Credit card fees transfer wealth to rich, study finds

[Roger Mexico]

http://news.yahoo.com/s/nm/20100726/lf_nm_life/us_usa_fed_wealthtransfer

[MoneyJungle]

Trickle up economics FTW.

[zago]

BS article. "Income inequality," pff. As if we are all supposed to make the same income. Goddamn commies.

[earwax]

Did I really need an article to tell me that low income people spend less than high income people do?

[Jennywocky]

BS article. "Income inequality," pff. As if we are all supposed to make the same income. Goddamn commies.

Cool.

You can volunteer to be poor, and I'll be rich.

Works for me.


Did I really need an article to tell me that low income people spend less than high income people do?

This is the Internetz.

It's all about informational dross!

[Hermione]

Trickle up economics FTW.

Of course it is. But we knew that didn't we? Srsly.


BS article. "Income inequality," pff. As if we are all supposed to make the same income. Goddamn commies.
Now now, dear. Don't become hysterical. Communists are not death eaters, they just have a different ideology than yours. Just so you know though, people who would like to see just a bit more equality and maybe some justice in the world today, so not the commies. Sorry, I wish I was though. I might get paid what I'm worth maybe. That would be very cool. I deserve it. :p

[C.J.Woolf]

One of my Macroeconomics 101 prof's hobby horses is that it's expensive to be poor.

[Ferrus]

BS article. "Income inequality," pff. As if we are all supposed to make the same income. Goddamn commies.
Funny really, the article suggests exactly the kind of trick oligopolistic corporations do.

But, exorbitant charges on the basis of a cartel is of course 'not perfect', but naturally, any attempt at regulation will make it a whole lot worse. So, I suppose, we should all just be greatful at the banks' highly efficient system of collectively screwing us all over.

[Hermione]

One of my Macroeconomics 101 prof's hobby horses is that it's expensive to be poor.

Totally correct. I've tried it all ways now: poor, not very poor, and middle to upper middle income. I say poor people rack up all sorts of weird charges and expenses because they are lacking simple cash flow. That's my basic take on it.:mellow:

[Chunes]

BS article. "Income inequality," pff. As if we are all supposed to make the same income. Goddamn commies.

It is agreed by pretty much everybody that the periods of lowest income inequality in the U.S. have been the best. Throughout much of the 50's, 60's, and 70's, the richest only made 50x as much as the poorest. Now it's closer to 600x; the level it was at before the great depression.

It's also ironic that you'd attack the use of the phrase "income inequality" but not the subsidy a certain group is getting for doing nothing.

[spanky]

What a BS article. To the extent that such wealth transfer exists, the transfer is more aptly characterized as being a transfer from those paying with cash to those paying with reward credit/charge cards (and to the banks backing those cards, because not all transaction fees are passed on as rewards to cardholders) -- not a transfer from the "poor" to "rich." Now, maybe an aggregate characteristic of the cash paying crowd is that they are generally less wealthy. But that is all it is: an aggregate characteristic of that group. As Thomas Sowell is fond of saying, "correlation is not causation." Let us not forget that that there are plenty of wealthy people that pay with cash, and there are also plenty of "poor" individuals that use credit cards. Let us also not forget that there is no mutual exclusivity causing an individual to be a solely "cash" consumer or a solely "credit" consumer. Indeed, many individuals use both cash and credit, and an individual that does so is essentially "transferring wealth" to himself (with the card backing bank skimming a little off the top).

[Lee]

I am working in a convenience store in rural Alabama (as I write this post).

The nearby town is on a lake. Many people from Atlanta own second homes here, or they come with boats on the weekends. The locals tend to be quite poor by comparison.

Our poorer customers tend to pay with cash, and our wealthier customers tend to pay by card. The cost of transacting by card may be 10-20 cents (Visa debit) or several dollars (American Express, large purchase).

For small transactions (under $10), we have to charge 50 cents extra, otherwise our profit margin would be wiped out. This helps mitigate the problem by forcing those who choose a more expensive means of payment to bear the cost, at least for small transactions. I have been told that such policies are illegal, but since we do not believe it is fair for our regular customers to pay the card fees of others, we will continue until threatened with legal repercussions.

