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I have shifted!!


In Singapore, we En-bloc, In China, they just confiscate your land, flatten your house, and kill your husband

Human Rights Will Overshadow Beijing As Olympics Approach

A recent Reuters article on Chinese looming issues says that “Groups such as Free Tibet campaigners or China’s growing band of domestically dispossessed are hoping to use the Olympics to highlight their complaints in front of a massive global audience.”

Chinese Censorship

One of the biggest issues that China will face in 2008 is the assault that will inevitably come over China’s public image on certain issues. China is often denounced for the censorship that it carries out against ideas that are commonly spread outside of Chinese borders. From a liberty standpoint, this kind of restraint on society is unthinkable.

The article does suggest that China isn’t taking the criticism lightly and the cause of humans rights activists may be misguided because China does adhere to acceptable human rights standards. “Human rights, as a concept, have become a constitutional principle, a mainstream subject in the political life of both the Party and the state,” it quoted Dong Yunhu, vice president of the China Human Rights Research Association, as saying.

Here’s an excerpt from a Reuter’s article on the upcoming 2008 Olympics; it notes the challenges that lay ahead for the Chinese government and the problem with journalistic standards and censorship.

BEIJING (Reuters) – China exuded optimism on Tuesday about the 2008 Beijing Olympics, saying its centuries of culture and history would light up the world, even as organizers came under renewed pressure to fulfill a media freedom pledge.

“We will show the world 5,000 years of splendid Chinese history, the significant achievements of modern China and the zeitgeist of the Chinese people,” said the Communist Party mouthpiece, the People’s Daily, in a New Year’s Day editorial.

While recognizing that unprecedented challenges lay ahead for the year as a whole, the editorial said that there would be far more opportunities than challenges.

For those interested in further learning about China and their ’successful’ approach to Censorship, you might want to read this article from CNN: China and Internet Censorship

Where do credit card fees come from?

posted on 10 April, 2007 under Rates and Fees, Featured, Visa and MasterCard by Bryan Johnson


It is known by some, but not all, that businesses pay fees in order to accept credit cards as a form of payment. In fact, over 7 million merchants in the U.S. accept credit cards. During 2006 they collectively paid over 30 billion in fees to offer customers that convenience.

Despite the size of the industry, its a mystery to most as to who is pocketing these billions of dollars in fees and why it has to be so unbelievably complicated. I had a CPA tell me the other day, “I’m a smart guy. I understand numbers, pricing and reconciliation, but for whatever reason I just cannot get my head around credit card processing fees.” He’s not alone. Hopefully this article will clear up some of that confusion as I provide some context about where credit card fees come from, who’s making the money, and how fees and rates are determined.

Banks make roughly 80% of all credit card processing fees
Yes, banks are the biggest benefactors of consumers using plastic. Banks co-issue debit and credit cards with Visa and or MasterCard (AMEX and DISV don’t issue cards through banks). Visa and MasterCard are essentially membership associations owned by the issuing banks, and collectively own about 70% of the market. For example, Visa is a membership association of over 13,000 banks nationwide.

Banks make money every time a card they issued is used to purchase something. For example, let’s assume that a business is paying an effective rate of 3.5% to accept credit cards (that 3.5% is usually comprised of a discount rate and a per transaction fee but I just used a flat rate for simplification purposes). Roughly 80% of that 3.5% is going to the issuing bank. The rest of the 20% is divided among Visa or MasterCard, the credit card processor, and if there is one, the Independent Sales Organization (ISO).

How do banks justify their fees?
Credit card usage has seen explosive growth in the past 20 years for a number of reasons. Consumers get 15 to 45 days to pay original purchases, rewards and other perks, a line of credit for extra spending power, fraud protection, a monthly accounting of all purchases, and plastic is more convenient than cash or check.

All of these conveniences cost banks money. They have costs associated with fraud, bad debt, customer support, rewards and other perks, and float (they pay for your purchases before you pay them). Putting two and two together here on the creation and payment of fees, banks come up with rewards programs but merchants end up picking up their tab!

Continuing our example, if you buy movie tickets for $20 and the movie theater is paying 3.5%, the bank that issued that credit card would make $0.56 ($20 x 3.5% = $0.70, x 80% equals $0.56). Visa and MasterCard add their respective fees of .0925% and .0950% on top of what the banks charge (Note: that’s 9.25 and 9.50 basis points. 100 basis points equals 1%). Adding the fees from the bank and Visa or MasterCard together form what is called ‘interchange’.

