House Democrats call for bank fee probe

Rep. Peter Welch of Vermont, the Democratic Chief Deputy Whip in the House of Representatives, told reporters Thursday he has sent a letter to Attorney General Eric Holder urging him to explore whether banks have engaged in what's called "price signaling," a tacit agreement not to compete on matters such as the strategy and implementation of what consumers must pay for services.

Welch's letter was co-signed by Reps. John Conyers (D-Mich.), Raul Grijalva (D-Ariz.), Keith Ellison (D-Minn.) and Michael Honda (D-Calif.).

Ellison said Bank of America's (BAC, Fortune 500) recent announcement to raise the monthly fee for using a debit card to $5 "may be a signal to others that, 'hey, lift up your prices and we'll all just do it,' but I think that's why we need the AG to inspect and investigate to find out whether the consumer's interest is being served."

At a news conference on Capitol Hill, Welch declined to illustrate how to distinguish between the normal business practice of charging what the market will bear and illegal collusion, which he says could be a violation of federal antitrust laws.

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But Welch did say big banks have reacted poorly to lawmakers' efforts to control bank fees, and he suggested the industry is trying to make up for lost profits by coordinating price strategies in other areas.

He said "we have very serious questions as to whether or not there has been an antitrust violation, and we call upon the Attorney General to do a full and compete investigation to get to the bottom of this."

Welch said the inquiry should center on the swipe-fee practices of Bank of America, JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), which together control a substantial share of the consumer banking market. The banks charge retailers a swipe fee every time a customer slides, or "swipes," a debit card through the store's card reader when making a purchase.

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Welch said Americans pay the highest swipe fees in the world and that could represent "the big bank model that is all too much now a fee-driven shakedown of consumers." He stood alongside a chart that represented the dwindling number of banks left today, thanks to mergers and consolidations over the past 20 years.

"There are enormous questions that are being raised as to whether or not they're crossing a line into anticompetitive practices," Welch said, "and the Attorney General has the responsibility to be protecting us."

Ellison told reporters an investigation, regardless of its outcome, could discourage banks from trying to take advantage of customers. Comparing the call for a probe to a cop walking a street patrol, Ellison said "I think the AG, investigating and making sure the industry knows the Attorney General is watching the market carefully, will encourage better behavior"

Later Thursday, another member of Congress, North Carolina Democrat Brad Miller, met with Molly Katchpole, who has organized a petition drive against Bank of America aimed at trying to persuade the bank to cancel its new $5 debit card fee. Miller is considering legislation to make it easier for people to switch banks.

I ditched my big bank!

Miller told CNN after the meeting that more and more people have reason to leave one bank and find a better deal for their banking elsewhere, including as a protest against Bank of America's new charge.

"But the banks have deliberately make it sticky to leave," he explained, because of sometimes burdensome procedures to discontinue direct-deposit paychecks and automated bill paying.

That's where Miller's legislation comes in. Among the provisions, it would address whether banks can require a departing customer to visit a branch, instead of allowing them to close their accounts online. "It's a nuisance," he told Katchpole during their meeting, praising the young woman's signature drive as a way to draw attention to problems with retail banking.

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Katchpole says her petition, now with 200,000 signatures, prompted Bank of America to say that it is responsive to customer feedback, but the bank added that it would be premature to roll back the new charge.

Miller said he does find it curious that banks began raising their fees all at the same time -- right after the passage of legislation restricting other bank charges.

And while he said he supports his colleague's call for an investigation by the Attorney General, Miller said "I do not see any evidence of collusion" to

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Bring profits home and create jobs? Maybe not

Proponents from the left and right say it could create jobs and boost revenue. Critics -- also from the left and right -- say it would do just the opposite, costing the economy jobs and the government revenue.

Just this week, a group of fiscally conservative House Democrats sent a letter to the congressional debt committee endorsing the idea, while Senate Democrats Carl Levin and Kent Conrad sent a letter urging the panel to reject it.

And both sides are pointing to various studies of a repatriation tax holiday in 2004 to bolster their case.

What the debate's all about: Bipartisan bills in the House and Senate would coax U.S.-based companies to bring home profits they made abroad by offering them a lower tax rate on those earnings than the 35% imposed on profits made on U.S. soil.

Right now, earnings made abroad aren't subject to U.S. tax until they're "repatriated" through the distribution of dividends from the company's foreign subsidiary to the parent corporation.

Hiring gains momentum

As a result, proponents of the tax break say, companies have more than $1 trillion "trapped" abroad in low-tax countries. That money, they argue, could be put to much better use in the U.S. economy.

It sounds logical. But the truth is that the money is not really locked out of the United States at all, said corporate tax expert Edward Kleinbard, a former chief of staff for the Joint Committee on Taxation.

"A large portion of these earnings is kept in liquid investments, and those in turn invariably are in U.S. dollar liabilities of U.S. borrowers, like U.S. bank deposits, commercial paper, and Treasuries. All those investments already are fully at work somewhere in the U.S. economy," Kleinbard said.

What's more, Kleinbard said, the large multinational corporations that would benefit most from a repatriation holiday are not exactly hard up for cash. On the contrary, they have a lot of money sitting on the sidelines and have access to low-cost debt financing. So if they wanted to make more of an investment on U.S. soil they could, Kleinbard notes.

