reality-based educator

And the greedy shall inherit the earth. First the gas companies, courtesy of the Washington Post:

Gas Profit Guzzlers
Refiners Captured The Biggest Part Of the Price Increase

By Justin Blum
Washington Post Staff Writer
Sunday, September 25, 2005; F01

When the average price of a gallon of regular gasoline peaked at $3.07 recently, it was partly because the nation's refineries were getting an estimated 99 cents on each gallon sold. That was more than three times the amount they earned a year ago when regular unleaded was selling for $1.87.

The companies that pump oil from the ground swept in an additional 47 cents on each gallon, a 46 percent jump over the same period.

If motorists are the big losers in the spectacular run-up in gas prices, the companies that produce the oil and turn it into gasoline are the clear winners. By contrast, the truckers who transport gasoline, the companies that operate pipelines and the gas station owners have profited far less.

The spikes caused by Hurricane Katrina -- which heavily damaged oil production and refining in the Gulf region -- accentuated gains the refiners and producers already were enjoying over the past year. Exxon Mobil Corp., the Irving, Tex., behemoththat produces and refines oil, reported in July that its second-quarter profit was up 32 percent, to $7.64 billion. Analysts expect Exxon's profit to soar again this quarter.

The rapid run-up in prices at the pump when Katrina hit -- and their slow decline -- has infuriated drivers, many of whom complain that oil companies used the storm as a pretext for boosting prices and profits. Politicians echoed that sentiment and are calling for investigations of the oil industry.

But interviews with analysts, consumer advocates and participants in the oil markets indicate that typical market forces were at work in the price run-up. Commodities markets that determine prices for gasoline moved dramatically higher after Katrina struck the Gulf region and damaged refineries and oil production. (The effect of Hurricane Rita on refiners' profits remains to be seen.)

Rising pump prices and company profits have caused lawmakers on Capitol Hill to seek legislative changes. Sen. Byron L. Dorgan (D-N.D.) has introduced a measure that would tax some oil company profits that are not devoted to exploration and development of new production.

"They obviously are experiencing windfall or excess profits," Dorgan said of the big oil companies. "They are . . . profiting in an extraordinary way at the expense of the American consumer."

And now to Senator Joseph Biden's (D-MBNA Corp.) favorite constituency, the credit card companies, again courtesy of the Washington Post:

Card Companies Are Filling Up At the Station

By Margaret Webb Pressler
Washington Post Staff Writer
Sunday, September 25, 2005; F01

As the price of gasoline rides the storm tides of two hurricanes, one group is crying all the way to the bank.

Major credit card companies are reaping huge profits from rising gas prices because the fee that banks charge gas stations to process a credit card transaction is based on a percentage of the purchase price. As gas prices go up, the processing fee goes up.

Since last year, the fees that gas stations paid to credit card companies have risen 64 percent, right along with the price of gasoline.

"It's unexpected revenue, because people are just doing what they were always doing," said David Robertson, publisher of the Nilson Report, a credit card industry newsletter. "It's not like a whole new market opened up. There's no behavioral change. It's just more money."

And lots of it. On a typical day, Americans buy 382 million gallons of gasoline, according to the Energy Department's Energy Information Administration. About 70 percent of that is paid for by credit card, said several trade associations representing gas stations. The credit card processing fees paid by gas stations, meanwhile, average about 2.5 percent, these trade groups agree.

So a year ago, when gas prices averaged $1.87, banks involved in credit card processing made about $12.5 million a day on fees. Now, with prices averaging $2.75 nationally, the credit card companies are raking in $18.4 million a day.

That is $183 million more a month, or nearly $2.2 billion dollars on an annual basis in extra money paid to the nation's banking giants just because of rising gasoline prices.

"The credit card processors and banks are reaping enormous profits right now," said Paul Fiore, director of government affairs for the Washington, Maryland, Delaware Service Station & Automotive Repair Association. "That's right out of the dealer's profit."

Fiore said credit card fees have become the top issue among gas station owners because they have not been able to raise their profit margins to cover the increased fees they must pay to the banks. Typically, a retailer's own bank gets 25 percent of the processing fee, while three-quarters goes to the bank that issued the credit card, said Robertson of the Nilson Report.

