www.andrewmackay.net:

I received A Century Turns from Thomas Nelson’s BookSneeze book review service — basically, free books in exchange for reviews. Here comes the review!

Being a Canadian living in the USA, I am perhaps more acutely aware of the different ways that history can be presented than most. Take the War of 1812 as an example: In Canada, to the best of my recollection of 4th grade history classes, in the War of 1812 the Americans tried to invade Canada in a land grab. The Canadians beat the Americans senseless, marched all the way to Washington, set fire to the White House and left when they finally begged us to stop. We’re nice, so we said “Let’s just go back to the way things were,” and the war was over. In America, they teach that it was a war of resistance to British imperialism. Any attempts at land grabbing were expressly to gain leverage to get the British to cooperate. Since the British eventually were forced to cooperate, the victor was obviously the USA. (Note: that’s a gross oversimplification of the views from both sides… and I’m more and more inclined to fall somewhere in the middle of the debate. Also, we had Maine and they had Windsor/London Ontario and we traded back!? Seriously? Shoulda kept Maine! I digress…)

To the victor go the spoils, and also the right to record history. A Century Turns is a view of American history in the last 30 years or so from the perspective of Bill Bennett, a conservative talk show host. (I will state as a disclaimer that I am sometimes, perhaps even often, on the same side of issues as Bill Bennett.) This is an unabashedly American book. It tracks minutiae of the way politics developed through the late 80s, 90s and 2000s. It was a genuinely interesting read for me for several reasons: I’ll give you three, plus the two reasons the book aggravated me:

1. My understanding of American politics between 1950-1996 is woefully thin. Getting some of the details of the latter part of that period filled in was fascinating.
2. I don’t think I’ve ever engaged in reading an attempt at a historical accounting of events that I’ve lived through. I think that’s probably a reflection of my age. But, it was interesting to read how someone else saw events that I lived through. I didn’t always agree, but getting a different perspective was helpful.
3. Bill Bennett is obviously a smart person and understands the details of how Washington operates at a very high level. Getting a window into that world was beneficial, even if just to confirm for me that politics is not something I aspire to.

Now for the aggravations:

1. Bill constantly has footnotes that tell anecdotal stories from his experience that attempt to fill in details about the people involved in the events. In spite of his disclaimer that it’s not intended to be self-aggrandizing, that’s exactly how it feels — kind of like MadTV’s Stewart saying, “Look what I can do!”
2. This is a distinctly conservative book. For the most part, Republicans get either an even-handed or light treatment while the Democrats mentioned are given the gears. Clinton’s problems are flogged while George W Bush’s are excused. If the Republican party “wins” in the long term, this will probably be how histories of this time read in a hundred years. If the Democratic party prevails long term, these sorts of accounts will be discounted as obviously partisan.

You should read Bill Bennett’s book, if you have the time, if for no other reason than to better understand what you’re getting when you read historical accounts of any kind. In this book, with events that are easy for me to remember, it was easy to see where the writer’s personal biases came into play. The reality of writing is that biases are likely in play in the ancient histories I read as well — I simply don’t know the events or players well enough to see them. All in all, an interesting experience.

There’s an interesting movement happening at www.moveyourmoney.info — several volunteers (including one Ariana Huffington, the editor in chief of the Huffington Post (which I won’t bother linking to)… if I had to describe how similar Ms. Huffington and I are philosophically I’d probably say, “Diametrically opposed,”) have started an effort to encourage people to stop dealing with big wall street banks and to move their money to independent, community banks and credit unions.

I’m not much for sticking it to the man. But, I can say that big banks are bad for their customers. I say this as one who has worked in banking until fairly recently, and has seen the impact from the other side of the desk. Here are just a few reasons big banks are bad news for everyone:

1. Fees. Big banks lead the way on raising fees. Take the infamous overdraft fee, for example. The national average for FDIC governed institutions is now $26 per instance (last I read, per the FDIC). However, if you change the sample group to FDIC governed institutions with more than 3 billion dollars in assets, the average goes up to $33 per instance. I think the common person would be shocked to find out how much a little bank branch generates from overdraft fees alone. I was shocked. Of course, banks will be reluctant to break it out for you… instead referring to it as part of the grand category, “Non interest income.”

