when more people are needed to make/sell more product to meet demand or to expand markets. As Steve Martin discovered in The Jerk, “It’s a profit deal”. Hiring someone that is not necessary is something only a government would do and only people completely ignorant of the how businesses operate could possibly think would work.
Thursday, June 18, 2009
Regulation
President Obama’s financial regulation proposals have some areas of merit but mostly miss the point.
He continues to misidentify a key component of the causes of the situation. Obama blamed the financial crisis on "a culture of irresponsibility" from Wall Street… exotic mortgages that hide exploding costs… (confusing) home mortgage disclosures… and complex financial instruments
The missing piece is that all of these things had their source in Congressional action.
The basis of the problem was a complete disregard of prudent lending practices. That was a result of the desire of Congress to see that everyone owned their own home. Since that was impossible under the historic lending rules, Congress, through Fannie Mae, changed the rules. Income, down payment and credit history requirements were abolished and the government guaranteed the loans. So Banks made them. When that wasn’t enough, the same Agencies began to guarantee Adjustable rate and Balloon mortgages that postponed the true payments needed. And Banks made them with the encouragement of the government agencies.
Second, those confusing disclosures are all based upon Congressional requirements. Some Congressional staffer thought up the APR calculation and all the other fine print that is an entrench part of the process. Does anyone really think that the financial institutions would want to do all that stuff if it wasn't required by Congress?
And all of those complex financial instruments were developed based upon federal guaranteed loans. In hindsight, a bad idea but they were guaranteed loans. Where was the guarantee when it was needed?
The thing that the President is missing is that the entity that needs regulation is Congress
He continues to misidentify a key component of the causes of the situation. Obama blamed the financial crisis on "a culture of irresponsibility" from Wall Street… exotic mortgages that hide exploding costs… (confusing) home mortgage disclosures… and complex financial instruments
The missing piece is that all of these things had their source in Congressional action.
The basis of the problem was a complete disregard of prudent lending practices. That was a result of the desire of Congress to see that everyone owned their own home. Since that was impossible under the historic lending rules, Congress, through Fannie Mae, changed the rules. Income, down payment and credit history requirements were abolished and the government guaranteed the loans. So Banks made them. When that wasn’t enough, the same Agencies began to guarantee Adjustable rate and Balloon mortgages that postponed the true payments needed. And Banks made them with the encouragement of the government agencies.
Second, those confusing disclosures are all based upon Congressional requirements. Some Congressional staffer thought up the APR calculation and all the other fine print that is an entrench part of the process. Does anyone really think that the financial institutions would want to do all that stuff if it wasn't required by Congress?
And all of those complex financial instruments were developed based upon federal guaranteed loans. In hindsight, a bad idea but they were guaranteed loans. Where was the guarantee when it was needed?
The thing that the President is missing is that the entity that needs regulation is Congress
Monday, June 15, 2009
Tax Promises
One of the key campaign issues was President Obama’s pledge not to raise taxes on anyone making less than $250,000 a year. We are now finding out the small print. He is sponsoring legislation to tax health benefits as income; he is forcing energy prices higher through cap and trade and alternative energy schemes; he has raised the price of cars through additional environmental requirements; he want "well off" senior citizens to pay more for Medicare and a means test for Social Security is sure to follow; he supports the proposed additional tax on cell phones and there is no apparent end to it. He claims that there were no earmarks; theysimply renamed $750 billion dollars of them. All of it was needed stimulus stuff like the Edward M. Kennedy Senate Institute - which was obviously not an earmark.
Friday, June 5, 2009
Judge not
Judge Sotomayor’s nomination has created several questions that deserve serious review.
Her supports have tried to spin her comment about a wise Latina woman doing a better job than a white guy in any way but what it actually means. The President has even said that he presumes she would restate it. The people who have called it a racist statement have not been contradicted. The statement is indefensible. Her supporters simplify vilified anyone who says the statement is what it is. They have no answer to what would happen to anyone who said that a "wise" Republican white guy would be a better judge than a Latina.
Another statement she has made is in connection to the vetting process prior to her nomination. Apparently, the White House didn’t review her decisions or anything related to her judicial career. They were more concerned with her heritage and racial background. Her admission of this has nothing to do with her qualification. It reflects directly on the White House. Clear instances of racial discrimination are approved of the victims are not members of a class.
The worst but most predictable thing about the whole situation is the position of the media. They are clearly the Administration’s cheerleaders. There are no questions about her comments or her admittedly racially based vetting process - just euphoria. Reporting is dead. Sad.
Her supports have tried to spin her comment about a wise Latina woman doing a better job than a white guy in any way but what it actually means. The President has even said that he presumes she would restate it. The people who have called it a racist statement have not been contradicted. The statement is indefensible. Her supporters simplify vilified anyone who says the statement is what it is. They have no answer to what would happen to anyone who said that a "wise" Republican white guy would be a better judge than a Latina.
Another statement she has made is in connection to the vetting process prior to her nomination. Apparently, the White House didn’t review her decisions or anything related to her judicial career. They were more concerned with her heritage and racial background. Her admission of this has nothing to do with her qualification. It reflects directly on the White House. Clear instances of racial discrimination are approved of the victims are not members of a class.
The worst but most predictable thing about the whole situation is the position of the media. They are clearly the Administration’s cheerleaders. There are no questions about her comments or her admittedly racially based vetting process - just euphoria. Reporting is dead. Sad.
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