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Tag Archives: bank

Banks in the US are back to raising user fees for simple banking operations.

Granted, as the banks claim, they are private businesses and entitled to try to make a profit.

The problem is that the macroeconomy depends on liquidity of the banking sector to turn personal savings into investment spending.

Consumer advocates say they worry that the fees will push people out of banking and toward more expensive services, like payday lenders and loan sharks.

“A significant part of the population will be squeezed out of banks because they can’t afford it,” says Nancy Bush, founder of banking research group NAB, and columnist at SNL Financial, “and that is absolutely wrong.”

Recently I made a visit back to the US. Without any dollars, I visited an ATM machine. I had to pay a fee of $5 for a modest $100 withdrawal. That was the last time I used an ATM there.

People discouraged from saving in the financial system means there will be less spending, demand in the marketplace, fewer jobs, and less ability for the government to improve growth with fiscal or monetary policy.


US banks should undermine Occupy protesters–an article today that, to my mind, represents a disturbing attitude towards (mostly) legal and peaceful protests. Not able–or maybe not willing–to let legal restrictions limit the actions of OWS, already being done, the Financial Sector is now willing to try to undermine OWS with some type  of media coertion.

The Occupy Wall Street movement is a big enough problem for U.S. banks that they should pay for opposition research into the political motives of protesters, said a firm that lobbies for the industry.

Clark Lytle Geduldig & Cranford, a Washington-based firm, proposed the idea in a memo to the American Banking Association, an industry group which said on Saturday that it did not act on the idea.

The four-page memo outlined how the firm could analyze the source of protesters’ money, as well as their rhetoric and the backgrounds of protest leaders.

“If we can show they have the same cynical motivation as a political opponent, it will undermine their credibility in a profound way,”

Apparantly the banks cannot trust the situation to be handled by legal authority. The financial sector wants to take their efforts away from just making money?

No. I guess that is still their final goal.

US president Obama is meeting soon with executives from some of the biggest banks in the country. The article is not completely clear on what Obama expects to happen in the meeting, but two goals are hinted at.

One is for the banks to submit to greater regulatory control. You might have thought that was one of the conditions for getting 700 billion in bail-out money last year.

Another goal is less clear, but probably more important, and that is getting the banks to start getting money out in the communities, encouraging spending and investment. Not sure how the government can leverage that kind of policy with the banks. Say, “Pretty please?”

It was also reported that Obama’s approval rating has dropped below 50%. At least he seems to understand some of the criticism.

“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” Obama said.

US banks are reported today to be very hesitant in refinancing homes. When I was in school, the liquidity trap was explained to me to be a drain on savings, because the interest rate was less than the value of keeping money in your pocket, ready to spend as you please.

This also seems a sort of liquidity trap, though perhaps the terminology needs to change. Banks can also horde money, but the reason is not liquidity, but the promise of higher returns at a later date. With mortgage rates at under 5%, lowest since the 1950’s, there must be promise of higher returns in the near future.

The real question returns, why was the US bailout focused on the banking sector? It seems to have made the problem worse, with more money being withdrawn from spending, and consumers ever more hesitant to spend. They are now trying to redirect money towards job creation. A worthy policy, but why was that not the focus to begin with?

George Selgin wrote an interesting piece called End the Fed? A not-so-crazy idea. It does sound a little bonkers to me. Selgin thinks it might be a good idea to return to a totally privatized banking system, and he gives some historical data to back-up the argument. Still, his examples come from over fifty years ago when–really–people knew less about how money and a national economy are interdependent. Of course the Fed has made mistakes, but I would argue that–as time goes by–US Central Bankers are better and better prepared to do their job well.

Even more frightening, and a more realistic possibility, is that Congress will succeed in taking some control over Fed policy. That would be a disaster. One easy argument–compare congressional policy over the last fifty years with Fed policy. The Fed’s independence has allowed them–mostly–to follow money policy that encourages growth and discourages inflation. To put them under the control of Congress puts them under the control of big business.

The biggest bank in Kazakhstan has announced it will no longer pay its debts to foreign creditors, 11 billion dollars worth. My interest comes mainly from the fact that my wife is Kazakh, and my daughter was born there. Knowing the Kazakhs, none of us are surprised to see this sort of headline. In fact, I am surprised anyone would want to loan money to someone there, even a bank. Defaulting on a loan is typical there, and few see any fault in it.

“This was expected in the sense the bonds had already been trading in a deeply distressed fashion,” Adel Kambar, the chief executive of the Kazakh office of Renaissance Capital, said in a telephone interview.

True enough that financial enterprises are having trouble everywhere, so not necessarily a poor reflection on Kazakh culture. But I am still not expecting my brother-in-law to pay me back.

stock-market-roller-coasterHe may as well have been responding to my last post. Fed Chairmand Bernanke said yesterday that he does not expect nationalization of banks in the US. That spurred some optimism and demand for stocks, and the Dow Jones rose by 3% even though Bernanke also said the recession is likely to last at least another year.

Another report says that home prices in the US have taken another drop and consumer confidence is lower too. Bernanke was probably taking this into consideration when predicting the extended recession.

Question then–Which would have a more positive effect on the housing market? Banks being held privately? Or under government control?

Held privately, banks are less restricted but also have the option to hoard money. Held publicly, policy makers could push the banks to loan money, but the cost of banking would likely be higher.


President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.

The real problem here seems to be that these bonuses are coming straight from government funds meant as a bailout. Is it really the same money?

This article says no, not exactly the same funds, but it certainly gives the financial institutions more leeway in funding the extravagant bonuses.

Applause to Obama for scolding the bankers, but will it matter? The US can not–will not–put legal limits on compensation by private industry. Why not make it a condition of the bailout to begin with–bonuses stop until the bailout money is repaid.

That would be effective, eh?