50 Years Of ATMs

On September 2, 1969, a new machine was unveiled at the Chemical Bank branch in Rockville Centre, Long Island, soon to be followed by similar machines located outside bank branches across the country.  The machine was an ATM — an automated teller machines that allowed users to get cash from their accounts at the press of a few buttons.

atm_fAt first ATMs, like all new technological developments, were curiosities, and most people still got their money the old-fashioned way.  They went into a bank, filled out a paper withdrawal slip, and presented it to one of the human tellers at a window, or they went through the drive-thru bank lane, interacting with a teller remotely and getting their money via pneumatic tube delivery.  But as time passed people realized those ATM machines, once you got the hang of them, sure were convenient — and quick.  You could get money when you needed it and on your schedule, without being at the mercy of your bank branch’s hours.

As their usage increased, the number and location of ATMs multiplied, moving from their initial locations at bank branches to appear just about everywhere.  According to the article linked above, Chase Consumer Banking alone has 16,250 ATMs, and Bank of America has even more.  And as the number of ATMs skyrocketed the functionality of ATMs has increased, too, moving beyond dispensing cash to allow users to perform just about every banking-related service they might choose.  Chase says its ATMs now can do 70 percent of the things its human tellers can do for its customers.

People didn’t focus on it at the time, but ATMs were a precursor of the machine-oriented, self-service movement in American business.  There’s a debate about whether ATMs have ultimately eliminated human teller jobs or have spread them out among more bank branches that have been opened, but one thing is clear:  banking involves much less human-to-human interaction than used to be the case.  Who knows the name of their bank branch manager?  That’s become true in other businesses where self-service machines have been introduced, too.  And in that sense ATMs helped to pave the way for internet-based businesses, cellphone apps, and other consumer-directed options that don’t involve fact-to-face communications with human beings anymore.  We’re conditioned to doing things by tapping buttons on a machine, and there is no going back.

Happy 50th, ATMs!  You’ve helped to change the world, for better or for worse.

Pumping Up A New Housing Bubble

The Washington Post carried a story a few days ago with a surprising headline:  “Obama administration pushes banks to make home loans to people with weaker credit.”

Wait, what is this — 1997?

housing-bubbleThe story details the Obama Administration’s concern that while the housing market is getting stronger, not everyone is benefiting.  That’s because banks are leery about making home loans to new borrowers and people whose credit scores are iffy.  As a result, the Administration is trying to encourage banks to make more loans using programs funded by taxpayers that insure banks against loan defaults, including programs of the Federal Housing Administration.  The Obama Administration wants lenders to use more “subjective judgment” in making loans and wants to make it easier for homeowners whose houses are underwater to refinance their loans.

The article further notes that, since the Great Recession hit in 2008, the government has been insuring between 80 and 90 percent of new home loans.  One of the principal federal agencies involved is the FHA, which allows borrowers with credit scores as low at 500 or down payments as little as 3.5 percent to get home loans.  Banks aren’t going down to that low end of the scale, however.  The average credit score on FHA loans now is 700, because banks are worried that if their loan portfolios are hit with defaults they’ll be held responsible — so they’re playing it safe.  From 2007 to 2012, banks rejected loans for 90 percent of applicants with scores between 680 and 620.

It’s amazing that, so soon after an economy-shaking recession that was largely caused by a massive housing bubble and ridiculous lending practices, regulators would be urging banks to loosen up their loan portfolios, make “subjective” decisions, and rely on the good ol’ taxpayer to insure them against risky lending practices.  It appears that banks have tried to learn their lesson and not repeat the practices that made The Big Short such a wild romp.  Don’t we want banks to be prudent?  And why should the federal government be insuring such a large percentage of new home loans, anyway?  If so many loans are being made to people with strong credit scores and meaningful down payments, why should taxpayers be standing behind 80 to 90 percent of those loans?  Don’t we want banks to make their own credit decisions and take their own risks?

Oh, and one other thing:  the article talks about how owning a home helps build a family’s wealth, and notes that without looser loan standards many young people will be forced to rent rather than buy.  This seems like ’90s-era thinking to me.  The reality now is that many young people don’t want to be tied down to an immobile asset that consumes a huge chunk of their monthly paycheck and won’t be paid off for 30 years.  They like renting because it gives them flexibility and the chance to pursue those good-paying jobs that are so hard to come by and might just be in another city or another state.  With some people saying the economy is teetering on the brink of another recession, can you blame them?

Postal Banking?

One of the great things about competitive presidential campaigns — as opposed to simple coronations of the front-runner — is that different ideas about how to solve the nation’s problems can be raised, and discussed, by the different candidates.  Sometimes the ideas are good; sometimes they are bad.

