Banks Charging Customers To Make Up For Lost Fees

The 2009 “Dodd-Frank Wall Street Reform and Consumer Protection Act” was one of those mega-bus bills that got passed for the good of the people by the new Democratic-controlled government. Now as a rule, I’m always skeptical of mega-bus bills because there’s so much lobbying and fraternizing that goes on behind the bill-making that I don’t believe such things are automatically as good for the people as the title would imply (how can you object to “consumer protection”?), and even when things do seem good there is always that little beast of unintended consequences, often ignored but never forgotten.

Today I am going to talk about just one of the many, many details of this legislation: it severely limits the amount of money that banks or credit card companies are allowed to charge merchants for running debit cards (I admit I’m a little hazy on who’s doing the charging, especially whether or not it’s online or with a physical card swiper). You may not even realize that these charges exist, but businesses don’t just get to collect money from Visa and Mastercard for free. Internet Retailer says “online retailers typically pay Visa and MasterCard interchange of 1.60% plus 15 cents a transaction, or $1.40 on a $78.70 purchase” (the average online purchase). These hidden costs almost certainly affect the price you pay for almost anything these days. (This is also why many gas stations now offer a few cents less per gallon if you pay in cash – they’re saving money too.)

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Ron Paul Already Polling Better Than Last Time

It’s election season again, and you know what that means… Ron Paul is running for President and the media is completely ignoring him. Even Jon Stewart is noticing this time, and he’s put together a brilliant snapshot of the most recent ignorance:

 

This stuff leads to conspiracy theories by Paul fans about how the media wants to bring him down – why else would they talk more about Santorum and Huntsman? Or maybe they just simply don’t think he’s a serious candidate. But what’s fascinating to me in all of this is that Ron Paul arguably actually deserves some attention this time around.

At this time four years ago, he wasn’t even on the polling radar, and Paulbots were still complaining about his lack of coverage, or that the polls didn’t reflect his true popularity. Today Paul’s average is sitting at 8.8%, and his average only even peaked at 7.4% last time around. From the RealClearPolitics 2012 GOP poll collection, we learn that in the last two weeks Paul has even twice polled ahead of Michele Bachmann (you know, the candidate important enough for a Newsweek cover piece) for third place. He’s solidly ahead of Cain, Gingrich, Huntsman, and Santorum (that’s gotta be depressing for those guys).

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Why Doesn’t Warren Buffet Just Pay More Taxes?

Warren Buffet is at it again. The super-rich investor thinks the super-rich should pay higher taxes. Liberals find this delightful because for some reason they usually can’t get the super-rich to agree to their plans to make them pay higher taxes. Here’s a kind rich man who’s not just another greedy good-for-nothing! He sees the truth! Conservatives find this annoying because the super-rich are supposed to hate paying taxes. They’re supposed to want to keep all their money so they can create jobs with it because they’re supposed to be better at spending it than the government. Buffet’s pro-tax-stance is almost as annoying to conservatives as Hermann Cain being a conservative black man is to liberals.

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Why Are Politicians So Corrupt These Days?

Everybody likes to rail on about corrupt politicians these days. They sling mud at their opponents, do sleazy things and try to get away with it, hang out with lobbyists, and give special favors to their political friends. Come election time, challengers from the outside always promise to end the corruption that’s inside and bring a fresh start. Then the same thing happens a few years later. Why are our politicians so corrupt?

It’s tempting to think that today’s politicians in Washington, D.C. are corrupt in an unprecedented manner, and to try to find reasons to explain it. Maybe it’s the result of social moral decay. Maybe it’s because the population of the United States has more than tripled since the number of House Representatives was fixed at 435, so representatives can no longer be as close to the people.