The Joint Committee on Taxation estimates that a repatriation "holiday" could boost revenue by about $26 billion over the first three years -- but lose as much as $80 billion over the next decade.

And the Senate's permanent subcommittee on investigations, which Sen. Levin chairs, released a report this week that said the 2004 tax holiday resulted in a loss of nearly 21,000 jobs among the top 15 repatriating corporations, and cited other studies which found no evidence that the holiday increased overall employment.

Proponents of the holiday challenge JCT's assumptions and assert that Levin's report is "one-sided." They point instead to a study done by economist Douglas Holtz-Eakin for the U.S. Chamber of Commerce.

Holtz-Eakin, a former director of the Congressional Budget Office, estimates that a repatriation holiday could result in the creation of roughly 2.9 million jobs and a $360 billion boost to GDP

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China-U.S. trade wars: What's at stake

The U.S. Senate, in a rare show of bipartisan agreement, passed a bill Tuesday that would slap steep taxes known as tariffs on imports from nations with undervalued currencies. It is a provision aimed squarely at China's yuan, and it prompted harsh attacks from Chinese officials.

"Should the proposed legislation be made into law, the result would be a trade war and that would be a lose-lose situation for both sides," said Vice Foreign Minister Cui Tiankai. "It would be detrimental to the development of economic ties and might have an adverse impact on bilateral relations."

But despite overwhelming support in the Senate, the bill might never become law as House Speaker John Boehner has signaled his opposition to it.

"I think it's pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency," Boehner said.

President Obama has also questioned whether he would sign the bill, saying he didn't want to pass "symbolic" laws that would be slapped down by the World Trade Organization.

Is China's currency undervalued?

For years China has intervened in currency markets to keep its currency, the yuan, essentially pegged to the dollar through a fixed exchange rate.

The Chinese briefly allowed the yuan to start appreciating starting in 2005, but it stopped when the financial crisis hit in 2008. In June 2010 it again allowed the currency to start rising slowly in value. It has gained almost 7% versus the dollar since then.

But experts claim that if the currency had been allowed to trade freely like the euro or many other major currencies, it would be much stronger today. Critics of China's policy estimate that the yuan is still undervalued by 25% to 40%, even with the recent rises in value.

What's wrong with an undervalued currency?

The low value of the yuan has kept Chinese exports very cheap, and gave Chinese businesses an edge in competition with U.S. companies.

The Economic Policy Institute, a liberal think tank, estimates that the United States has lost 2.8 million jobs since 2001 because of the growing trade deficit with China.

One way that China keeps the currency value low is by using its trading profits to buy up U.S. Treasuries. That helps to keep the cost of borrowing low for the federal government and for U.S. businesses and consumers. But it also means that China now holds $1.2 trillion in U.S. government debt, more than any other country in the world.

What products do the U.S. and China trade?

The value of the Chinese currency has helped China become the largest source of imports to the United States, sending $255.5 billion of goods to the U.S. between January and August of this year. That has resulted in the United States having a $189.3 billion trade deficit with China -- the largest of all U.S. trading partners.

Figures from the Commerce Department show that the top imports ranked by dollar value in the first seven months of this year are computers ($28.8 billion), cell phones and other telephone equipment ($18.8 billion), office equipment and printers ($10.2 billion), and televisions ($6.6 billion).

Meanwhile, U.S. exports to China include soybeans ($4.8 billion) civilian aircraft ($3.3 billion) motor vehicles ($2.9 billion) and electronic circuits and chips ($2.4 billion).

While Chinese exports to the United States dwarf U.S. exports to China by nearly a four-to-one margin, the $66.1 billion of U.S. exports still makes China the No. 3 market for U.S. goods, behind only Canada and Mexico and ahead of Japan or any single country in Europe. And those figures don't include sales that U.S. companies get from products they produce in China for the Chinese market. For example, General Motors (GM, Fortune 500) now sells more cars in China than in the United States

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Oil speculation seen adding $600 to your gas bill

Consumer spending is the main driver of the U.S. economy, and gasoline spending is responsible for less than half of all U.S. oil product consumption, CFA said. In the current weak economic environment, the consequences of rising oil prices are very serious.

"When speculators, oil companies and OPEC rob consumers of that much spending power, the inevitable result is a dramatic reduction of economic activity and employment," said CFA Director of Research Mark Cooper.

Speculation has been an integral part of the oil market for some time, but it alone may not be to blame for the recent volatility and price spikes. The report says market deregulation has a lot to do with it.

The oil market was deregulated in December of 2000, creating opportunities for excessive speculation and a massive increase in the market's size, the report states. Prior to this change in policy, speculation didn't have a heavy impact on oil prices, nor was it so widespread.

"This report provides a timely reminder that it was weak regulation that landed us in our current economic mess," CFA Director of Investor Protection Barb Roper said, "and it will take a strong policy response to restore the economy to health."

The CFA said deregulation added about $30 per barrel to the cost of oil in 2011, draining more than $200 billion -- 1% of gross domestic product and 2% of consumer spending -- from the economy.

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A 2% reduction in consumer spending on goods and services translates into the loss of hundreds of thousands of jobs, according to the CFA.

In 2011 oil prices traded in a range between about $80 and $100 a barrel.

Without speculation, the price of crude oil would instead fall somewhere between $60 and $75 per barrel, according to the CFA

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