[Lee]

spanky,

Thomas Sowell is a good economist, an astute thinker, and a valuable public intellectual. I have read many of his books, and I find myself in agreement with him on many issues. That said, I think you should shut up.

[spanky]

Lee, I find your viewpoint intriguing and would like to subscribe to your newsletter.

[Etherealsage]

BS article. "Income inequality," pff. As if we are all supposed to make the same income. Goddamn commies.
Surely you don't think that the extent of the wealth gap is as it should be?

[zago]

spanky,

Thomas Sowell is a good economist, an astute thinker, and a valuable public intellectual. I have read many of his books, and I find myself in agreement with him on many issues. That said, I think you should shut up.

Yay, Thomas Sowell is awesome. I am reading his book right now entitled "Intellectuals and Society" and it is spectacular. It is so clear and well put together.

He does an excellent job of explaining how intellectuals abuse the concept of the wealth gap and "disparities" in income. Frankly I think I have argued enough about this in the last week, and I don't want to get into it again for a few days. PM me if you want to discuss my comments in this thread or are interested in seeing some of Sowell's vids.

[fripping]

extra! extra! Economy Transfers Wealth from Poor to Rich!

[Harion]

um, this isn't news.
it's called usury.
usury is the shackles banks put on people so that they remain in (or go into) poverty.
usury (the accepted modern definition being: charging of unreasonable or relatively high rates of interest) is slavery legalized.
the moment you go into debt is the moment you become enslaved.

who makes credit? who guarantees it?
money is a collective idiocy subscribed to by a brainwashed populace taught from birth that giving up capitalism is equal to giving up freedom

depression after depression, meltdown after meltdown, capitalists refuse to accept that a better system needs to be developed - always challenging critics that all economic systems opposite capitalism have failed; failing to acknowledge the fact that those economic models failed with the concerted effort and all the powers of capitalism ensuring it failed.
they challenge critics to propose a better system
and yet actively work to undermine that system

[Madrigal]

He does an excellent job of explaining how intellectuals abuse the concept of the wealth gap and "disparities" in income.
Thank goodness that was in quotes - I almost woke up in the real world this morning.

[Ferrus]

For small transactions (under $10), we have to charge 50 cents extra, otherwise our profit margin would be wiped out. This helps mitigate the problem by forcing those who choose a more expensive means of payment to bear the cost, at least for small transactions. I have been told that such policies are illegal, but since we do not believe it is fair for our regular customers to pay the card fees of others, we will continue until threatened with legal repercussions.
I've spoken to some corner shop owners in Britain. The credit card companies charge small shops for the use of the machines and transcations. They don't charge the large supermarkets, or they get very large bulk discounts on transcations. I don't know if that is the same in America. But anyway, it is the reason why there is an extra charge for under £5 transactions here, whereas I have made 20 p transcations in a supermarket and no one blinked an eyelid.

[C.J.Woolf]

I've spoken to some corner shop owners in Britain. The credit card companies charge small shops for the use of the machines and transcations. They don't charge the large supermarkets, or they get very large bulk discounts on transcations. I don't know if that is the same in America. But anyway, it is the reason why there is an extra charge for under �5 transactions here, whereas I have made 20 p transcations in a supermarket and no one blinked an eyelid.
My high school US history class mentioned that 19th century railroads discounted rates for large shippers and shafted the independent farmers.

[NoahFence]

This just in: rich people want to stay that way.

Film at 11.

[Lee]

I've spoken to some corner shop owners in Britain. The credit card companies charge small shops for the use of the machines and transcations. They don't charge the large supermarkets, or they get very large bulk discounts on transcations. I don't know if that is the same in America. But anyway, it is the reason why there is an extra charge for under �5 transactions here, whereas I have made 20 p transcations in a supermarket and no one blinked an eyelid.I also understand this to be the case.

