Kevin Drum

The Overdraft Scam

| Fri Jul. 10, 2009 2:25 PM EDT

Kathy Chu reports on the overdraft fee scam, which currently generates nearly $40 billion in income for banks — by far their most lucrative source of fees and penalties:

Some consultants offered banks ways to boost overdraft and credit card revenue. A 2001 "checklist" from Profit Technologies — a firm that has worked with 19 of the USA's 20 largest banks — has more than 600 strategies....One strategy listed to boost overdrafts: "Allow consumers to overdraw their ... accounts at the ATM up to the bank's internally set limit." To increase credit card fees, banks can "delay crediting of payments not received in bank provided envelop (sic) or for which payment coupon is not received for up to 5 days," and "remove bar coding from remittance envelopes," slowing the payment.

....Has banks' pursuit of profit gone too far? Ken Vollmer, 49, of Augusta, Ga., thinks so. He sued Wachovia this year, alleging it "purposely structured transactions to make money." A merchant mistakenly put a hold on his funds, then the bank cleared transactions from high to low, triggering hundreds in overdraft fees, he says. Spokeswoman Richele Messick says Wachovia processes transactions in an "appropriate" way and will "vigorously defend" itself in the case.

Banks clear larger payments first, says Talbott, because they tend to be more important. But Douglass Colbert, who advised banks on overdraft and card strategies at Profit Technologies, says fees are a key driver.

"Banks will say (high-to-low clearing) is for the consumer," he says. "Bottom line is, when it was pitched, we'd say ... a side effect is that it results in more fee income to you because it bounces more checks." Colbert says that after leaving Profit Technologies, he joined a credit-counseling firm and saw the damage fees did to consumers.

Just to make this clear: Say you have $100 in your checking account and four checks arrive at your bank in the following amounts: $15, $20, $30, and $150.  If you clear them in that order, the first three are fine and only the last one incurs an overdraft.  If you clear them in the opposite order, all four incur overdraft fees.  Ka-ching!  That's why banks like to clear high to low.

In any case, if our Congress had any balls they'd fix this in a trice: simply regulate overdrafts as short-term loans, which is what they are.  The interest rates would be high, but nowhere near as high as the effective 1000%+ that banks charge now.  And it wouldn't matter what order checks cleared.

Banks still have to make money, of course, and if overdraft fees went down then the cost of other services would go up.  But that's fine.  There's no reason that overdraft fees from their least prosperous customers should subsidize other business lines.  It's better to charge everyone fairly and openly rather than trying to make outsize profits on the banking industry's poorest customers.

And the chances of this happening?  About zero.  Why?  Don't be silly.  It's because the finance industry still owns Congress.

Advertise on MotherJones.com

Up North in Iraq

| Fri Jul. 10, 2009 1:28 PM EDT

Violence may be increasing in Baghdad, but it's up north in disputed Kurdistan that Iraq's bigger problems are likely to erupt.  Here's the LA Times:

The worst attack Thursday occurred in Tall Afar in Nineveh province in the north, where a double suicide bombing killed 34 people, prompting a senior Iraqi official to express concern that the country's security forces, now fully responsible for protecting the cities, had been penetrated by armed groups.

....Militants appear focused on the north, where Arabs and Kurds are locked in a dispute over a 300-mile stretch of land where Saddam Hussein's regime expelled Kurds and settled Arabs in their place. Iraq's semiautonomous Kurdish region wants to annex those areas, an idea Arabs oppose.

And the New York Times:

With little notice and almost no public debate, Iraq’s Kurdish leaders are pushing ahead with a new constitution for their semiautonomous region, a step that has alarmed Iraqi and American officials who fear that the move poses a new threat to the country’s unity.

....The proposed constitution enshrines Kurdish claims to territories and the oil and gas beneath them. But these claims are disputed by both the federal government in Baghdad and ethnic groups on the ground....Vice President Joseph R. Biden Jr., sent to Iraq on July 2 for three days, criticized it in diplomatic and indirect, though unmistakably strong, language as “not helpful” to the administration’s goal of reconciling Iraq’s Arabs and Kurds, in an interview with ABC News.

I don't have any special comment on this.  Just pointing it out.  Kurdistan has always been the wild card in Iraqi politics, but despite lots of warnings it's never quite erupted.  It always seemed to be a problem for tomorrow.  Now, though, it's possible that tomorrow has finally arrived.

