The NY Times discusses the problems caused by rewards earning credit/debit cards for merchants and consumers alike. Visa, and to a lesser extent Mastercard, come off looking like health insurance companies. Entities who don't add significant value to the economy, but manage to skim huge profits and act as a burden anyway. One solution:
Life might be simpler and more efficient if retailers could levy a surcharge that covers their costs to accept cards and let consumers figure out whether to pay it. But the card companies donâ€™t allow that, and Congress hasnâ€™t yet forced their hand, though this is now how things work in Australia (where some retailers charge excessive fees, alas).
The banks have used interchange fees as a growing profit center and to pay for cardholder perks like rewards programs. Interchange revenue has increased to $45 billion today, from $20 billion in 2002, driven in part by the surge in debit card use.
I missed this NYTimes piece by Roger Lowenstein discussing how incongruous it is for big banks to be the main cheerleaders for the idea that people have a moral imperative to continue paying mortgages when their homes are underwater. This concept seems perilously close to a tipping point that would have disastrous results for the economy. What would the banks do then? Lowenstein, by the way, wrote the great, "Rise and Fall of Long Term Capital Management", which is as good as, "Liar's Poker" at helping to explain the genesis of this entire mess.
Think of private-equity firms that close a factory â€” essentially deciding that the company is worth more dead than alive. Or the New York Yankees and their World Series M.V.P. Hideki Matsui, who parted company as soon as the cheering stopped. Or money-losing hedge-fund managers: rather than try to earn back their investorsâ€™ lost capital, they start new funds so they can rake in fresh incentives. Sam Zell, a billionaire, let the Tribune Company, which he had previously acquired, file for bankruptcy. Indeed, the owners of any company that defaults on bonds and chooses to let the company fail rather than invest more capital in it are practicing â€œstrategic default.â€ Banks signal their complicity with this ethos when they send new credit cards to people who failed to stay current on old ones.
For some reason, Washington is afraid to push reform onto Wall St. It doesn't make any sense, and now probably won't happen. Incidentally, Wall St has determined they have more to gain propping up Republicans than they do donating to Democrats, who, you know, are actually nominally in charge. At least until 2010.
The big guns on Wall Street increased their political donations last month after increasing their lobbying muscle. Morgan Stanley's Political Action Committee donated $110,000 in September, for example, of which Democrats got $43,000.
It's going to be so awesome when this happens again and it's worse!
Two links from two weeks ago that you may or may not have seen, but I had saved to share and not gotten around to it yet.
The Yes Men sent out a hoax press release from the US Chamber of Commerce saying they had changed their position on climate change. Obviously the media was interested in this so the Yes Men rented a room at the DC Press Club and gave a fake press conference. Then it gets really awesome when a representative of the Chamber shows up and shuts down the presser. And now, they're getting sued for it
Because of the Collapse of 2008 financial reforms, the big investment banks are able to borrow money from the U.S. government at 0 percent interest. Then they can turn around and buy short-term bonds that pay 2 or 3 percent annual interest. Now theyâ€™re making 2 percent on whatever they borrowed. They can use leverage to increase this number, by pledging some of the bonds that theyâ€™ve already bought as collateral on additional bonds.
In a new interview on HuffPo with Terrence McNally, Michael Lewis explains why it only SEEMS like all the financial firms were full of idiots (instead of actually being idiots).
As a trader inside a big Wall Street firm...you would face a decision: Do I exercise my independent judgment and bet against this market, or do I just keep going along with what my firm is doing? If you exercise your independent judgment and bet against sub-prime mortgage bonds, you not only probably run into some political conflict within your firm, but you'd never make the big score for yourself... The minute you make a bunch of money from your bet, your firm is doomed. They couldn't pay you. So the smart thing was just to go along and hope it lasted long enough for you to get rich.
If you read Michael Lewis' latest Bloomberg column, Bashing Goldman Sachs Is Simply a Game for Fools, quickly, you might think it's a brutal take down of the newest Wall St muckraker (Taibbi) by the grand marshal of Wall St muckraking (Lewis). Fortunately or unfortunately, depending on how you look at it, this column seems to be satire. I can't decide which I'd prefer to see, a Lewis/Taibbi Tag Team, or a knockdown drag out between the them. In any case, a good read.
America stands at a crossroads, and Goldman Sachs now owns both of them. In choosing which road to take, ordinary Americans must not be distracted by unproductive resentment toward the toll-takers. To that end we at Goldman Sachs would like to dispel several false and insidious rumors.
Matt Taibbi's recent take down of Goldman Sachs in Rolling Stone, The Great American Bubble Machine, is full of Taibbi's usual clever turns of phrase and acerbic prose. What I feel differentiates this article from his work is the high pitched response from Goldman Sachs and detractors in the media who are making tons of points about Taibbi's article, none of which are, 'It's not true.' (PDF and Full Text of article.)
Felix Salmon has a refutation by a Goldman flack.
Taibbi responds to the flack and notes why Goldman's POV is not represented in the article. They didn't want to talk.
Time Magazine steps into it in a somewhat ham handed way. Not making many points or adding much substance to the discussion.
Taibbi responds to Time, taking most issue with Time's 'everyone was doing it' defense of Goldman. Megan McArdle somehow connects Taibbi's writing to Sarah Palin, which doesn't make much sense. Then she hangs out in the comments section saying, "I'm just not down with the idea that there's some sort of elusive "central point" to stories that permits you to write a bunch of total nonsense as long as the "central point" is good." Which, as a commenter points out, will probably be posted as a comment on every McArdle piece for the rest of time.
Here's Obsidian Wings saying the article isn't as bad as Kevin Drum said it was (though Drum then recanted his statement based on the fact that Rolling Stone confusingly posted excerpts of the article online instead of the full text).
Vanity Fair has a habit of posting stub abstracts of their bigger articles. This isn't exclusive to VF, Rolling Stone does it, too, but it is an annoying way of using the web. Barry Ritholtz takes them to task for this, and then publishes the PDF that they sent him to drum up publicity. If you can't wait until next week to read Michael Lewis' take down of Joe C and AIG that explores among other things:
How A.I.G. F.P. became the first stop for Wall Street banks looking to insure the massive amounts of debt they were buying, packaging, and selling: â€œWe were doing every single [credit-default swap] deal with every single Wall Street firm, except Citigroup,â€ says one A.I.G. F.P. trader. â€œCitigroup decided it liked the risk and kept it on their books. We took all the rest,â€
click above for the full article.
In other Michael Lewis news, you probably knew that the Siderbergh/Pitt vehicle, 'Moneyball', got axed last week. Here's an insider's version of events that doesn't make anyone at Sony look very good. Sandra Bullock's 'The Blindside' continues to truck, and still, for some reason, no one has made any moves to make 'Liar's Poker'.