It is probably cheaper for banks and credit card companies to process bulk transactions from a reliable source. But putting that aside, I suspect that debit and credit card issuers cannot afford to be refused at major retailers, because they would lose customers to competitors. In other words, banks and credit card companies need the major retailers more than the other way around, and so major retailers get a very good deal on the price of processing transactions.

I could be wrong. I don't know much about the matter, and nor am I interested enough to find out more. Since I doubt card issuers are just being vindictive, there is probably some eminently sensible explanation.

[Lee]

This just in: rich people want to stay that way.

Film at 11.To judge from their behavior, many poor people want to stay that way too.

[Hermione]

To judge from their behavior, many poor people want to stay that way too.

Not really. But figuring a way out of their financial mess is something very difficult for a number of people. Goes with the territory of living under constant stress and working poor jobs and yet not getting anywhere mainly. Their support systems of a personal and public nature are generally inferior to many wealthy people, also. I think you have to go there and stay there a bit to really understand the behavior. It helps if you have to work with the systems they encounter along the way, too.

Mega frustration at times. :mad: Srsly.

[Ferrus]

I also understand this to be the case.

It is probably cheaper for banks and credit card companies to process bulk transactions from a reliable source. But putting that aside, I suspect that debit and credit card issuers cannot afford to be refused at major retailers, because they would lose customers to competitors. In other words, banks and credit card companies need the major retailers more than the other way around, and so major retailers get a very good deal on the price of processing transactions.

I could be wrong. I don't know much about the matter, and nor am I interested enough to find out more. Since I doubt card issuers are just being vindictive, there is probably some eminently sensible explanation.
That is the reason why, as you say it has nothing to do with being vindictive, they are just acting towards their rational self interest. It is just an example of an oligopsony.

[Lee]

Hermione,

I am speaking of myself as much as other people I know. Of course, I do not dispute that wealthy people often begin life with windfall benefits that others do not share, and neither do I mean to say that becoming rich is easy as pie. Nonetheless, I have certainly not made decisions in my life that are conducive to wealth or a high income (See The Millionaire Next Door for a good explanation of the difference between income and wealth).

As I stated earlier in the thread, I have been helping in a convenience store in rural Alabama. I see and talk to my fair share of low income, low net worth people. Some of them work hard, but others do not. Generally, they choose lifestyles that focus on short-term gratification, and that is not normally the way to great riches. We might be able to explain such behavior as a matter of psychology or sociology, but such an explanation does not relieve such people from responsibility for their decisions.

That said, please understand that I do believe institutional injustices exist which do genuinely hurt such people (like myself!), and I advocate their abolition no less than other such injustices. However, the matter is more complex than merely a downtrodden and exploited proletariat, and so long as people are free agents it always will be. My original comment was not intended to suggest that everyone who is in pain and poverty deserves it, or that they should put up and shut up.

[Hermione]

I see what you are saying. I just don't think it's really logical that rich people have more behaviors that have made them rich really. I really don't see it that way, nor do I think poor are necessarily that way from behavior.

I liken it more to 'the odds' I guess. For a stoopid example/analogy, since I'm not really fully awake. In American Football. We have teams and one will win one will lose, when scoring though only ONE guy is going across teh goal post and only one kicker is going to be able to kick the extra point. I really do look at it mostly that way. The odds and chances and probability thing more so than human behavior. Another analogy that comes to mind is singers and rock stars and painters and artists. Many many many are talented. Only a few will be able to cut successful albums or paint Van Goh's "Starry Night", for example. Oh and btw, Van Goh was usually penniless. I guess to me it really means very little about who or what you are as a person or even what you are doing or something: wealth. Just me perhaps.


oh, my prerequisite one smiley per post as an afterthought: lol giggle :p

Also, this is not to say we have no control at all over making a living. Just that we have a lot of things that can and do go wrong in the whole financial system, the huge ones and our individual ones.

[Ferrus]

Oh and btw, Van Goh was usually penniless.
Yes, but he had a brother (Theo) who at least gave him enough to live on. When his brother said he could not provide it for him any more because he was having a family, Van Gogh killed himself.