The fees are especially burdensome for gas stations, because their profit structure is generally fixed: Stations tack on anywhere from 7 to 11 cents a gallon to get their profit. That margin stays the same, or may even shrink a little, as prices rise, yet the station has to pay more each month to cover rising credit card transaction fees.

Marty Dustin, who manages the Burnt Mills Citgo station in Silver Spring that he and his father own, said rising credit card fees are rapidly eating up the family's entire profit from the business.

"We are not going to be able to make it on that 7, 8, 9 cents [per gallon] because there's more coming out of the back side," he said. "We're all going to have to try and grow our margins a little bit to make up the difference."

But so far, Dustin and others say, the price competition among gas stations is so intense that few stations have been able to raise their margin to make up the difference, or even part of it.

Adding to the difficulty for gasoline retailers is the fact that consumers are using credit cards more often for those costlier gasoline purchases. The National Association of Convenience stores says that since Hurricane Katrina, the percentage of gasoline purchases on plastic has gone up 10 points , to 80 percent.

Each oil company's own branded credit card charges its station owners lower fees, but those cards account for a small -- and decreasing -- percentage of sales at retail gas stations, said Daniel F. Gilligan, president of the Petroleum Marketers Association. Debit cards, too, have slightly lower fees than traditional credit cards but also represent a small portion, about 16 percent, of total card transactions, according to the convenience store association.

It is major credit cards offering frequent-flier miles and rebates that get swiped the most, by far, these groups say.

But there is growing pressure on the industry to rein in its fees.

The lead plaintiff in a class-action lawsuit against the credit card companies for merchant fees has seen a wave of interest in his case because of the gas-purchase profits.

"As gas prices have doubled, so, too, have the earnings for the banks that own the credit card associations," Mitch Goldstone said. "What I proposed to the CEOs of both Visa and MasterCard is to very simply suspend the interchange fees at all service stations."

He got no response, but he has chronicled his battle on his Web site, WayTooHigh.com.

The issue of rising credit card profits also has begun to come up in congressional hearings related to gas prices. In one exchange earlier this month with a gas station owner, Rep. Joe Barton (R-Tex.) remarked that the percentage fee system -- giving the bank more money just because a consumer bought more gas -- "doesn't make a whole lot of sense to me."

Wall Street analysts say that for each individual financial institution, the growing profit from gasoline purchases is not huge compared with the total profit for the companies. Three of the biggest credit card issuers, Citigroup Inc., MBNA Corp. and Capital One Financial Corp., all declined to comment on the increased profits they are getting from gasoline transactions. But banking industry experts say the trend is in keeping with the increasing profits that banks are making in general on consumer fees of all kinds.

In the meantime, said F. Peter Horrigan, president of the Mid-Atlantic Petroleum Distributors' Association, some service stations are fighting back. An increasing number are bringing back discounted prices for cash purchases or even rejecting credit card purchases altogether.

"It is the number one issue in our industry right now," Horrigan said.

Nothing like profiting from disaster and tragedy, eh?

Preznit Bush has proposed more "tax relief" for the gasoline and oil companies in the face of all these destructive hurricanes, even though the companies are reaping more profits these days than ever.

In the meanwhile, middle class and working class consumers, who really could use some relief from the high price of energy and the exorbitant interest and fees charged by the credit card companies, keep getting squeezed for more and more money.

And the credit card companies are squeezing the gas station retailers too, though I have to say I don't exactly feel sorry for them.

Not when many of these bastards charge $3 to $4 dollars a gallon for gas.

Nonetheless, how much profit will the banking industry need to reap from consumers and retailers before they say, "Enough!"

Do they want it all?

Do they need it all?

Uncle Alan Greenspan just raised the Fed's interest rates to 3.75% this past week. My student loan bank and my credit card companies will waste no time in raising their rates accordingly.

Mortgage banks and lenders will no doubt do the same.

My CITIBANK savings account is still getting 0.55%. My girlfriend's Chase account is getting 0.70%

How come the banking industry gets to gouge consumers by charging Mafioso rates and fees while they hand out chintzy interest on savings rates in return?

Could it be because the banking industry, like the energy industry, owns three quarters of the policitians from the Democratic Party and every politician in the Republican party?