Jubilee for the middle class

The American middle class is dying off in huge numbers. It has been going on for more than a decade, but we are facing a catastrophe of biblical proportions. I have a plan to stop it and to save those left.

Hyperbole? You decide.

Formerly known as the middle classWhen someone speaks for the middle class, most often they continue to use a post-World War II snapshot. Average salary. Average house. Average everything. Most Americans believe they are a member. Because of the enormous changes in concentration of wealth, they are wrong. More Americans than they realize are actually poor by prime time standards. More are joining them every day. But this piece is not about the poor.

Lcurve.com took the most recent census figures (it has gotten worse since then) and plotted it on a football field (sports metaphors are the best way to communicate complicated issues in terms that sound good, but seldom do more than confuse things further). If median income were used, the stack of money earned at the fifty yard line would equal a stack of $100 bills, 1.6 inches high (median household income ranging from $61,000 in Maryland to $31,000 in West Virginia  – 1.6  inches is about the size of your big toe, OK, a boy’s big toe). At the five yard line, the stack of $100 bills is 4″ high. At the one foot line, the stack of $100 bills is 40 inches tall, or 3-feet, 4 inches. At the one inch line, the stack is over 30 miles high.

The middle class now lives somewhere between the five and the ten yard line. At one time, and in my lifetime, they owned half the field.

There are many advocates for the poor – I am among them, but they can do without me for the day. Admittedly, the working poor are suffering something terrible and are too busy working three jobs to advocate for themselves and only have Joe Biden. The rich? They hire hire lobbyists. Today, I’m focusing on the middle class.  The faux alter ego of the rich… and the poor. The people who are portrayed on television commercials during prime time. Beautiful, healthy, making-it- in-America kind of people who bought in to the American work ethic, performed to it, and subsequently have more to lose and yet further to fall. They are the poster children for the American dream.

Formerly known as the middle classThese are the people who look as if they made it – good education, ambition, hard work and a couple of good decisions landed them with a good job and on a career path. They had the audacity of hope ten years ago. They bought into the ownership society. They believed. They purchased more home than they needed because they knew it would grow in value along with their wages. They had good credit and used it. They consumed and charged some of it on their single-digit-rate credit cards. They pay huge amounts of income, property and sales taxes. Buy or lease the new cars. Send their kids to private schools in new uniforms. And go out to dinner.

Where are they today? They are holding on by their nails (no longer professionally manicured). They are being squeezed to death. Those who didn’t get laid off are working longer hours, many for less pay. The raises and the bonuses, known as the big hits, didn’t happen as hoped and planned, unless they are on Wall Street.  The AMT (Alternative Minimum Tax) has hit them hard. Very hard, an annual battering. Their property taxes skyrocketed because they bought their houses before the prices fell, but after the reassessments. Some have extended families who are out of work or under-employed. They have had to help out. Their health insurance has gone up, along with their co-pays and their need for care. Their equity lines have been cut , and not-so-coincidentally, so too have their credit card limits. For the first time in modern history, consumers are paying against their credit card debt before paying their mortgage payments – a feeble attempt at false liquidity at the risk of the most basic of human needs – housing.

One by one, they were either a day late paying their credit card bill, or a dollar short on guessing their new lower credit limits. The late charge, or over-limit fee hit their Equifax report and their 3% Chase card with the $30,000 balance, and $35,000 credit limit overnight turned into a 33% card with a $30,000 limit. Their monthly payments went up by a thousand dollars and with it all their “disposable income.” Suddenly, all the other cards matched the 33% rate. They cut back immediately, but it wasn’t enough. They cashed out their retirement. Got rid of their extra car. Postponed their health needs. Then the collectors started calling. They never knew they were living on the edge. The precipice was looming.

I’m not making this up. Our middle class – those making $100,000 to $250,000 a year are suffocating – their financial livelihood is being squeezed out of them, and with it their contribution to consumerism. Almost all of the air is going to the bank (a euphemism for “the company store”). They have exhausted their savings, have no equity, no credit, less than zero leftover money, and are losing it. Sure, many have been able to hold on to that one nice car and that wonderful home with the for-sale sign in the front yard. But their “comfortable” life is only in the living room. Disposable income provides economic freedom – it is gone.

I realize that creating sympathy for those on the five yard line is almost impossible. These are the people that we all need to take us out of the recession. They are the customers of those who are still working. They are, or were , the employers of the working poor. These are the people who pay the taxes that keep our government working. Ironically, they are the only class who are still vaguely in touch with those on the one foot line, who otherwise, would (pick one or more: have no friends at all; no one to betray, or no one to aspire to them).