[Lee]

Hermione,

One of the reasons why I mentioned The Millionaire Next Door is because the authors look at income and wealth among subcultures. The mass immigration to America during the 19th and 20th Centuries provided an excellent natural experiment. Attitudes toward hard work and thriftiness among the subcultures are very good predictors of their descendants wealth. For example, people from Scottish ancestry tend to be thriftier, and have a much higher net worth than people of comparable income. For more you might check out the book--it has been a long time since I read it.

That reminds me of another important distinction: neither income nor wealth determine consumption. What we really care about is access to goods and services. Many people who register as very low income or low net worth actually have much higher rates of consumption than such income or wealth could support alone. This is especially true of young people who still enjoy benefits from older relatives. Likewise, wealthy people tend to consume far less than their income or net worth can support--which is mostly why they are wealthy!

[Polemarch]

I'm afraid I have to side with the folks in the BS camp. I agree that poorer folks generally pay higher transaction costs for access to capital; put simply, this is because they have a higher tendency to exceed their means on a regular basis and represent a credit risk. This credit risk manifests itself in the form of extremely high fees - not just in credit cards.

Wealthier people generally manage their finances better; this is of course very obvious, partially because it's easier to stay solvent when the ratio of income to expense is higher, and partially because the habits of responsibly using financial services generally contribute to wealth as well. But on any given day, the chances of a poorer person experiencing volatility in their financial situation are much higher, because unexpected costs (especially healthcare for the uninsured) are more likely to overwhelm their cash reserves than for a wealthier person who can more easily absorb it. I would argue it is this volatility that represents the kind of credit risk which is compensated for through the use of high fees and transaction costs.

Wealthier customers who generally pay their bills on time, in contrast, represent a very low credit risk. Reward points/promotions/cash back are market mechanisms for attracting more creditworthy customers away from other companies; because the customer is more likely to represent a positive cash flow stream over time, reward programs can be afforded.

The main reason I disagree with the article is that this kind of system is not a form of wealth transfer; it's simply a result of market-based mechanisms that tend to reward behaviors that translate to consistent profits and punish behaviors that translate to default and credit risk. It should not be a revolutionary concept that providers of financial services will give better terms to more creditworthy customers; it's a necessary method of ensuring what one might term actuarial equity - even if it offends the sensibilities of folks who insist their must be social equity instead. Unfortunately, the two are seldom compatible.

[Lee]

Polemarch,

The article is correct, at least in one respect. The price of goods and services is higher, because sellers must pay fees to card issuers. Most of the additional cost of doing business is not passed onto those who create it, i.e. people who usually pay by using debit or credit. Instead, the cost is spread evenly among all customers via higher prices, thus people who pay with cash are incurring some of the cost of transacting with cards. In other words, it's like an externality. Moreover, since poorer people less frequently use cash for various reasons, poorer people are, in part, paying for wealthy peoples' convenience.

Whether this is an injustice that should be rectified by the power of law is another matter. Sometimes the costs of isolating individuals for such costs is more trouble than it is worth.

[Ferrus]

No, they are clauses of contracts actually. Now, I believe they are generally unfavourable clauses to the consumer, that they are capable inserting because of the relative market power of the banks in question.

[spanky]

As someone in the fatwallet forums pointed out:

Also conveniently ignored are the following facts

1. The cost of cash is not zero. There are real costs. Counting it, securing it, and depositing it. Employee theft, and increase risk of robbery. None of these costs exist with credit cards
2. Its well established that businesses sell more when they accept credit cards

Bottom line is that it is in their interest to take credit cards

[Lee]

spanky,

I do not believe anyone is disputing the fact that businesses, even small retailers, do better by accepting cards. The issue is whether customers who pay cash are, through higher prices, paying the transaction fees of those who pay by card. While there are costs associated with transacting in cash, they are small in comparison. These things are not being ignored.

I get the feeling that you intend to refute the claims in the original argument, because it may be used to justify "redistributive" policies that you are against. If so, then you have conceded too much to your opponents. It does not follow legal action is warranted in this situation, whether the situation described in the article is true or not.

