Felix Salmon

On Monday, I wrote about the unemployment debit-card scandal, based on articles by Janelle Ross and Kate Berry. But Berry’s article has been down since Tuesday, replaced by a placeholder saying only that “an updated version of this story will appear soon”. And the state of California, in particular, was extremely unhappy with Berry’s coverage. So today I had a long conversation with the Californian department of employment development, trying to understand exactly what’s going on there.

The conversation was a bit frustrating, because the questions I was asking weren’t fully aligned with the answers they wanted to give. The Californians were very keen on telling me how much better their debit cards are than the old paper-check system — something I completely agree with. And they’re also very proud of the fact that it’s possible to use their debit cards without incurring any fees. That’s great, too.

Where we part ways is the issue of direct debit. California has a lot of unbanked people –  1.2 million, by one count. Many of those people are eligible for unemployment and disability benefits, and it’s important to do well by them. For those people, the debit card is great. On the other hand, there are 37 million people in California as a whole, and seems a little bit silly, to me, to design the entire unemployment system around the unbanked, when the unbanked are massively outnumbered by people with bank accounts. After all, the whole point of unemployment insurance is that you get it when you’re laid off from your paid job. And if you have a paid job, you’re very likely to have a bank account.

It’s my contention that if you have a bank account, then it’s a no-brainer that you should have your unemployment or disability benefits paid directly into that account by direct debit. But none of the Californians were inclined to agree with me on that front. “Our focus on everything we put out is to tell our claimants how to avoid fees,” said Sabrina Reed, project director for the electronic benefits project, talking about things like the nine-minute YouTube video explaining how to use the debit card. The direct-deposit part of the video starts at the 6:40 mark, where it presents direct debit as “another option”; we then cut to a woman holding a newborn who says that “with a new baby it was a good option for us to do direct deposit, because it’s hard to go to the bank”.

At no point does the state of California ever come out and say that direct deposit is a good option; it’s just an option, offered to those who would like to take advantage of it. “Many people like the convenience of using the card,” Reed told me. “People who are savvy enough to use direct deposit sign up for direct deposit.” When I asked whether, in the interests of education, it might be a good idea to encourage Californians to sign up for direct deposit, she replied by saying that “you’re making a presumption we’re not making”.

Let me rewind here for a second. In my original post, I quoted Berry’s article which in turn quoted representatives from both California and BofA, talking about the fact that California does not offer direct deposit. The truth is that direct deposit is an option — but you always have to get a debit card, and then if you want direct deposit, you need to work that out not with California but rather with BofA. And BofA has no incentive to make the direct deposit option easy or convenient or attractive — because BofA makes all of its money from the retained balance on the debit cards, and from the interchange fees it gets when those debit cards are used. If you set up direct deposit so that there’s no balance on the debit card and you never use the card to buy anything, then BofA won’t make any money off you.

Reed understands that BofA will never push the direct-deposit option — but she also sees no reason for California to push it, either. In fact, she says, people getting Californian unemployment benefits “have a better debit card process than you and I have with our banks”. And she came up with a clever example of why someone with a bank account might not want to transfer all the money over using direct deposit: if that person had a third-party ATM on their street corner, then it might be cheaper to withdraw money from that ATM using the California debit card, rather than using their bank’s ATM card. “It’s a personal choice for every individual,” said Reed. “While direct deposit may be convenient for one person, it may not be for another.”

Now it’s easy to be a bit suspicious of California’s motives here. The state has entered into a revenue-sharing plan with Bank of America, under which BofA remits back to California some percentage of the total unspent balance on the debit cards each period. The fewer people using direct debit, the more money Bank of America makes — and the more money California makes, too. The money isn’t huge — it’s about $10 million a year. But if direct deposit was easier, or was encouraged more, then California might have to start paying BofA to run this scheme, rather than getting a multi-million-dollar rebate every year. (Reed is a huge fan of high interchange fees, and hates the Durbin amendment, even though benefits debit cards were exempted from it: it’s “ultimately going to hurt the taxpayer”, she says.)

