Sunday, February 10, 2019

I hate memes… I hate government regs… I hate taxes

I hate memes

A well-designed meme, like this one spotted on Facebook, resonates so well with so many people that it either forms the basis of new beliefs or confirms a bias.  Bankers are evil, the story goes.  They caused the financial crisis and screwed all of us. So, this meme will get shared by many. 

I see it in a larger context of people depending on others to protect them from their mistakes.  Sorry if you suffered during the financial crisis. So, did I.  So did many others.  But, when you sign up for a bank account, you sign an agreement to keep your account balance positive or pay an overdraft fee.  Giving you and anyone in your circumstances a break increases costs for the bank.  So, it’s reasonable to ask who should bear those costs.  Should it be the shareholders of the bank?  Before your amygdala prompts an immediate “yes,” consider that, if you own shares in a mutual fund, you and your mutual shareholders probably own stock in banks.

But if not the shareholders, then who?  Well, those costs will be passed on to other customers in some way – perhaps in higher ATM fees or higher interest rates.  No one will know exactly except the bank’s senior officers.  But, trust me, someone will pay.

And, so, here we are. 

People get themselves into bad situations and sometimes make mistakes.  That’s life. But who should take responsibility for those mistakes other than those who made them?

I hate government regs

It’s fair to point out that banks have raised fees in the years since the financial crisis.  Under pressure to reduce risky lending and strengthen their balance sheets, they sought new ways to generate revenue.  Our government has played a huge role in creating this unintended consequence and the crisis itself.  The Clinton administration liberalized the way in which the main providers of mortgage financing – FNMA and GNMA –could raise capital. In turn, those quasi-government institutions expanding their portfolios of mortgage bonds.  The Federal Reserve lowered interest rates during the Bush administration and GWB ran for reelection in 2004 promoting the highest rate of home ownership in our history.  We all know what happened next.  

In the wake of the financial crisis, Congress passed the Dodd-Frank act which directed government regulators to create rules that discourage risky lending and required banks to increase the amount of capital they hold to protect against losses. Seems reasonable, right?  But it wasn’t the big banks at the heart of the crisis of that suffered under this new regime.  It was community banks, those more connected to their customers and community, who were seriously challenged to comply.  The result is that many sold out to larger competitors, creating more big banks.  

The recently announced acquisition of SunTrust Bank by BB&T is the most visible of these events. When concluded, the merged entity will be America’s sixth largest bank.  The merger is driven by the need to drive down costs in order to retain more capital, invest in new technology and comply with Dodd-Frank’s regulations. Ironically, one of Dodd-Frank’s architects, Senator Elizabeth Warren (D-MA), has criticized the merger because it will create another “too big to fail” bank.  But it’s the conditions imposed by the law that are driving the consolidation of the banking industry.  

No one should be surprised by this. Sen. Warren seems to live in a parallel universe where what’s right is wrong and vice versa. 

I hate taxes

In the latest episode of The Blue State Follies, there’s a kerfuffle in Albany over a shortfall in tax revenues.  That’s bad news for New Yorkers as the legislature begins to develop the state budget. Last November’s election turned complete control of the state legislature over to Democrats.  So, what do you suppose their reaction to this bad news might have been?  Wait for it… Yes, that’s right!  Let’s raise taxes.

But I’m getting ahead of myself.  The US Census Bureau has reported that New York’s population loss has exceeded that of any other state. During the campaign season – while running for a reelection that matched his father’s three terms as governor – Andrew Cuomo informed us that New York was losing population not because of high taxes and inhospitable business conditions but rather because of lousy weather.  As I sit here in upstate New York in February, it’s easy to agree with that assessment.  

To his credit, when his party cried out for higher taxes to close the gap in our state’s budget, he responded that he was concerned that people would move out of New York to avoid paying higher taxes. 

Wait!  What?


1 comment:

  1. Banks may be growing because they have costs to meet, or maybe like most every other business, they want to get bigger to make more money. It is clear New York State needs to reduce the cost and size of its government. My 2 cents worth.