Should everything be FREE?

Things that are free are worth what you pay for them.

 

A reader writes that he is frustrated with his bank, because they summarily closed his bank account and he could not understand why.   He was doing nothing illegal.  He was not money laundering or check kiting.   He simply had a checking account, made deposits, wrote checks (or had automatic payments made using bill pay) and transferred the rest of his money to an investment account, keeping a minimal balance in the checking account.

While the bank could not articulate why they were closing his account, he surmised - correctly, I think - that they were closing his account because they were not making money from him.

Banks can't stay in business making change, as I have noted before.   And in today's low-interest world, there is little to be made on savings account balances.   Back in the late 1970's when interest rates soared into the double-digits, "free checking" became all the rage.   Banks vied for your business simply because if you have even $1000 average daily balance in your account, that amount could be invested in a 14% mortgage and generate a lot of cash for the bank.

Moreover, if you had a relationship with a bank, chances are you got your mortgage there, your car loan, and your credit card.   Today, we get a car loan from the car dealer, a mortgage from a mortgage broker, and a credit card from some site online.   For the bank, there is no ancillary business to be had from the checking account holder to make having him as a customer worthwhile.

And back then, before the advent of personal computers and cell phones, most folks kept hefty balances in their checking accounts as a means of avoiding bouncing a check.   We had no way to check balances on a daily basis, so you had to wait until the end of the month to reconcile your accounts.

In the mid 1980's, they started using "pay by phone" type DTMF systems, where you could call in, provide you account number and PIN, and then check your balance, see if certain checks had cleared, and even make payments to the utility company or the mortgage company.

And by then, interest rates were dropping.   Yet banks still offered "free checking" with no monthly fees - which became the new norm in the banking business.  Once you get people hooked on "free" is it awfully hard to wean them off of it.

Fast-forward a couple of decades and today interest rates are fractional.   Online banking and smart phones (and Check 21) allow you to monitor your bank balance down to the penny in near-real-time.  There is no need to keep huge balances in your checking account as a buffer, when you could be investing that money in your trading account - and transferring the money back and forth in near-real-time to cover outstanding checks and bills.

Free checking, free ATMs, free stock trading, free everything.   If you are an astute banking customer, you can end up paying no fees at all to your bank, as I have noted before.   And if you use online bill pay, the bank may actually have to cough up 49 cents for each check they mail out.   Add in the cost of overhead of running all those branchs, ATMs, computers, and whatnot, and you have a real loss on your hands, if your customer is astute and solvent.

The insolvent customer, on the other hand, is a real money-maker.  Like with payday loans, the banks make money from the poor and stupid.   The low-balance user who continually bounces checks (paying huge bounce fees) and regularly pays foreign ATM fees is a cash-cow for the banks.   Ironically, the banks might actually want him as a customer.

Similarly, clueless Joe Middle Class who wants to refinance his house a fourth time to take "cash out" to pay off his credit cards and the loan on his Mercedes, is a real money-maker for the bank.   Odds are, he also has an "airline miles" or "cashback" credit card with the bank that not only generates transaction fees for the bank, but charges a hefty 18% interest rate - and like most Americans, Joe carries a monthly balance.

So they want Joe as a customer, and if you see how the bank structures their website, this is not hard to parse out.   They promote consumption (Cash-back "rewards" schemes - more on that in a later posting) as well as debt consolidation loans.  They promote a lot of things that pay the bank a lot of money.

But the solvent customer who balances his accounts daily?  He never bounces a check and is smart enough not to pay foreign ATM fees.   He doesn't carry a credit card balance and hasn't applied for a home equity loan - or a mortgage.   His car is paid off.  He owes no one.  He is unprofitable.

So my reader is upset that the bank is giving him the boot.   After all, as a fiscally responsible customer, don't they want him?   Well, they would, if they could make money off of him.

And banks are trying to charge monthly user fees nowadays - with limited success.   Bank of America socked me with a monthly fee which I was outraged by.  A helpful clerk on the phone pointed out that if I merely transferred $25 a month into savings, the fee would be waived.  It took seconds to set this up as an auto-transfer and problem solved - for the time being.   Obviously, BoA wanted customers to have a savings balance, so they could increase their capital on hand (which these days is a big issue for the banks) and they created this loophole.

