Opinion

Felix Salmon

The Fed cracks down on overdrafts

Felix Salmon
Nov 12, 2009 19:32 UTC

Go Fed! In a very CFPA-ish move, the Fed has now announced that effective July 1, no bank can impose overdraft fees on its customers for ATM or debit card transactions, unless and until they explicitly ask for that “protection”. And they even come with a quote from Ben Bernanke talking about “an important step forward in consumer protection”, which is not the kind of language we’re used to hearing from Fed chairmen.

One weird thing, though: in the letter the Fed has published as a model for banks to follow, consumers are given two choices at the bottom: the first choice is opting out of overdraft protection on ATM and debit-card transactions, while the second choice is opting in. That’s confusing, because opting out is the default option: if you simply ignore the letter and do nothing, you’re opted out automatically.

Why ask customers to sign and date a piece of paper to opt out of something they’re already opted out of by default? I’d much rather see language saying “if you don’t want us to authorize or pay overdrafts on ATM and everyday debit card transactions, you need do nothing”. But that’s just a niggle: this is an important step forwards.

Update: The Center for Responsible Lending emails to point out all the things which the Fed didn’t do, including capping the number of overdraft fees that a bank can charge per day, and preventing banks for charging far more in fees than the total size of the transaction. So there’s still work for the CFPA to do!

COMMENT

I got hit with $105 worth of overdraft charges this morning for two purchases I made last weekend: one subway sandwich and $10 worth of gas. The charges did not go through until the wee hours of the morning, regardless of the $100 cash deposit I made yesterday or the direct deposit I receive from my company every Thursday evening.

When I asked why I was charged overdraft three times for two purchases, the answer never made clear sense. I was then told they could see about removing one of the charges.

Banks choose to do things this way, otherwise I wouldn’t have lost all that money.

Posted by mandrews | Report as abusive

One question for Sheila Bair

Felix Salmon
Nov 12, 2009 19:11 UTC

Paul Solman is taking questions for Sheila Bair. If I could ask her just one question, it would be about her actions taking over WaMu and wiping out all its senior unsecured debt. That’s the wholesale interbank market right there, and in the wake of the WaMu collapse, banks pretty much stopped lending to each other, fearful that at any point Bair could step in and wipe out billions of dollars in assets. The ensuing credit crunch was responsible for trillions of dollars in stock and bond-market losses, and Tim Geithner, for one, was furious at Bair for her precipitous decision.

So the question is this: was the WaMu intervention a mistake, given the knock-on effects it had on the broader economy? Or, more generally, is there anything Bair would do differently, in hindsight?

Bair’s a political beast, and I suspect she’ll brazen it out, saying that her WaMu decision was the right one. But that would put her in the dubious company of all the other executives who feel they have nothing to apologize for. Is it too much to hope that she might show a glimpse of humanity or fallibility?

COMMENT

Given the extreme dearth of viable Republicans with sufficient stature to be considered a serious candidates to replace Mr. Obama, the GOP should look to select a person with appeal to voters looking for intelligence, experience, national gravitas, the ability to think while standing and appeals to over 50% of the voter population……………Bring on Shelia Bair.

Posted by george | Report as abusive

Micropayments datapoint of the day

Felix Salmon
Nov 12, 2009 18:52 UTC

Joe Brancatelli reports on airline fliers’ stubborn refusal to pay even a nominal sum for wifi:

Passengers “want to be connected, [but] they want it to be free,” Doug Murri, Southwest Airlines senior manager of technologies, told a group of airline and entertainment executives this past summer. Alaska Airlines, testing the same satellite-based WiFi system as Southwest, reports that passenger usage plummets when it charges a fee. The higher the fee, the faster the decline. “Even when we charge $1—and we did try $1—we see a drop-off in people willing to pay,” Alaska Airlines executive Craig Chase recently told the Wall Street Journal.

There’s a lesson here for anybody wanting to put a paywall around their website. Fliers are perfectly happy to pay $7 for a copy of the Economist to read on the plane, or even $4 for a copy of People magazine. And I’m sure if they spent their flight on the internet they would claim to value that experience at least as much as the experience of reading a single magazine. But getting them over the hump of paying anything at all for web content is still turning out to be all but impossible.

COMMENT

Dan, how in the world would you split that money from ISPs up? Would every webmaster get .000000001 of a dollar? There’s a lot of webcontent that isn’t journalism, and a big number of people never look at news online.

The shipping industry’s $350 billion debt

Felix Salmon
Nov 12, 2009 16:07 UTC

Landon Thomas‘s story on dodgy shipping loans has some absolutely astonishing numbers, the biggest of which is simply the size of the market, which he pegs at a whopping $350 billion.

