16 Billion Dollars: What Banks Make From Debit Card Transaction Charges

Every time a debit card is used, the bank charges the retailer a small amount – 44 cents, to be precise. Now this adds up to, yes, 16 Billion Dollars a year.

Right now, every time you swipe your debit card your bank charges the retailer an average fee of 44 cents, which it shares with its partners. Those little fees, however, add up to about $16 billion per year, according to 2009 data from the Federal Reserve.

Thats an interesting statistic – and now of course, since the Fed is capping that fees, Banks are looking at capping the transaction amount, and/or charging a monthly fees for the facility. Debit Card payments could soon be a thing of the past.

Statistics Source: Yahoo Finance

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BRIC helping US Exports:Geithner

From The Economic Times:

Rapid growth of emerging economies like India, China and Brazil is boosting American exports and raising incomes and jobs across the US, Treasury Secretary Timothy Geithner has said.

“Emerging economies like China, Brazil and India are growing very rapidly. That growth is helping to support rapid growth in US exports which in turn is raising income and employment across the United States in manufacturing and high tech and agriculture,” he told the Senate Foreign Relations Committee Thursday.


This is Ludic Fallacy, at best. This is too simplistic a view to take on such a complicated issue.

From Wikipedia:

The ludic fallacy is a term coined by Nassim Nicholas Taleb in his 2007 book The Black Swan. “Ludic” is from the Latin ludus, meaning “play, game, sport, pastime.”[1] It is summarized as “the misuse of games to model real-life situations.”[2] Taleb explains the fallacy as “basing studies of chance on the narrow world of games and dice.”[3]

It is a central argument in the book and a rebuttal of the predictive mathematical models used to predict the future – as well as an attack on the idea of applying naïve and simplified statistical models in complex domains. According to Taleb, statistics only work in some domains like casinos in which the odds are visible and defined. Taleb’s argument centers on the idea that predictive models are based on platonified forms, gravitating towards mathematical purity and failing to take some key ideas into account:
it is impossible to be in possession of all the information.
very small unknown variations in the data could have a huge impact. Taleb does differentiate his idea from that of mathematical notions in chaos theory, e.g. the butterfly effect.
theories/models based on empirical data are flawed, as events that have not taken place before cannot be accounted for.

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“High Oil Price Due To Demand”

Looking for a solid example of confirmation error? How about this one – “He blamed the rise in oil and global commodities prices on strong demand from fast-growing countries such as China, not on the Fed’s stimulus policy”.

And this one too: “Political upheaval in the Middle East, Bernanke said, has caused oil and gasoline prices to march higher.”

Confirmation Error Definition: “you look for instances that confirm your beliefs, your construction (or model) –and find them.”

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5 Big Banks Own More Than 50 Percent Of Forex Market

From EuroMoney, via Kathy Lien: 5 big banks are responsible for more than 50 percent of all transactions in the forex market worldwide: Deutsche Bank, UBS, Barclays Capital, Citigroup and RBS.

Statistics Source: EuroMoney, via Kathy Lien

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Wall Street and The War On Iraq

We wrote about 135 Billion recently – the total Wall Street compensation for the year 2010. That number is strikingly close to another number that is a US priority – the war on Iraq and Afghanistan. According to the Department of Defense, the US has budgeted 159.3 Billion USD for the wars in Iraq and Afghanistan for the year 2011.

Statistics Source: Defense.gov

This equals that!

And, thinking that Wall Street deserves that 135 Billion would be a classic ‘fooled by randomness’ scenario. Iraq and Afghanistan we understand – Wall Street, we don’t !

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35 Percent Stock Price Drop In Minutes

A bankruptcy rumor can kill a stock. Borders stock lost 35 percent in the last few minutes of trading Feb 1 2011.

Shares of Borders Group plunged more than 35% Tuesday before the market close, and fell another 17% in after hours trading on a report claiming the company will file for bankruptcy.

The bookseller may file as soon as next week, Bloomberg reported, adding that one source indicated the chain is likely to close at least 150 stores.

Statistics Source: CNN Money

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The Story Of Lost Billions: Why Are Banks Not Lending Money?

Well, lending a helping hand to all those banks with trillions of dollars had one stated purpose: to avoid a systemic failure of the banking system which would bring the whole economy to a standstill. The Fed quickly followed up with free money distribution (a.k.a. lower interest rates. well, the way we understand, zero is generally interpreted as free). And this had a stated purpose as well: such manipulation of the yield curve would result in many no-brainer business decisions for the banking folks: take all this free money, lend it as much as you can at whatever rates the market would take, and make a killing. Sounded like a good plan.

Turns out, the plan wasnt that good after all. What went wrong? The banks are not lending. Remember the story of the child that wouldnt go anywhere near fire after ‘feeling’ fire once? The banks, apparently, are no different. Free money from Fed, QE2 and an indication of QE3 – nothing has changed the defensive approach of banks.

This is from The Economist: According to Barclays Capital, an investment bank, lending by banks to businesses in most big, rich economies, which had been growing rapidly before the onset of the global financial crisis, fell sharply in its aftermath. Canada, which did not have a runaway credit boom before the crisis, and whose banks came through the credit crunch largely unscathed, was an exception. Lending in most rich economies was still lower in the third quarter of 2010 than a year earlier, but the pace of the decline in lending has eased markedly in the last couple of quarters.

Looking at the numbers in the chart though, the picture is not so green, yet.
Statistics Source: The Economist

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QE Will Not Add To Money Supply: Really?

Ben Bernanke explained the Fed’s move in the Washington Post the day he announced QE2. Read: What the Fed did and why: supporting the recovery and sustaining price stability. He makes an interesting claim there:

Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits.

Really? Let us see. The FOMC plans to buy 600 billion worth of bonds over the next few months. This FED needs to generate this cash from somewhere, it would electronically create this cash. Now its a different story if this cash would find its way into the market – that depends on lending decisions taken by banks.

Given the huge impetus on lending, and the street pressures on banks to turn in better numbers, there is a more than reasonable chance that this money would end up in the hands of the common man. 
But look at this argument from aleablog:

QE 2: Effects on Banks Balance Sheet

Note that, in this example, QE 2 changes the mix of the asset side of the balance sheet without changing the amount in deposits i.e no “money printing” or increase in size of the commercial bank balance sheet.

Something doesnt add up. A non-mandated increase in reserves – and Banks not touching thats for lending purposes? NOT HAPPENING.

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