[Hermione]

Hermione,

One of the reasons why I mentioned The Millionaire Next Door is because the authors look at income and wealth among subcultures. The mass immigration to America during the 19th and 20th Centuries provided an excellent natural experiment. Attitudes toward hard work and thriftiness among the subcultures are very good predictors of their descendants wealth. For example, people from Scottish ancestry tend to be thriftier, and have a much higher net worth than people of comparable income. For more you might check out the book--it has been a long time since I read it.

That reminds me of another important distinction: neither income nor wealth determine consumption. What we really care about is access to goods and services. Many people who register as very low income or low net worth actually have much higher rates of consumption than such income or wealth could support alone. This is especially true of young people who still enjoy benefits from older relatives. Likewise, wealthy people tend to consume far less than their income or net worth can support--which is mostly why they are wealthy!

Totally. When my parents were in business for themselves and doing quite well at it.. they were German Scots-Irish descendants from 1700's immigrants to the U.S... my mom, the bookkeeper, buyer, sales woman extraordinnaire used to "school me" about the wealthy who came to the store to buy expensive jewelry, etc.

They were often the very last people to pay us their bills, even the professional and working ones. The poor guy down the street who had very little, would buy a watch, pay maybe minimum payments, say ten or twenty dollars at a time, but would come by every single time it was due and pay my folks in cash. It was kind of a good lesson to learn really although I rolled my eyes plenty as it didn't really make sense to me at the time. As a grown-up it makes more sense. Mom said it was because the rich are used to holding onto their money so much better and had got quite good at it. lol
I still have to wonder about them. Sounds a total pain in the ass to me. Being "entitled" just makes one seem foolish I think.

[echoes]

I'm afraid I have to side with the folks in the BS camp. I agree that poorer folks generally pay higher transaction costs for access to capital; put simply, this is because they have a higher tendency to exceed their means on a regular basis and represent a credit risk. This credit risk manifests itself in the form of extremely high fees - not just in credit cards.

Wealthier people generally manage their finances better; this is of course very obvious, partially because it's easier to stay solvent when the ratio of income to expense is higher, and partially because the habits of responsibly using financial services generally contribute to wealth as well. But on any given day, the chances of a poorer person experiencing volatility in their financial situation are much higher, because unexpected costs (especially healthcare for the uninsured) are more likely to overwhelm their cash reserves than for a wealthier person who can more easily absorb it. I would argue it is this volatility that represents the kind of credit risk which is compensated for through the use of high fees and transaction costs.

Wealthier customers who generally pay their bills on time, in contrast, represent a very low credit risk. Reward points/promotions/cash back are market mechanisms for attracting more creditworthy customers away from other companies; because the customer is more likely to represent a positive cash flow stream over time, reward programs can be afforded.

The main reason I disagree with the article is that this kind of system is not a form of wealth transfer; it's simply a result of market-based mechanisms that tend to reward behaviors that translate to consistent profits and punish behaviors that translate to default and credit risk. It should not be a revolutionary concept that providers of financial services will give better terms to more creditworthy customers; it's a necessary method of ensuring what one might term actuarial equity - even if it offends the sensibilities of folks who insist their must be social equity instead. Unfortunately, the two are seldom compatible.

way to miss the point. The point is that credit card fee's transfer wealth to rich investors and people who gain wealth directly from the companies profits.The wealth wasn't postulated to be redistributed to richer account holders.

also, People who pay their bills on time are actually worth less long term than
unstable accounts in term of the banks profit margin. Banks operate much like insurance companies in that they use rule's designed to make you "lose" in order to leverage their odds of making a profit.

An example of this is billing cycles that are non intuitive like a thirtyone day billing cycle rather than a thirty day one. People are more likely to "forget" about the extra day rolling over on months less or greater than 31 days. Thus the 31 day cycle generates higher average profits at the customers expense.

Please let's stop pretending people in finance are hapless oracles passing down the market-god's law.

They are just leveraging a purely hypothetical construct to make money pour out. In this case by tweaking the system(market) to move money from place a(customers) to place b(investor/upper management).