So, what’s my plan? My proposal? A middle class bail out that won’t cost the taxpayer a dime.
Premise: those who are already 30 to 90 days behind on their credit cards and owing the exorbitant interest rates are unlikely to make it. Fortunately for the banks, all of these accounts are insured… by AIG. Yes, the company that is 80+% owned by the US government. The insurance that banks have on these accounts returns 70-80% of the balance to them, which is why they add on all the late payments and hidden charges in order to jack up the balance prior to handing the debt to AIG. The banks get it all back and the government ends up picking up the tab.

I propose that we offer a deal to save those middle class patrons who can still be saved. A deal that won’t cost the taxpayers a penny. In return for cutting up their credit cards, getting no new ones, paying on time and not declaring bankruptcy, we (using the rates being charged to banks) would let them pay off their debt at near zero interest rate (the near zero will pay for the servicing). If they renege, the deal goes back to the bank to collect and they don’t get another chance.

For someone who has $100,000 in credit card debt, this will save them $25-$30,000 a year – about the same deal they had before this “greatest economic crisis since the great depression” began. Enough money to pay off their debt in a few years instead of never. To get their mortgage caught up and keep them in their home. Enough for them to get back soon to consuming, paying taxes and saving us all.

What about all that interest that’s being written off, is that a cost to someone? Only on paper. The government now lends money to banks for virtually nothing (it is why the banks have so much to gamble on Wall Street). The banks are charging exorbitant rates for credit cards, but their earnings are only on paper,  as much of it will never be collected. They justify these rates and charges because of the risk of default, but this isn’t new money or new risk. The only thing that changed was the economy. Why should we bail out the banks, give them free money for their bad decisions and not bail out the people, who – should they survive –  pay for the bank bailout? The banks do not deserve the spread and bankruptcy is bad for everyone (except the banks).

This solution is not another big government bailout (even the servicing can be privatized). It is simply extending, for a limited time, the rate we charge banks to a group who had the audacity of belief in the American dream and wants to pay their debt. They bear the costs, are responsible for their decisions, and will give us all a chance to get out of this mess.

One more note – this is fairly progressive. Credit card debt is relative. Credit card jubilee (at least in concept) could be just the thing to get us out of this mess.

42 thoughts on “Jubilee for the middle class

  1. JHH

    I couldn’t agree more, Lee, that the financial washout should be laid at the feet of the financial industry. I can’t think of a single industry that has writ the destruction of its customer base and never corrected course. Your thirty-mile high ratio got my attention. I worry that it will become a call to arms. Far better a credit card jubilee--I love your thinking! In today’s reality, who needs income of more than $5 million dollars a year? Socialism is the ownership of the means of production. WE, the people, have already socialized some sectors of the financial industry via the bailout. Why are those people still running over us?

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    1. Lee Leslie Post author

      I believe that it is a combination of things: fear it would devalue bank stocks which might hit their capital requirements which might hit the stock market (the only basis of economic confidence reported on television); too complicated to be covered by spin alone; Fox news wouldn’t approve of it; absolute money has corrupted absolutely; those sorts of things. Thanks for reading.

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  2. Frank Povah

    Thought-provoking, Lee -- and sensible. Money on paper has always intrigued me. I’m old enough to remember when the IMF/World Bank forgave the “developing countries” trillions in debt. Cries of doom and destruction and the end of the financial system as we know it notwithstanding, the world didn’t even blink. Seems to me it’s only us poor sods here in the dark of the mine that have to stump up the actual cash, the fellers driving the skip get fat on money that exists only on a computer screen. Money, which is actually worthless of itself, has become a commodity to be bought and sold for a profit and manipulated by giant trans-global corporations to their advantage and at our expense. What would happen if some government, say, decided to call in all its currency that was supposedly “out there” on the market? Does it actually exist?

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    1. Lee Leslie Post author

      It doesn’t exist. If memory serves, there’s a little less than a $1 trillion in US currency in circulation (that we printed)- much of spread around the world (not just Columbia) or sitting in US bank warehouses. Countries have called in their currency -- don’t forget the Euro.

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    1. Lee Leslie Post author

      Typos are like roaches, spot one and there probably thousands under the counter. Thank you for seeing something that I couldn’t and I will correct it -- renege -- Lee

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  3. T M Copeland

    Your analysis of the vanishing middle class is spot on. It amazes me that this fact comes as any surprise. After Kennedy, the consistent policy of the United States has been to favor capital by replacing exports with imports. This has been done in the name of free trade and is justified with the belief that free trade leads to production by the most efficient.

    In reality, as practiced by our government, free trade means capital is free to go wherever it can achieve the greatest return while labor remains fixed, for the most part, to a specific location. Labor must then adapt to new, “more efficient,” wage scales.

    This combination, freedom for capital and geographic constraint for labor, as much as the continuing nefarious activities of the banks, something that exacerbated things that would have occurred eventually, results in labor and labor alone covering the cost of “increased efficiency” and has been and remains the primary actor in thinning the ranks of the middle class. The credit bubble and the highly accelerated, massive and unprecedented transfer of money from what is left of the middle class to the very wealthy, the bailout, is a policy that winnows the ranks of the middle class much further and much faster.

