Friday, June 11, 2010

My Solution To Bank Reform? One National Bank

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As a break from talking about stock market investing, I wanted to spend some time talking about bank reform. Over the next several months, I think that we will hear alot about bank reform and Wall Street reform but my prediction is that it won't really matter to most of us small investors. Why? The rules will still be made in such a way that the system can be manipulated.

I was at the bank today and I was asked about the new overdraft rules as they pertained to my credit card and I got to tell you that the last round of changes really did nothing to add any protection to my account being robbed by the banks. The one rule they could have passed that would have helped everyone is changing the rule that allows the paying the largest item first and then paying the smaller items therefore charging more fees. Earlier this year, I read that half the banks would have lost money if they hadn't collected overdraft fees. I ask why? Remember that these banks pay no interest on deposits for the most part and they still can't make money lending at sometimes 29 percent interest. It seems like it would take an idiot to run a bank that can't make money doing that.

Evidently that's who is running the banks though because that's what happened in a lot of cases.

The other day, I switched banks. It was a tough decision because just in the 1 mile road within my house, I can count 8 banks. The bank I went to, offered me several hundred dollars to open accounts, if i did a list of like 8 different steps. I'm guessing that they know I won't do them all. But even still, they will pay me $275 dollars if I do and I opened 3 accounts. On one of the accounts, I can get a free Ipod touch. Isn't that cool?

The policies from bank to bank really aren't any different though and in the end, they all seem to charge us a bunch of fees from the so called "free accounts". And the additional banks really don't compete in a way to get my business. Let me give you an example of how banking works.

One bank discovers that they can charge a fee to make loan. We'll call it a loan processing fee. It's $25. In order to get the loan, you have to pay it you don't have a choice. The bank books a lot of loans during the year. They didn't have to raise the interest rate to make any money. Another bank, being the crack researcher it is at the next banking conference talks to someone from the first bank and discovers the holy grail of bank fees they hadn't thought of. Then they go back to their bank and institute the same fee.

What has competition given us? A higher fee of course instead of a lower one. I know when I worked at a bank, I used to call the other banks to see what they were charging for their mortgage loans. Then we would just match it. How stupid is that?

That's why I contend that we don't need several thousand banks in the country. We need one. And we need one that won't steal our money. I know that a lot of capitalist out there will call me a heathen in the name of competition, but it's really competition that doesn't help us and take our capital away that could be used to consume goods instead of nothing.

I had to laugh the other day when I went to the bank and the teller I was talking to was named Robin. I thought how appropriate because that's exactly what they do.

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