Subject: [big campaign] New Huff Post from Creamer-Big Banks Plan Sneak Attack on Wall Street Reform
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Date: Thu, 24 Mar 2011 08:46:27 -0400 (EDT)
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Big Banks Plan Sneak Attack onWall Street Reform Law within Days

      The big WallStreet banks are planning a sneak attack on an essential element of the WallStreet Reform Law that was passed by Congress last year.  They plan to make their move as early as nextweek.
 
     The target oftheir attack is the provision limiting the “interchange” fee that the Big Bankscharge retailers and their consumers every time a debit card is used.  Right now, so-called “swipe fees” are set byVisa and MasterCard – who control 80% of all credit card transactions.  In other words, they are not subject tocompetitive market pressure of any sort. They are fixed by the Visa-MasterCard duopoly.
 
    According to theFederal Reserve, $16.2 billion of debit interchange fees were paid in 2009. 
 
     It is estimatedthat the Financial Reform Law will save consumers $10 billion of thattotal.  How could that be?  Because it should come as no surprise toanyone who has even a passing acquaintance with Economics 101, that fees set bya duopoly have no relationship whatsoever to the costs of the transaction.  
 
     They are in factjust one more mechanism that Wall Street has used to siphon an increasingpercentage of our Gross Domestic Product out of the pockets of the middle classand into the increasingly-bloated financial sector. 
 
     The centralproblem of our economy – and society – is that virtually every dime of theconsiderable economic growth of the last twenty years has gone to the top twopercent of the population.  Wall Streetsalaries and bonuses have exploded, while middle class incomes have stagnated. 
 
     From 1948 to 1980,profits generated by the financial sector represented from 5% to 15% of allU.S. business profits.  Then they beganto creep up – and finally explode – to an unbelievable 40% right before theGreat Recession. They dropped briefly– and by the end of 2009, they were backto 36% .
 
     Let’s rememberthat the financial sector does not make anything.  Its goal is to take a little piece of everytransaction as money flows through its hands – what novelist Tom Wolff callsthe “golden crumbs.”  
 
     In the lasttwenty years, the exploding financial sector has sucked the lifeblood out ofthe American middle class.  It hasvacuumed money out of the pockets of people who actually work for livingproducing goods and services.   It hassiphoned off virtually every dime of economic growth so that real middle classincomes have actually fallen at thesame time the economy has grown.  That wasn’tjust disastrous for the middle class – it was catastrophic for our entire economy.It meant that there weren’t enough consumer dollars available to buy new goodsand services – a problem that was temporarily solved by the credit bubble untilit ultimately collapsed and cost eight million Americans their jobs.  
 
     To put it simply,the financial sector – and especially the big Wall Street banks – are a hugecancer growing on our economy.
 
     To have aneconomy that will allow long-term, widely shared, growth – we have to shrinkthe financial sector and put money back into the hands of companies thatproduce actual goods and services,and consumers who buy them. 
 
     The Wall StreetReform Law made a big step in the direction of reining in the big Wall Streetbanks.  And a key element of that law wasthe provision that prevents the duopoly power of those Big Banks – exercisedthrough Visa and MasterCard – from fixing the price of the fees merchants payevery time you use your debit card. 
 
     The new law requiresthat these fees must be reasonable and proportionate to the cost of running adebit transaction over that network’s wires. But it turns out their actual cost of providing this service is verylow.  If prices for “swipe fees” were setby the competitive market, they would dramatically fall because of competitivepressure.  But since the prices are setthrough a duopoly they allow gigantic profits for the banks. 
 
     Right now Visa and MasterCard – at their solediscretion -- set different fee rates for different types of debit transactions.For example, they charge higher fee rates for small businesses than for largeones.  Most debit interchange fee rates are set as a percentage of thetransaction amount plus a flat fee (e.g., 0.95% + $0.20).  The Fed foundthat the average interchange fee for all debit transactions in 2009 was 44cents per transaction, or 1.14% of the transaction amount.
 
     The Fed put out a draft rulemaking inDecember 2010 that suggested options for reform.  Both of the optionssuggested limiting interchange fee rates for the biggest 1% of banks to 12cents per transaction (down from the average 44 cents per transactiontoday).  This comes close to the 0.2% debit interchange rate that Visa andMasterCard recently agreed to use in the European Union.  A reduction ofthis amount would save U.S. consumers around $10 billion per year. 
 
     Now, this proposed rate is obviously notbelow their costs, since that’s what they agreed to charge in Europe.
 
     But the big banksare desperate to hang onto the gusher of profit that comes out of Americanpockets. 
 
     They have usedtheir enormous lobbying muscle to convince some otherwise decent Senators, thatthis is really nothing more than a battle between the banks and retail merchants.  Baloney. Non-competitive “swipe fees” are just one more way they reach into thepool of money generated by the real economy and set it aside so it can end upas part of some Wall Street Banker’s multi-million dollar bonus check.   And you can be certain that most retailersdon’t eat the costs of “swipe fees.” They pass the vast majority of these costs on to consumers in the formof higher prices.
 
     Nonetheless, nextweek the big banks hope to get the Senate to pass an amendment “delaying”implementation of this law.  This delaywould save the banks – and cost consumers – about $10 billion a year, simple asthat.  The provision’s original sponsor,Senator Dick Durbin (D-IL), promises to lay down on the tracks to prevent themfrom being successful.  But there isstill a grave danger that the bankers will succeed. 
 
     That’s because thebig banks hope to conduct this attack without a great deal of publicnotice.  They have conducted a vigorousPR campaign inside the beltway, but out in the rest of the country, no one hasheard word one about this issue.  
 
     And this is justthe beginning.  If they are successfulwith “swipe fees,” they will be emboldened to try to gut other sections of thiscritical law. 
 
      The big banks dowell under cover of darkness.  When theyare exposed to the bright light of public attention – as they were during thebattle over financial reform – consumers had the high political ground.  The Wall Street reform bill got tougher as itmoved through the legislative process because Members of Congress were afraidto side with Wall Street against ordinary Americans.
 
     Now, the bigbanks hope to conduct their attack on the Financial Reform Law while the votersare focused on a new war in Libya, a nuclear disaster in Japan, the battle overcollective bargaining and March Madness. 
 
     Big banklobbyists are like cockroaches.  When youturn on the light they scatter, but they take over if they’re allowed to operatein the dark. 
 
     When you’vefinished reading this article, pick up the phone, call your Senator and turn on the light.  Tell them to keep Wall Street from gutting thiskey provision of the Wall Street Reform Law.
 
Robert Creamer is a long-time political organizer and strategist, andauthor of the book:  Stand Up Straight:How Progressives Can Win, available on Amazon.com.

   http://www.huffingtonpost.com/robert-creamer/big-banks-plan-sneak-atta_b_839960.html

 

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