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Monthly Archives: September 2009

Dave Ribar recently posted about the prices banks are charging their customers for overdraft protection on their debit cards.  Lemme start off by saying “Guilty!”  Yes, that’s right, even I, Pino, have drifted off the fiscal responsibility fairway and into the rough, perhaps even recently.*  However, I digress.

In Dave’s post he quotes a New York Times report on the subject:

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account…

Reading this it almost sounds as if Peter’s whole involvement and responsibility in what is about to come is that he “turned to his debit card to help him spend his money more carefully.”   In fact, when you continue reading you see that Peter was “stunned” when the bank charged him money for not spending his money more carefully.  [I mean, after all, he DID turn to his debit card!]  See, when it comes to spending money more carefully, you would think that would involve actions that were, well, careful.  Things like:

  1. Reading contracts.
  2. Keeping track of money spent
  3. Keeping track of money not spent

But hey, Peter is a young graduate school student.  Right?  Oops.

Mr. Means, who is 59 and lives in Colorado,

Turns out Peter is 59.  And is still learning how to be careful with his money.  And, it would seem, is still learning about life:

figured employees at his bank, Wells Fargo, would show some mercy…

Now, why would Peter feel that a party to a contract agreed upon by both participants would “show mercy”?  I mean, where would one get this idea that when you agree to do something, you are, well, expected to do that thing?  Ahh, haa, I forgot:

Peter Means returned to graduate school after a career as a civil servant…

It’s because young Peter entered into a life as a government sop.  But surly, certainly, Peter needed the money that he spent on his card knowing all along that his balance was dangerously close to zero.  Right?  No?

He paid $4.14 for a coffee at Starbucks … He got the $6.50 student discount at the movie theater…

Dave follows up on the unfortunate story of poor young Peter with some very good analysis of the business of fees that banks charge to their customers.  The best of which is the acknowledgment that these transactions are, in essence, loans made on the spot , on behalf of the bank, without the explicit knowledge of the bank.  That is, the bank is being depended upon to provide the money on behalf of Peters everywhere without the upfront knowledge of said loan or the ability to DENY that loan.   I mean think of it.  Peter is going to a Starbucks, without money, and purchasing a $4 cup of gourmet coffee.  How many among us would borrow Peter that money?  And how many of us would expect a bank to extend a line of credit to a borrower, with zero money, zero or little income and little if any chance of seeing that loan repaid?

Few.  Maybe none.

So, if Peter really is looking to learn how to spend his money more carefully, perhaps he should appreciate the tender mercies of responsibility.

After all, I am VERY sure that the $238 lesson is far FAR cheaper than the tuition that he is paying for those graduate level classes in whatever it is he is taking.

* My wife and I have an investment account and I use my checking account as a transfer station for my money.  I misjudged once, okay, 6 times, one month and as such, I resonate with the emotions that Peter is struggling with.
** I took that opportunity as a teachable moment and linked my savings account to my debit card–just as Mr. Ribar suggested.
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When American’s are really struggling right now to make ends meet, why would the United States impose a tax on tires being shipped to the country?  I mean, if we are really trying to give our consumers the opportunity to save and spend money, why, why would we tax something that they need?

“China strongly condemns this grave act of trade protectionism by the U.S.,” the spokesman for China’s Ministry of Commerce, Yao Jian, said in a statement issued on the Ministry website (www.mofcom.gov.cn) Saturday.

“This step not only violates the rules of the World Trade Organization, it is also contrary to the relevant commitments that the United States government made at the G20 financial summit.”

I am having a hard time understanding why we would impose trade restrictions that would endanger our relationship with China; one of our largest trading partners.

I should re-read this thing–be right back.

Oh, I see now:

The United Steelworkers union, which represents workers at many U.S. tire production plants, filed a petition earlier this year asking for the protection.

It said a tripling of tire imports from China to about 46 million in 2008 from about 15 million in 2004 had cost more than 5,000 U.S. tire worker jobs.

Forget I asked.  These are not the droids you are looking for.

Much debate has been made about the uninsured in America.  I have tried and tried and tried to make the point in my personal conversations that you can not claim you can’t afford thing “A” when you voluntarily spend the money that could purchase thing “A” and instead buy thing “B”.  That is to say, if I have enough money to book, but instead purchase a DVD, I can not claim to be unable to buy the book.  I simply decided to prioritize the DVD higher than the book.

The same is true of health insurance.  If I have money to purchase health insurance but instead choose to buy thing “B”, I can not claim to be unable to afford health insurance.  I just decided not to buy it.  Now, I understand that there are things in life that seem to qualify as “must have”.  Shelter, food and clothing to name a few.  People even claim that an internet connection and phone service can qualify as required services.  So I tried to find an item that in no way could be classified as “required”.  I came up with lottery tickets.

