Sunday, March 2, 2008



This morning’s Chicago Tribune reported that a recent study by the General Accountability Office (“GAO”) concluded that banks are “not providing consumers with information about fees on savings and checking accounts even though federal rules require disclosures…”

Many of you may remember the General Accountability Office as the General Accounting Office. The name was changed either because it sounds better (as if the politicians are (Get this!) demanding some accountability for taxpayer dollars) or because some overpaid bureaucrats, trying desperately to justify their taxpayer funded sinecures, decided they had to do something and thus decided to change the name of one small arm of the federal leviathan. This is what passes for action in Washington, but I digress.

The GAO report specifically cited the average overdraft fee, which has increased 11% from 2000 to 2007. Consumers, it seems “are getting increasingly hit with overdraft fees that now reach $17.5 billion per year.” Banks now, rather than bounce checks or deny debit card purchases, cover the overdraft but charge a hefty fee for doing so. Consumers don’t seem to mind that; Carol Kaplan, a spokeswoman for the American Bankers Association (“ABA”) says “They (consumers) would rather pay the overdraft fee than go through the embarrassment of not having enough money.” Hmm…

Three thoughts arise.

First, 11% between 2000 and 2007? That works out to an annual rate of 1.5% per year, not all that bad. Perhaps the GAO is not called the General Accounting Office any more because no one at that office owns a calculator.

Second, someone has got to cover the losses the banks incurred when their managements handed kid traders the keys to the vault with predictable consequences. It isn’t going to be the kids themselves; in many cases, they don’t have any money anyway, having applied in their personal lives the miracles of financial leverage that worked so well in their professional lives. Even if these wunderkinds did have the spondulicks, their pusillanimous bosses would not demand restitution for fear that they will be next. The bank managements, whose pathetic attempts to profit by entering businesses about which they have not the slightest clue, certainly won’t pay, unless “payment” takes the form of being given an eight figure “don’t call it severance” package and being put in contact with another member of the club who will clear the path to the next management position from which the recipient can wreak further havoc. The shareholders have paid, and may continue to pay. But, to the extent they can, the same astute managements that let the kids decimate the banks will make the customers pay for the ineptitude of the top brass and the charlatans, knaves, and mountebanks that they hired to decimate some of this nation’s most important financial institutions. Hence the fees about which consumers are complaining.

Third, I know a way for the complainants to avoid overdraft fees. Now, I don’t mean to ask too much of an overburdened American public, but how about NOT OVERDRAWING YOUR ACCOUNT?! I know this is an exotic concept in modern American finance, but perhaps those given to habitually overdrawing their accounts ought to give it a try. And those other fees—how about (Steady yourself.) asking questions about fees and considering moving your business to a less fee hungry bank, perhaps a community bank that didn’t bet its depositors' and shareholders' assets on Red 7 and thus feels no compulsion to force you to pay for its self-debasement? Just some crazy thoughts, I know, but I was just thinking such an approach just might work.

As is most of the financial mess in which we find ourselves, this “excessive” bank fee situation is a case of “a plague on both your houses.” Bank managements, perhaps because they feel somehow less than testicular for not being on the “cutting edge of modern finance” and thus are compelled to go into businesses about which they know less than nothing, have been incredibly irresponsible with their shareholders’ and depositors’ money. Since bank managements don’t want to feel any pain as a result of their maladroit, or nefarious, management of the assets with which they have been entrusted, they are concocting schemes to make ordinary customers pay for the mistakes of the Ivy League Whiz Kids they hired to cripple these financial institutions. But customers, due to their inability to manage their own personal lives, have put themselves into a position in which the bank poobahs CAN make those customers pay for managements’ mistakes.

Bank customers who cannot manage to keep their bank balances above zero and who can’t be bothered to ask questions regarding their accounts may as well paint huge signs on their backs that say “I am an idiot. Kick me.” Can one blame the perfidious poltroons who have decimated major financial institutions for not trying to recoup some of the dough they have blown by doing as their customers advise?

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