National Treasury Union President Colleen M. Kelly recently described the 2014 IRS budget allocation as “woefully inadequate.” But the agency has not proven itself to be an efficient steward of taxpayer dollars. Here are ten ways the IRS lost the trust of the American people.
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Given how poorly states like California and Illinois have funded the pension funds for their own employees, one would think that this would stop dead in its tracks any plan to have the government assist in managing private sector funds too. The spate of recent activity, however, suggests otherwise.
The financial world is plodding along like a drunken sailor avoiding debt collectors by keeping no cash in his wallet. It’s not the kind of calm that’s going to last or end well. But the storm will have to wait until after the Olympics.What a game! We’ve never watched ice hockey closely before. But watching […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Amidst all the revelations about how the American people, many of whom are absolutely convinced they live in a free society, have their telephone calls, emails, website visits, and who knows what else under surveillance by their own government, let’s not forget the massive infringements on financial privacy that have gone on for decades.Consider, for […]
The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.This isn’t the first time banks have come under an […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
No other price pops during a boom like that of condominiums. The common view among savvy real estate types is condos are the last to jump and the first to crash. A decade ago, Bernanke’s post-Sept. 11 easy money fueled condo prices and in turn high-rise residential construction from coast to coast.In downtown Miami, 22,200 […]
Our grandparents believed in the value of thrift, but many of their grandchildren don’t.That’s because cultural and economic values have changed dramatically over the last generations as political and media elites have convinced many Americans that saving is passe. So today, under the influence of Keynesian economists who champion government spending and high levels of […]
So Janet Yellen’s first hearing took place a few nights ago. It was fairly boring. She’s expected to sail through and become the next chairperson of the Federal Reserve. Given that the last few years of extraordinary monetary policy have achieved a miserable recovery, what’s she going to do differently?Nothing. Just more of the same. […]
Imagine that everyone in your community is issued a credit card with the same account number. At the end of every month, the bill is totaled and divided equally among you. Suppose that during the first month, you choose not to use the credit card, yet you receive a bill for $100. The next month, […]
From the Tongue-in-Cheek Department of Laissez Faire Books…Washington, D.C. – Jeff Incast, a Democratic representative from California, has tabled a bill that would expand current insider trading laws.He said he was “distressed” by the acquittal of Mark Cuban, whom a jury cleared of civil charges of insider trading brought by the Securities and Exchange Commission […]
Hanging out in Rome, surrounded by ruins of all ages, you can’t help but have big thoughts about the state of the world. Here are a few of mine.No generation during the long fall of the Roman Empire was really aware of it. Each generation accepted the conditions they inherited and worked to survive as […]
I just spoke to a friend, Skinner Layne, who is from Arkansas, but now lives in Santiago, Chile. He emigrated there and is now heading a startup enterprise that is showing great promise. It is called Exosphere. I asked him about the backstory to the company. It turns out that he moved in 2008, six […]
The dream of virtually every American is to retire as early as possible. Who doesn’t want to have each and every day to do exactly what he or she wants to do?Sure, for some people, that would be work. They like having somewhere to go every day, being valued for their services, and the interaction […]
It’s come to this: A typical family’s health insurance costs as much as a typical family car.If you’re a typical American family, your “health” will set you back $20,728 every year. That figure comes gratis of Milliman, a benefits consulting group. A base-model Toyota Camry… the typical family’s most-popular make? It costs $22,055.Milliman’s numbers account […]
The study of crowds has always fascinated people in finance. It’s not hard to understand why. Markets can go to crazy extremes, extremes no one can make sense of. So, one favorite way to explain it away is to say that crowds do dumb things that individuals, upon cooler reflection, would never do. In a […]
Since before the tech bust, we’ve been suggesting that while Americans “think” they’re getting richer… they’re actually heading in the other direction. They’re getting poorer.This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at […]
People will be paying more and getting less from their governments as health costs and pension obligations will force state and local governments to adjust their budgets over the next 50 years, according to a new report.The new report from the Government Accountability Office, a nonpartisan congressional agency that audits federal programs, paints a dreary […]
The countries of the developed world are experiencing a new class of refugee — members of the middle and upper classes. These rungs of the socioeconomic ladder are realizing that their countries of residence are in many ways going rapidly downhill without much hope of a short- or medium-term reversal. This is particularly true for […]
People seem to do the craziest things when it comes to money. They chase stock market bubbles. They throw good money after bad investments, like a home that’s hopelessly underwater. They spend and spend while racking up crushing debt. They destroy their own businesses with dishonesty and deception.Given all of this, the idea that individuals […]
The 20th century was an age of big business. And investors did well backing the giant blue chips on their march to glory. But those days are over. In its simplest terms, my thesis is to bet with the small guys.I think of them as cottage industrials. A cottage industry brings up images of small-scale, […]
Most everyone is really down on financial companies these days. What kind of scam are they running, anyway? It seems as if everywhere we turn, there are fees, fees, fees. Because most everyone has some kind of credit or debit card, the popular mind is particularly focused on them, expecting to find signs of exploitation and graft.
