WC Varones

Don't lend your hand to raise no flag atop no ship of fools

New Year's Resolution: Stiffing the Dirty Banksters

Bankers are like lawyers, politicians, and government workers: leeches on the productive economy.

While the elderly earn far less than 1% per year on their savings thanks to Zimbabwe Ben's bank-enriching Zero Interest Rate Policy (ZIRP), the banks are also ripping off the public by charging 2-3% on every credit card transaction. Think about that: merchants go to great expense to carry inventory, lease store space, and pay staff and have to sell products into an ultra-competitive marketplace. If they're lucky, they squeak out a few percentage points in profit margin. WalMart, Target, and Amazon, some of the most efficient retailers, have net margins of less than 4%. And yet the dirty banks take 2-3% for processing an electronic transaction that has almost zero cost. As if the banks didn't make enough money charging credit card users outrageous fees and interest.

You can see more precisely how your credit card bank rips off your retailers here. The site is a little buggy, but you can find out about your specific credit card by replacing the six digits in the URL with the first six digits of your credit card (which is totally safe -- those only identify the bank and card type, not your personal info).

Apparently, Americans aren't using the credit cards as much as the dirty banksters would like them to, so now the banksters are bribing consumers by giving them a cut of the money they are stealing from the retailers. I’m getting bombarded in the mail with giveaway offers. I’ve gotten $100 from one bank just for opening a n account and using it a little. I've got another card that gives 5% cashback on rotating categories including groceries, restaurants, gas, hotels, airlines, apparel, etc. I’ve gotten 2 free round-trip airline tickets for opening another card. I’m getting 2% cash back on everything on another card.

I've long wanted to stop using credit cards entirely, but the bribes are just too juicy. 5% cash back on groceries you're going to buy anyway? You'd be a fool to pass that up. Even 2% on other purchases is a pretty good monthly kickback. So here's my plan to hammer the Dirty Banksters:

1) Obviously, always pay off the balance in full so they don't rack up big interest and fees.
2) Use the 5% promotional categories as much as possible (for stuff I'm buying anyway). I seriously doubt they are charging the merchants the full 5% they are paying me.
3) Use cash instead of credit cards unless I'm getting at least a 2% kickback.
4) Abuse the introductory offers for free cash or airline tickets, then cancel the cards as soon as I collect.
5) If the incentives aren't good enough on an offer, send the postage-paid reply envelope back taped to a brick to cost them postage.

1 comments:

Scott said...

People have seen bankers in the same light as lawyers, politicians, etc. for a long time, probably even before "It's a Wonderful Life" and Mr. Potter. As a commercial loan underwriter for a bank, I've seen a few things that make me shake my head. Banking is almost like a commodity. Most banks provide the same services with the same fees. Banks typically follow what their competition does, almost to a fault. Banks are in business to make money, and it's kind of hard to make money when you give your services away. Like any business, a bank will charge customers as much as it can get away with and still keep customers.

Credit card debt is not secured by any collateral and has a minimal approval threshold...that increases the default risk to the bank, and that is why credit card rates are significantly higher than what banks charge on loans that have collateral.

IMHO, banks do serve an important function in the economy, one which I'm very familiar with. Banks loan money to businesses that want to expand but do not have the cash on hand to do so. Yes, sometimes things fall apart and the borrower can't pay. But usually, borrowers are happy to take on some bank debt in order to open a new location, build houses, or purchase seasonal inventory. They pay on time, and both the business and bank are happy with the arrangement.

Almost all the home builders in my city have bank debt with several banks. It's just how that game is played. Without banks willing to finance the purchase of land and the development of that land into lots and houses, the only companies that would be able to build houses are the national builders (that usually have their own financing department) and maybe the occasional builder who happens to have $10 million under his mattress that he's willing to sink into some raw land and finance 100%.

Banks can lend out tens of millions of dollars at a time because of its depositors and because of its fees (not saying I agree with fee structures or rates, but that's where the money comes from). Without a bank that acts as a federally-insured depository for all those deposits, that money would never be loaned out to businesses in the amounts they need. Businesses would be forced to pay for expansion out-of-pocket or find alternative financing, which probably wouldn't be able to match a big bank's rate or terms.

Businessmen are (usually) not stupid, and that's why they get loans from banks. I've seen hundreds of financial statements from all sorts of businesses. I've only seen one (a national restaurant chain) with any significant amount of assets or revenue that had no debt of any kind. All the others have some sort of debt, usually bank debt. Without banks to make those loans, where would businesses get that money?

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