I look at finance regulation as nothing more than the patching of undesirable loopholes/manipulation. Rather than interference with an all powerful market-god

[Lee]

echoes,

Perhaps you have also missed the point. Whether transaction fees go to investors, wealthy or poor, is not the issue. Supposing it were true, then it would be true even if every card user paid their transaction fees in full.

[floid]

However, the matter is more complex than merely a downtrodden and exploited proletariat, and so long as people are free agents it always will be.

It is rumored to be "complex" so that it can persist.
But it need no more complex than simply observing a group of hungry domesticated animals at feeding time and seeing how their behavior maps almost perfectly onto that of domesticated humans at the economic trough.

One could come up with all kinds of convoluted intellectual constructs to explain either and yet be less informed in the end that one would be by simply observing the facts under one's nose and the tendencies and impulses evident in one's own behavior.

[fripping]

It is rumored to be "complex" so that it can persist.
But it need no more complex than simply observing a group of hungry domesticated animals at feeding time and seeing how their behavior maps almost perfectly onto that of domesticated humans at the economic trough.

One could come up with all kinds of convoluted intellectual constructs to explain either and yet be less informed in the end that one would be by simply observing the facts under one's nose and the tendencies and impulses evident in one's own behavior.

yes.

[echoes]

echoes,

Perhaps you have also missed the point. Whether transaction fees go to investors, wealthy or poor, is not the issue. Supposing it were true, then it would be true even if every card user paid their transaction fees in full.

clarify, what is the issue. The thread is a discussion of study results pertaining to credit card fee's and wealth being redistributed to a wealthy minority, correct?

You realize your interest rates are not pegged to the banks profits, right? A shareholder's dividends are however. That is why profit's from such practices directly go to investors or recipients of a banks power structure. Even Money market accounts have atrocious penalties added on essentially because the bank can make a profit from you paying them. Sure, you can make good money with them but you need to know how to look for loopholes and min/max based on a knowledge of their workings and other accounts or investment portfolios . I call that manipulating an abstract system or game. not an indomitable "force" like the "invisible hand" is envisioned.

You, the customers wealth is not a significant variable in their earnings nor their earnings a variable in yours. Make of that what you will

[Lee]

echoes,

The original article is not about the politics and economics of banking. It is about retailers charging higher prices to cover the expense of transaction fees incurred with debit and credit card payments. Every time a card is swiped on a cash register, a small charge is made to the store. Most retailers do not charge card users extra to cover these costs--instead they increase prices for everyone. Therefore, people who pay by cash are subsidising the use of cards. Since poorer people tend to purchase with cash more regularly, this amounts to the less wealthy paying for the convenience (and reward points) of the more wealthy.

Do I realise that my interest rates are not pegged to bank profits? Of course, interest rates are a price, and are primarily a function of the supply and demand for loanable funds. That you ask such a question leads me to suspect that you know less about what you write than I do, and I am certainly no expert on these matters.

the bank can make a profit from you paying themNo shit.

[avolkiteshvara]

Credit cards are a modern function of society.

Saying the poor subsidize credit card translations gives the impression that somehow an electronic system of money transfer wouldn't take place without the poor.

The reality is that the poor lag behind the rest of society( financially and technologically) and thus when society declares it wants inflated prices in exchange for convenience at the checkout stand, the poor get screwed.

Do the poor subsidize college admission rates to Harvard and Yale?

[Lee]

avolkiteshvara,

The poor might be subsidising the use of debit and credit card transactions. But even if we assume they are, the use of electronic money transfers does not depend on it. The U.S. government currently subsidises the production of corn, but corn production would not cease altogether if those subsidies were ended. When an action is subsidised, people do it more. It does not follow that when a subsidy is ended that people stop entirely.

In any case, society did not declare anything. New forms of payment have been invented and retailers have sought to accommodate them. Nobody predicted that such a situation would emerge--not the engineers, financiers, customers, small or large businessmen. Analogous situations exist in all kinds of economic activity, "redistributing" wealth between abstract categories of people. For example, inquisitive and picky customers are more costly to serve than decisive customers, yet the additional cost to retailers of dealing with awkward customers is distributed evenly among all prices. Some of these situations will appear to favour the wealthy and others probably favour the poor. No human mind could comprehend all such situations and calculate some proper corrective measures.

