Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Saturday, February 8, 2014
Perpetually insolvent US Postal Service has a stroke of genius idea - become a payday loan shark , get in check cashing , run cyber currency Exchanges - in other words , become part of the shadow banking system and in short order become TBTF ! Considering the incompetence the US Postal Service has displayed delivering mail , who with trust them as a shadow banker ? And does anyone want their mail delivered by their payday loan provider ? And the idea of the US Postal Service being a US bitcoin Exchange surely would signal the impending doom of bitcoin !
The perpetually-struggling U.S. Postal Service has bankers in a tizzy after floating a plan to branch into what it called "non-bank financial services" that somehow sound a lot like what lenders do.
In a white paper distributed late last month, the Postal Service's inspector general discussed getting into an array of financial services as a means of keeping the money-losing mail operation afloat. Payday loans, check cashing and digital currency exchanges were among the possibilities outlined in the Jan. 27 report.
“The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks,” the paper’s executive summary reads. “To the contrary, we are suggesting that the Postal Service could greatly complement banks’ offerings.”
The 27-page document also notes that as the country moves toward a cashless economy, the Postal Service could also provide simple ways for underserved consumers to “convert their cash to digital currency” or other electronic payment methods like prepaid cards, mobile payments and wire transfers.
Two days after the paper came out, the IG held an invitation-only seminar in Virginia to discuss virtual currencies such as Bitcoin, as well as the potential benefits and disruptive effects they may have on traditional payment networks. But officials insisted to FoxNews.com that the Postal Service isn’t entering the world of virtual currency — or peer-to-peer payment systems not subject to regulation — just yet.
“It is purely coincidental that the OIG hosted an invitation-only seminar to discuss virtual currencies into an electronic form of payment shortly after the white paper’s release,” according to clarification provided to FoxNews.com from the U.S. Postal Service Office of the Inspector General. “ … The USPS OIG did not present and does not have a position or recommendation on virtual currency.”
“There’s an old phrase: Do few things and do them well."
- Bill Himpler, American Financial Services Association
Banking industry officials told FoxNews.com that the agency that suffered a net loss of $5 billion in fiscal year 2013 — the 7th consecutive year in the red — should instead stick to delivering envelopes and parcels and stay out of financial services.
“There’s an old phrase: Do few things and do them well,” said Bill Himpler, executive vice president of the American Financial Services Association. “The Postal Service has its hands full trying to stay above water in trying to accomplish its current mission. I would hate to see taxpayers on the hook for a half-baked venture like this.”
Richard Hunt, president/CEO of the Consumers Bankers Association, characterized the white paper as the potential for “another radical government takeover” of an industry that the private sector is better suited to serve. He also questioned whether entering into those new ventures would necessitate a costly hiring surge.
“You’d have to hire people who are knowledgeable about financial products,” Hunt told FoxNews.com. “So there’s tremendous start-up costs involved.”
Rick Geddes, an associate professor at Cornell University and the director of its program on infrastructure policy, questioned whether there’s actually much to gain for the Postal Service in areas typically served by banks and other financial institutions.
“To me, that seems like a substantial departure from what they’re doing now and I’m not sure I see where the core expertise is in the Postal Service to provide these types of financial services,” Geddes told FoxNews.com. “You’re talking about an entity that’s losing money hand over fist. If these services are so profitable, why haven’t other financial institutions companies got into this business?”
Geddes continued: “Put yourself in the shoes of a small regional bank and you’ve got the Postal Service coming in … That’s a serious problem.”
Should the U.S. Postal Service become a retail bank?
One U.S. Senator has a proposed a radical idea that would extend the mission of the country’s ailingPostal Service into an alternative to payday lenders to serve low-income citizens and sustain the agency’s finances with billions in revenue.
It might sound provincial, but many developed nations face the same issues of rising income inequality, debt, and a scale down of government services. The dwindling spending power of the U.S. middle class and post office’s dire fiscal predicament motivated Senator Elizabeth Warren to devise a multifaceted solution. Warren wants to diversify and extend services rather than reduce them (while tackling a wealthy industry).
The Post Office would provide retail bank services for Americans that lack bank accounts, which there are an increasing number of. One in four households are now outside of the financial system. The plan was estimated to raise nearly US$9 billion in revenue annually, the agency’s Office of the Inspector Generalreports.
The proposal is not coming out of left field and has been tried in other countries, Business Insider reports. It’s won accolades from progressives and some policy experts, but others question its feasibility and the banking industry really hates it. Payday loan lenders, which have boomed since the Great Recession, probably hate it even more.
SmartPlanet interviewed several experts on finance to take a deeper dive into the plan.