    Unfortunately, it is only the latest in a long line of very shortsighted and stupid policies of the wealthy. It is not in the interest of the wealthy to destroy the middle class. As Lee points out, the middle class is the great engine of stability in the United States. By insisting on a system of governance that protects the interests of the most talented and ambitious of the population to the detriment of everyone else, the wealthy do themselves no favors. It is foolish of them to deny programs that will reinforce the middle class, programs like universal, affordable health care for instance. Notwithstanding all the right wing BS, such programs cost much less than the private expenses the wealthy will be forced to pay when civil society breaks down.

    The fact that civil society is now being verbally threatened primarily by the Tea Baggers of the far right is not a contradiction but a verification of civil anger resulting from policies designed to thin the middle class. No reasonable or rational person will expect this anger to be contained entirely on the right side of the political spectrum. Soon, the anger will manifest itself on the left and there will be tremendous strains placed upon the body politic.

    I say “designed to thin the middle class” in the paragraph above because I do not believe this is an unintended consequence. For many decades, theorists on the right have lamented the “fact” that wage scales in the United States have priced our industrial goods out of the world market. This “reality” requires that capital, once set free from international repatriation restrictions, be used to ship jobs off shore. Only when manufacturing wages and benefits fall to something like a world standard, the right will tell you, will domestic manufacturers regain competitiveness. In other words, not until domestic labor is made to shoulder the entire burden of “increased efficiency” will jobs return.

    You see, with the exception of the rapid acceleration brought on by the banking outrage, the system is functioning exactly as it was designed.

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    1. Lee Leslie Post author

      Mike: Right on. This is an inevitable result of playing the game of capitalism. It is a good game and can be fun for a while, but eventually there are fewer winners and losers until one takes it all.
      In each of the cycles where the economy seems to be swinging too far one way or another, something happens or there is intervention to recreate enough balance for it to continue -- wars, industrialization, innovation, banking laws, social security, medicaid, unions, western expansions, gold rushes, colonization, currency crisis, wall street meltdowns, public education, civil rights, gender rights (oops, we don’t have that), power systems, inheritance taxes, etc. have been among them. It is a plot, that is the way the game is played and it is working as designed.
      In this situation, we are eating our seed stock.
      Thank you for reading and for such a thoughtful comment.

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  4. George

    I’ve disappeared come find me when someone figures out how to get out of this mess. A very good start would be a direct tax credit for the amount of health care premium I pay. An extention of the child credit to cover any kid under 21 in school and living at home instead the current 16.

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  5. Brenden

    Nope, bad idea. Much to refute here. Rather than your five page wind-up about income inequality that utterly confuses the issue, allow me to invite the reader to investigate the U.S. Gini Index and Lorenz curve that the UN uses to measure income inequality. Indeed it has grown, about 50 percent in the last 40 years indicating greater income inequality skewing toward the rich. I also invite the reader to research the high correlation between political corruption and income inequality, a point completely missed in this essay but upon which I will soon elaborate.

    So, this statement: “What about all that interest that’s being written off, is that a cost to someone? Only on paper. The government now lends money to banks for virtually nothing.”

    This is the pitch after the windmill wind-up. Implicit traditional leftist anti-profit drivel. The paper losses are “real” in the sense they result in the bank being less profitable, hiring fewer workers and handing out fewer paper paychecks. I agree that the AIG bailout was horrible, but let’s not compound these failures. Let’s allow these experts to do their work so they can return the money like Goldman Sachs, Citi, U.S. Bank and others have done under TARP (where’s GM’s money?). Writing off trillions in consumer debt is writing another bad check after bad.

    Now to corruption, you all want to blame the investment banks as the proximate cause for the credit crisis. False. It was the gov’t who created it by paying investment banks to create risky assets from portfolios of risky mortgages and exporting these as “safe as Treasurys” throughout the global financial system. The credit crisis is intimately tied to the U.S. housing market, which is intimately tied to the corrupt decisions of Fannie and Freddie and Democratique political leadership (Bwawney Thwfwank). This cannot be stated enough. Fannie and Freddie are the most horribly corrupt gov’t institutions we have, headed entirely by political hacks who themselves received enormous bonuses very recently. Sure the investment banks made out in this deal but they were being lied to by a corrupt U.S. gov’t in Fannie and Freddie. Thus the correlation between our income inequality and our corrupt political system.

    Hence, the solution lies not in more bailouts, but slashing gov’t role to limit its ability to further corrupt. Go tea partiers.