[avolkiteshvara]

avolkiteshvara,

The poor might be subsidising the use of debit and credit card transactions. But even if we assume they are, the use of electronic money transfers does not depend on it. The U.S. government currently subsidises the production of corn, but corn production would not cease altogether if those subsidies were ended. When an action is subsidised, people do it more. It does not follow that when a subsidy is ended that people stop entirely.



We are saying the same thing different ways which boils down to paradigm. The poor get fucked more in this instance than middle-high income folks benefit...........measured in utils if you wish. Thats why I object to the idea that they subsidize prices. Its PC bullshit meant grab headlines, gain more readers, and acquire more hits.

Most rewards card programs are also accompanied by higher interest rates. I don't know how much one really benefits from rewards programs.

[echoes]

echoes,

The original article is not about the politics and economics of banking. It is about retailers charging higher prices to cover the expense of transaction fees incurred with debit and credit card payments. Every time a card is swiped on a cash register, a small charge is made to the store. Most retailers do not charge card users extra to cover these costs--instead they increase prices for everyone. Therefore, people who pay by cash are subsidising the use of cards. Since poorer people tend to purchase with cash more regularly, this amounts to the less wealthy paying for the convenience (and reward points) of the more wealthy.

Do I realise that my interest rates are not pegged to bank profits? Of course, interest rates are a price, and are primarily a function of the supply and demand for loanable funds. That you ask such a question leads me to suspect that you know less about what you write than I do, and I am certainly no expert on these matters.
No shit.

I think the article still has implications for different ideologies. There is not much to discuss if we don't discuss the implications of the topic.

"function of the supply/demand of available loans" and how is this figured? At the end of the day it's still just a mathematical artifact with little meaning pertaining to the real world. The bank or retailer isn't charging you because their behavior is guided by "laws" of economic. They are charging you because they are in a position to do so unless they get cockblocked by things like federal regulation.

The federal reserve doing things like lowering interest in an inflationary period speaks to the arbitrariness of our economic tools. It's just one group of people fucking over another group of people by disinheriting them of their resources. Only this time with math and theoretical models that assume concepts like the free market have as much validity as the notion of gravity.

[echoes]

avolkiteshvara,

The poor might be subsidising the use of debit and credit card transactions. But even if we assume they are, the use of electronic money transfers does not depend on it. The U.S. government currently subsidises the production of corn, but corn production would not cease altogether if those subsidies were ended. When an action is subsidised, people do it more. It does not follow that when a subsidy is ended that people stop entirely.

In any case, society did not declare anything. New forms of payment have been invented and retailers have sought to accommodate them. Nobody predicted that such a situation would emerge--not the engineers, financiers, customers, small or large businessmen. Analogous situations exist in all kinds of economic activity, "redistributing" wealth between abstract categories of people. For example, inquisitive and picky customers are more costly to serve than decisive customers, yet the additional cost to retailers of dealing with awkward customers is distributed evenly among all prices. Some of these situations will appear to favour the wealthy and others probably favour the poor. No human mind could comprehend all such situations and calculate some proper corrective measures.

Mmm subsidies can be used to strangle competition or technological progress that could cause a protected industry to become obsolete.

Solar Power still can't compete with the current dollar/killowat provided by natural gas. Not, because it hasn't already become more efficient but because it isn't more efficient than the artificially lowered dollar/kilowat of the natural gas industry. the solar power industry would be replacing natural gas in many sectors if it was able to compete with the "true" dollar/kilowat of natural gas.

So, again someone is manipulating weaknesses in the system to subvert the intention of the system. but we don't have to just accept getting kicked in the balls as a part of everyday life like having to poop or drink water.

[echoes]

We are saying the same thing different ways which boils down to paradigm. The poor get fucked more in this instance than middle-high income folks benefit...........measured in utils if you wish. Thats why I object to the idea that they subsidize prices. Its PC bullshit meant grab headlines, gain more readers, and acquire more hits.

Most rewards card programs are also accompanied by higher interest rates. I don't know how much one really benefits from rewards programs.

