Every now and then you pick up the newspaper and something blows your mind for its sheer lunacy. Quite often it's some inanity out of the mouth of a Bush administration official, but today's winner is David Leonhart's column on the benefits of granting a bank charter to Wal-Mart on the front of the New York Times business section.
I have no idea what the guy was inhaling when he sat down and started typing, but is he out of his freakin mind?
If there's one thing we learned in the 1990s it's that we need to be very careful about conflicts of interest when it comes to the people who handle our money. Boil down all the problems in the financial community to a single common denominator and you come up with: conflicts of interest.
How can you trust the advice you're getting when you don't know if your broker or banker is working in your interests or his company's interests? That's the basic question you have to ask each time you get involved in a financial transaction, whether it's opening a checking account or selling 100 shares of stock.
So why's it dangerous for Wal-Mart to get a bank charter? Conflicts of interest.
Think about it this way, if Wal-Mart is granted a bank charter there's no way you're going to stop other large companies - IBM, Microsoft and Coca-Cola...or Halliburton, Enron and Worldcom - from opening their own banks. Now you have all these different businesses that are flush with cash from the deposits they've accepted. So during a difficult quarter, what's to stop a bean-counter at a shady outfit like Worldcom from shifting some assets from the bank to another part of the business to dress up the balance sheet for investors? Or what's to stop a few crooked executives at a pernicious business like Enron from raiding the bank before the regulators start knocking at the door?
The fact is it doesn't matter if Wal-Mart is Willy Sutton or Robin Hood, opening the door to the Bank of Wal-Mart is a slippery slope we definitely don't want to start down.
Of course none of this addresses the problems raised in Wal-Mart's request for a bank charter. Wal-Mart's (and Leonhart's) argument is that banks charge egregious fees and gouge their customers, and since Wal-Mart is known for its low prices it would provide the same services at a lower cost.
Now it's completely true that bank fees are ridiculously high and difficult to decipher, and at this point there isn't much incentive for banks to change the situation on their own. But the problem won't be solved simply by introducing competition - there already are more than 7,000 different commercial banks in the U.S., several of which, like Commerce Bank and Washington Mutual, cater to the low-fee, service-oriented mindset.
Rather, this is a problem that easily could be solved through basic changes in bank regulations and without taking the extreme step of putting foxes in the henhouse.
Banks rip off their customers with fees on services like basic checking accounts and cashing checks? Here's an idea right off the top of my head: Have banking regulators set limits on account minimums and require banks to prominently display their fees for key services.
The way the system works now, if you want to get a "free" checking account you usually have to deposit a few thousand dollars, which is more than many people have sitting in their bank accounts. And if you want to know what your bank's fees are for basic services, like cashing a check, you have to thumb through these little brochures that contain their price lists, making it nearly impossible to comparison shop a bank that offers the best deal.
But imagine if banks were required post those prices in their window or on a wall, so bank customers could "window shop," like in any other business. Just think about what the changes in labeling laws did to the food industry and you'll see what I'm talking about. If Congress could force consumer-friendly changes down the throat of the powerful food production lobby, it can do the same to the banks. (Though in Washington right now there doesn't seem to be much of an impetus for consumer-friendly changes in the law, so we'll likely have to wait before any of these ideas catch on.)
The point is you don't have to open the banking industry to competition from Wal-Mart to change banking practices. There are plenty of solutions available that don't radically rework the financial landscape.
And when you get down to it, do you really think Wal-Mart's looking to get into banking because it wants to bring fairness in pricing to all those poor downtrodden bank customers out there? Or is it because, as Willy Sutton famously once said, that's where the money is?
Personally, I believe Wal-Mart has more Sutton than Ghandi in its DNA. But hey, that's just me.