    Finally, I and millions like me did not over-borrow to purchase a home in a market where prices were increasing 10-percent per annum — portending an obvious crash. Nor did I borrow against such a home in order to pay other bills. I did not over-extend myself with my credit cards. Millions of other responsible Americans are just like me. Yet you want to bailout the ones who did over extend themselves on my and the other financially responsible citizens’ backs. Then you want to write off the losses against the balance sheets of the private banks. This is just horrible socialism, adding yet more moral hazard into a financial system that cannot bear any more. People must be responsible for their financial decisions going forward.

    By the way, the “paper” money is indeed very real. Treating it as “pretend” is just ridiculous. More bad leftist ideas. You guys are welcome, by the way, to live your lives on the barter system. Just leave our fiat currency alone.

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    1. Lee Leslie Post author

      Dribble aside for the moment, I’m not advocating writing off anything -- in fact, just the opposite. All the banks know that once a consumer gets to 60 days, bankruptcy is all but inevitable. This is an idea, limited to those in default on those credit cards, for a path to allow individuals (and their banks) to make it out of this mess, take responsibility for paying the debt they incurred to the banks, quickly enough to stave off bankruptcy. No way it is socialism -- just pragmatic capitalism.

      The crisis was about the housing industry, but the 30+% rates on revolving credit are forcing way too many into default (deserved, but irrelevant). What caused the crisis cannot be undone. What is making it worse, can be.

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      1. Brenden

        You rightly point out that the banks charge the higher fees/rates because the higher risk of default. Your suggestion forces them into a position where they cannot recoup the losses. Ideally the borrowers and lenders will need to work it themselves. Involving the gov’t will only constrict credit further, further constricting consumption by those who can afford to borrow responsibly and compounding problems of responsible citizens and businesses.

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        1. Lee Leslie Post author

          The higher fees/rates are because of the higher risk of default and under present law legal (the rates and fees will be limited when the new banking law eventually goes into effect), but they also do it to inflate the total so the insurance reimbursement at default will be greater (bankers have admitted this to me) -- legal, yes. Is it a good business practice, debatable. By tacking on the inflated amounts, they almost guarantee bankruptcy by the consumer.
          My suggestion is for a temporary solution for credit card holders facing this situation to pay what they charged and the banks to get their money without forcing bankruptcy -- by temporarily moving these accounts off their books to some independent (private is fine) third party to service the debt, the banks can get their capital back and consumer has a chance to survive without bankruptcy. Since the cost of the money from the fed is the same in either scenario, seems like a solution that harms none of the parties. OK, it may impact collection firms and those bottom feeders who buy bad credit card debt for pennies and keep working them for decades hoping to find someone with money.
          Thanks for stopping by. As you know, Congress is unlikely to do anything except raise money for the next campaign.

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  6. Randy Conway

    Your attempt to describe a histogram using a football field is inept and confusing. Worse it obfuscates your point, which may or may not be valid. I couldn’t tell. You should seek the editing help of someone who knows a little statistics before you publish anything else of this nature.

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  7. Cliff Green

    The character “Brenden” writes: “Sure the investment banks made out in this deal but they were being lied to by a corrup U.S. gov’t in Fannie and Freddie.”
    Isn’t it awful that all those Harvard MBA’s and Ivy League lawyers on Wall Street were misled into looting the country of billions of dollars by a bunch of uneducated “political hacks” and Washington bureaucrats?
    Perhaps we should all join hands, go down to the (Hudson) river and pray for their poor, misguided souls.

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    1. Brenden

      Cliff, again you misunderstand. The gov’t lied to the investment banks of the true risk profile of the mortgages they asked them to securitize. The banks were happy to be lied to by the gov’t because there was money in it for them, specifically, fees to securitize the risky portfolios.

      Bottom line on your plan Lee is that responsible consumers will have less access to credit, while the benefits under your plan accrue to the irresponsible consumers. That is a ridiculous way to “save the consumer.”

      What do have against bankruptcy? I mean, this is exactly what it was created for. The borrower gets to default in an orderly way. Sure, he lacks access to credit for a few years but that’s an obvious consequence of getting in over one’s head.

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      1. Lee Leslie Post author

        Brenden -- That is flat out wrong. Consumers would have more access to credits -- banks would have more to lend and have a cleaner portfolio. While it would benefit irresponsible consumers in a one-shot effort to get them solvent, most would be rehabilitated from the experience (if a bank were to implement this program (I’d be fine with that, too), it would be considered an incentive to start borrowing again and just good business). Your Ayn Rand-ers saved the irresponsible banks, funds, executives, auto companies, countries and the like -- why not allow individuals to have a shot at getting out of this so that can start making the elites of finance even richer? Would a penal colony better suit your philosophy?

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        1. Brenden

          When you write stuff like this, Lee, I just chuckle…

          “While it would benefit irresponsible consumers in a one-shot effort to get them solvent, most would be rehabilitated from the experience”

          …the conventional leftist attitude has no self-awareness about the arrogance of telling other people what to do their own money for a nebulous, ill-founded “social gain.” Of course, Lee, you know better than the banks about lending.

