Posts Tagged ‘banks’
May 15th, 2010 at 4:59 pm
Congress Wants to Limit Your Access to Cash

Of course, they’re not framing it that way.  Sen. Tom Harkin (D-IA) and other Democratic Senators have proposed an amendment to the financial reform package to cap customer ATM fees.  But CNNMoney reports, “some experts suggest that capping fees might result in more harm than good for consumers.”

I realize the free market is too difficult for Senators to understand, but do we really need an “expert” to explain what the consequence of this would be?  ATM’s are a convenience because we’re too busy or lazy to walk inside our bank.  I know my bank doesn’t charge me to use their ATM’s, but other banks will charge me for the convenience of using theirs.  Banks provide more ATM’s because they know that people will go to the closest ATM in a pinch, even if it’s not their bank’s machine.  Customer gets convenience.  Bank makes a few bucks.

By capping these fees, banks will have far less incentive to provide extra ATM’s.  So the next time you are strapped for cash, there may not be a cashbox right around the corner.  And guess what?  Not only will competitor banks cut back their ATM’s, but so will your own bank where, if you’re like me, you can withdraw your cash for free.

Stop trying to help, Congress.  You’ve done far too much already.

May 10th, 2010 at 4:43 pm
Dow Surges with News of Trillion Dollar European Bailout Fund

After an erratic end to last week’s trading filled with ‘typos’ and frozen stocks, the Dow and markets all over the world are rallying on news that the European Central Bank will create a trillion dollar fund to buy government and private debt to keep lending liquid.  With the help of the IMF and the Euro-using nations, the fund will prop up troubled governments.

The response of surging stock markets does not mean this is a wise and sound policy.  Investors merely feel the momentary comfort that there will be enough stability in the short term for money to be made.  But this plan is little different from the $50 billion rainy day bailout fund batted around the debate for financial reform here in the United States, other than the sources of funding.

Such measures create perverse incentives for market actors, whether a country like Greece, or private firm like Goldman Sachs, saying, “Go ahead, and continue to take big risks.  Don’t worry about the consequences.  We’ve got your back.”  Why should Greece tackle its massive public sector union crisis?  Why wouldn’t Wall Street firms go out on a limb for a big potential gain, if there were a multi-billion dollar bailout fund to catch them if they fall?

Markets are all about incentives.  Rainy day bailout funds create the wrong incentive.