Illinois Democrat, Dick Durbin, has pushed legislation which went into effect a week ago. This legislation limits the fees big banks collect from merchants and he now finds himself the fall guy for Bank of America’s new $5 monthly debit care fee. His response was a ranting and raving and even suggested that consumers “get the heck out of that bank”. Holy cow, you’ve got to be kidding me! Since when does a politician publicly denounce a specific business entity then recommends do not buy or use its services?
Many Americans have always been under the impression that they have the capabilities of deciding which goods and services better suit them, including prices. Over the past several years I have noticed that the intelligence level of Americans has precipitously declined and, fortunately, some Senators and House members are there to rescue us from any and all financial disasters.
I firmly believe that when unfettered competition is allowed to determine the value of products and services offered, businesses and individuals are fully capable of taking decisions as to which products or services serve them best based upon specific cost-benefit evaluations. However, over the past several decades, politicians have been forcing their influence into both consumer and business buying habits of certain products and services. It appears this trend has taken effect because many politicians are easily convinced through glib lobbying persuasion tactics. For example, company A has been investing millions into its new business service software products and, unfortunately, several competitors have quickly developed products which have cut into company A market and, in some cases, have received positive news. In order for company A to regain its market share dominance, it solicits the services of a renowned lobbyist who successfully influences politicians to place expensive legal restrictions, special software licenses and federal and state licensing restrictions to legally market similar services. Smaller and new entrants might find these new restrictions to be cost prohibitive and leave the competition thus freeing up company A to greater success.
Similar tactics have proven successful in the banking industry when large national and regional banks place additional financial burdens on local and smaller successful banks. This would include enforcing greater scrutiny on mortgage loans, including larger down payments and imposing larger reserve funds. The latter reduces available funds loans and constrains cash flow. So sooner or later these smaller banks become increasingly frustrated and sell to a larger financial institution. One way smaller banks can extend life is to evaluate and utilize the talent of outside sources. This serves several critical financial benefits such as savings on hiring and training personnel in the collection or credit granting departments. Banks can observe, manage, evaluate, change, observe and manage operations at the drop of a pen.