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Tuesday, October 4, 2011

The Plundering of America

A public hew and cry has arisen against the announced plan of major banks to charge depositors three to five dollars a month for the use of debit cards to make purchases. In an extremely rare instance of 'market justice' the value of Bank of America’s shares tumbled.

As significant as the fact of the planned charges is the logic that drives them. Facts on the ground are always merely manifestations of a paradigm in the air. As important as opposing the charges is opposing the twisted thinking behind them.

The shylockian mind-set behind the planned debit-card charges was best illustrated by JP Morgan-Chase’s Jamie Dimon who stated, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.”

Dimon was referring to the fact that, under the Durbin-Frank financial “overhaul” law, banks are prohibited from charging more than 24 cents in service fees per purchase transaction. Prior to the “overhaul,” banks were charging 44 cents per purchase transaction. The law halved the amount they could charge.

But like most garbage flowing down from Capitol Hill, the overhaul contained a loophaul. (We are shocked!) The debit fee was charged to the merchant not to the customer and the law only limited the amounts banks can charge their merchant customers. There was a silver streak in the legislative swill after all.

With this background in mind, Jamie Dimon’s twisted logic boils down to saying that what the banks can’t take from Paul’s hide, they will take from Peter’s. But one way or another the banks will get their pound -- a full English pound -- of flesh.

The rhetorical cheat behind the financial cheat is easy to see. The banks are not charging more for one service (a coke) to make up for price controls on another (the burger); they are rather like gangs of hoods prowling the street looking for pockets to plunder. “Hey! If we can’t roll the guy in the suit, let’s roll the little old lady in the walker.”

But, irrespective of Jamie Dimon’s spurious analogies, the driving force of the paradigm is the notion that banks are entitled by some divinely ordained law of nature to a certain maximum level of profit. The point of departure for Bank of America, JP Morgan-Chase and Wells Fargo is simply the presumption that they are entitled to 44 cents per purchase transaction.

The banks would have us believe that this amount reflects some sort of “natural market law” like water seeking its own level. If they can’t get the quantum of flow from one source it is “only natural” that they should extract it from another. Dimon’s analogy simply assumes and would have us believe that 44 cents is what banks are entitled to and cannot be faulted for demanding.

Wherefrom this 44 cents? Banks no longer bother with the pretence of justifying the charge on the basis of costs of operations. The amount is simply what they (on average) have decided to charge. The “natural market level” is nothing more than the ad hoc level of banker avarice.

A 2010 Nilson Report report showed that in 2006 debit card usage generated just over 10 billion dollars in profits. In 2010 those profits had soared to just over 20 billion. This roaring, soaring surge of money certainly did not reflect a doubling of the costs of maintaining installed telemetric swiping machines.

In fact, the Federal Reserve has calculated the average variable costs of a debit charge at $0.071 for transaction processing, $0.059 for network fees, $0.049 for fraud losses, and $0.018 for fraud prevention costs, for a total of .19 cents per purchase. There can be no claim that banks are simply passing along their operating costs to the customer be it in the price of a coke or of a burger.

In fact, the Federal Reserve limit of 24 cents has a built in profit of 4.8 percent per transaction. That’s over half the average State sales tax. But that is not enough to satisfy the rapacity of Jamie Dimon or Bank of America’s Brian Moynihan. They want more, more and more of your flesh.

The bankers’ lust for geld is epitomized by a famous motto from Spain’s Siglo de Oro which symbolized the conquistadors’ lust for gold.

Al espada y el compás, más y más y más y más.
By sword and compass, more and more and more and more!

The lust for more is the same sin as the ne plus ultra of rapacious Iberia. The only difference is that today’s river of gold is extracted from the diminishing pay checks of struggling workers rather than from the sweat of Indian press gangs.

Needless to say, if they don’t bother justifying the charges on the basis of costs, it would never occur to Dimon or Moynihan to justify them on the basis of social utility. The idea that privilege, position and property should subserve the social good simply does not exist in the world of so-called “financial services”.

Understandably, most people oppose the monthly charges because they financially hurt. But there is a more fundamental point that progressives in particular need to press.

Defining the Progressive platform a century ago, Teddy Roosevelt insisted that corporate profit should be allowed “only so long as the gaining represents benefit to the community.” “The true conservative,” he said, “is he who insists that property shall be the servant and not the master of the commonwealth.”

Progressives should not concede or overlook fundamentals while complaining about symptoms. They need to drive home the point that banks and all financial institutions should be treated and regulated as public utilities. They exist to lubricate the economy, not to suck it dry.

But plundering America is what Dimon and Moynihan have done and continue to do. We should not forget that Bank of America, Wells Fargo and banks throughout the land were responsible for the mortgage meltdown and global financial collapse that ensued. These same crooks are now trying to foreclose on properties they don’t have title to precisely because they “diced and dished” the securities.

When the same culprits who caused the financial meltdown get flooded with treasury dollars at effectively negative interest, they still refuse to lend or to renegotiate mortgages. When the common economic interest depends on restimulating consumer spending, these same banks still insist on charging 15% to 24% credit card interest and now insist on the right to suck out of the economy 20 billion a year in debit card fees.

There is simply no economic or social justification for such behavior. And the spuriously justified notion that business is just plunder needs to be opposed. The planned debit charges are not some isolated incident of over-reaching. They are yet another maw of a man eating plant that needs to be raked up, eradicated and purged from the garden.

© Woodchip Gazette, 2011