Let’s look a bit closer.
A friend of mine is in a Virginia diner and receives an odd offer with the check. There is a note: If you pay with cash, you get a 5% discount. And why? Credit card fees. The place would rather not pay them. My friend forks over the cash and saves himself 60 cents. Keep in mind this was an established business, not some street vendor.
Of course, we’ve all experienced something similar a thousand times when working with individual proprietors. The person who mows your lawn, paints the kid’s room, fixes your plumbing or gives you a taxi ride would much rather have cash. And why? Let’s just say that cash is more liquid than plastic. Everyone knows that.
But for established businesses to routinely discount the use of cash over debit/credit is not entirely usual. But it is increasing. Neither government nor credit card companies are going to tolerate the spread of this practice, which is considered price discrimination. There will be new rules, new interventions, new restrictions, all in an attempt to stop it.
What will restaurants and other businesses do? What many have already done — refuse credit for charges of less than $5 or $10. This should be the age of micropayments, especially with digital commerce. Instead, we are going the opposite way.
This plastic card price pressure is only now boiling over, and this is a direct response to government regulation. The relevant regulations were passed last year, with hardly any debate and very little public awareness. The credit card companies objected and warned, but given today’s anti-business climate on Capitol Hill, their protests were dismissed as special interest pleading.
The relevant legislation is the Dodd-Frank Act, which went into effect late last year. The Durbin Amendment capped the fees that card companies can charge for debits at 21 cents per transaction. This was supposed to reflect the “actual cost” of processing. And this would supposedly stop the practice of charging more than twice that amount on average.
Seems like a good idea, right? Save the consumer a bit of money, right? Curb the plastic-based scams. Surely, these companies make high enough profits.
It’s not so easy. A complicated formula typically determines the fees that the companies charge for processing. And before we go any further to describe them, let us be clear that these fees are agreed upon by both parties to the contract: merchants and card services. No one has forced anyone into the deal.
The formula in the past used a graduated scale so that the higher the transaction price, the higher the fee. Some transactions would have a far higher than average fee. Similarly, smaller transactions would charge lower fees. Most of the small transactions for movie rentals, coffee at the convenience store and the muffin at the airport charge the merchants only a few cents per transaction.
This isn’t about charity or a desire on the part of card processors to help the little guy. It is a matter of making the deal. If you want the mom and pop shop and the small Internet merchant to make a go of it, you have to move beyond cash. The companies were using the large merchants to “subsidize” the small merchants. The high fees covered the losses from the low fees.
The system worked. Then Congress intervened with a price control — just like central planners in socialist states — that flattened fees.
An immediate effect was that renting from Redbox went up 20 cents last year. People blamed the movie distributor. Actually, it was the politicians, but who knew?
There’s more legislation in play here. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 put serious restrictions on the ability of card companies to raise interest rates on existing balances. This was supposed to protect consumers from the evil and rapacious people who were lending them money at a fee.
Guess what? This backfired, too. Instead of raising card fees for legacy balances, companies were being forced to impose very high fees at the outset. This not only took from the companies a major marketing strategy; it also ended up costing consumers far more than they used to pay for carrying balances month to month. It is the relatively poorer class of card users who end up being hurt by this.
Whom do the consumers blame? Visa, MasterCard and all the rest, of course. They are charging 15% at a time when banks are paying negative rates on deposits. The whole thing is absolutely perverse. People look at this system and correctly figure that some people must be collecting loot like bandits.
I’ve covered only two of the most-recent and egregious pieces of legislation. There are thousands, tens of thousands more. All of these regulations together distort the market in more ways that we can possibly know. But again, who catches the blame? It’s not Congress, Treasury, the Fed or the White House. It is private enterprise.
Now consider the greatest and most egregious of all regulators that affect interest rates and financial markets: the Federal Reserve. It is attempting to falsify reality in ways that contradict every principle of the market economy. And what are the results? It’s a crazy, mixed-up world. Whatever the distortions, they are huge and potentially very scary.
We’ll soon know the full implications. Whether people understand the underlying cause (government, and not markets) may determine the future of the free economy itself.