Healthcare Weirdness

| Fri Jul. 10, 2009 12:36 PM EDT

Ezra Klein says he's "baffled" by Michael Kinsley's column on healthcare reform in the Post today.  He's being way too kind.  I read it last night and Kinsley's column isn't even coherent.

Do we need a root-and-branch reform of healthcare in America?  "The answer is probably yes," Kinsley affirms.  But then, without warning, he pulls a high-speed U-turn out of his hip pocket and declares that we shouldn't bother right now regardless.  Why?  Because healthcare reform gets its urgency "merely from [its] association with truly urgent measures like the stimulus package." Because it will cost $100 billion per year or so and it really ought to be free.  Because it will be politically difficult.

Huh?  Healthcare reform was viewed as urgent long before the banking crisis.  Its cost is no surprise at all.  And everyone knew it would be politically difficult from the get go.  None of this is news and none of it makes any sense.

And what makes even less sense is the "low hanging fruit" that Kinsley suggests we implement in place of broad change: malpractice reform, electronic recordkeeping, and comparative effectiveness research.  That's not low hanging fruit.  It's low hanging gnats.  They're all good ideas, but they'd have only a tiny impact on costs and essentially no impact at all on broadening coverage.  It's like telling GM to spend more time designing prettier hubcaps.  Very strange.

Good Stories Gone Bad

| Fri Jul. 10, 2009 12:03 PM EDT

On Thursday USA Today published a piece saying that February's stimulus money has "gone overwhelmingly to places that supported President Obama in last year's presidential election."  Matt Yglesias comments:

The insinuation of the piece is that the stimulus bill’s funding streams are being artfully manipulated or something to disproportionately direct resources toward Obama-loving constituencies....[But] the secret to the riddle seems to be that areas that benefit from federal spending formulae tend to support the Democrats. Not as a result of short-term fluctuations in voting patterns or federal spending levels, but as a structural element of American politics.

Actually, that's not quite right.  It's weirder than that.  I just got around to reading the piece, and aside from the factual statement in the lead, it doesn't insinuate that the money is being unfairly distributed.  In fact, every single paragraph after the lead quotes people saying that there's nothing dubious going on and the money is just being distributed by formula.  The piece doesn't quote a single person, not even Sarah Palin, suggesting that there's any monkey business going on here.

But if there's no hanky panky, why bother publishing the story in the first place?  My guess: it's the old problem of reporters not being willing to spike a story when it doesn't pan out.  Brad Heath spent a bunch of time analyzing stimulus spending, but when everyone he called told him there was nothing amiss he just hated the idea of spending all that time and not getting anything out of it.  So he wrote it up anyway, ending up with a nonsensical piece that basically rebuts its own reason for existing.  Dumb.

Breath Tests Take a Hit

| Fri Jul. 10, 2009 11:44 AM EDT

The California Supreme Court has decided to make drunk driving convictions even harder to get than they are now:

Alcohol levels in a breath sample are converted mathematically to derive a blood-alcohol percentage....The standard formula for converting breath results to blood-alcohol levels is not accurate for everyone, however, and can vary depending on an individual's medical condition, gender, temperature, the atmospheric pressure and the precision of the measuring device, the court said.

"The question is whether a defendant who has a blood-alcohol concentration of 0.08% or more measured by breath is entitled to rebut that presumption that he was under the influence" in certain cases, Justice Carol A. Corrigan wrote. The court's answer was yes.

....San Bernardino County Deputy Dist. Atty. Mark A. Vos, who prosecuted the case before the court, said the ruling was "going to make DUI trials a little more difficult to put on" because more technical evidence will be permitted. The numbers are going to be flying back and forth in DUI trials, so prosecutors are going to have to adapt," Vos said.

I guess things have changed.  This kind of evidence was presented ten or fifteen years ago in the DUI case I sat on, but I suppose it must have been outlawed at some point since then.  This court ruling (PDF) makes it admissible yet again.

(Ah, I see: this AP story says the Supreme Court barred drivers from attacking the variability of breath tests in a 1994 case.  I think my case was a year or two before that.)