More generally, if you have a bank account, of course you should sign up for the direct-deposit option. The whole point of having a bank account is that it’s the single place through which all your transactions flow, and people on unemployment or disability benefits generally get most of their income from those schemes. The debit card can’t be refilled by anybody other than the state of California — in no sense is it an alternative to a bank account. The money on the card should be used to avoid overdraft fees; it should not simply sit unused on the card.

Reed gave me a long explanation of why it makes sense to California to outsource the direct-deposit function to BofA, and I’m pretty much convinced on that front. I do believe it’s cheaper and more efficient for California to outsource these things than to try to do them itself. But I also believe that if California wants to do right by its claimants, it should ask them to provide their bank account details when they sign up for benefits, and tell BofA to sign them up for direct deposit as the default option.

By all means give people the option to opt out, and to keep their benefits on a prepaid debit card if they’d rather do that or if they don’t have a bank account. But the opt-in system that California has setup seems designed to minimize the number of people who will use direct debit. As does the distinct lack of any documentation from California saying that direct deposit is a really good idea. The money arrives automatically in your bank account, a good two or three days earlier than it would in the bad old days of paper checks. You don’t need to keep close track of how much money may or may not be on your debit card at any given time. And you can keep all your money in one place, give it to someone else by writing a check, and enjoy all the other conveniences of having a bank account. Prepaid debit cards are all well and good, but bank accounts are always better.

In fact, if California really wanted to do right by its claimants, it would force BofA to give them a bare-bones, no-fee bank account rather than just a debit card. The bank account would come with a debit card, of course. But you could add money to it whenever you wanted, without incurring any fees — something which apparently is illegal with benefits cards. California has more than 2 million claimants receiving some $100 million per day: that gives the state a lot of negotiating power to get what it wants. And it’s a little sad, I think, that what California turned out to want was a way of maximizing interchange fees for BofA and for itself.

Kevin Drum asks a good question about the background blogger briefing at Treasury:

Having read a few posts from the bloggers in question, what I want to know is: Did they really learn anything? Did Geithner and the anonymous SAOs say anything interesting that they wouldn’t have said on the record? Or was it just a pure spin session?

First it’s worth noting that HuffPo’s Sam Stein made a formal protest at the beginning of the meeting, asking that at least we be allowed to quote “senior administration officials” directly instead of being forced to paraphrase. And I don’t think any of us were particularly happy about the ground rules.

That said, I think there are a few ways in which these briefings can provide something that an on-the-record briefing can’t. The Treasury secretary, in particular, has to be very careful what he says in public; his statements can and do move markets and even cause minor diplomatic incidents. Going offline allows the public official to relax a little and even have something approaching a real conversation, as opposed to simply reciting talking points.

It’s also worth noting that the audience for this briefing was pretty newsy, as bloggers go. There were quite a few people around the table — Stein included — who consider themselves reporters first and foremost. When sessions with Treasury officials are on the record, they (the sessions, I mean, not these individuals) have a tendency to descend into unhelpful dynamic where the journalists try to get the official to say something specific, and the official repeatedly talks around the subject and doesn’t give them what they want. Banning quotes altogether does solve that problem at a stroke.

Geithner in particular has a way of getting a little tongue-tied and angst-ridden (this is new, I think, since he became Treasury secretary, I never saw it before), and no one at Treasury has any interest in that becoming news. He did show some flashes of humanity in this session, cracked a few jokes at his own expense, and was surely less self-conscious than he would have been had the briefing been on the record.

And as Matt Yglesias rightly says, it’s hardly as though on-the-record briefings are spin-free zones.

It’s true that I can’t think of anything which was said by Gene Sperling or Michael Barr or Alan Kruger which couldn’t easily have been put on the record, but it’s also true that the one bit of the meeting which actually was on the record — a briefing by Neal Wolin about internet technology in Iran, Sudan and Cuba — was so far removed from newsworthiness that all of us were quite happy when it was over.

Of course, you can’t put Sperling et al on the record and then have just Geithner being the only “senior administration official” in the room — that kinda gives the game away. So you see how Treasury ends up where it does — just as you can also see how the likes of Drum end up asking if we’re not all being sucked into the age-old Washington game.