Although most of the attention this year has been focused on the scrum of Republican candidates vying for attention, on the Democratic side socialist Bernie Sanders is holding up his end of the bargain, too.  One of his more interesting proposals is to allow the U.S. Postal Service to provide limited banking services.

The rationale for the proposal is that, in many poor neighborhoods, banking services are in chronically short supply.  Sanders says that traditional banks don’t want poor people as customers, which means people must resort to “payday” lenders or check-cashing outfits that charge much higher interest rates and higher fees than traditional banks would charge their standard customers.  Why not allow the Postal Service to offer savings and checking accounts, check-cashing services, personal loans, and other modest banking options?  It turns out that, in many countries, postal services already offer such services, and for a time postal-savings options were available to new immigrants to the United States, too.  And, Sanders notes, the U.S. Postal Services has offices just about everywhere.

I applaud Sanders for focusing on the plight of the poor in America and for shining a light on a problem that many people don’t even perceive.  If you live in a suburb where bank branch offices are found at just about every intersection, and those banks are pathetically eager to sign you up for every conceivable banking service, you can’t imagine there is a banking shortage.  But if you are poor, and you live in a neighborhood where the traditional banks are absent, imagine how it affects your ability to pull yourself up by your bootstraps.  Even if you’ve got a job, you’ve got no checking account into which your paycheck funds can be electronically deposited by your employer.  You cash your paycheck with an outfit that takes a chunk of your hard-earned wages and you carry around cash, hoping you can make it stretch until the next payday.  You’ve got no credit rating to fall back on, and if you run short on funds your only option is a lender whose interest rates will make it difficult to ever fully repay the loan — and suddenly you’re trapped in a web of debt with few options.

It’s an issue that deserves attention, to be sure, but the idea of allowing the U.S. Postal Service to offer banking services gives me the willies.  The Postal Service is supposed to be the expert on delivering the mail, but it can’t even make that important function a going concern.  It’s getting creamed by the competition and running up billion-dollar shortfalls.  It’s also highly politicized, with Congress interfering with sensible cost-cutting measures like closing tiny post office outlets.  I don’t care how things work in other countries:  in the United States, there is nothing in the performance of the U.S. Postal Service that suggests that we should trust it to perform banking services, no matter how modest.

And here’s another key consideration:  the whole idea of the U.S. Postal Service banking proposal, as outlined in the Atlantic article linked above, is that the banking services “would remain affordable because of economies of scale and because of the existing postal infrastructure in the U.S. Plus, in the absence of shareholders, they would not be driven to seek profits and could sell services at cost.”  And therein lies the rub, eh?  The U.S. Postal Service already has “economies of scale” and an “existing postal infrastructure and still runs billion-dollar deficits doing what they are supposed to do well.  Now we’re going to have post offices that have no banking experience offer banking services “at cost” — whatever that means — and make loans and handle people’s money?

Gee, what could go wrong with that?

The lack of banking services in poor neighborhoods is a problem, but having the broke, and broken, U.S. Postal Service assume the responsibility of providing banking services in those neighborhood isn’t a solution — it’s just a way to make the Postal Service’s financial problems and constant deficits even worse.  I give Mr. Sanders credit for highlighting a problem, but I put his postal banking proposal into the “bad ideas” category.

What’s Wrong With Bankers?

As UJ notes in his recent post, Democratic Representative Mary Jo Kilroy always notes that her challenger, Republican Steve Stivers, was a “banking lobbyist.”  I assume that means that focus groups are indicating that “banking lobbyist” has sure-fire negative connotations, like “axe murderer” or “convicted felon.”

Representative Kilroy’s negative harping on Stivers’ service as a “banking lobbyist” is weird because lobbyists, of course, routinely interact with legislators — like Kilroy.  If the notion is that lobbying is some intrinsically corrupt job, it is because the legislative process of which Kilroy is a part is corrupt.  What kind of message is that for a Member of Congress to be sending?

Perhaps the negative element of “banking lobbyist” that Kilroy is emphasizing is not the “lobbyist” part, but the “banking” part.  If so, it’s too bad.  Grampa Neal was a banker, and a pretty successful one at that.  Like George Bailey in It’s a Wonderful Life, Grampa helped steer his bank safely through the Great Depression, made lots of very prudent loan (and no-loan) decisions that helped businesses and families, and presided over the bank’s steady growth over a period of several decades.  If Grampa Neal ever used a lobbyist, I am sure it was done properly and for good reason.  I therefore don’t necessarily associate the phrase “banking lobbyist” with something nefarious.

I guess we will find out in November whether voters in the 15th District think “banking lobbyist” has worse connotations than “incumbent Member of Congress.”