Near The End of Hiatus
Hey everyone - just wanted to quickly let you know what's going on. For reasons I can't disclose, I have had to take a brief hiatus from posting new entries and managing this blog, but the wait is nearly over! Regular posting will resume this coming Monday, August 30.
Bank Fees
I wanted to take a little time today to talk about bank fees. Everyone's had to deal with them at some point: maintenance fees, overdraft fees, returned item fees, bounced check fees, late payment fees, account opening fees, account closing fees, service fees, electronic transfer fees, ARGH, enough fees!
Everyone hates them, but they're just something that we'll have to deal with because EVERY bank has them. They don't always have the same fees, or the same amount, but they've all got fees. Starting today, I want to highlight some of the more ridiculous uses of bank fees.
Notably, President Obama recently signed a bill into effect (the Credit CARD Act) that puts some legal guards against random increases of fees, including stop payment fees, credit card APRs (yes, it's the same banks that do both types of fee), and overdraft/overdraw protection. American Express is the bank that gets the special attention today: the Credit CARD Act mandates, amongst other things, that banks provide written notice of any term changes at least 45 days in advance, as well as allow customers to opt out of any such changes and continue under the old rates. This makes a great deal of sense considering the usury that already goes on in the world of banking, but the law goes into effect this Summer. American Express, clearly considering the spirit of the law, took advantage of the lag between the legal genesis of the rule and the real enforcement of the law. They increased APRs on most of their cards and enacted stringent new fee structures. The reasoning? Such fees provide the company with a tremendous portion of their profit.
Wow. OK, so we're looking at a company that would harm their customer base because they make their money off of the times that their customers are irresponsible. Don't kid yourself about these people, they're so detached from the everyday lives of you and I that they're willing to slam down punishments for responsibility and do their best to encourage wasteful, reckless, thoughtless spending habits. There is nothing in that which is good for society, economy, or humanity.
I'm not saying that bank fees shouldn't exist, but that THESE fees, and why they exist, are part of the problem. What do I mean, then, by the idea that bank fees should exist? What does it look like when they're being used correctly?
Bank fees, like any other fees, must act as a deterrent. They must discourage bad fiscal practices and encourage responsible consumer habits. When people are spending vastly beyond their means, devising no way of paying for it, and ultimately engaging in financial suicide, there should be a cost. What they do impacts us, so that kind of behavior should be discouraged. To that end, and that end alone, should bank fees be used. Banks should instead be making their money off of doing their job: encouraging fiscal responsibility, providing funding for those who have an immediate need and an eventual ability to recompense, and generating a return for those who invest in them.
Not all banks really suck. But plenty do.
The TARP Money, Pt. 1
Since the Great Recession began its gut-wrenching spin towards an economic wasteland, there have been any number of attempts to keep things from getting worse. Given that we're not in a post-apocalyptic nightmare world just yet, it seems that at least some of those efforts have done SOMETHING, even if it hasn't solved the problem or made sure that we'll all be ok. I'll be looking at one of those attempts starting today: the TARP fund.
First, some background. TARP stands for Troubled Asset Relief Program, and it was the emergency measure signed into law by former President George W. Bush in October of 2008. The subprime mortgage crisis was the big buzz, and, much like with the Deep Horizon disaster from two years later, TARP was one of several frantic attempts to stop a tremendously expensive and dangerous event from continuing. At its core, TARP was made to make sure that banks who had bought the risky subprime mortgages would be able to have enough funds in the bank to not only secure their depositors, but also to continue loaning money, particularly to small businesses.
So, did it work? Not really. While we've managed to avoid a complete economic catastrophe (so far), TARP failed to accomplish the more important long-term goal of freeing up the icy loans market. Even today, it's still next to impossible for small businesses to get the loans they need to stay afloat, or for entrepreneurs to get the startup capital they need to give it a shot in the market. This tells us that things are bad for those in the middle: small business owners, managers of small chains, and any American who might have any economic difficulties in the near future. That, unfortunately, is a pretty big middle.
OK, so maybe TARP just didn't put enough money into the system to jumpstart those loans. Maybe TARP gave just enough to cover the depositors, but neglected to continue on to give the banks what they needed to support small business! If that's the case, then we should enlarge the fund and give it another shot, right?
Well, apparently that's not the case. As it turns out, the banks that received TARP money actually loaned less money out than the banks that received nothing at all! Let's take a look...
This is a long, in-depth, and thorough analysis of the 9 initial receivers of TARP funds, what they were meant for, and what they accomplished. I'll spare you the time reading it and get to the point!
These selected nine failed to increase their loans. Whatever the reason for it, it seems that the TARP money is such that it is either not built to be able to be loaned out (that is, it would cost the banks too much money to use those funds), or because there's something else preventing the loans. Banks tend to prefer loaning from deposits and other sturdy funds like CDs. This enables them to use the money with little risk of it needing to come back at a moment's notice. Get enough people depositing their savings into the bank, that frees up the capital, and the loans start pouring forth.
So why didn't TARP do the trick? We'll have that for you within the week!
Review: The Crisis of Middle-Class America
Today will be the first of many posts that deal with work that's already out there. There are plenty of professionals in journalism and active citizens on the web keeping an eye on what's going on in our economy. When they reach my desk, I'll find the ones that are worthwhile and link them here so you can get as many takes on what's happening as possible. The article is from FT.com, the Financial Times' website. Rather than keeping the dry, economic approach that a lot of experts looking at the banking crisis have done, this article is taking the smaller approach, focusing on two American families whose hard times are more like those we might find anywhere in America.