          Look, you have no idea whether these deadbeats will every pay anyone back — and certainly have less info than a bank does about consumer behavior. And how does relieving them of the consequences of their actions “rehabilitate” them? I dare say they’d be MORE likely to default again because they were rewarded with zero interest loans for being irresponsible.

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          1. Lee Leslie Post author

            These are deadbeats. They are wonderful, smart, successful people with heretofore perfect credit who for whatever set up reasons set in motion the credit system such that their single digit interest rates increased from by a factor for 4-10 and increasing their monthly payment amounts by the same factor. Yes, they should have known better. There are no innocents here. But why allow a poor economy to dismantle the life’s work of millions of Americans who are now being charged 27-33% interest on money by the banks who are paying well less than 1% to our government? In an economy that desperately needs viable consumers, why not help when it wouldn’t cost a dime to do so?
            I don’t pretend to know how to determine the credit worthiness of a consumer better than the banks. I do know that a point in time (typically 60-90 days), most have workout departments which, one bank at a time, extend progressive rate breaks for people who have proven themselves responsible in the past. All I’m proposing is a method to do it with a broader brush and with consistent terms that could allow many to survive and get back on their feet.
            Laugh at me as much as you wish, but this is serious stuff. Making light of the misfortune of others and characterizing them with labels is poor form.

  8. MKerley

    Given that the U.S. Congress has been largely bought and paid for by some combination of the financial “services” industry and the medico-insurance complex, surely as libertarian-capitalists we should allow those entities to enjoy the free use of their property in the manner in which they see fit? Certainly, the current majority on the Supreme Court sees it that way.

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    1. Lee Leslie Post author

      You have opened my eyes to a whole new way of viewing corporate ownership -- politicians. Now I have to wonder if voting against one their properties would be tantamount to stealing?

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      1. MKerley

        It soon could be, although the proper controls for voter identification would have to be in place. Perhaps that’s the idea behind no-receipt, no-record computerized voting machines.

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  9. Brenden

    Well, if the banks and borrowers agree to it — then fine by me. If you want the gov’t to make them do it — no, thanks! I know how you like the gov’t making people do stuff so I guess that’s why I’m predisposed against this idea.

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    1. MKerley

      /Users/mrkerley/Desktop/blackbeard flag.jpg

      At the moment it’s the banks that are making people do “stuff” like paying 30% interest rates to which they never agreed in the first place. The role of government is adjudicate between opposing interests in society, in this case between rapacious financial institutions and the as-yet unprotected public.

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      1. Brenden

        This information was in the credit agreement the borrower signed with the lender and a widely reported fact in the consumer press. Caveat emptor.

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  10. Cliff Green

    Ah, yes: Caveat emptor! As in all the character “Brenden’s” scenarios, the wise guy wins, and rightly so, in his eyes.
    “Brenden’s” position is so humane, so forgiving, so non-judgmental, so loving, it grows breathtaking in its heartless sweep.
    It must be wonderful to live the perfect life without a second thought for all those other imperfect souls wandering around oblivious to the Righteousness and Saving Grace of the High Priestess Ayn Rand.
    I mean, if the Haitians, the Congolese, the Somalians and all those other suffering souls out there would just bow down to the altar of unfettered, dog-eat-dog, social Darwinistic Capitalism, their petty problems would disappear in a matter of days.
    It’s just a matter of faith, right “Brenden”?

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    1. Brenden

      Cliff, it’s the wise guy’s money. Not yours. People have to repay their debts, or work out an arrangement with their creditors to pay it back. If banks are seeing 30 percent losses on their loan portfolios, then it makes sense they’d charge 30 percent interest to recoup the losses. If you want the gov’t to force people to not pay back their loans with interest, then the banks won’t lend because they cannot risk gov’t-forced losses. It’s all very simple.

      I know your conflicting emotional and irrelevant arguments confuse you about such elementary matters. You want to emote the world’s problems away but that won’t carry us any farther than “hope and change” have thusfar in solving them. Maybe you can pay your debts with moist tissues, but the rest of us cannot. And I like having access to credit.

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      1. MKerley

        Ah, Brenden, it must be cold and lonely up there on that mountain top, but at least you’ve got a direct, static-free line to the God of the Market.

