Author: A.T.

Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is.

According to a recent article in Fortune, banks held 54% of of the financial assets in U.S. institutions in 1980 — versus just 32% or so today. And banks now hold just 17% of consumer cash (in checking and savings accounts). Wow! Where’s the rest? Much of it is in money market mutual funds, and money market funds tied to brokerage accounts.

Will much of the rest of it soon be in “digicash” balances held for you by such trusty souls as Microsoft and Intuit?

I remember sitting next to Walter Wriston, then Chairman of Citicorp, just before the Apple II made its debut, and his saying banks weren’t really in the banking business, they were in the information business — the business of moving bits of electronic information around the world.

This is doubtless one of the reasons he turned over the reins to the youngest and most computer savvy of his potential successors — John Reed. At the time, I didn’t really grasp what he was saying (which is why he was chairman of Citicorp and I was just one of several dozen dinner guests, but lucky enough to be seated to his left). But here we are, just a moment later (from the perspective of human finance), and guess what: banks as we long knew them, those most permanent of granite edifices, may just sort of merge into the cyber landscape.

This is good, of course. It’s “financial power to the people” and no more teller lines or having to rush to the bank before it closes. (Many of you are too young to remember, but ATMs are really only about 20 years old. Before that, any time you wanted $100 in cash you had to get to the bank before three o’clock and stand in line.)

It’s the prospect of being able to shop for mortgages “on-line.” (The Automatic Loan Machines I mentioned in an earlier comment are definitely coming to a bank branch — and perhaps a supermarket — near you, but will eventually be eclipsed, I should imagine, by cyber-loans applied for in “real time” over the Internet.) It’s the prospect of no longer leaving idle balances you earn no interest on, or bouncing checks because you’d lost track of your checkbook.

As for the bank buildings themselves, what are they to become? Discos? Perhaps. Or maybe high-end storage vaults. You know: like those “Shurgard” deals you can rent for your old books and records? They’d just expand the vaults and safe-deposit box department. A good place to store your valuable back-up computer disks.

Tomorrow: Ascend Communications

Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is.

Steve Forbes is a good guy. The Forbes family and Forbes magazine have added a lot of zest and enthusiasm to the American scene. Though I generally favor Democrats (exceptions: Giuliani, Weld), I even sent Steve $500 for his campaign. Figured the poor guy needed the money; knew he would add a welcome voice to the Republican debate; and wanted to thank him for the support he’s given my own efforts to fix the auto insurance mess in California. (Californians: Vote YES on Props 200, 201 and 202 March 26th!)

But c’mon. This flat tax thing, as currently proposed, is not a good idea. Are we to believe that without lowering tax rates on the rich, they won’t work hard or invest? Look how hard Steve and his wonderful dad Malcolm worked building Forbes back in the years when the top Federal bracket was 70% — as it was all the way up to 1980 — and 50% — as it was all the way up to 1986. High tax rates didn’t stop them from working, investing and building America.

Those old marginal rates, I admit, were pretty crazy. Thank heavens they’re gone. And Steve is absolutely right: ideally, we would have a far simpler tax code. I’m for that. Filing on a postcard for most people is fine.

But the complexity of the zillion-page tax code stems not from its five brackets (15%, 28%, 31%, 36% and, with the 10% “millionaire’s” tax on income above $250,000, 39.6%). Rather, the complexity is in things like depreciation (the accounting for which can keep dozens of people busy in a large company), or the rules on how much you can deduct for driving your car for business or charitable purposes.

It would be great to wipe away the complexity of the tax code (although, in a complex world, you would be surprised at how much would have to remain, no matter what). But how much extra complexity would there be if “the postcard” had a separate line for people who made more than $100,000 a year? And one more for people who make above a million?

There wouldn’t even have to be extra lines! It could all be one line: “Enter here 15% of all income from $36,000 to $99,999, 30% from $100,000 to $999,999, and 45% above $1 million.” With small print (or a big postcard), that’s one line. Anyone who makes more than $1 million a year ought to be able to figure it out.