To give you an idea of what the article talks about in depth, it's looking at the impact of debt and wage stagnation in the US, and how that is giving rise to massive debts, debts so big you can't see out of them. These are the kinds of debts that dismantle families and force people to give up their retirement. There are a number of points that the article brings to bear, but most pointedly is that even with the sense of economic growth that accompanied the first decade of the 21st century, wages shrank overall.
Here's a clip of the article, full link just beyond.
The crisis of middle-class America
By Edward Luce
Published: July 30 2010 17:04 | Last updated: July 30 2010 17:04
Technically speaking, Mark Freeman should count himself among the luckiest people on the planet. The 52-year-old lives with his family on a tree-lined street in his own home in the heart of the wealthiest country in the world. When he is hungry, he eats. When it gets hot, he turns on the air-conditioning. When he wants to look something up, he surfs the internet. One of the songs he likes to sing when he hosts a weekly karaoke evening is Johnny Cash’s “Man in Black”.
Yet somehow things don’t feel so good any more. Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears. Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee. And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.
Full article by Edward Luce, Financial Times, FT.com.
Submit Your Story!
Banks That Really Suck is still very young, but that doesn't mean I can't accept your stories! Once we've gotten through the groundwork, we'll be able to look at what's going on today and start telling the tales that we all have when banks mess us up. For the meantime, you can post your story in a comment which I'll save here personally, or you can email me using the contact link. I'll look over the story, do some research, and within a few weeks we'll start to have those stories show up as posts for all to see!
What Is A Bank, Pt. 2
Banks in the United States
Now that we've got a pretty solid idea of what banks are supposed to do at their heart, let's take a good look at how they came about here in the United States. Most everyone who graduated high school was taught, at some point or another, about the basics of the American Revolution and how it happened, but that's not something that many people remember the details about once they leave school. For the most part, if you ask the random person on the street about the Revolutionary War, you'll get something that includes most of these points:
- George Washington was our leader
- We fought the British and won
- Sometime later we wrote the Constitution
Even though there's a lot more to the story, most people don't really need to know much more than that for their day to day lives. I'd love to explore the details of the Revolutionary War and get a full picture of how that impacted American society, where it's going, and all that jazz, but that'd be a different blog. All that we need to look at right now is how banks worked at the beginning of the United States.
Colonial Daze
Before we had a central government, the "United States" were thirteen separate colonies, each subject to the British Empire. The money situation was a little... um... crazy. Each colony had their own currency. Many cities each had their own currency. Even some stores had their own currencies. They tallied them up, and right around the time of the Revolutionary War, there were over 180 different kinds of legal currency floating out there! Insane as the banking situation is today, I'm glad that I don't have to worry about exchanging my Pennsylvania Dollars for New York Dollars, and when I got to the city, Bank of Manhattan Dollars in order to pay the cabbie for a ride downtown.
Each bank was doing their own thing, and there was no central government to regulate them. London, officially in charge, was too far away to be able to run things well, and each colony wanted to be the top dog for all business inside their borders. This made trade between, for example, Massachusetts and North Carolina something that was very tricky and very easy to take advantage of - this is why merchants became so wealthy and wound up being so influential in early American history... No one could keep up with their money!
All of these different monies just wouldn't work to have an effective, national economy, so something had to be done. To help pay for the war and make it easier to deal with the insanity of the once-colonial economy, the new government of the United States founded the First Bank of the United States. This bank was only partly owned by the government and funded by selling stock to the wealthy Americans of the day. After some controversy about consolidating the currency into one national kind, the US Dollar, the bank finally began to stabilize the economy and allow for a source of investment and loans on the national level. In short, the First National Bank of the United States did its job the way a bank should do it, and our nation was all the better for it.
With such a good start, though, where did it go wrong? It wasn't long after that the seeds of the current attitude of large banks towards their customers can be found. Next time, I'll span the gap and go into the development of banks through the Civil War and into the Era of Industrialization, where the American economy really begins to explain itself.
What Is A Bank, Pt. 1
There's obviously a lot to cover when we're talking about banks today, so much that it's hard to know even where to start! Rather than jumping right in with the latest news, though, it's probably best to make sure that we all have a good, solid understanding of what these banks really are. We've all dealt with banks at some point, but do we really understand what a bank truly is?
In order to figure out how things work, we have to take a look at how they got to be the way they are, and more importantly, WHY that happened. This is the first part in a series of posts that will dig into the heart of what's truly going on in the financial world.
What Is A Bank?
Good question! Well, these days to answer anything, we turn to Wikipedia to give us the skinny. They tell us:
A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses.
Ok, what? Let's break this down. Basically, to be a bank, you've got:
- An organization that
- Accepts money from people and
- Uses that money to loan to or invest in other people in order to
- Get money from those who have it and don't need it right now,
- To those who need it and don't have it right now
From the sounds of it, a bank is a pretty useful thing! Without banks, for one example, we couldn't really have entrepreneurs, because those are people with ideas that need a boost of money right now to make their ideas become real. The more innovative and dynamic the economy is, the better it is for everyone, and banks are a key part of that innovation. Clearly, banks don't have to suck. In fact, I'd say banks as a concept are pretty good!
They help those people who have some extra money, but not enough to invest in an entrepreneur, by giving a small return on the money they put in the bank, and they help those who can't secure investment from wealthy people or organizations by loaning them the money they need for a limited time.
Now that we've got a working definition of what a bank is, next time we can take a look at how banks came around in the United States, how true they were to the concept of a bank, how they've changed over time, and what we need to keep an eye out for with banks today.
The Minor Introduction
Welcome, ladies and gentlemen, to Banks That Really Suck, your soon-to-be primary source for:
- The juciest tales about the unfortunate suckiness of banks today
- The best advice on how to deal with banks
- The realistic vision of how Things Will Be
We'll be updating this site at LEAST once a week, making sure that everyone out there hears all about all the Banks That Really Suck.