(They also wanted a way to get rid of "dormant accounts" - abandoned accounts with trivial balances which are just a bookkeeping nightmare for banks, particularly smaller ones.  If you can suck these accounts dry with a monthly "maintenance fee" you can close them over time). 

Unfortunately, savvy customers like me figured it out, and transferred the money to savings, avoided the monthly fee - and then transferred it right back.   It is like skip-lagging the airlines.   They make the rules, and we find ways around them - or ways to work them to our advantage.

The next trick in their bag was to charge a monthly fee if you decided you wanted to use a teller.   If you used a teller in a transaction even once a month you would be charged a nominal fee (about $8 as I recall).   This reflects the real cost of keeping branch offices open and paying those tellers to cash checks.   And a lot of people in this computer age still use tellers.   If I go to the bank on a Friday, people - usually poor people - are lined up out the door.   Meanwhile, the line at the ATM is zero.

So they have a cost center - why not charge for it?   For me, the workaround was to simply not use a teller and agree to use only ATMs or the online website for deposits and withdrawals.   And for the most part that worked out well.   But still, the bank is making nothing from me.

One way of getting more business was to entice me with an offer from Merrrill Lynch.  If I would transfer X dollars to their investment bank, they would waive all fees and make me a "Platinum" customer which not only allowed me to use the teller, but got me a free foot massage while I was waiting.

Well, it was not all that great.   They managed to close my account while I was out of the country anyway.  If this is how they treat "Platinum" customers, I shiver to think how the mere "Silver" customers are treated. Perhaps they have a pit filled with punji sticks.

Maybe the problem isn't the banks, however.  Maybe the problem is us.   We were raised on a diet of "Free" and weaning us from this is damn near impossible.   And the Internet has made it even worse.

Everything on the Internet is "Free" more or less, and few people pay actual money for programs, websites, or whatever.   We expect everything to be "Free" and many internet companies are struggling to make a profit because of this.

They put up ads to generate revenue - and we put up ad-blocker to stop them.   It becomes a vicious circle.   Sites such as "Twitter" are slowly going broke because ad revenue isn't enough to cover expenses.   No one will actually pay for Twitter and if you charged a monthly fee to Tweet, I suspect the site would shut down in a matter of months.

Facebook makes a little money with the ads, but they have to walk a fine line between spamming their own users and hemorrhaging cash.   Many before them (such as MySpace) were unable to keep up this tightrope walk for very long.  Facebook users live in fear of the day Facebook will charge for the service (this is a regular Facebook rumor, but likely will never come true).  So Facebook has to find ways to make money from online games, or sponsored posts or whatever.

Maybe - just maybe - the idea of "Free" is flawed.   While I still do business with BoA (even though they kick me in the teeth on occasion) the relationship is based not on the traditional banker/customer relationship, but more on the advertiser/viewer relationship of television.   Whenever I log onto BoA, they are trying to sell me something - a credit card, a cash-back deal, a "rewards" offer, a mortgage, a home equity loan, or a debt-consolidation loan.   They have to keep selling me something or they would go broke.

Yet few of us would pay a nominal amount per month in order to have a real fiduciary relationship with our bank.   We all want "Free" and what we find out in the end is that the "Free" stuff kind of sucks and really isn't free at all.

Like I said, weaning people from "Free" will be damn near impossible.   So long as everyone expects freebies, no one will be willing to pay.   It is a mindset that is hard to shake.

We were in Key West a few years back, and they had a sailing regatta going on that week - a few weeks after the big powerboat races.  We were talking to the folks at West Marine about this, and opined that it would be a good week for business.   "With the powerboat people, yes," they replied, "They have deep pockets and don't mind spending."

"But the sailors?" he said, "They think that since the wind is free, everything else should be as well"

And that illustrates how the "Free" mindset can take hold.

Would I pay a monthly fee to have a bank account?   Sadly, probably no.  Not as long as there is a Free alternative.

