"All Money Is Fungible": Two-and-a-half Cheers For The WallStreet Journal!

Ryan Chittum is a pretty perceptive and very busy fella over at the Columbia Journalism Report blog, CJRdotorg. Today he bestows kudos to the WSJ for the paper's taking the lead in highlighting the "Warren Report" on the uses andmisuse of the TARP funds doled out by the Busheviks in the waning months of their (immediate) power.

Good for The Wall Street Journal for giving a nice run to an exclusive that the TARP oversight panel is investigating banks for gouging customers despite getting billions of dollars in taxpayer bailouts.

I criticized the Journal and much of the rest of the press for giving short shrift to the Congressional Oversight Panel’s report last week on the state of the TARP, so it’s especially nice to see the group and its chairwoman Elizabeth Warren not just not ignored, but prominently placed on page one.

Here’s the Journal’s good lede, which explains the issue and puts it into good context quickly:

The committee overseeing federal banking-bailout programs is investigating the lending practices of institutions that received public funds, following a rash of complaints about increases in interest rates and fees.

Since the Troubled Asset Relief Program was launched last October, banks bolstered by capital infusions have boosted charges on a wide range of routine transactions, hiked rates on credit cards and continued making loans criticized as predatory by consumer advocates. The TARP funds are intended to open lending spigots and make it easier for people to borrow money.

While banks may be making it easier to borrow money, they’re making it much more difficult to pay it back.

Last week, for example, Bank of America Corp. told some customers that interest rates on their credit cards will nearly double to about 14%. The Charlotte, N.C., bank, which got $45 billion in capital from the U.S. government, also is imposing fees of least $10 on a wide range of credit-card transactions.

Citigroup Inc., another recipient of government cash, is trying to entice customers to borrow at high rates. “You could get $5,000 today,” Citigroup’s consumer-finance unit wrote in fliers mailed to customers. The ads don’t disclose that the loans often carry annual interest rates of 30%.

See, Warren gets it. If we’re going to turn around this economy and make it structurally healthy for the long run, these practices aren’t going to cut it. It’s not like credit cards and bank fees weren’t already outrageously high before these latest hikes.

The story also illustrates what happens when you give someone from outside the bubble responsibility for overseeing the system, even if Warren is just empowered to squawk from a somewhat elevated platform, not to actually regulate.

“The people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending,” Ms. Warren said in an interview. “In a sense, we’re asking taxpayers to pay twice.”

Compare that to the banks’ actual regulator:

So far, regulators are focusing mostly on nursing banks back to health. “To my knowledge, the TARP funds weren’t supposed to change consumer-protection requirements that apply to all institutions,” Comptroller of the Currency John Dugan said in an interview.

Nothing to see here. Business as usual.

Meanwhile, big banks are using taxpayer funds to give usurious loans to their most-needy customers. Don’t think 30 percent credit-card APR is usury? How about 120 percent payday loans—and not from a shady pawn shop with bulletproof glass?

Regional banks U.S. Bancorp and Wells Fargo & Co. offer “checking account advance” loans that allow customers with direct-deposit accounts to access funds before they are credited to a customer’s account balance. The short-term loans carry annual interest rates of about 120%.

One beef I have is that the Journal pretty much lets a bank flack from Pacific Capital Bancorp get by with saying that it isn’t using TARP money for its most-injurious loans, which charge interest rates of more than 100 percent:

Debbie Whiteley, a Pacific Capital spokeswoman, said the bank isn’t using TARP capital to make tax-refund loans. Still, the government infusion is helping to improve the bank’s overall financial health, according to the company, meaning it will be in better position to make a variety of loans.

Look, once and for all, money is fungible. Stop letting these banks spin like this by saying that government money is separated over here and we’re using our money over there for the bad stuff. A dollar is a dollar is a dollar. The Journal followup sentence there seems to be refuting that, but it’s not strong enough. It should say point blank that the bank’s reasoning is just false.

But that’s just a relatively minor quibble. The Journal’s piece is a really good news story. It even gets into the fees like overdraft charges, which I wrote about last week, that make up a huge portion of banks’ overall revenue:

Last year, U.S. banks and savings institutions collected $39.5 billion in deposit-account charges, and fees for everything from ATM usage to balance transfers accounted for about 25% of the industry’s total revenue, according to the Federal Deposit Insurance Corp.

A big chunk of that revenue comes from overdraft fees. The industry’s median overdraft charge is up 10% to $27.50 in the six months since the government began pumping capital into banks, according to Moebs Services Inc., a Lake Bluff, Ill., research firm. The median charge previously held steady for five years. Meanwhile, the average annual credit-card rate has climbed to 12.35% from 11.38% six months ago, according to CreditCards.com.

And I’ll leave you with this anecdote, which pretty much sums up why the TARP panel is right to look into this:

Don Mawson, a 49-year-old who works in Boston for State Street Corp., said he called Capital One Financial Corp. to complain about its decision to increase the late-payment interest rate on his credit card to 29.4% from 7.9%, even though he has never missed a payment. Mr. Mawson says the bank, which got $3.6 billion from the federal government, declined his request.

I think that about says it all, aqt least for now. (Fair Use, please!!)