Okay, I admit it, it’s rant time. (Based on the subjects at hand, it could be rat time too!) But, if you do have to rant, there are no better or easier targets than bankers and bureaucrats. (Except for maybe politicians.) This past week, there were two stories about banks and bureaucrats that just cry out for a rant.
First the Numskull Bankers …
On November 10, The New York Times published an article, “A Squeeze on Customers Ahead of New Rules.” Then on November 13, USA TODAY ran a story titled, “Fed rule will limit overdraft fees charged by banks, credit unions.”
Both articles highlighted the shenanigans banks are trying to pull on their customers in order to make up for their past mistakes and appallingly poor management. That sounds logical: If you make a mistake then blame someone else.
First, it is important to remember that banks don’t make big bucks being banks; they really make their money by being fee parasites. The bankers will try to tell you they are in the business of offering savings and checking accounts and selling credit. But that is just a smokescreen to hide the fact that their real business model is designed to gorge themselves by gouging the consumer with as many fees as they can.
We used to think lawyers were evil for padding their billing hours, but they are pikers compared to banks. It has gotten to the point where any activity with a bank triggers a fee. And, often the fee is hidden. The fee-based model for squeezing additional funds out of the consumer has become so effective for the banks that now the airline industry is following suit. It is not enough to sell us a ticket, now we have to pay additional fees to check a bag, reserve a seat, sit on the aisle, eat a stale sandwich or use a germ-laden blanket.
The idea of charging a fee for service is not bad in and of itself, but when the fees become exorbitant, undisclosed or hidden, they can easily become abusive. For example, many banks have the practice of signing up customers for debit card and ATM overdraft protection with out informing the consumer and then charge steep fees. USA TODAY reported that overdraft fees are now the single-largest of consumer fee income for banks. Their article reported, “In 2009, banks are expected to reap a record $38.5 billion from overdraft and insufficient-funds fees, nearly twice the $20.5 billion they stand to collect from credit card penalties.”
This fee grab by banks has become so excessive and abusive that Congress has passed legislation in an effort to regulate disclosure and size of the fees. Of course, the initial banker reaction to this legislation has been to rush to increase fees and interest rate charges, before the legislation takes effect.
Look, I don’t mind paying a fee for a service, so long as I know what the fee is and I can judge its value relative to the service. However, I don’t want to be charged a fee for a service not used. And, I don’t want to pay a fee to cover the bank’s mistakes in management and judgment.
The New York Times article dealt with actions banks are taking with regard to credit cards. Remember that for the past decade the banks were passing out credit cards like candy on Halloween. In a blitz of mass-mailing, e-mail blasts and advertising, banks foisted credit cards on virtually anyone who could fog a mirror, and even some who couldn’t. The banks ended up with over 600 million open credit card accounts, charging high fees and an average interest rate of almost 14 percent, with some as high as 30 percent. Worse, these credit card fee pirates purposefully set low minimum payments on balances (down to 2% of the balance in some cases), to bolster interest fee charges and keep the borrower in hock forever.
Of course, this approach to “selling” credit violated virtually every rule of bank risk management. However, the lure of bountiful credit card fees and reaping loan shark-like levels of interest rates on balances triggered the greed in the heart of the bankers and allowed them to ignore the risks; besides all the banks were doing it, so it must be okay. Right?
Not surprisingly, the banks now have a credit tummy ache, but instead of stepping up and acknowledging their bad management decisions driven by rampant greed, they are blaming those of us who were lured into their webs of easy money. Attempting to avoid any scintilla of responsibility, the banks are rightly canceling the cards of those who never should have had them in the first place, but that is not enough for banks. To cover up their mistakes, the bankers are increasing the fees and raising interest rates on those cardholders who have an excellent credit record. So, they make the mistake and we have to pay for it. Those numskulls!
As The New York times reported, “A study by the Pew Charitable Trusts, released late last month, concluded that the 12 largest banks, issuing more than 80 percent of the credit cards, were continuing to use practices that the Fed concluded were “unfair or deceptive” and that in many instances had been outlawed by Congress.”
Now the Nitwit Bureaucrats …
If you recall the confusion and calamity of a year ago when badly mismanaged companies, facing the potential of going out of business were forced to crawl to the federal government in search of billions of dollars of taxpayer funds to bail them out. (We could argue forever if bailing out these companies was the right decision, but that is not the issue here.)
The politicos and bureaucrats wanted to extract a pound of flesh for these bailouts and it came in the form of controlling executive compensation at any company that accepted bail out funds. That seems fair enough, except that allowing public bureaucrats to control compensation at private companies is a problem waiting to hatch, and it has.
There was a tremendous hew and cry over the amount of salaries and bonuses the incompetent executives received from failing companies, and rightly so. The bureaucrats decided to correct the problem by forcing the executives to accept stock in lieu of cash. The executives were forced to take as much as 50 percent of their salary in stock and virtually all future bonuses were to be paid exclusively in stock. (We could argue forever that no bonuses should have been paid at all, but again, that is not the issue here.)
The idea was to tie compensation paid to executives to the long-term performance of the company, and that is all well and good. However, a problem has emerged. With the rally in the stock market and along with it the stock value of these companies, it turns out that the stock awarded to the executives is now worth significantly more than they would have received if the bonuses had been paid in cash.
Now the politicos and bureaucrats are crying foul again. They are saying that it is not fair for the executives of the bailed out companies to benefit from the fact that the companies are now turning around and their stock is rising.
Hey, you nitwits, that’s the deal you wanted and the deal you got. Typical of the bureaucrat, these nitwits are upset. Believe it or not, some of these government bureaucrats are actually suggesting that the executives give back the stock gains and revert to cash bonuses. What nitwits!
And the Moral of the Story …
Beware, there are numskulls and nitwits everywhere and when we let them be in charge, bad things happen. How else can you explain a situation where banks borrow taxpayer money at nearly zero percent and then loans it back to you for your credit card purchases and charges you 29.99 percent interest?’