The story below from Bloomberg is an important update to an earlier story we ran. It recounted how Dick Durbin, the Democratic senator from Illinois, was threatening the banks if they instituted new debit card fees.
The banks all backed down and canceled them. Apparently a powerful senator dictating bank pricing (including a call for consumers to take their money out of banks that defied him) wasn’t considered enough intimidation. Now President Obama’s Justice department is investigating the banks over this.
In following this saga, we have to keep in mind that when banks are ordered not to raise one fee, they will just respond by raising a different fee that is not in the news. This is all for show. But it does illustrate how free prices in our markets are being gradually replaced with government set prices. And no economy in history has ever succeeded with government set prices. Just ask the old Soviet economic planners about that.
With respect to the big banks, let’s also keep in mind that the government which feeds them with newly printed money and bailed them out in 2008, is also merrily investigating them for what they did prior to 2008. And state governments are trying to get large financial settlements from them, similar to the big settlements from the tobacco companies.
The loser in all this is the average US consumer. We pay ,in one way or another, for the bail outs and we also pay, in one way or another, for the large legal settlements.
Hunter Lewis 11-22-2011