And right there is the problem.  We have met the enemy and he is us.

Portion Size - If You Put It on the Table - You'll Eat It.

If you set out a large portion, chances are you will eat a large portion.  If you set out a smaller portion, you will eat only that.  The same thing works with money - portion size is a powerful normative cue.

We were staying in a resort in Key West and they had a nice restaurant that served (among other things) breakfast.   What amazed me was the size of the portions, which were enormous.  I tried to order "small" items, thinking that maybe these would be a more normal portion size.  So I ordered a breakfast sandwich on an English muffin, which should be about 400 calories about about 3" in diameter.  Instead, they brought an "English muffin" the size of a dinner plate with three eggs and seven slices of bacon in-between.

And like an idiot, I ate it all.   It is a human instinct not to "waste food" as our ancestors were in real danger of starving to death at any given moment.  So we tend to "clean our plate" of the portion served, regardless of size.

In France recently, they passed an ill-advised law forcing restaurants to recycle unused food.  It is an impractical idea as excess food is hard to take to a shelter (who wants 500 loaves of identical bread, not odds and ends) as I noted before.   Cooks do use excess food to make entrees and soups for the next day, if they are clever.  But some has to be thrown out - and there is a real danger to consumers if food is recycled due to food poisoning and the like.

So the French restaurateurs came up with a novel idea.  If you don't finish your entree, you are forced to take it home in a clamshell package.   The disgusting American habit of taking half your food home from a restaurant in a Styrofoam clamshell has hit France - by law.  I am sure many of these are rapidly discarded on the way home, too.   But since portion sizes in France are not as ridiculous as in the USA, I'll bet the number of clamshells leaving the restaurant is far less.

But this all got me thinking about portion size and normative cues and I have talked about this before.  If "everyone" is drinking a 500-calorie mocha-latte chi tea monstrosity at Starbucks, then you might think that this is "normal" and then wonder why your ass is so big after a year or two.  Normative cues are a way of selling us bad deals.  And in America, it is the 2,000 calorie entree, usually some meat product ladled on top of a football sized portion of cheap starch - rice, pasta, or mashed potatoes.

We think this is a "normal" portion and eat it all, and before long, you have an obesity epidemic.   If you put this on the table, you'll eat it until your stomach hurts.  I know this, because I do it all the time.  And each time, I ask myself later on exactly how much of an idiot I could possibly be.

On the flip side, if you have a smaller portion, you may eat that and think, "That was just fine, I don't need any more."   If you set out a portion that is normal sized, you eat that and are happy.   For example, if we make a pizza and set out the entire pie on the cutting board, well, we will eat the entire pizza (about 1800 calories each) while watching re-runs of Arrow on Netflix (or some Nazi documentary, which sums up their library).

On the other hand, if I put half the pizza in the freezer or refrigerator to have for lunch the next day, we eat less - a "normal" and appropriate portion.  If you put it on the table, you'll eat it.  That seems to be how we are programmed.

And I thought about this and thought that this applies to finances as well.  If you have $100 in your wallet, you'll spend it.  If you have $1000 in your checking account, you'll write checks totaling that amount.  If you have a $5000 credit limit on your credit card, guess how much your balance will be?

Yea, yea, yea, self control - it's bullshit.   Maybe as we get older this theory might make sense.  But I can tell you than when I was younger, money on hand was money to be spent.  Credit lines were there to be rung up to their limits.   And by leaving that money "on the table" it was spent - or borrowed.

Putting money away - squirreling it away - as in a 401(k) or other long-term account that comes out of your paycheck before you see it, it money you don't "see" and thus do not spend.   We see money on the table, and we spend it.

And people do this.  Like goldfish, they expand to the size of the fishbowl they are placed into.   They get a raise, and they buy a bigger car and a bigger house, and the friendly Real Estate Agent or Car Salesman tells them how much they should spend or what "someone in your position" should be spending - the maximum amount, of course, that you can borrow.

So we gorge ourselves at the buffet of life, spending all we make and borrowing more, when the actual portion size we really need and should have is far smaller.