You now understand why you find a credit card offer in your mailbox everyday. Outside of the 18% interest rates, annual fees, and late fees, being a card issuer is a lucrative business! Banks are making money on both the front and back end.

That seems simple enough, why does everyone say it’s so complex?
There are over 100 different interchange ‘rates’ or ‘categories’. The particular rate that is charged on any given transaction depends on a number of variables, including:

1) The type of card that is used in the transaction i.e. debit, credit, rewards, or business card, international, etc.
2) Where the card is used i.e. restaurant, retail, gas, business to business, ecommerce, etc.
3) The method of usage i.e. swiped, over the phone, or via ecommerce.
4) What information the business captures during the transaction i.e. name, address, tax ID, tax amount, unit description, etc. (the information required is a whole other layer of complexity).
5) When the transaction is submitted to the processor for settlement and funds transfer after the initial authorization.

As you can see, it’s a very complicated matrix. Very few people, including those who’ve been in the industry for years, really understand interchange.

Qualifying for different rate categories and getting hit with downgrades can be expensive
Merchants can often do more than they think to better manage the credit card fees they pay. For example, transactions can be ‘downgraded’ when they don’t meet interchange requirements. Reasons for downgrades include not capturing the correct information when processing (such as billing address), settling the transaction after a certain period of time, not swiping the transaction and many more. Learning how to recognize these penalties and then making the appropriate adjustments can help you lower your fees.

One example is if an a restaurant employee hand keys your credit card number into the point of sale system because the magnetic strip can’t be read, the transaction falls into a different rate category . The transaction is penalized because ‘non swiped’ transactions carry more risk and therefore higher interchange fees. The increase in rate can be significant ranging from 30 basis points to 1.6%, or more. Actual rates of course vary according to the fee structure you have with your existing provider.

Different rate categories and downgrades are the dirty little secret for merchant service providers. It’s where they make most of their margin because they offer artificially low rates and don’t disclose higher market ups on transactions that don’t fall into a specific rate category. Too many merchants fall for this and think their paying the single, highly competitive rate that was advertised.

A quick search of merchant service providers will demonstrate that non disclosure of fees is a standard practice. See two examples here.

Your undecipherable monthly credit card statement
As icing on the cake, the unreadable format most merchant service providers use to present this information to you on a monthly basis doesn’t help. Of course, the format used is not because they have no other option, it’s because that’s what makes them the most amount of money.

The frustration with credit card fees
Some merchants accept credit cards because they find them to be a easier method of accepting money from customers. Most, however, accept them because they have no other choice and the costs can be significant. Many merchants and advocacy groups have cried foul lately with Visa and MasterCard increasing ‘interchange’ fees over 117% in the past five years while maintaining over 70% market share. The Card Associations have been accused of being monopolistic.

Interchange has come under increased pressure lately
A few years ago, Wal-Mart won a class action lawsuit against Visa and MasterCard. They claimed that interchange was being improperly priced with debit cards having the same interchange rate as credit cards. Among other things, they argued that debit cards should be have a lower interchange rate because money comes directly out of the account versus a credit card where there is 15 to 45 days between purchase and payment. The courts agreed and awarded Wal-Mart and other retailers billions of dollars in compensatory damages. There are currently a number of other legal battles against the Card Associations surrounding interchange.

Financial Worry, Health, and the Reverse Wealth Effect As Housing Pops

from :

 It’s been said that the difference between childhood and adulthood is financial worry. Children are of course troubled by family insecurity, but the gnawing weight of financial distress really eats away at the responsible adult(s).

As you have probably surmised, I know because I’ve been under extreme financial duress all too many times. (That goes with being self-employed in cyclical industries.) But financial worry can also arise from “death by a thousand cuts”– small reductions in income and small cumulative increases in expenses which slowly work to bring household balance sheets into worrisomely negative territory.

The greatest source of stress is the loss of a loved one, followed closely by combat, divorce, the loss of one’s job/livelihood/home/business, serious injury/illness and moving, i.e. “pulling up stakes and starting over.” Unfortunately, the last three are intertwined with financial losses and worry.