As a legal matter, this might be the right ruling.  I don't know — but the decision was unanimous, which suggests there was little controversy about it.  As a practical matter, though, it's a pain in the ass.  In the trial I sat on, the defense attorney played up this stuff for all it was worth, essentially trying to convince the jury that breathalyzer tests were so variable as to be completely useless.  And it almost worked.  Most of the jury was initially willing to let our guy walk because they were so confused by all the testimony that they figured there just had to be reasonable doubt.  It basically turned the case into a circus — and one that, needless to say, can only be played by wealthy defendents who can afford fancy lawyers.

I was disgusted by the whole thing.  If there's a very specific reason to think a particular breath test is wrong — equipment malfunction, relevant medical condition, etc. — then I wouldn't mind this kind of testimony.  But just as a general catchall to allow defense attorneys to throw mud on the wall and confuse people?  No thanks.

MoJo Mix: 9 July 2009

| Thu Jul. 9, 2009 8:07 PM EDT

Laura again, dropping off a few MoJo stories I think you'll like. Don't worry, Kevin will be back in the next post.

My favorite Kevin Drum graf today:

According to a recent Pew survey, 55 percent of scientists are Democrats and only 6 percent are Republicans. This is good news for everyone. Democrats now have quantitative backup for their sneers about Republicans being anti-science. Likewise, Republicans now have quantitative backup for their sneers about scientists just being a bunch of liberal shills who aren't to be trusted on questions like climate change and evolution. We all win!

Yours? Plus, four stories for your Thursday MoJo Mix.

1) Where in the World is the FTC? MoJo finds them briefing corporate lawyers in Aruba and Cancun.

2) How many Time journalists does it take to change Sarah Palin's defensive pull-out story into a coherent "just the frontier spirit we need for national office" narrative? (A: Five, at David Corn's last count.)

3) From the "Really, This Kind of Racist %)@* Still Happens?" file: A private Philly swim club booted an inner city day camp after members refused to swim with black kids. Stay classy, Philly.

4) Welcome to the High Sierras, where the woods are lovely, dark, and...full of gun-toting narcofarmers. Still up for a weekend hike?

Laura McClure hosts podcasts, writes the MoJo Mix, and is the new media editor at Mother Jones. Read her investigative feature on lifehacking gurus in the latest issue of Mother Jones.

Advertise on MotherJones.com

No Car Dealer Left Behind

| Thu Jul. 9, 2009 4:27 PM EDT

From the Detroit News:

A majority of House members have signed onto a bill to reverse the closing of 789 Chrysler dealerships and block General Motors Corp. from closing more than 1,300.

The Automobile Dealer Economic Rights Restoration Act of 2009, sponsored by Rep Daniel Maffei, D-N.Y., now has 221 cosponsors — a majority of the 435-member House.

Idiots.  This comes via Jim Manzi, who explains pithily: "The practical effect would be to reverse or prevent the vast majority of dealer closings that were a key component of the auto restructuring plans. This seems only fair, as the dealers paid good money for these politicians."

This is a wholly nonideological porkfest, with 133 Democratic cosponsors and 88 Republican cosponsors.  (So far.)  Which just goes to show: under the right circumstances, bipartisanship isn't dead after all.  David Broder should be thrilled.

Furloughs and Perks

| Thu Jul. 9, 2009 2:17 PM EDT

From Ezra Klein's online chat this afternoon:

Wokingham UK: It seems that some employers are persuading their workers to take wage cuts, maybe under the guise of long breaks from work. British Airways is pushing that agenda at the moment. Is this way of dealing with the crisis likely to play a big part over the next twelve months?

Ezra Klein: Yep. I'm hearing a lot about unpaid "furloughs," too. Essentially, you can do two things when labor costs are too high. You can fire people are you can cut their compensation. This is a way of cutting their compensation. And it means that the employment statistics are even worse then they look, because people are getting paid less money.

I too feel like I'm hearing way more about this kind of thing than I have during past recessions.  My sister had her 401(k) matching cut.  My wife's company is making everyone take furlough days.  The Virginia Symphony Orchestra took a month off.  Etc.  And of course, this is all on top of good old fashioned rising unemployment.

But what's the right metric to measure this?  The 401(k) stuff doesn't show up in wage figures but furlough days should, shouldn't they?  (Although many of them just end up eating into vacation time, which helps corporate accounting but doesn't affect official wage figures.)  Obviously wage freezes show up too.  On the other hand, layoffs usually hit the most recently hired workers first, who are also the lowest paid, which makes average wage figures go up even as total wages go down.