Maybe there are specific factors contributing to modern corruption, but I just want to point out for the sake of perspective that this is nothing new. Bill Clinton lied in the 90’s. Nixon had his Watergate scandal in the 70’s. And that’s just very recent history. The ever-helpful Wikipedia has a fantastically long list of federal political scandals going all the way back to the time of George Washington, when a senator was “expelled from the Senate for trying to aid the British in a takeover of West Florida.” One of Andrew Jackson’s appointees embezzled over a million dollars (in the 1830’s) and “fled to Europe to avoid prosecution.” Ulysses S. Grant’s administration had an infamous Whiskey Ring full of bribes and kickbacks that resulted in “110 convictions.” The list is full of suspicious behavior, unsightly cover-ups, and outright fraud. It’s true that the list gets notably longer for more recent administrations – but it’s hard to know if that’s because politicians are more corrupt or if it’s just easier to keep track of them these days. Regardless, the U.S. federal government certainly has a long history of corruption.

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Ron Paul – Winning Without Winning?

The LA Times has a good post conjecturing that Ron Paul is winning the Republican party even without actually winning anything simply by way of how much he has shaped the debate in the last few years.

It’s a pretty good piece – it doesn’t dismiss Paul outright but it doesn’t promote him like a Paulbot, and it’s got a good sense of humor. Four years ago, Paul was the only Republican candidate talking about reducing government spending – and now everyone in the federal government is talking about it. And some of the GOP these days are even sounding more open to things like legalizing marijuana or ending wars in the Middle East – small government positions that are typically thought of as anti-GOP. The left likes to dismiss the Tea Party as Koch-infused AstroTurf, but Ron Paul and his supporters were Tea Party before there was a Tea Party.

The post also talks about some classic Paul behavior that I hadn’t heard about:

Paul came up more than 1,000 delegates short of winning the nomination in…wait for it, St. Paul, but here’s what he did do: Talking fiscal discipline, he took his supporters’ donations (more than Mike Huckabee’s hand-clapping evangelicals ponied up, btw) and walked the fiscal walk.

Flying commercial and sleeping in Super 8’s, Paul paid all of his campaign bills. He ended up with a $5-million surplus, a word we don’t often hear associated with things Washington, unless it refers to empty words.

It doesn’t say what he did with the $5 million, but I believe that he did something very legal, moral, and fiscally sound with it. I just trust him – and I can’t say that about any other politician.

That’s one of the reasons I just like the guy. Even though I’ve learned enough about politics, economics, and the world in the last four years that I’m not as gung-ho about him as I was the last time around, he’s still probably closer to my beliefs than any other candidate out there. (Paul is already polling better than he did last time, for what it’s worth.) Sure, some of his positions and statements make me wince in uncertainty, but there’s no hypocrisy or corruption in them – all the other guys make me wince because their positions are worse and I can’t trust them anyway.

So I’m perfectly happy to watch him continue to influence the debate in Washington even if he doesn’t actually win a national election (although his son did win the Kentucky Senate, one of the many previously unthinkable things that have happened in the world in the last few years). I’m not convinced, for instance, that a gold standard would work anymore in our complicated global economy, but our excess-driven debt-ridden fiat system is getting so bad, compounded by government overreach and corruption, that any attempt to pull back in the other direction is, I think, a net improvement from where we are now.

So keep it up, Paul, and good luck at that silly Ames straw poll.

Reasons For Optimism 1-3

A few days ago I talked about my determination not to become overly pessimistic about the future based on current trends, mainly and simply because current trends have a way of surprising those who expect them to continue. So when I came across a handful of news articles about new medical and technological discoveries, I thought it would be appropriate to kick off a new occasional series called “Reasons For Optimism.”

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Obama To Campaign On Romney’s Weirdness

Yesterday Politico reported that the Obama campaign’s political strategy right now for 2012 is to assume Romney will be the nominee and attack him for being “weird”:

Barack Obama’s aides and advisers are preparing to center the president’s reelection campaign on a ferocious personal assault on Mitt Romney’s character and business background, a strategy grounded in the early-stage expectation that the former Massachusetts governor is the likely GOP nominee.

The dramatic and unabashedly negative turn is the product of political reality. Obama remains personally popular, but pluralities in recent polling disapprove of his handling of his job, and Americans fear the country is on the wrong track. His aides are increasingly resigned to running for reelection in a glum nation. And so the candidate who ran on “hope” in 2008 has little choice four years later but to run a slashing, personal campaign aimed at disqualifying his likeliest opponent…

Obama’s reelection campaign will portray the public Romney as inauthentic, unprincipled and, in a word used repeatedly by Obama’s advisers in about a dozen interviews, “weird.”

