The Department of the Treasury has issued an interim final rule that will govern standards for cards that receive federal payments. The new rule goes into effect on Friday. It implements policies designed by NACHA (the Electronic Payments Association) that govern the federal use of the ACH system.

The new rule may leverage the scale of transactions made by the federal government into creating a higher (more…)

Green Dot will manage the US Department of the Treasury’s new debit card program, according to an announcement released this morning.

The new account will give Green Dot 600,000 new accounts. Green Dot already has 3.3 million customers for its card.

Treasury is hoping to save a lot of money. Printing a paper check costs about $1. Sending a payment through direct deposit costs about ten cents. Treasury will spend $1.5 million to make the switch, but that cost will easily be recouped and should result in a net savings of more than $3.5 million for each round of deposits sent to the new recipient class. The new accounts will be used to send tax refunds.

This should be a great deal for consumers that still haven’t moved from check cashers over to a direct deposit-enabled debit card.

The US Department of the Treasury is set to announce the private partners that will roll out its new debit card aimed at unbanked consumers that need a place to deposit their tax refunds.  Under the pilot, Treasury hopes to add more individuals to their Direct Express platform.

The Treasury Department indicated that this plan was in the works last September. The update is that they will (more…)

The Troubled Assets Relief Program (TARP), as the bailout bill is formally known, is a threat to the order of our constitution.  Consider this one sentence:

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency…”

This bill would eliminate oversight options, once enacted, that would give Treasury unfettered control.  Its a huge grab of power.

This is one more reason why lawmakers cannot accept the bailout bill in its present form.

Right now, there are plenty of odd alliances.  To hear Jim Bunning, a conservative Senator from Kentucky, express outrage against the same bill that community advocates are finding reprehensible, is a real bit of entertainment.

Except it’s not funny.

If you are watching the financial crisis, then an important detail will be to see how groups agree on the terms of the pricing of these assets.  There appear to be two main approaches:

The Net Present Value Model

In this scheme, the value of the future cash flows from a mortgage are discounted to produce an equivalent one-time exchange value.  Discounting depends upon an agreed “time value” for money.  Usually, with government investment, time is less valuable than with private investment.  In this instance, its a public buyout of private goods, so the prevailing value could be in doubt.  A public discount rate might by 8 percent, but a private rate could be as high as 12 percent.  Oddly, in this case, the public rate would produce a higher resale value!

Anyway, with the NPV calculation, these assets could be priced much higher than their market value.  That is because the flood of distressed mortgages that send the market values down is not felt in this model.

The Reverse Auction Model

The other option is to create a pricing scheme that forces the private firms to make their own judgments about the value of their distressed assets.  In a reverse auction, banks would indicate the lowest price that they are willing to accept.  The government would then buy loans from the bottom up.

The taxpayer does better in this system.  The banks are forced to make hard choices.  If they accept 30 cents on the dollar in a reverse auction, then they are giving up a lot of upside.  It goes with out saying that in this approach, only the most toxic assets will be bought by Treasury.  Then again, that makes the public investment the most cost effective choice.

The downside is that greed will encourage some banks to keep toxic assets on their balance sheets.  Then, the $700 billion may not be tapped, and the crisis could continue to linger.

Pay attention to which approach is utilized.  It will have a big impact on the outcome from the perspective of both taxpayers and banks.