Of course, the real way to fix the tax code is to gradually move away from taxing the things we want to encourage — like working and investing — toward further taxing the things we want to discourage or conserve, like smoking or energy consumption. If we want to encourage people to spend a little less so they can save a little more, and we do, then why not lower the tax on saving and raise the tax on spending? Lower the income tax and replace that revenue with taxes on things like tobacco products and gasoline? The idea wouldn’t be too raise more tax, just to raise it in ways that lead to a healthier economy — one a little less dragged down by health care costs (were it not for tobacco, it’s been estimated, a third of the nation’s hospital beds could be emptied) and by our tremendous dependence on foreign oil (which sends our wealth abroad and weakens the buying power of the dollar).

But the practical problem with any major change to the tax code is that to sell it, it must be accompanied by a massive tax cut , so that virtually everyone saves money. Otherwise, it will never pass. If even just 20% of the voters would see their taxes rise under some new system, whatever it was, can you imagine how loud those 20% would howl? A lot louder than the remaining 80% would purr.

And the problem with that — a massive tax cut — is that it would unbalance the budget again. (Pat Buchanan would say we could just “carve it out of the money we waste on foreign aid,” but foreign aid accounts for less than 1% of the budget, not the 15% that the average American, perhaps listening to people like Buchanan, imagines.)

So don’t rush to place bets on a flat tax just yet. My guess is that it will be a long, long time coming.

Tomorrow: Remember Banks?

Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is.

Sometimes, I will simply share some of my favorite quotes, in hope they may become some of yours. Here are three:

“There they go. I must follow them. I am their leader.” — Gandhi

“Stop smoking for three years and save enough money to buy an ox.” — The slogan of China’s new anti-smoking campaign (as reported in The Globe And Mail, Canada’s National Newspaper, in November)

“There is a debt of service due from every man to his country, proportioned to the bounties which nature and fortune have measured to him.” — Thomas Jefferson (as quoted by Colin Powell in his book). Seems a short jump to “Ask not what you can do for your country . . .” — and not a completely impossible leap to “from each according to his ability, to each according to his needs,” but that’s clearly going to a discredited extreme.

Tomorrow: Steve Forbes and the Flat Tax

Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is.

Yesterday I did my ode to Automated Teller Machines — old friends to most of us by now. Today, I want to tell you what I’ve learned about Automated Loan Machines, which are just beginning to be deployed. You’re likely to be hearing a lot more about them in the next year, and may even be sidling up to one at your bank or car dealership or supermarket.

Instead of having to wait in line to see a bank officer and then sit there like a child, hat in hand, baring your innermost secrets — as if he’s so perfect — and then waiting a day or two to hear whether you qualified . . . and certainly not wanting to go through all this again with some different bank, if your loan was approved, so you pretty much accept whatever terms you’re offered . . . and feeling embarrassed if your loan was turned down, and having to wonder whether it was because of your skin color or the way you dressed or because the guy just didn’t trust you . . . with an ALM the whole thing is magnificently impersonal — and takes just 10 minutes!

You go up to the machine, just as you would an ATM. You touch the screen to answer a lot of questions. While you do, it’s checking you out with credit-bureau computers and probably getting your SAT scores, for all I know. By the time you’ve answered everything, and reviewed the possible loan options — all this within about 10 minutes — it is ready either to reject you (which it does most of the time, so don’t feel bad), or else print out a loan agreement and a check, then and there, with your picture on it, no less. (The ALM has a built-in camera.)

This makes applying for a loan faster, less humiliating, and a lot cheaper for the banks.

The two downsides:

First, privacy. Having given the machine all this information, you may wonder who else might gain access to it. But that could be true of handwritten applications as well.

Second, even more debt. By making borrowing easier — indeed, fun for those of us who like gadgets and whiz-bang technology, let alone the self-affirmation of being able to punch in some keys and get $10,000 just on the strength of our records — ALMs will tilt society even a little more toward borrowing. Not a big tilt, probably. But to the extent the banks can get you ratcheted up with even more debt, so long as it’s debt you can pay off, they’re thrilled. That’s good for them; not necessarily good for you or the country.

Still, that’s just quibbling. Automatic Loan Machines are the future, just as Automatic Teller Machines were the future 20 years ago. (They’re already in place in several hundred locations.) Let’s just hope they don’t get used quite as much.

And no, the company that makes them is not yet public, so don’t even think about trying to get in on the ground floor.

Tomorrow: Potpourri