Now, look, I don’t like Romney myself and I think he’s probably inauthentic, unprincipled, and maybe even weird, but there are three reasons this admission by Obama’s political campaign strategists is much weirder.

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Remember the Uncertainty

I don’t think the US deserves a AAA rating on its debt anymore because I think its financial situation is far worse than the official forecasts suggest. I base this notion on the fact that forecasts ten years ago actually thought the debt would be lower today than it was then, when it ended up over three times larger.

Whoever was making those forecasts may have overestimated the growth of the economy, or underestimated the growth of government spending, or (from my bias) underestimated the negative effect of government growth on the private economy. Less abstractly, whoever was making those forecasts was probably not expecting 9/11 or two unfunded wars or a housing bubble and bust or a global financial crisis or even things like Hurricane Katrina or the BP oil spill. Unexpected things happened, and as a result we are sitting under a debt pile of $14.3 trillion instead of less than four.

At least now “they” expect the deficit to be higher ten years from now, but when “they” say $7-10 trillion higher I laugh at the underlying assumptions. We might not come anywhere near the expected growth of those forecasts, and that’s before any number of unexpected “black swan” events occur – and the rest of this decade will certainly have some. I believe the forecasts to be off by so many trillions that it’s irrelevant whether or not S&P made a $2 trillion math error in their downgrade – they’re all off by so much that doesn’t even matter.

And yet, I must remember that the uncertainty goes both ways. If we go back ten more years, we find that the early 90’s had some ominous warnings about the growing U.S. debt load, and there were estimates that by 2000 the debt would have doubled, when it actually ended the decade almost where it started thanks to some surpluses during the Clinton years that nobody saw coming.

I’m too young to remember any of those details, but I definitely remember the financial crashes of 2007-2009, when, among other things, the stock market lost half its value. Through the lens of my newfound economic knowledge and libertarian philosophies I saw this crash as the result of decades of horrible government intervention. I worked at the Apple Store at the time and sold my few shares of company stock because I didn’t know if the world would ever recover and I wanted to at least get back the amount I had invested instead of waiting to see if everything would drop by half again.

Of course, today Apple shares are pushing through all-time highs that are about five times the amount that I sold back in early 2009. The world economy doesn’t seem that much better, and certainly not more stable, than it was two years ago, but the crash did not continue. I was overly pessimistic, and I paid for that pessimism. (At least my naive doom-and-gloom investment strategies weren’t a total loss. The twenty or so ounces of silver that I slowly accumulated in that time period for $15-$20 an ounce are currently the best-performing thing I own.)

So just because I think the forecasters are overly optimistic, I don’t want to be overly pessimistic. The rest of this decade will have nasty surprises, but it could have nice ones too. Who knows what amazing things will be invented, what new things will be discovered, what unpredictable things will be done by any one of the seven billion people breathing on this planet?

Despite all the vast increases in knowledge in the last hundred years, we are living in a largely unpredictable world. Tyler Cowen points to a post by Brad DeLong admitting, “If You Had Told Me a Year Ago That on August 5, 2011 S&P Would Downgrade the U.S, and the 10-Yr Treasury Would Yield 2.5%… I would have laughed at you.” We think we understand trends and causes and effects in the economy but are still baffled on a regular basis when reality doesn’t match what we expected. History is full of experts who were too confident about the future, and it’s easy to forget that we are the “experts” that the bloggers of the future will mock for our own overconfidence and lack of knowledge.

I think the United States is not going to be a pretty place ten years from now, but there’s a tiny little skeptical, optimistic part of me that won’t be surprised if we’re somehow running trillion-dollar surpluses with very low unemployment. OK, I would still be surprised. But if the last ten years – nay, the last five years – is any indication, I’m not willing to put any money down on what the price of oil will look like in 2021, or the price of gold, or the level of the stock market, or the yields on Treasuries, or the deficit, or unemployment, or anything, really. I will expect things as best I can, and try to prepare for them accordingly, but I will always remember the uncertainty.