Taking money off the table is one good way to avoid over-consuming.   Get rid of multiple credit cards with high limits.  Put money into savings in a way that it is hard to get at, right away.  Don't keep huge balances in your checking account as a temptation to spend.

Yes, self-control is a fine thing.  But it is an illusion.  Sometimes we need to discipline ourselves by tricking ourselves.   Leave a small portion on the table and a small portion in your wallet - and oddly enough, that will be all you consume - and you may be content with that.

EDIT:  This same idea can be applied to consumer pricing.  If "everyone" is paying $20 to go to a movie, we think it is "normal" to pay that amount.  Ditto for cable bills, cell phone bills, restaurant bills, hotel bills, and the like.  We are lulled into a sense on complacency by the norms around us.  It is only when shockingly smaller prices are offered (for example, by China) that we start to question our norms.  But more about that later.

OCD and Hoarding - Organized Hoarding Disorder

This image is of the pantry of an "extreme couponer" and raises the question, can hoarders be organized?

Hoarders are generally known as slobs - living in their own filth, garbage piled high, and a dead cat in the freezer (why, I don't know, it is just a thing they do).   OCD people are known as the opposite - people with hyper-clean homes who organize everything, comb the fringes on their rugs, wash their hands constantly, and then spin three times counter-clockwise.

They seem like the opposite of one another.  And yet psychologists tell us that hoarding disorder is a form of OCD, which seems kind of non-intuitive at first.   Or at least I couldn't get the connection.

Until I saw it firsthand.  Organized hoarding.

There are hoarders who don't live in their own filth, but instead hoard things in a very orderly manner.  In fact, in a hyper-orderly manner.  Not only is everything stashed in boxes and totes, there are lists - endless lists - of what is in each box and where it is located.  And they spend hours sorting and organizing these totes and boxes and revising the lists accordingly.

It is fascinating - and horrific- to witness first hand.  But witness it I did and it is interesting to observe.   Mental health and financial health go hand in hand, as I have noted before.  And the desire to acquire things is one of the prime reasons most middle-class people fall down the economic ladder.  And Hoarding and OCD behaviors are certainly one of the things that causes people to waste time and money on a monumental scale.

But organized hoarding also gave me an insight as to how dead cats end up in the freezer.   Most hoarders, I suspect, start out as organized hoarders - carefully cataloging and indexing everything they own - using totes and boxes to store things and label them.   And this works for a while, until the hoarder ends up with so much stuff - and accumulates it so rapidly - that they cannot keep up with the organization end of things.   They pine for the day when they can sit down and "really get organized" but lose interest in the cataloging and storing aspect of hoarding, but maintain a keen interest in the accumulating part.

It is just a theory, but I think one that has merit.  Our desire to accumulate goods is a genetic behavior and to some extent a survival instinct.   But as I noted before, in our caveman days, sharp rocks and sticks and nuts and berries were free for the taking.  The caveman didn't go broke hoarding things, unless his hoarding took precedence over survival skills.   Today, we have to pay for things with Visa and Mastercard, and yet we still look at a mountain of possessions as a sign of "wealth".

I know I did - even when I knew better.   I had cars, houses, boats, and whatnot - all carefully maintained and organized and cared for, so I thought I was not a hoarder, just "well off".   But I realized over time that these "things" were costing me real wealth and delivering less and less satisfaction as time went on.    Owning less turned out to be a pleasure, not owning more.

In the media, the rich and famous are depicted as owning mountains of consumer goods - huge homes with garages full of cars as well as walk-in closets full of designer suits or dresses and of course, shoes.  Having a lot of "stuff" is what is promoted on Lifestyles of the Rich and Famous.  And in recent years, it is been sold to us - the middle-class people - that we, too, can have walk-in closets and three-car garages with hobby cars and lots of stuff - even though we don't have the army of servants the really wealthy have to maintain it all.

Our ancestors had less "stuff" in their lives not necessarily because they had less money (they did) or that things cost more to buy (they did as well) but also because they realized that having a lot of things was costly, time-consuming, and could bankrupt you both financially and in terms of time-management.