        Fact: the main reason banks are losing money on many of their credit card accounts is that for years they pushed plastic at anyone who would take it, and credit-worthiness be damned. They pushed unsecured cards to first-year college students, the underemployed and the unemployed. (we’ll leave aside their famous offers to dogs and babies.) They pushed additional cards at people and businesses that already had accounts with them. Back during the halcyon days of the first half of this decade, I received, as a guess, approximately 2-4 credit card solicitations a week. As it happens I had good credit, and in that sense I was not their target market. Their preferred market was people who would struggle to pay off their cards promptly whether because
        poor planning, bad luck or greed. Then they could tack on penalty fees, raise interest rates and suck the suckers along the slippery slope to default while racking up profits far in excess of the original sum of the debt. That didn’t always work out for them, of course, but their models said that it would more often than not, and they must have been proved correct or the banks would not have stayed in the game. But they did, for years. So it’s less a matter of caveat emptor than of a confidence racket, in which the true rules of the game lie not in the offer itself but in the maze of legalize printed in microscopic type on the back page(s) of the offer. No one reads that stuff. The more sophisticated and wary simply assume that the game is fixed and don’t allow themselves to be placed in a position where they can’t just pay off their account and cancel it. However, most people don’t want to believe that the game is fixed and that government regulators would allow it to be played in that way. But regulators answer to politicians, and politicians answer to big money. The only reason there is now some effort being directed toward controlling the worst of these credit card con games is because the financial debacle we’ve just experienced has focused negative attention on business as usual in the financial “industry.” To avoid dealing with the true roots of the crisis -- that is the casino that the markets have become -- congress is toying with sweeping up some of the relatively minor debris in a public relations gambit which is easy to explain on the nightly news. As to the banks experiencing 30% losses in their loan portfolios, if that is true (and we have only their word for it) I’d be willing to bet that those portfolios contain bad commercial real estate and other poorly performing assets that have nothing to do with their credit card business. So the small business people who depend on credit card capital because they can’t get a the regular lines of credit a large company can access, end up paying for the banks’ mistakes in other areas. Sweet deal if you can afford enough members of congress. Moral hazard, indeed.

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  11. Brenden

    So you want the same gov’t that set up the worst confidence racket in Fannie and Freddie, creating a secondary mortgage market loaded with high-default-risk probability, inflated mortgages to sell to investors as “safe as Treasurys” — to fix the problems with a much smaller consumer credit card market? Um, no thanks. The U.S. gov’t brought the global credit market to the brink of destruction resulting from deliberate, avoidable action. They have no credibility in this area. You write complaining about corrupt legislation and regulators, but you’re here demanding they hurry up and “Do something!” That’s ridiculous.

    You write as if these credit card companies had guns to peoples’ heads. The did not. Sure they tried to get as many borrowers as possible and charge them as much as they could — that’s their effing business. But no one is forced into borrowing. I and many friends had credit card offers shoved into our faces at a young age. Some good people made bad choices that haunt them to this day. But freedom and liberty are about risk-taking, which implies that people have choices and can fail and screw themselves. Others run into misfortunes, shitty economics resulting from incompetent gov’t (see graf 1) but t’will ever be thus.

    This whole essay and commentary is about limiting peoples choices and ability to transact their private property, though in all your eloquent verbiage you fail to acknowledge this. You can attempt to impress each other with all your noble compassion, but I see it for what it is. You want the gov’t to take control of other’s property for a political, non-economic gain, which is, well, a bad thing. Rhymes with Clarksism.

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    1. MKerley

      Actually, I’m not a particularly compassionate person, noble or otherwise. And I’m especially non-compassionate toward pseudo-“rugged individualist”, libertarian bullshit artists who want the government to build the roads and then get out of the way so that can drive on them in whatever manner they please, driving roughshod over the weak and less morally deserving. Rhetoric like yours is what results -- in extreme cases -- in incidents like the nutbag in Austin this week, who, though as financially afflicted as he was by big government still had enough money to own an airplane to commit suicide/murder in. (By the way, I was in the same orphanage he attended, though some 15 years earlier, and I haven’t killed anyone except, perhaps, a couple of stray Vietnamese. I suppose I could blame that 1968-vintage sin on the government.) I have no idea what “Clarksism” might be. I do know, however, what fascism is. Mussolini, a noted expert on the subject, said that fascism should better be called corporatism, since it described government and large corporations working together to control and administer the body politic. That certainly describes what we’re closer to in this country today, rather than any half-baked accusations of “socialism.” So the tea-partiers in their ignorance have it half right, after all.

      Yours in Ayn Rand, brother.

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  12. Juli Ward

    I am going to have to disagree with you on this one Lee. The lawyers upstairs from my office only deal in bankruptcy. I have seen these people. With the exception of a few that have extraordinary medical expenses, they all blindly followed the “Paris Hilton” lifestyle. I don’t let the TARP participants off the hook though. Nor the greedy mortgage brokers (at least in this area) that sold that dream whilst having an appraiser and verification of employment folks in their back pockets. I have seen it and know it is real. Some consumers were in fact duped. Some though had to know it was too good to be true. I believe the middle class as you describe it has aspired for too much. Spit at me if you wish, but I think regulating the folks that offer credit is more in line. As George Carlin said, “When you get some stuff, you want more stuff”. Dandy if you have the paper for it. And I do not at all discount the predatory lenders. If someone says they do not exist, they are living under a sleigh bed. Go to any college orientation and you will see how they prey on the invincible youth. I do however advocate regulation and tax breaks for the poor. I would prefer the poor to have the cash flow as they will indeed spend it. Barring that, the consumer (at least in SC) has the option of bankruptcy (which is still the law, although a bit hindered thanks to lobbyist and Mr. Bush-but not as much as folks are led to believe) or allowing the creditor to take a judgment. We have a basement full of judgments. They are only good for 10 years and the property rights’ state of SC can’t do much about them (unless you want to sell or refinance your home). And for all of you naysayers, I have perfect credit-highest it can be (please don’t steal my identity-I will hunt you down) and I don’t have the greatest of income. It does yet rise to the level noted in your post. I do know that I buy what I can and leave the rest for a day I can afford it. P.S. We have NO usuary laws in SC.