Thoughts on the S&P Downgrade

Well, everybody’s offering their thoughts on the S&P downgrade, so I might as well mention some of the reactions and offer my own.

Remember, earlier this year the ratings agencies said they were thinking about downgrading the U.S. if they didn’t come up with a plan to get their deficits in line. There was lip service in Washington about the need to reduce the debt, and Obama even appointed a commission to come up with ways to fix things, but no one ever did anything about their recommendations (known as the Bowles-Simpson plan), probably because the solutions were so balanced that both political parties found them unacceptable. But Republicans took the agency warnings as proof that they needed to cut spending before they raised the debt ceiling again. Of course, when the debt ceiling got closer and no agreement was being reached, the ratings agencies then warned that if they didn’t reach a deal they might downgrade the country, too. Then they warned that even if they reached a deal, if the cuts weren’t big enough, they might still downgrade us:

The major credit rating agencies have warned that if a big enough deficit-reduction plan of about $4 trillion is not agreed on — even if the debt limit is raised — they could still downgrade America’s coveted triple-A rating.

We only came up with a plan to cut $2-something trillion. The agencies wanted 4, we gave them 2, boom, they downgraded. Simple as that. Naturally, Republicans are using this as proof that we need to reduce the deficit even more. Of course, to them that only means cutting spending, and no tax increases at all. Tyler Cowen thinks the GOP will regret their stance, because they could have had $4 trillion with Obama’s “grand bargain” that was mostly spending cuts but still had some tax increases. But Cowen doesn’t think the markets will care too much, as “the facts on the ground did not change today… Still, years from now today may well be seen as a turning point of significance.” Megan McArdle thinks the GOP will take the share of the blame for this too, and she also wonders if the stock market was dropping all week due to rumors of the downgrade. (I think I side with Arnold Kling’s theory that the markets were dropping on concerns of the economy anyway, and the debt ceiling deal just accelerated the flight to Treasury bonds by making investors less nervous about holding Treasuries.)

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Layman’s Terms: What Is the S&P Downgrade?

Well, I was going to rattle off my thoughts on the S&P downgrade like everybody else but first I thought I’d make a post explaining what that even means to help give some context for anyone who doesn’t follow world financial news or even national financial news all the time.

So, basically, there are three organizations known as the Big 3 credit ratings agencies – Standard & Poor’s (S&P), Moody’s, and Fitch. There are investors all over the world, from rich billionaires to folks managing the retirement portfolios of middle-class Americans, and they like to make more money by loaning the money they have to various groups of people, from governments to homebuyers, who pay it back with interest. Except sometimes, of course, people can’t pay the money back when it’s due – maybe a country got into too much debt and is about to collapse, or maybe a million people bought homes they couldn’t afford and then lost their jobs and then stopped making house payments and now the group that originally loaned the money to the homebuyers from the investors can’t pay the investors back. That’s oversimplified, of course, but the main point is that when you loan money there’s a good chance you’ll get more money back but always a small chance you won’t get any of it back. In general, the more investors are wary of a certain borrower, the higher the interest rate they will require to loan them money. If the interest rate for, say, bonds issued by a certain country is low enough that there aren’t enough investors willing to get in on it, then the rate goes up until enough investors get attracted by it so the country can borrow as much money as they need for that time period, and that’s partly why interest rates all over the world go up and down all the time.

This is all well and good, but it gets rather complicated. for your average portfolio manager (let’s name him Max). If Jane Smith has $25 coming out of her check every two weeks to save for her retirement, Max tries to decide where best to invest the money. But there are thousands of places where he could put that money, from stock markets to government bonds all over the world, and he doesn’t have time to keep up with the ever-changing details of every country’s financial situation – right now the 5% interest rate on Italy bonds is a way better return than every stock market in the world, but the reason it’s so high is there are increasing fears that the government there might default – so Max probably doesn’t want to put Jane’s money there. But that’s just one example, and Max doesn’t have time to keep up with the ever-changing risks associated with the thousands of available options. So how does he decide where to put Jane’s money?

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