First, here are the positives:
“That proposal is part of a growing policy trend on the state/local/federal level in making innovation and service hubs out of physical spaces. For example, President Obama's recently announced "Promise Zone" initiative has a common theme throughout the first five locations he rolled out: there all emerging tech hubs that also contain a growing number of technology R&D programs or there's a growing concentration of STEM-oriented professionals. The hearing in the Senate today about the USPS’ $5 billion deficit focused some on how the post office could close that deficit by selling off a lot of unused facility space. Warren’s proposal could not only lead to financial service centers, but it should begin making tech hubs out of even the most remote rural locations, thereby potentially boosting local economies,” said Charles Ellison, a policy and legislative expert with TEKsystems.
And now the negatives:
“The use of the post office to do financial services beyond what they currently provide (money orders) is not viable. The P.O. skill base and resource structure is not appropriate to provide financial services. The very simple thing of check cashing would require creating a credit analysis and credit operating structure to be installed. Bottom-line - financial services is a very complex operating system that looks easy from afar but in reality not easy to do,” said Dr. Robert Rainish, a finance professor at the University of New Haven.
The Consumer Bankers Association has a multitude of issues with Senator Warren’s plan including conversion of bank branches, hiring, and regulation, said media relation and communications director Thomas Crosson. The association represents retail banks, including “ones the government just forced out of offering one of the key products Sen. Warren is looking to promote,” Crosson noted. It has a history of opposing regulations from advocating the repeal of the Glass-Steagall Act to the many banking and insurance
reforms introduced since 2007.
Dr. Rainish suggested other alternatives:
“The Senator wants to solve a problem that really exists (not everyone has access to basic financial services at a reasonable cost and are at risk of dealing with individuals who do not have any fiduciary responsibilities or at the very least required to undertake a suitability analysis). There are better short-term alternatives. Government could subsidize the needed transactions (e.g. pay a portion of fees, limit firm's credit risk, subsidize low balance accounts to make them worthwhile to offer). The longer-term solution is to provide individuals in high school and college a personal financial management education and develop a more efficient subsidy program e.g. Medicare was originally a higher cost system but has evolved into a very efficient operating process).”
Struggling US Postal Service looks to bitcoin for new revenue
Amid a rise in popularity of cryptocurrency, the financially floundering US Postal Service is considering the possibility of adding a bitcoin exchange to its current roster of non-bank financial services.
The USPS Office of Inspector General (OIG) led a webinar last week on bitcoin and other digital currencies to “explore the possibilities” of setting up bitcoin and other digital-currency exchanges at post offices as a means of boosting revenue. The event included representatives of the Federal Reserve Bank of Chicago, Booz Allen Hamilton, and the World Bank, among others, MainStreet reported.
The OIG also discussed the possibility of creating a “postcoin” as a USPS-specific digital currency.
“There were suggestions like if someone made 'postcoin,' 'What would that be?' 'How could that help?' If we were to employ the technology to support post office operations around the world, internationally, how could crypto currency help post offices do their business?" Darrell Duane, a bitcoin consultant who was involved in the webinar, told online digital currency site CoinDesk.
In addition to the webinar, the USPS OIG released a report covering the possible benefits of providing other non-bank financial services, including replenishable prepaid debit cards, savings accounts, and payday loans.
"The Postal Service already provides non-bank financial services like money orders and international money transfers, and many American families could benefit if the Postal Service expanded its offerings,"the OIG said in a statement.
Should the USPS decide on entering the cryptocurrency world, it has a built-in advantage considering it is already licensed to provide related services, like money transmitting.
"Around the world, financial services are the single biggest driver for new revenue for postal operators, and the conditions may be ripe for similar success for the U.S. Postal Service," the USPS OIG said. "If just 10% of the money underserved Americans currently spend on alternative financial services were instead spent on more affordable products from the Postal Service, it could generate some $8.9 billion in new revenue."
The search for alternate revenue streams for USPS in an era of relative austerity in the US comes as its core business has conceded much ground to internet based communications. The majority of bills are now paid online, and letter writing has gone down by 25 percent since 2010. The USPS costs the federal government $15.9 billion a year to operate.
Just one day prior to the USPS webinar, New York State’s top banking regulator announced plans to create regulations that will guide virtual currency firms that operate in the state, possibly requiring them to hold a “BitLicense.”
Benjamin Lawsky, New York’s Superintendent of Financial Services, said such regulatory guidelines would seek to bar misconduct like money laundering while not cornering in booming cryptocurrency technology. His comments came during the start of hearings this week - organized by the New York Department of Financial Services - on the future of online currencies.
“Ultimately, it’s our expectation that the information we’ve gathered in this fact-finding effort will allow us to put forward, during the course of 2014, a proposed regulatory framework for virtual currency firms operating in New York,” Lawsky said in his statement, according to MarketWatch.