The story is pegged to Eastwind Maritime, a shipper which went bust this summer owing $300 million on a fleet of 55 ships. That’s about $5.5 million per ship, which isn’t very much when the average five-year-old vessel was valued at about $88 million as of June of 2008. But things are different now:

Aozora Bank, a Japanese bank that in addition to being one of Eastwind’s top lenders is a major creditor of Lehman Brothers, found to its dismay that the value of the 12 Eastwind ships it now controlled was considerably lower than its $77 million exposure.

The biggest at-risk bank is German state-owned lender HSH Nordbank, with $50 billion of shipping loans. So far, it’s provisioned just $800 million of those, although it’s also received $19.4 billion in support from its shareholders, the regional German states of Hamburg and Schleswig-Holstein.

The problem is that the collateral on these loans is the ships themselves, and many of these ships are simply worthless given the glut of newer ships coming on to the market. So far, the shippers have been making their interest payments, which has helped the banks to avoid writing down the loans. But if the business dries up, the banks aren’t going to be happy with their security. It’s not a pretty picture for anybody concerned.

COMMENT

[So far, the shippers have been making their interest payments, which has helped the banks to avoid writing down the loans]

errr yes, it does help you avoid writing down a loan if it is *current* and *performing*.

Posted by dsquared | Report as abusive

A child of 8 could be traded for that!

Felix Salmon
Nov 12, 2009 15:48 UTC

Talk about alternative asset classes: Venetia Kapernekas, a New York art dealer, has traded her claim to part-ownership of two Damien Hirst works in return for custody of her 8-year-old daughter. Need I add that one of the Hirsts is entitled “In this terrible moment we are victims clinging helplessly to an environment that refuses to acknowledge the soul”?

(Via Maneker)

COMMENT

Wow, how sad for the daughter to be bandied about for art–even though it’s excellent art.

Goldman Sachs’s not very charitable foundation

Felix Salmon
Nov 12, 2009 14:16 UTC

Geraldine Fabrikant gets her hands on the 2008 tax filing for the Goldman Sachs Foundation today, and it’s pretty astonishing stuff:

The latest tax filing for Goldman Sachs’s foundation is as thick as a phone book. The list of trades is more than 200 pages, single spaced. Goldman, it seems, invests like no other, even for its own charity.

“I have never seen anything like it,” said Verne O. Sedlacek, president of Commonfund, when shown the 2007 filing, which was nearly three inches thick. He has a good overview from the Commonfund, which manages more than $25 billion for universities, foundations and other not-for-profit groups.

What good does all this extreme trading do? Not very much, it would seem, according to Fabrikant’s numbers:

  • Goldman has given $501 million to the Goldman Sachs Foundation since 1999
  • The present size of the foundation is $404 million
  • The foundation gave away $12.6 million in 2007 and $22 million in 2008.

Goldman doesn’t reveal the foundation’s investment returns, but clearly they’re negative: the amount of money in the foundation is lower than the amount donated to it, even after accounting for the sums it’s given away.

What’s more, Goldman seems to be giving away only the bare minimum of the foundation’s assets each year: just 5%, the level below which the foundation would lose its charitable status.

I’m going to take a wild guess here and say that the foundation’s counterparty, on its phone-book-sized list of trades for just one year, was always or nearly always Goldman Sachs*. And when Goldman Sachs trades with anybody, be it a client or the Goldman Sachs Foundation or anybody else, Goldman Sachs makes money.

Meanwhile, the foundation itself, as we’ve seen, has been losing money.

And who are the charitable recipients of the foundation’s funds? Entities like the Asia Society, on Park Avenue, which is a talking shop where Goldman bankers can schmooze important international clients. Or big universities like Johns Hopkins and Duke, which take charitable gifts and keep them in the market by adding them to their endowments and investing them rather than spending them.

All in all, the single biggest beneficiary of the Goldman Sachs Foundation would seem to be Goldman Sachs itself, while the amount of money which trickles down from it to genuinely needy charitable cases is minuscule. Goldman should turn its foundation into an arm’s-length institution, charged with giving money where it can do the most good, and allowed to give much more than 5% of its total assets if it sees the need to do so. Because right now the foundation looks mostly like an exercise in self-dealing.

Update: One other thing: why on earth couldn’t the NYT have either linked to the tax filing, or put it online? Most annoying.

*Update 2: Goldman phones to say that the vast majority of trades at the Goldman Sachs Foundation are not with Goldman Sachs.