2. An emphasis on “Non interest income.” Traditional thinking is that banks make most of their money by taking depositors money and lending it to borrowers. They charge the borrower 6-10 %, pay the depositor 2-4%, and the 4-6% in the middle is where the banks make money. The banking industry is changing though. See, deposit rates fluctuate. Banks can lock in loans for 30 years at 5% this year, and 5 years from now find themselves paying 4.75% for deposits. When the margin gets that narrow, the banks make less money. For most banks, that means that they pay less to their stockholders. Angry stockholders is bad. So, the banks realized they needed to find income they could control. And that, friends, is why you have free checking accounts that have more fee opportunities than any account your parents had when you were growing up. Non-interest income is a constant — unless consumers educate themselves. And as they do, the fee structure is changed to generate more fees.

3. Your big bank is sticking it to small businesses and loving it. Did you know that there’s some pretty heavy risk involved in handing out those little machines that process credit card transactions? Sure enough. Small banks have to be particularly careful, since they can only afford so much liability. So, the big banks get the small business who are new, or have less-than-perfect credit. And they charge… you guessed it! Fees! That’s right, your local small businessman who fixes your computer, does your taxes, sells you your newspaper, he pays (probably 3-5%) per transaction you do with your debit or credit card. If he chooses not to accept cards for payment, people go elsewhere. So, he gets killed, and the big banks get bigger. Want to make a locally owned business person’s day? Pay them with cash.

4. Big banks can afford not to pay you fair rates for your deposits. “But, I thought you said banks make money by taking my money and lending it out for more than they’re paying me?” Somewhat true. But, banks have lots of creative ways to make their balance sheets work these days. They can borrow from the federal reserve (at .25% overnight, depending on their creditworthiness). They can borrow from other banks who are “deposit rich.” All of the sudden, it’s not so necessary that they pay you 2% for your money… in fact, they’re better off NOT paying you 2 % for your money.

5. Big banks can afford not to lend to you. See point #4, but reverse it. Banks can invest in all kinds of bonds, lend to other banks, etc., all of which is safer than lending. So, if you’re not right in the “ideal borrower” category, they might just decide to do something else with the money.

6. The people who make decisions at big banks have no idea who you are. This is possibly true at smaller banks too, depending on just how “community” your community bank is. At big banks, lending decisions are made by trained risk analysts who look at your credit report, the request, and the documentation and compare it to a matrix of “yes/no” statements. Hit too many “no”s (or “exceptions”), and the answer is no. No matter what. A community bank lender is much more likely to have some degree of discretion and familiarity with your situation. That’s good for you, and good for the community.

7. Big banks invest deposits all over the place. Banks have lending territories. To my admittedly limited understanding, this is usually the states the bank has branches in, and bordering states. That means that a bank that exists only in Kansas might lend also in Oklahoma, Missouri, Iowa, Nebraska, and Colorado. If they’re small, chances are that they reinvest (through lending) most (if not all) of their deposits right there in their home state. That means that when you deposit your nest egg, you’re building a house across town, not in New York, LA, or Dallas.

There are some inconveniences with small banks — ATM fees, limited locations, lack of advanced services. But, if you want to know that your money is staying at home, the best thing to do is to bank with a small, local institution. Credit unions are probably the ultimate — they have no stockholders except the members, so there’s no one to keep happy except for the customers. Either way, you can feel much better about the people you’re dealing with (not necessarily locally, but corporately) dealing locally.

The folks at moveyourmoney have a local bank finder that can help. Think about it — not as a way of sticking it to the man, but as a way of investing in your local economy. That’s a good thing!