So consider this an assignment desk post.  Are furloughs and benefit cuts more widespread than they have been in past recessions?  What's the best way to measure that?  Surely some enterprising economist can answer this.

POSTSCRIPT: Someone also asked Ezra about Matt Taibbi's takedown of Goldman Sachs in the latest issue of Rolling Stone.  I finally got around to reading it the other day, and my verdict is simple: it was terrible.  Taibbi wrote a terrific article about AIG a couple of months ago, but the Goldman piece was just phoned in, a long series of blustery assertions with essentially nothing to back up any of them.  If he wants to claim that Goldman was the wizard behind the curtain of everything from the dotcom boom to last year's oil spike, he really needs to produce some evidence for it instead of just saying so.

POSTSCRIPT 2: I just learned that Rolling Stone didn't actually post Taibbi's article.  They only posted a set of excerpts, which is why the online version reads like a long series of blustery assertions with essentially nothing to back up any of them.  Unfortunately, unless you read the intro very carefully, it's not clear that these are merely excerpts.  Instead, it just seems like a very badly written article.

So: I retract what I said for now.  I still suspect that Taibbi is considerably overstating things, trying to construct a dramatic narrative by blaming Goldman for things that are actually sins of the investment community as a whole, but I won't know for sure until I read the entire piece.

Factlet of the Day

| Thu Jul. 9, 2009 1:36 PM EDT

According to a recent Pew survey, 55% of scientists are Democrats and only 6% are Republicans.  This is good news for everyone.  Democrats now have quantitative backup for their sneers about Republicans being anti-science.  Likewise, Republicans now have quantitative backup for their sneers about scientists just being a bunch of liberal shills who aren't to be trusted on questions like climate change and evolution.  We all win!

In other science-esque news, scientists now rank third, in between teachers and doctors, as contributors to our collective well-being.  (Business executives rank last, even behind lawyers. So sad.)  And although most people are now aware that aspirin is recommended to prevent heart attacks, the public is still having trouble with the issue of whether electrons are smaller than atoms.  Perhaps a gazillion dollar ad campaign from the electron industry would help here.

Is Anyone Binging?

| Thu Jul. 9, 2009 1:01 PM EDT

Responding to a commenter who says Microsoft doesn't really understand branding, E.D. Kain says:

Exactly right. Nor do they understand connectivity and product overlap the way Google does. Google connects your email, chat, documents, search, and even browser now, etc. into basically one product, and with upcoming innovations like Wave and their OS that connectivity and overlap will just become far, far more effective. (Apple has done this fairly well also with hardware added into the mix)

Microsoft has tried with “Windows Live” and all that, but there are just too many gaps, too many brands, etc. I mean “bing” is now part of the whole cadre of Microsoft products, but is it really tied into them well? Why Microsoft hasn’t made their Windows platform more webby is beyond me. And why they make it so difficult to integrate everything is also confusing.

I'm out of touch on this stuff these days, but in fairness to Microsoft, doesn't a lot of this have to do with antitrust rules that don't allow them to integrate everything the way they'd like to?  My understanding has always been that if they could get away with it they'd basically merge every piece of software they own into a single platform and then make it next to impossible to use anything else.  But they can't.

In any case, the motivation for the original post was David Pogue's piece in the New York Times about Microsoft's new search engine, Bing.  Anyone have any opinions they'd like to share on this?  I use it a lot for image searches, but not so much for ordinary text searches.  Partly this is because Bing doesn't seem to have an Advanced Search page, which means I'd have to memorize whatever Boolean concatenation rules they use if I want to do anything more complicated than a search for the latest Michael Jackson news.  Sure, that's lazy of me, but Google works pretty well, so even a small nuisance makes all the difference between using something new and skipping it.

On the other hand, it's sort of interesting to see what Bing comes up with in its "Related Searches" list.  If I type in my name, I get a bunch of expected stuff, but also Maitland Ward.  Huh?  Who's that?  (Says here that she's an actress born in Long Beach who attended the same university as me.  Is that all it takes?)  But even at that I'm lucky.  Matt Yglesias gets paired up with Michelle Malkin and Ann Coulter.  Atrios gets Michelle Malkin and Atrio Insurance.  Jane Hamsher gets Bill Clinton.  (She also gets Jane Hamsher Death, which seems kind of ghoulish.)

Oh, and I like the background artwork on the Bing home page.  Very soothing.  Not enough to make me switch from Google on a regular basis, but soothing anyway.