Bernanke Speaks in Boston

Fed Chair Ben Bernanke spoke today in Boston at a conference sponsored by the Boston branch of the Federal Reserve Bank about bank policies and options in a low inflation economy (see transcript). Here is the video:

- JSM

Nice Teaching Case: Home Sold Twice

Ben Davis sent this link out to the contracts professors list serve. http://www.msnbc.msn.com/id/39381416/. The case involves a home sold twice . . . apparently by mistake: once as a short sale and then at foreclosure days later. The new owners, thankfully, recorded their deed and bought title insurance, but it has been quite a headache for them. The lender, not surprisingly, is claiming no wrong-doing in the matter.

I am getting ready to start methods of avoidance in the next couple of weeks and will be sure to mention this one to the class.

- JSM

The Newest Identity Thief: Grandma

Identity theft by relatives appears to be on the rise. One young lady was shocked to find out that her 71 year old grandmother opened a credit card in the grand-daughter's name: and did not pay the bill (See, Family Credit Card Fraud). While wrong, the difficulty of the whole matter is obvious. Who wants to put grandma in jail for fraud? Other common identity victims are children, whose parents sometimes open accounts in their names and don't pay (See The Newest Identity Thieves: Parents; All in the Family). Crime and wrong-doing in one's own family is not unheard of. After all, I just taught Gimpel v. Bolstein this week where the family ousted one relative from employment at the family farm after he embezzles some $80,000+. The thief ultimately sues on a claim that his stock is worthless in a company without a job or dividends and the court agrees (at least as to dividends or buying him out). So, stealing in one's own family . . . yes it happens.

Here though, the problem is not only might the relative have to shoulder the financial loss, but sustain damage to their credit score if they don't turn in grandma. Most card issuers require a police report in order to document the account fraud. There is definitely a heavier loss here than presented in Gimpel where the thief lost his job but was not prosecuted . . . and the family farm just lost the money. While I condemn the thieves here, card issuers have some responsibility as well for issuing cards in children's names in the first place. While card issuers have responsibility for fraud, they seem to find clever ways to shift it back to consumers (See credit card skimming).

- JSM

DOJ Sues AmEx, MasterCard, and Visa

The United States Department of Justice, Antitrust Division, has sued American Express, MasterCard, and Visa, alleging that each credit card network imposes anticompetitive rules prohibiting merchants from (1) encouraging customers to use a different form of payment or brand of credit card by offering a discount or any other incentive; and (2) expressing a preference for a particular brand, or informing their customers about the merchant's relative cost to accept, particular card brands. The complaint further alleges that each defendant independently possesses market power and that the merchant restraints thus constitute anticompetitive vertical agreements violating Section 1 of the Sherman Act.

Along with the complaint, the Division filed a proposed consent decree with Visa and MasterCard that broadly prohibits blanket rules that would bar a merchant from incentivizing its customers to use a particular credit card brand or, interestingly, card type. The consent decree defines card type as a category of credit card such as "traditional cards, reward cards, or premium cards." The decree would thus empower merchants not only to steer customers to a particular card brand, but also to steer customers to particular types of cards within a card brand. For example, merchants might attempt to steer card users toward lower priced (for the merchant) traditional cards and away from reward cards. The decree explicitly permits Visa and MasterCard to continue to prohibit merchants from discriminating among particular bank issuers. It also allows the settling defendants to negotiate individual merchant agreements that include the prohibited restraints, so long as acceptance of the card brand is not conditioned on the merchant's agreement to the restraints.

American Express has vowed to fight the case.

By seeking to promote a competitive solution to what many consider unjustifiably high merchant card acceptance fees, the Division has staked out an alternative ground to the regulatory approach to merchant fees that Congress recently imposed for debit cards. The relief sought is cautious, however, in that the card networks may continue to prohibit (1) surcharges for particular brands or card types, and (2) efforts by merchants to discriminate in any way against particular card-issuing banks within the Visa and MasterCard systems.

Making Deposits by Phone

No need to drive to the bank? Making bank deposits using your phone is here for some banks. Chase has been advertising its service (See, Chase IPhone App) and USAA also has it (See USAA Takes Mobile Banking). While the other large banks haven't yet offered the service, it is sure to be the next big thing. The process takes a few minutes since you have to take a photo of the front and back of the check, so I would not recommend it if you have a few of these to do. And, if the photo is not quite clear enough, it can be unsuccessful. But overall, the draw is clear in terms of saving the run to the bank.

Of course, Check 21 makes the digital image of a check the same as the paper version. The digital imaging of checks by consumers will not prevent the banks from processing the check just like any other as the paper check is not needed in any event already. While the process cuts down the float time for the person writing the check, the advantage of saving time at the bank is a draw. I couldn't find the app on the Blackberry, but would bet that it will come along as well in time.

So, how do you do it? See this video on how to deposit on an IPhone.

- JSM

Piracy in Mexico takes a Different Twist

One of the aspects or piracy near the Gulf of Aden has been its lucrative commercial nature, the taking of cargo and hostages for ransom (see Fighting Piracy With Private Security Measures). The commercial nature of the piracy has often led to substantial ransoms paid with crews and cargo released afterwards. The possible favorable outcome for individuals lives has led to a sort of capitalistic approach by some pirates (See Ploch, Piracy Off the Horn of Africa). The protocol of piracy off Africa certainly affects the response of governments to the problem of piracy there.

This weekend, though, drug cartel pirates in Mexico killed a jet-skier on a border lake (See, jet-skier and Fox News, Pirates). While this new hot-spot of piracy surely affects businesses on the ground where customers steer clear of the area, it also serves as a reminder of the brutal nature of piracy and that is not a "business"). Pirates, historically, are the enemy of the human race - hostes humani generis - posing a longtime threat to shipping and commerce. The violence in Mexico-U.S. waters is a reminder.

- JSM

Small Business and the Recession

The New York Times did a short piece on small businesses in New York during the recession, focusing on the problems the current environment presents.

- JSM