Wednesday, September 9, 2009

09/09/09 within his eye false teardrops gather

Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830. one for a quiet Sunday afternoon. What do you usually do?

Misdiagnosing the crisis: The real problem was not real, it was nominal (VoxEu. Scott Sumner, of the money illusion, makes his case. Dear God I hope this all makes more sense after Macro.

Overdraft Hell Revisited (Mother Jones). Overdraft Fees Revisited (Felix). Responding to this article in the NYTimes. Kevin Drum dares someone to defend them, and since my previous job was to be Professional Trash Talker, here we go:

Yves touches on it here at the bottom, but, yes, "transparancy" in terms of bank fees that Kevin Drum talks about would mean that, if certain numbers of the formerly unbanked are not subsidized by somebody, that they would return to being unbanked. Retail banks throughout the 00's rushed into "banking the unbanked" not because they were altruistic, but because they needed deposits to fund a lending boom and, yes, the unbanked are a good source of fees. A lot of ink was then spilled on the value of doing so, but lets not put carts before horses. WAMU and zero fee banking pushed fees from the visible into the invisible, and, from personal experience, that the unbanked are very cost conscious (and the plural of anecdote is data. But a transition from pricing the services that low deposit customers utilize directly rather than indirectly would reduce the number of these low deposit customers. Bank margins have, not to my knowledge, been increasing over the past, so there is no reason to think that a reduction in fee income would not result in increase fees across the board. Kevin Drum may talk about transparency, and for people who have more than $1000 in their bank account, this may be a good thing, but it is disengenuous to pretend that increasing up front fees on the low end would not reduce those being banked on the low end, with whatever attendant social costs that entails.

The externiality of the unbanked will be paid by someone, the question is just who. We can argue about the fairness of foisting that upon one small subset of people, but that doesn't mean that that is any better or worse than foisting it on a smaller scale on a larger number of people.

(update 9/23/09: Chase and Bank of America to Revise Fee Policies. (NYT). It should be said that the above argument may be seen as an intellectual argument. I don't advocate that the bank's fee policies were reasonable, but rather that to say that there may be more moving parts than the gifted and articulate Mr. Drum may have acknowledged.

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