New bank fees the result of Fed policies

We all remember Bank of America’s recent attempt to initiate a debit card fee of $5. It failed because of bad publicity. However, BofA and the other banks are not giving up. The New York Times reported yesterday:

Banks Quietly Ramping Up Costs to Consumers

Even as Bank of America and other major lenders back away from charging customers to use their debit cards, many banks have been quietly imposing other new fees.

Need to replace a lost debit card? Bank of America now charges $5 — or $20 for rush delivery.

Deposit money with a mobile phone? At U.S. Bancorp, it is now 50 cents a check.

Want cash wired to your account? Starting in December, that will cost $15 for each incoming domestic payment at TD Bank. Facing a reaction from an angry public and heightened scrutiny from regulators, banks are turning to all sorts of fees that fly under the radar. Everything, it seems, has a price.

“Banks tried the in-your-face fee with debit cards, and consumers said enough,” said Alex Matjanec, a co-founder of MyBankTracker.com. “What most people don’t realize is that they have been adding new charges or taking fees that have always existed and increased them, or are making them harder to avoid.”

Banks can still earn a profit on most checking accounts. But they are under intense pressure to make up an estimated $12 billion a year of income that vanished with the passage of rules curbing lucrative overdraft charges and lowering debit card swipe fees. In addition, with lending at anemic levels and interest rates close to zero, banks are struggling to find attractive places to lend or invest all the deposits they hold. That poses another $8 billion drag.

Put another way, banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past, according to an analysis of the interest rate and regulatory changes on checking accounts by Oliver Wyman, a financial consulting firm.

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

…read the rest of the story here…

While consumer blame the “greedy” banks and Occupy Wall Street whines and complains about how this is another example of the one percent sticking it to the ninety-nine percent, this is really a story of government policies. As mentioned in the article, the banks “are under intense pressure to make up an estimated $12 billion a year of income that vanished with the passage of rules curbing lucrative overdraft charges and lowering debit card swipe fees. In addition, with lending at anemic levels and interest rates close to zero, banks are struggling to find attractive places to lend or invest all the deposits they hold. That poses another $8 billion drag.”

The first change–new rules on overdraft and debit card swipe fees–come straight from new government regulations. The latter–low interest rates–come from the Federal Reserve. I will focus on how low interest rates hurt banks and consumers because it is not easily observed.

Interest rates near zero give banks little room to make money. In the good old days, banks would take deposits and use the proceeds to lend or buy bonds. Just a few years ago, banks could easily buy short-term debt yielding two or three percent. Now, it earns less than one percent. Banks today could choose to take on risk and earn about four percent lending money to a home buyer, if it can find a credit-worthy borrower. Just a few years ago, mortgages yield seven or eight percent. The spreads banks earn have clearly declined, giving them less opportunity to earn a profit or even to cover expenses.

Look at money market funds, for example. With the government’s 3-month T-bill yielding 0.01 percent, money markets that invest in those securities lose money even when it pays no interest because of fund expenses. Even the 3-month interbank rate at 0.46% makes it difficult for money markets investing in commercial paper to earn a profit.

Normally, banks make money using the risk spread or the time spread. With the risk spread, banks borrow cheaply and lend to riskier clients, booking a profit on the risk taking. With the time spread, banks pay out lower short-term interest rates and collect higher long-term interest rates. With the current environment of low rates all around–a result of deliberate Federal Reserve policies–earning a profit in normal banking operations has become impossible. Instead, the banks are forced to initiate or raise fees.

Of course, the government loves this. The government creates this problems, consumers blame the banks for the new fees, and then the government steps in to further regulate the banks. Government creates the problems without taking the blame, then solves it and takes all the credit.

– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.

Photos of Occupy Wall Street at Zuccotti Park. Looks like a third-world tent city to me.

I was down at Zuccotti Park today where the Occupy Wall Street “protesters” have literally set up camp. I was shocked by what I saw. This does not appear to be some noble protest. Instead, it looked like a third-world tent city–one without privacy, running water, and sanitation–was dropped into the heart of our financial capital.

Also shocking were the restrictions around Wall Street. Vehicle traffic has been blocked on Wall Street and Broad Street in front of the stock exchange ever since 2001, but the barricades have recently been pushed far back for pedestrians as well, given them little space to walk.

Even the famous bull at Bowling Green at the base of Broadway has been cordoned off.

Even though Mayor Bloomberg has been sympathetic to the Occupy Wall Street protesters, he and the police are clearly worried about potential violence against these New York landmarks.