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    1. Lee Leslie

      Juli -- I don’t wish to spit on you in spite of you verbally spitting on millions of people you don’t know. Instead, I encourage to go back and read this story -- suspend whatever bias you have that prevented you the first time from reacting to what I wrote, instead of what you wanted to rant about. This story is not about Paris Hilton lifestyles or your insentive portrayal of the people who seek the federal court of last resort. It is not about those who went on a drug binge or took advantage of the system. It is about people who have worked and paid their debts and are continuing to. It is simply about preventing bankruptcy which is bad for everyone. I know people who are model citizens and have perfect credit who have had credit lines cut and rates hiked and are now upside down. This story isn’t about heart or bailout. It is about what I believe is common sense and a win-win. I admire the high horse you ride for however long you can stay on it. My perspective is from a different view. Humbled by the aspects of life you can no longer jump over.

      Reply
      1. Juli Ward

        Perhaps you misconstrued my tone. This was not a rant. I am a firm believer in filing bankruptcy if the option is available. In fact, folks are in a much better position after receiving a discharge in bankruptcy than someone with just a little slow credit. The lending criteria now would allow someone that has a discharge in bankruptcy to get credit, but would turn away someone that has been 30 days late once or twice. My point is that we do not like the bail outs of corporations or banks, so we should not in turn ask for one ourselves. I work very hard for the things I have. I think a lot of folks do. But I also think a lot of folks want and buy more than they can afford. I also believe that people gripe about the government budgets not being balanced, yet most people do not have a budget themselves. I know this personally. I deal with others’ financial information every day. The people you speak of are not strangers to me at all. I do think tighter regulations (some will be coming on Monday-we will see what that does) and better enforcement will have more impact. I further believe that one expense the middle class has borne for far too long is higher education. A subsidy or better tax break for higher education would free up more funds for the middle class too. I would also suggest a repeal of the Bush rules for bankruptcy. It is more difficult now for the working middle class to file a Chapter 7 bankruptcy. And bankruptcy is indeed good for the economy. Those new rules certainly created some of the economic downturn. And my “spit in my face” comment was due to the fact that many believe regulations are bad. But history has shown over and over that deregulation ulitmately leaves us paying the price.

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        1. Lee Leslie Post author

          This isn’t a bailout.
          Premise: Once banks hike rates to the max (varies by state, but around 30%) which generally coincides with a reduced credit line, a creditor will either eventually default (often bankruptcy) or refinance (seldom can a 10x monthly payment increase be sustained). A few years ago, most people could find refinance alternatives (equity lines or other credit cards) -- these options no longer exist because of stricter credit and the poor housing market.

          Premise: Banks borrow from the Fed at .025 percent cost (essentially zero) and underwrite bad debt with insurance (mostly AIG which is owned by our government). In the old days, the banks increased the rates and added on the charges because of the increased risk -- now, they do it to inflate the balances to cover their insurance deductible so their reimbursements will be as close to 100% as possible. They know once consumers are slapped with the charges they will eventually default, but don’t want to declare the it as it affects their capital requirements and, to some degree, their stock prices (and their bonuses). They will not offer a workout before this stage as it will affect the inflated balances they need to cover their balance sheet and they don’t want to change the way the do business because they’ll be fine in the end (if they aren’t paid, AIG will pay).

          Premise: Millions of credit card customers facing default are employed and have no extraordinary circumstances (illness, etc.) and, in spite of the current housing market, could pay their mortgages and perform to their credit card debt if the rates (and monthly payments) hadn’t jumped to maximum rates.

          The Plan: Offer a workout plan to those currently facing default as a method to prevent bankruptcy at an interest rate that would cover the cost of funds (.025%) plus an amount to service the payments (a few percent) with a maximum 5-year amortization that would require the consumer to: pay 100% of the principal owed in monthly installments and agree to cancel and fold all credit cards into the arrangement and not enter into any new ones until the balance is paid. Should a consumer miss a payment, the loan goes back to originating bank to pursue collections as vigorously as they wish with no second chances.