The image above is of a collection of items bought by an "exteme couponer" and if you've seen these shows or read about the trend, you've seen this kind of thing before.  The couponer buys these carts of "free" groceries and often times stacks up the product in a garage or basement in specially-bought shelves, so that their house looks like a supermarket.   It is odd behavior - not buying something to use it but to merely have it.   Again, the mind associates wealth with "having things" and hey, having your own supermarket is about as wealthy as you can get, right?

(Of course, the "trick" with extreme couponing is no trick.   Couponers make "stunt buys" with coupons they obtained often by purchasing the same product earlier.   I get a manufacturer's dollar-off coupon for dog food - every time I buy dog food.   This doesn't mean the dog food I get for "free" with the coupon didn't cost me anything).

If you look at the lives of successful people, you won't see these sorts of behaviors.   Warren Buffett doesn't clip coupons.   Bill Gates doesn't have a dead cat in the freezer (but Steve Forbes just might - his latest editorial suggests we go back to the gold standard!).  The very wealthy don't comb the fringes on their rugs or organize old broken lawnmower parts into boxes in their garage.  They don't obsess about "understanding their childhood" or trying to make sense (or make up) with Mom and Dad.   They live their lives and obsess less about the past - which is really all obsessing about possession is, obsessing about the past.

And maybe right there is the key to their success.

Islamic Rednecks

Fundamentalists rednecks running around in pickup trucks brandishing guns.   Whether it is an American "militia" or ISIS, sometimes they literally have the same trucks!

In a recent New Yorker article a Turkish ex-pat describes how the rise of Islamic fundamentalism and Turkish nationalism has altered that country.  It is a familiar story, repeated throughout the Middle East.  A country whose boundaries were decided by Western powers after the war is run by a pro-Western dictator, who suppresses Islamic fundamentalism and local cultural traditions in favor of Western cultural values.  And to achieve this, a secret police interrogates, tortures, and kills anyone who disagrees with them, which in turn, gives rise to underground anti-government movements.

Turkey, Iran, Iraq, Syria, Egypt - the story is about the same, just the actors are different.  And in each case, some liberals here in America championed the cause of nationalists, even though the religious fundamentalism  of these groups would harshly conflict with the cultural values of liberals.  The "Westernized elites" are deemed to be at war with the Islamic nationalists.  In Turkey they even call them "White Turks" (Westerners) and "Black Turks" (Islamic nationalists) which illustrates the racial aspect of it (not much unlike Batista's Cuba).

What struck me as interesting is that the same sort of movement is going on today in the USA.   Again, different actors, different religions, but the same old shit.   Flag-waving self-proclaimed "patriots" who are often allied with fundamentalist Christianity, are hoarding guns and ammunition and praying for a Civil War, on in recent weeks, actually trying to start one (albeit in a half-assed manner).

And this begs the question, could this happen here?   Could our country be drawn into a real civil war or taken over by religious fundamentalists, much as has happened in the Arab world?   It would seem that the strategies and forces at play are one and the same.   The poor, uneducated, fundamentalists versus the perceived "elite" educated upper classes, each with a different set of cultural values, going at each other's throats.    The stake of the game is civilization itself.

One could argue that "it can't happen here" as we do indeed have the largest military in the world.   Many of the Islamic countries racked by violence or civil war had weak central governments or weak militaries.   Others, of course, were little more than military states, but militaries are made up of individual men, whose allegiance can be swayed.

Also, despite the crybaby antics of self-styled militias, we hardly have a "secret police" in the US these days, although to hear the liberals tell it, our police force is made up of a bunch of gun-happy Nazis who shoot first and ask questions later.   Sadly, that sort of thinking plays (perhaps intentionally) into the hands of the far right.

The real problem, of course, is not the minority of crackpots who want upheaval and revolution, but the vast majority who are too blasé to do anything about it.   The liberal left is unarmed and unwilling to do anything to defend their culture.  The middle-of-the-road middle-class just wants to make their next mortgage payment.