The most amazing thing is that you really cannot tell what these people are protesting for or against when you walk by. As you can see by the photos above, there were no banners or placards attacking Wall Street and no list of demands. Instead, to all appearances, it was just a lot of homeless people (whether by circumstance or by choice) who have set up camp in downtown Manhattan. While I know from the “news” that these are noble protesters seeking to right the wrongs of the world, but it certainly looked like a lot of homeless people in tents.

From the perspective of the average American, I cannot understand why anybody would care what these people believe, think, or want. It is a lot of unemployed people (again, whether by circumstance or by choice) who have completely failed in delivering their message, whatever that may be. Like their makeshift camp, the whole movement appears to be a disorganized mess that, in my humble opinion, should be cleaned up both from a standpoint of unsanitary conditions and poor political reasoning.

– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.

Occupy Wall Street: A return to the chaos of ancient Greece and Rome

In Occupy Wall Street: The Return of Shays’ Rebellion, I wrote about how the Occupy Wall Street protesters, like the participants in Shays’ Rebellion, demand debt relief or forgiveness. But I must point out that this demand for debt relief predates the United States by at least a couple of thousand years.

The ancient Greek and ancient Roman historians and philosophers warned against debt relief and those who demand it.

About 2,300 years ago, Plato warned the ancient Greeks:

And is it not true that in like manner a leader of the people who, getting control of a docile mob, does not withhold his hand from the shedding of tribal blood, but by the customary unjust accusations brings a citizen into court and assassinates him, blotting out a human life, and with unhallowed tongue and lips that have tasted kindred blood, banishes and slays and hints at the abolition of debts and the partition of lands.

In ancient Rome, Cicero warned:

And what is the meaning of an abolition of debts, except that you buy a farm with my money; that you have the farm, and I have not my money?

They say that those who forget history are doomed to repeat it. With the return of the demand for debt relief, we clearly have neglecting our study of history.

– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.

Occupy Wall Street: The Return of Shays’ Rebellion

One of the demands by the Occupy Wall Street protestors is student loan relief. According to a report by CNBC:

It may be hard to pin down exactly what the Occupy Wall Street protesters want, but one of the sources of their frustration seems clear. Many of the demonstrators are drowning in student debt.

[…]

One proposed list of demands for the Occupy Wall Street movement includes “free college tuition” and “immediate across the board forgiveness” of student debt. While neither demand may be very realistic, the student debt problem is very real.

[…]

Of course, if some of the protesters get their way, with free tuition and debt forgiveness, the problem might go away. Rose Swidden, the agriculture student-turned-protester, acknowledges the demands may be far-fetched, but said it is worth a try.

“Sometimes if you shoot for the moon, you land in the stars.”

This is not the first time the United States has seen these demands for debt relief. The same demand was made 225 years ago during Shays’ Rebellion. As I describe in Angry Mobs and Founding Fathers:

Daniel Shays was one such army veteran disappointed by how the government treated veterans. Shays, who returned to farming after the war, was also angered by how creditors treated farmers who had borrowed money. As delegates from five states met in Annapolis in 1786 to try to fix some of the defects of the Articles of Confederation, Daniel Shays led a rebellion of 1,200 men against the Massachusetts government.

General Henry Knox wrote to George Washington explaining the objectives of Shays and his followers: “Their creed is, that the property of the United States has been protected from the confiscation of Britain by the joint exertions of all, and therefore ought to be the common property of all; and he that attempts opposition to this creed, is an enemy to equity and justice, and ought to be swept off the face of the earth… They are determined to annihilate all debts, public and private, and have agrarian laws, which are easily effected by the means of unfunded paper money, which shall be a tender in all cases whatever.”

While Shays’ Rebellion was put down quite easily, it could have easily led to civil war (from Angry Mobs and Founding Fathers):

Shays’ Rebellion was put down in January 1787 by a well-armed force of 4,400 men. Alexander Hamilton noted how close America came to civil war: “Who can determine what might have been the issue of her late convulsions, if the malcontents had been headed by a Caesar or by a Cromwell?”

In fact, although the rebellion itself was stopped and no Caesar or Cromwell emerged, the story did not end there (from Angry Mobs and Founding Fathers):

The rebels were pardoned and they succeeded in elections the following year. The new legislature passed the debt relief that the rebels demanded.

Shays’ Rebellion was all about debt relief, which is a major demand of the Occupy Wall Street protests.

We surely should heed the words of General Henry Knox and Alexander Hamilton and swear off this idea of debt forgiveness. Debt forgiveness is nothing more than stealing from a large number of people to satisfy the demand of a small but vocal minority.

– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.