COMMENT

I am going to thank you Fabrikant for the tip.I am going to be getting a 501c3 soon and really want to send a proposal to them in a bad way.I hope their ethics is in order and they see the needs of these BABY BOOMERS who are disabled.I am on a mission from GOD and Goldman Sachs have sinned.GOD BLESS ALL

Posted by JohnJoebee | Report as abusive

Counterpartys

Felix Salmon
Nov 12, 2009 02:36 UTC

Warhol’s ‘200 One Dollar Bills’ Fetches $43.8 Million — Bloomberg

The editor’s revenge — Torontoist

“Thain let out a gutteral animal howl. Half-rising from his chair, he lunged toward Pandit. “BRAINS!” he moaned.” — NYM

Resignation video from Lou Dobbs — YouTube

Zagat takes 24 months to update its DC guide — WCP

Helmeted NFL players are about 25% more likely to sustain head injuries than unhelmeted Aussie-rules players — WSJ

$1.5 Million In Blatant Insider Trading Profit Following 3Com Acquisition — ZH

Conde Nast lost 8,359 ad pages in 2009. That’s a good $1B in revenues right there — NYT

CBO chief Elmendorf sums up deficit dilemma in a single sentence — WSJ

Learn about syllepsis, then refuse to stop employing it — Stickley

Rock supergroup, or Jubilee 2000 campaign? — Wikipedia

If you’ve been looking for a 4,800-word article on parking in Miami, here’s a great one — MNT  

“Feeding primary school kids less fat, sugar and salt, and more fruit and vegetables, has a surprisingly large effect” — FT

Treasury Dept. charging $522,886 for a single FOIA request — Wired

The incestuous New Museum — NYT

Learning About Outsourcing Via Craigslist — Mediabistro

Why is the Washington Times installing armed guards on the floor where management works? — TPM

A huge incentive to fire now: Bloomberg’s not responsible for paying severance to laid off BusinessWeek staff — TBI

America’s best-performing cities for job creation — Milken

The idiolects of lego — TMN

The art of comment-trolling — Doghouse

COMMENT

The Jubilee 2000 was a worthy cause – activities were initially directed through church channels, spreading messages about the hardship caused by debts among diverse sectors of the public. Audio visual and events were set up to campaign for international coalition movement in over 40 countries that called for cancellation of third world debt by the year 2000.

Posted by jeremy100 | Report as abusive

The decline of credit cards

Felix Salmon
Nov 11, 2009 19:54 UTC

Ezra Klein, on what he considers a vicious cycle in credit cards:

The problem is that the people who migrate toward debit cards are the people who have enough money not to need much credit and are responsible enough to not want it. The good risks, in other words. The people left in the credit card market will be disproportionately bad risks, which means rates will go up and standards will tighten, which will in turn drive more people out of the market, starting the cycle over again.

I’m not convinced that this is a bad thing. Credit cards are useful payment devices, but atrocious borrowing devices. (Steve Waldman has a great post explaining the distinction further.) We want to move to a world where people use charge cards for transactional purposes, and personal loans for credit purposes. The way we’re going to get there is, essentially, by taxing the stuff we want less of — and that means increasing the interest rates and annual fees on credit cards.

Sometimes this is going to happen in an underhand and less-than-honest way: Odysseas Papadimitriou has a great blog entry on how Bank of America is denying that introducing a $50 annual fee constitutes a repricing of its credit cards, for instance. But the big move, away from credit cards and towards alternate means of payment and sources of credit, is surely to be welcomed.

The sad aspect to all this is that millions of people hold large credit card balances and have no ability to refinance them with personal loans, or even any particular notion that such a thing might be possible. They’re going to be harmed by this move. But over time, if things go right, their numbers will naturally dwindle, and we’ll be left with a much healthier system of consumer finance.

COMMENT

Credit companies are still going strong, and they are the ones contributing to much of the financial problems that have plaque America in recent times. Americans need to wean themselves off their addiction to debt, and reducing the usage of credits cards is one way. They are not like ID cards, where having one is essential.

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Right-to-rent becomes a reality

Felix Salmon
Nov 11, 2009 18:19 UTC

Something has happened on the right-to-rent front! It comes from Fannie Mae and it’s called deed-for-lease, and I’m basically in full agreement with Dean Baker on this one: it’s a step in the right direction, but it’s still a far cry from what should be happening. Not only should the lease be for more than 12 months, but the program should be rolled out to all mortgages, not just those owned by Fannie Mae.

In the meantime, it’ll be fascinating to see just how popular this program is. Lots of bright ideas get rolled out and fail to gain traction; Fannie Mae should keep a close eye on this one, and make it more attractive if people aren’t making use of it. And Freddie Mac should in any case try to one-up them, perhaps with a three-year lease. Let’s keep the momentum going!

(Via Indiviglio)

COMMENT

…or we could just make this easier and nationalize housing.

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