As the author of the New Yorker piece illustrated, her family, once educated in western values and skills, left the country for a better life in the US, as I am sure many do.  Thus, the best and brightest are concerned only with improving their own lot.  The poor and uneducated are left to stew in the juices of fundamentalist religion and right-wing nationalism.

And as education and western cultural values are tied to perceived (or real) oppression, they fall further from favor with the masses, who resort to more primitive beliefs and religious values which are aligned with their nationalist agendas.

It is an interesting parallel - rednecks driving around in pickup trucks brandishing weapons, proclaiming the coming of a religious-based state.   Whether it is Eastern Oregon or Western Iraq, it is the same old shit, different day.

And maybe, unless we want our freedoms to evaporate as they have across the Middle East, we should be more proactive and speak out louder against these forces of primitivism and anti-civilization.

And maybe, we need to tone down the rhetoric a bit about "revolutions" and "civil war" and "oppression" and "police brutality".   Because as the example of the Middle East shows, once the fundamentalists take power, you'll be in a world of woe.

Why the Iowa Caucuses Mean Nothing and Something

With any luck we won't have to look at his pie-hole much longer.

The results of the Iowa Caucuses are in and the results were pretty predictable.  On the Republican side, the man with the best ground game (Cruz) won, by a narrow margin.  The real results are that no one person really "won" but that three front-runners emerged in a virtual tie.   Cruz, Trump, and Rubio each got about 25% of the vote, and the remainders were all the single digits.  If this repeats in New Hampshire, the next GOP debate will have only three people in it.

This is probably good news.  Rubio is still in the game and getting as much vote as the other two major contenders.  Cruz did well in Iowa by having the best organization.  Bear in mind that a Caucus is different than voting.  You have to go to a caucus area and then stay there, sometimes for hours, and argue with your neighbors as to who should win.  While many people are comfortable casting an anonymous vote, few are comfortable going face-to-face with neighbors and friends and expressing their opinions.  Peer pressure causes people to change their minds.

Bear in mind also that if a candidate doesn't get a certain percentage, then the caucusing continues, and people often switch allegiances or make deals to prevent "the other guy" from winning.  So the results are skewed.

The main thing is, Rubio is still in the game.  Trump will crash and burn as he has no real political organization.  He is the darling of the news media and gets lots of coverage and free publicity.  Cruz does likewise, to some extent, but also has a real organization in place.  Rubio is third only because he is moderate, and he has the best shot of actually winning the "middle of the road" Americans who will vote in November for real.

On the Democratic side, much fuss has been made of how well Sanders did.  Again, a caucus is not a vote, but a nightmare of "in your face" politics.  And I am sure a lot of college students showed up for Bernie.  No one gets passionate about Hillary.  Bill Clinton said it best, "Democrats fall in love, Republicans fall in line."   And right now, a lot of people are in love in Bernie.  But now that the spotlight is on him, he will likely flub it an fail.  Let's hope anyway - an ineffectual socialist President would be a nightmare.

My prediction: The Sanders candidacy will sputter and die when he is caught on hidden camera smoking pot.  Come on - you know he does.  It is just a matter of time.  He will fail the drug test.  It will be interesting to see how he does in New Hampshire.  As a "local boy" from nearby Vermont, he should do well.  But the no-tax "live free or die" conservatives in New Hampshire might not warm to him.

Trump's campaign will sputter and die after New Hampshire, as he has no real political organization in place.  It will get rough in the subsequent primaries as people start to tire of the flavor-of-the-week and the media loses its fascination as well - once they realize it no longer sells ad time on their shows.

Getting down to Cruz versus Rubio, while Cruz will do well with the die-hard conservatives and the evangelicals, Rubio will win over the more moderate Republicans and - more importantly - the big money.

Which will set us up for an interesting match in the fall - Hillary versus Rubio.   A conservative Democrat versus a "liberal" Republican.

And we complain we don't have real choices!

EDIT:  Apparently the New Hampshire primaries are utterly meaningless.  Sanders may have benefit from being a local boy (in neighboring Vermont) or because independents voted for Trump (perhaps as an act of political prankserism).   If the choice in November is Trump or Sanders, it will be a tough call - and a sad day for America.