We all know financial distress is highly stressful, and that chronic stress is a killer. Though this is hardly news, it is also largely ignored; thus The San Francisco Chronicle’s recent feature on the topic was most welcome: Stress makes us depressed, fat, sick – and we do it to ourselves.

It may be difficult for younger people who have only known prosperity and shallow, brief recessions like 1991 to know just how wrenching a “real recession” like those of 1973-74 and 1981-82 can be. I vividly recall the headline in 1973 announcing that General Motors was laying off 100,000 workers that weekend.

In 1982, unemployment was officially over 10%, and unofficially about 15%. In recent years, most of the unemployed soon find some kind of paying work; in a “real recession” jobs dry up almost completely and so the unemployed stay unemployed. Since there is about 130 million jobholders in the U.S., a 10+% unemployment rate would mean 13 million people were out of work. Most of those laid off will experience financial worry–as will their dependents.

Let’s consider all the feedback loops which are starting to reinforce each other.

1. Housing and the Reverse Wealth Effect. Since a house is the largest asset in most American households, any rise or decline in the home’s value has a profound effect on our deepest sense of financial well-being. When our house appreciates, it makes us feel wealthier, hence the name for this phenomenon, “The Wealth Effect.” When people feel confident in their financial future, they tend to spend freely.

But the Wealth Effect has a flip side, called “The Reverse Wealth Effect”. When housing declines in value, people feel poorer, even when the decline has no measurable effect on their actual income or bank balances.

But in this era of “debt-based prosperity,” the house was not just a reservoir of psychological well-being but a source for cash, extracted via refinancing or HELOCs (home equity lines of credit). Now, the drop in housing valuations has a very direct and measurable impact on household bank balances and spending because, as the cliche goes, “the home equity ATM is closed.” Here are two charts which depict the vast equity extraction of the past seven years:

2. As housing and equity extraction decline, so will consumer spending, leading to recession. As this chart shows, wages have been essentially flat, so where will the money come from to replace equity extraction? The stock market? Most households have little exposure to the markets, except in their pension funds, 401K and IRAs.

3. As the stock market succumbs to lower profits and a recessionary economy, then pension and retirement funds will take a hit. Public and private workers alike have enjoyed outsized returns in their pension/retirement funds for 25 years. All the pension plans are now predicated on outsized returns continuing indefinitely. Yet history suggests Bull Markets don’t last forever, and there is virtually no awareness that pension plans may actually suffer losses rather than 7%-15% annual appreciation.

The net result is a decline in income, for workers will be required to begin contributing, or contributing more, to pension plans as pay-outs exceed investment income.

4. Government “junk fees” and taxes are rising, reducing consumer income. Have you noticed that the parking ticket which used to be $10 a few years ago is now $30? This may sound too trivial to mention, but then add in the 1%-of-gross-receipts “city business license,” the $300/year “rebuild our libraries” bond tacked on your property tax bill, the “fire extinguisher inspection fee” and dozens of other “junk fees” for things which government used to pay for out of property, sales and income taxes, and it starts adding up.

I pay thousands of dollars a year in these “junk fees”–licenses, fees and property tax surcharges which were once paid for by the regular assessed property taxes and sales and income taxes. Cities have increased the costs of parking tickets, vehicle fees, business licenses and the like to harvest more revenue without “raising taxes.” If you’re paying more for “fees,” the net result is the same: your disposable income goes down, tax revenues go up. Is a “fee” not a “tax”? It’s orwellian to say “no” when the citizenry is captive; either pay the absurd $30 parking ticket or we impound your vehicle. Next thing you know, there will be a $10 “processing fee” for your library card.

5. Mortgage re-sets will reduce the incomes of millions of households. The plan to “save” 500,000 subprime borrowers from onerous re-sets is all in the news, but millions of non-subprime mortgages will be re-setting for households which can afford the higher mortgage payments–but it will certainly reduce their disposable income.

6. As consumer spending declines, millions of jobs will have to be cut to preserve profitability. No CEO earns a $100 million stock option “compensation package” if the corporation’s stock tanks and profits turn into losses. Labor is the highest cost for all American businesses, large and small, and just about the only way to slash expenses significantly is reduce headcount, i.e. lay off the highest paid, least productive employees.