          Why would it need to be a federally sponsored program? To protect the banks from their rights to collect what is owed to them while also not negatively affecting capital requirements or potential loss set asides -- and, consumers to allow each of their credit agreements to be treated the same if multiple banks are involved. I’d be fine for an independent, for profit concern to service.

          Recapping: This would allow millions of working Americans to pay the principal they owe without cost the government or the issuing banks. No bailout.

          One more thing, you may think you know these people, but I suggest to you that these people have never been in a federal court house. They will do whatever they can to service their debt, but in doing so, will wipe out a lifetime of work, jeopardize their jobs and their families and lengthen the time it takes for our economy to be up and cooking again. They, in my opinion, are worth saving.

          Reply
  13. Cliff Green

    Way up there somewhere, the character “Brenden” got personal. He wrote: “Maybe you can pay your debts with moist tissues, but the rest of us cannot.”
    For the record, I pay my debts with U.S. currency. And, although it none of anyone’s business, I will state here in public that I do not owe any man, woman, institution, or government a f’ing dime!

    Reply
    1. Lee Leslie Post author

      But would you, if a child, spouse, sibling or parent needed your help? Would you, if you or someone you love were ill and needed care? Would you, if you had lost your job, lived off your savings until you could find another one which was in a different city and you couldn’t sell your house? Would you if you were injured and couldn’t work? Would you, if the company you worked for and whose stock your 401K was heavy in, went belly up? I suggest that there were millions of Americans who could say the same as you did about not owing a dime, just a couple of years ago, were presented with some of these conditions I just listed, and cannot say the same today.

      Sure, they made their decisions and deserve to be responsible for solving the problems. But as a greedy, self-relient capitalist, I want the middle class rehabilitated as soon as possible so I can sell them something.

      Reply
  14. Pingback: Attack the System » Blog Archive » Updated News Digest February 20-21, 2009

  15. Juli Ward

    Lee, I sent you a personal message as it seems I ruffled you a bit. And again I think you misconstrued my tone. Not a leveling of blame, mind you. I just happen to know what I meant.

    I have never been in a federal courthouse except to get the mail. I am saying they should not fear the big “B”. I am also saying that something led them to this exorbitant credit card debt. If I go to the doctor with a bowel obstruction and he sends me to the hospital to be properly drained and then sent home, where am I left? What the heck caused the obstruction in the first place?

    I am contending it was 3 things (a) the deregulation of mortgage lenders (and yes Bill Clinton has taken some responsibility for that); (b) the marketing of a lifestyle that is beyond the means of most folks ; and (c) the rules regarding bankruptcy.

    If a middle class family earning the income you suppose in your post (and again as noted in my private message to you that was a typo-I do not earn the income you noted) has that much credit card debt, then there is a reason. Chopping up the cards and giving them a 0% rate for 5 years is not going to solve that reason. Getting them to refuse to purchase window stickers for the mini-van that depicts the whole family and the dog too may help. Your solution would only work for a minority of folks that really did extend credit for necessary expenses. And I seriously do understand that people like that exist. But I also understand that it is now an entitlement to take your daughter for a manicure and tanning session once a month. These things can be good for the economy, but only if the folks have the cash flow to sustain that. There are far too many people that are sold a lifestyle or are keeping up with the Joneses. You should now this from your work in advertising.

    And yes as you proposed to the other guy, I would use any credit available to help my family. Not for a manicure though. I did in fact have to tap $21,000.00 in equity in my home several years ago for a medical procedure for my husband-and no it was not liposuction. It was serious and extremely necessary. I doubt I would be able to do it today if needed. But if presented with that situation again, you better believe I would take out every stupid credit card offer delivered to my home, likely default on them all and let those guys do the dirty work of trying to collect. But your solution would never work for most folks. Because as you said, something could be lurking around the corner.

    Reply
  16. Brenden

    Lee, I don’t get your justification that since the gov’t bailed out the banks, the consumers are entitled to a bailout. They are separate issues. From my perspective, two wrongs don’t make a right. But from yours, you’re saying they gov’t gave one group (Wall Street) a politically motivated bailout — so the other (defaulting borrowers) deserve one. This is your perverted notion of fairness.

    In reality, what you propose is fundamentally unfair. People like Juli and me, maybe you, who have good credit are being forced to pay the debts of people who for whatever reason defaulted. People who pay their bills, etc., don’t get the benefit of your “jubilee” and indeed the benefit accrues to large number of foolish spenders (surely not all). Meanwhile, the folks who pay there debts get no benefit and, in fact, will likely face restricted access to credit as lenders realize they can no longer conduct business in a profitable manner.

    As Juli indicates, you want to steer all these people away from bankruptcy court but that’s the best place for them. It allows a borrower an orderly default and a path back to good standing. Granted, that may take a decade but still. The court has the power to deal with the “predatory” lenders and set the terms of how the person must pay their bills.

    Reply

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