The fact is that if I thought it would serve any purpose at all to boycott background briefings, I’d be happy to do that. But it wouldn’t. And in many ways these briefings are the closest that people like Geithner ever come to having a friendly drink with the press, not having to worry about how they might get quoted. Most of us would become very quiet very quickly if every word we said was scrutinized in the way that Geithner’s public statements are. Obviously the ground rules serve him more than they serve us. But insofar as we basically just wanted to talk to the guy, I think we came away reasonably happy.

So while Drum is absolutely right that these meetings “allow government officials a chance to peddle their spin in person without really being held accountable for what they say”, I think that sometimes it’s good to talk to someone without holding them accountable for what they say. I’d say that the walk-forwards-walk-back that we saw on the subject of principal write-downs, for instance, is more revealing than an accountable on-the-record statement would have been. Mixing things up a bit is usually a good idea; I’m generally suspicious of absolutism in these matters. After all, it’s not as though the press corps and Congress never get to ask Geithner lots of questions on the record as well.

And on top of all that, I’m very happy that I got to thank Gene Sperling personally for Treasury’s latest CDFI initiative. (I’m on the board of a credit union which will probably be one of the recipients.) It’s a really good idea and it probably ought to have gotten more play than it did. A lot of really useful lending will come as a result of it.

The GAO reports on the TSA. File under “why doesn’t this surprise me”:

TSA lacks assurance that its investments in screening technologies address the highest priority security needs at airport passenger checkpoints. Since TSA’s creation, 10 passenger screening technologies have been in various phases of research, development, test and evaluation, procurement, and deployment, but TSA has not deployed any of these technologies to airports nationwide… Deployment has been initiated for four technologies–the ETP in January 2006, and the advanced technology systems, a cast and prosthesis scanner, and a bottled liquids scanner in 2008… in the case of the ETP, although TSA tested earlier models, the models ultimately chosen were not operationally tested before they were deployed to ensure they demonstrated effective performance in an operational environment. Without operationally testing technologies prior to deployment, TSA does not have reasonable assurance that technologies will perform as intended.

(Via Fallows)

I’m late to Phillip Swagel’s must-read account of the history of the financial crisis through the eyes of a Treasury official; David Wessel and Nemo have good summaries.

I got through a chunk of Swagel’s paper on the plane on the way over to London, and I haven’t finished the whole thing yet, but there’s no doubt it provides an eye-opening view of how the Washington sausage is made. One theme running through the paper is that of tension between all manner of Washington agencies: Treasury was constantly at war not only with Congress but also with the White House, with the Fed, and with the FDIC.

And that’s not even counting the Treasury departments which were at war with each other: Swagel says that the MLEC, for instance, an abortive attempt to solve the SIV problem in 1997 2007, was widely disparaged even within Treasury, and he clearly was opposed to the second Citigroup bailout, too.

It’s worth remembering that all of this infighting came at the end of a famously disciplined administration which had had the best part of eight years to sort out any glitches and get everybody pulling in the same direction. Today, by contrast, most senior Treasury positions are still unfilled, the White House has a great deal of interest in the minutiae of economic policy, thanks to the presence there of Larry Summers and others, and in general Obama likes to encourage debate — which is another word for disagreement.

The lesson here, I think, is not to place too much faith in Treasury. No matter who’s in charge, there will always be a multitude of institutional constraints which prevent it from (a) putting in place what it considers to be the ideal policy, and (b) executing efficiently any policy which is put in place. And anything which goes for Treasury, of course, gets multiplied by an order of magnitude if you start looking at any efforts to achieve multilateral coordination. As Swagel puts it, “there is an evident gulf in the understanding of policy actions in moving from Washington to New York or Boston; this deficit of clarity grows only more severe across borders and oceans”.

This is something for anybody who was disappointed in the results of the G20 meeting to bear in mind. It might not have produced the ideal policy response, but even if it had done, you can be sure that there would have been all manner of nasty slips and stumbles in the attempted execution.