Bullish apologists claim “business investment” will save the day, but the world is awash in excess capacity for virtually everything except oil and commodities like platinum. The global ramp-up to industrialize China is much farther along than the Bulls are willing to concede. China has been industrializing for 25 years already, and some leveling off would be natural. To claim that the U.S. economy can put 10 million people laid off in a consumer recession to work making stuff to sell to China, India and Europe is quite a stretch, given that exports are less than 10% of the U.S. economy while consumer spending is 70%.

7. The costs of borrowing and servicing existing debt is rising. As “risk” is re-set in the global financial system, the costs of borrowing and servicing existing loans is rising, regardless of what the Fed does with the Fed Funds Rate. This is true not just for housing but for business as well. In just one example, consider this Wall Street Journal story: Mortgage Pain Hits Prudent Borrowers:

Some of the costs of cleaning up the mortgage crisis are beginning to affect people who pay bills on time and avoid excessive debt. A new fee from Fannie Mae comes as interest rates are heading up and increases in insurance costs.

The new charge from Fannie Mae adds to the general gloom over the housing market. It comes as mortgage interest rates are heading up again after a recent dip — as well as increases in mortgage-insurance costs, tougher requirements on down payments and other moves by lenders to ration credit. And last month, Fannie and Freddie imposed surcharges for mortgage borrowers with lower credit scores.

8. As lay-offs increase, more households lose medical insurance. Since there are already 40 million uninsured citizens in the U.S., what’s another 10-20 million? Perhaps one difference is these households were middle-class, at least they were until one of the primary wage-earners lost his/her job.

If you’re a civilian worker in the U.S., you know the drill: your spouse’s medical benefits may be either poor (“fake” coverage) or non-existent. He or she might be a contract employee, or self-employed, or working at a non-profit or small business which provides no coverage. If the wage earner with the “good” health plan gets laid off, the family loses coverage.

If you’re self-employed, you know how expensive healthcare insurance is: any family policy under $1,000/month is considered reasonable. Sure, if you’re 23 and single you can buy a cheap plan, but if you’re middle-aged with kids, it’s hard to get coverage for less than $800/month.

If a small business falters in a recession, the proprietors may have to choose between keeping the house and feeding the kids or maintaining health insurance. You know what goes–the coverage.

9. As recession takes its toll on the nations’ households, stress increases and health declines. Nobody thought the economy could decline in early 1929, or in 1969, either. people who have grown accustomed to their house rising in value and their stock or pension stake rising like clockwork every year will encounter financial stress they are unprepared for if a family wage earner is laid off.

Though I cannot list any statistics to back this up, an informal survey suggests that an extraordinary number of middle-class households are already experiencing severe financial worry–that is, they’re barely keeping their heads above water as it is. Any shock–an unexpected medical bill, an elderly parent requiring financial aid, job loss or mortgage re-set–can push the household over the edge into insolvency and bankruptcy.

It wasn’t always this way. Wages rose faster than expenses, and people were more prudent with their finances, saving more and choosing modest vehicles and houses. It seems incredible that so many people are stretched to the limit in “good times,” and so unprepared for “seven lean years” or indeed, any financial reversal.

This is how a reversal of the wealth effect, financial worry and health are intertwined and feeding back into each other. It is worrisome on many levels, for people without medical insurance often don’t receive any care except emergency room treatment, which is typically too late to address the underlying causes or chronic conditions. It’s possible that some people will become disabled by financially-induced stress-related diseases, further impoverishing the family. Without healthcare, the condition will go untreated.

As people fall out of the job market, the family loses its middle-class perks like medical coverage. As expenses like mortgage re-sets rise, income falls, and any lay-off could trigger the loss of the home. On top of the high-stress loss of livelihood/job/business, the family may also be forced to “pull up stakes and start over again”–sometimes a welcome escape but stressful nonetheless.

When the economy’s cheerleaders wave their pom-poms, they never consider the reinforcing nature of the negative forces listed above. Yet in the real world, they are tightly linked: being laid off triggers loss of health coverage which then impacts the family’s health and even the breadwinners’ ability to work. Financial strain, if it lasts long enough, can cause once-stable households to break up or lose the family home–even a home with equity and a fixed-rate mortgage.

Those of you who lost your jobs or businesses in 1981-82 and had to relocate to start over know what I’m talking about; and with medical coverage many times more expensive now that it was then (in real inflation-adjusted terms), starting over and reclaiming a middle-class lifestyle after the decimation of a lengthy recession will be that much harder.

what is heaven?