Now, looking at uninsured data found at Carpe Diem, there seem to be three rough categories of people:

uninsured by income

  1. Those that make less than $25,000 a year
  2. Those that make from $25,000 to $50,000 a year
  3. Those that make more than $50,000 a year

Those three breakdowns seem to describe the uninsured equally.  About 30% of the uninsured population are in each category.   Let’s see if my theory holds true for the lower income population.

Using data reported by 4 Professors at Duke University, we are able to see lottery participation rates as well as annual per capita amounts.

Lottery Play by Demographic

What it shows is remarkable.  Combining the players making less than $25,000 per year we see that just about HALF of the population plays the lottery.  Further, those people who play are spending near $600 a year!  This means that these players have near $600 of annual disposable income that they are choosing to spend on the lottery.  By going here, I can find a policy that covers a single 25-year-old man for $52 a month.  Or, $612 a year – almost exactly what is being played on the lottery.

Given that a group of people have disposable income of near $600 and that an insurance policy costs nearly $600, can you realistically say that those folks are unable to afford health insurance?

Me either.

I don’t understand why government feels the need to interject itself in the normal workings of a contract.  When I agree to have someone work on my yard, we enter into an agreement that they will provide the service and that I will pay the bill.  Similar, when I purchase goods over the internet, I enter into the same type of agreement.  basically, two parties are promising to trade and to pay according to that trade.  We both understand the implicit penalties associated with either of us defaulting.  either I won’t pay or they will take me to court.  Based on these promises and follow through by both parties, business is allowed to be conducted.

All of this can be done without involvement by the government.  Oh sure, we know it’s there.  We know that if we can’t resolve any conflict, one of us could be arrested and forced to appear in court.  And to that end, the government could send on officer of the law to our house or business to enforce that summons or judgment.  But in general, we expect the government to stay out of the normal execution of the contract.

So why, now, would the government insert itself into the normal functioning of a contract between parties?

The Consumer Economic Protection Act allows a clerk of court to continue a foreclosure hearing for up to 60 days. The delay would give a homeowner more time to work out a payment plan with the mortgage holder or service so the debtor can remain in the home.

For the life of me, I couldn’t understand why anyone would think that this was a good idea.  I tried looking at this from every angle I could think of and I didn’t see that this was solving any problem what so ever.  And then I read a little further:

“When a home is foreclosed, it’s bad for our families, it’s bad for our communities, it’s bad for our businesses, and it’s bad for North Carolina,” Perdue said. “This bill makes it easier for homeowners to work out a deal with their lenders and avoid foreclosure.”

And so there is was.  The Governor is not really trying to make the flow of business easier, she is trying to make re-election easier.   See, if we can give advantage to some group of people by punishing another group of people and that first group is larger or harder to otherwise control, the politician will always choose to provide that advantage.

That is not, however, to ignore the fact that this is BAD for the very people she is mentioning.  The stress of an impending foreclosure can take a huge toll on a family.  And really, what can happen in 60 days that will prevent the inevitable.?  Really, the family would be better served to go through the very well understood process of foreclosure and begin rebuilding as soon as possible.  And don’t forget, for every family that is foreclosed on, there is another family that will move into a new home.  And business?  How can the delay be good for business?  Lenders base their decision to lend on the fact that, in the event of non-payment, they can reclaim their risk.  This is preventing that process and will result in more expensive lending practices up front.

No, be very clear, this is not about helping businesses, this is about helping politics.

Usually when the government gets in involved in programs to make a certain thing better, more often than not, what is happening is that one group of people benefits while another group takes the hit.  For example, when Unions benefit by allowing the minimum wage the rise, the losers are the people priced out of the employment market.  Another example is when farmers are assisted by pushing ethanol programs the food market suffers as prices for corn, soy and wheat based goods suffer.  Very rare is the program initiated by the government that actually serves everyone well.

Recently the Obama administration rolled out just such a program.  In it, the President speaks to the idea of individuals saving for their own retirement “nest eggs”.    Anything that can be done to make this easier, all the while keeping the responsibility on the individual worker, is a fantastic idea.  In most cases government adds complexity to what could otherwise be simple and straight forward processes.  In the ideas that Obama is speaking about, he is making it easier to save.  He isn’t creating programs, isn’t creating unnatural incentives, he is simply making it easier.  And THAT is good.

However, he does speak to changing existing law or regulations.  He would like to change the way in which auto enrollment is handled.  Rather than having to opt in to a savings plan, he wants to be able to have the language stat that an employee needs to opt out.  When done in this manner, he could increase tha rate of those who save from 70% to about 90%.  A fantastic number.

In short, emphasis on savings and hard work coming from Washington that speaks to individual responsibility is a great thing.