Tuesday, August 11, 2009

Take a look at this gem from Reuters...

"US Banks to Make $38 Billion from Overdraft Fees: Report:"

The title says it all. Not only are banks squeezing consumers with irregular fees such as--yes, overdraft fees--but they're drilling on other fees such as "admin" fees. Banks are making a killing these days because they barely pay out any interest on savings (seriously, folks, try to find a savings rate greater than 2%--and don't send me CD solicitations--this is for savings' accounts), while charging higher rates on loans, credit cards and--if an investment account is involved--higher margin rates.

What a racket!

How did this happen? Well, there are two high-level components to look at: 1) interest rates are at an all-time low. With the Fed target between 0-.25 basis points, rates are obnoxiously low. Think of it in terms of oil prices compared to the price for a gallon of gas. Barrels of crude barely have to move higher for gas stations to lift prices; but when crude drops, have you noticed how long it takes for a gallon of unleaded to drop?

But, I digress.

Number 2) is public/media/Congress attention over the past 10 months. There was this feeling that all the banks were going under--remember the so-called stress tests? Well, a few banks did shut down, but the ripple effect actually helped banks by allowing them to call for higher credit standards (I mean, come on! A 750 FICO score just to get a credit card with a $1,000 limit?!? I don't even think you can buy a plasma for under $1,000!!), and offering lower savings (payout) rates because they were able to lean on the crutch of pending doom.

Banks have got to stop playing old school and lending to people who don't need money. The overdraft charges and (just released this morning) the story about Discover and Amex charging for overlimit fees is getting out of hand. Where are our trusted lawmakers on the Hill?? These little $26 fees really add up for families, and the time to act is now. Memo to Congress: Stop worrying about nonsense and take a closer look at what really is going on in the bankrupt American household!

Look for more reports throughout the day.

Todd M. Schoenberger, Managing Director
LandColt Trading, Inc.

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