I found that the entry line cash back on groceries/gas cards can be very lucrative if you play it right.

Most, banks offer competitive cards so you can essentially own the same card 4-5 times.

I found that as long as the card was treated like cash(pay the bill in advance every month) thus negating the interest, you could make $10 dollars/month/per card in cash back assuming a minumum of $300 per month being spent, all the while while generating obscene credit.

I opened several in my name and passed them out to the more financially trustworthy members of my family who's minimum expenses on gas/groceries exceeded $300 dollars a month. They used my card like it was cash, I paid my bills in time and got to generate credit at a profit!

This is what I mean about leveraging a system. Most people aren't going to to read the fine print and come up with solutions like that.

Money markets are similar. If you're careful to always maintain the minimum balance to avoid feeds you can have you're paycheck deposited in the account, and pay predictable monthly costs out of the MM. You get to generate more interest by paying the same bills out of a different account. Add in tricks like using some bill's "grace periods" to keep your pay check in x days longer thus compounding even more interest and you can get some pretty huge savings over the lifetime of you're account.

This is what I mean about leveraging a system. Most people aren't going to to read the fine print and come up with solutions like that let alone being able to afford the 25-100k initial deposit for "premium" interest baring accounts.

[avolkiteshvara]

I found that the entry line cash back on groceries/gas cards can be very lucrative if you play it right.

Most, banks offer competitive cards so you can essentially own the same card 4-5 times.

I found that as long as the card was treated like cash(pay the bill in advance every month) thus negating the interest, you could make $10 dollars/month/per card in cash back assuming a minumum of $300 per month being spent, all the while while generating obscene credit.

I opened several in my name and passed them out to the more financially trustworthy members of my family who's minimum expenses on gas/groceries exceeded $300 dollars a month. They used my card like it was cash, I paid my bills in time and got to generate credit at a profit!

This is what I mean about leveraging a system. Most people aren't going to to read the fine print and come up with solutions like that.

Money markets are similar. If you're careful to always maintain the minimum balance to avoid feeds you can have you're paycheck deposited in the account, and pay predictable monthly costs out of the MM. You get to generate more interest by paying the same bills out of a different account. Add in tricks like using some bill's "grace periods" to keep your pay check in x days longer thus compounding even more interest and you can get some pretty huge savings over the lifetime of you're account.

This is what I mean about leveraging a system. Most people aren't going to to read the fine print and come up with solutions like that let alone being able to afford the 25-100k initial deposit for "premium" interest baring accounts.


This added nothing to the discussion.

[cordillia]

Study linked here (http://www.bos.frb.org/economic/ppdp/2010/ppdp1003.pdf)

This is a bit of a strange study. It appears to look at an assumed increased cost to businesses and assumes that this cost is entirely passed on to each customer equally. There does not appear to be any discussion of cost reduction due to the introduction of this technology, even though there are well known costs to handling money, such as banking fees, handling, and losses due to theft.

There is also a stated assumption that all fees will be passed on, when in reality some or all may come out of company profits, be absorbed by cost cutting measures, or even canceled out by increased profits that are directly linked to accepting cards.

Even if costs are passed on as the study says, there is no reason to assume that each product will be affected equally. It is entirely possible that a business will increase costs on big ticket items (where an increase is less noticable) and leave prices unchanged for smaller ones. Without knowing how the increases are distributed, it is impossible to say which economic groups are most affected.

On the off chance that the article is entirely accurate on all these points, there is still the fact that this affects small businesses more than larger ones due to fees being proportionally higher. Therefore, low income earners could largely bypass this by simply shopping at big name stores rather than smaller ones where the prices are already inflated due to economies of scale and convenience premiums.

Overall, it seems that there are too many incorrect assumptions in this study for it to provide any meaningful information.

[Helios]

After accounting for rewards paid by banks, households who earn more than $150,000 annually receive a subsidy of $756 on average every year, while the households earning $20,000 or less pay $23.


$756 at the top and a WHOLE $25 at the bottom, I think we are fretting over pretty much meaningless sums of money