Confusing, coercive and corrupt financial contracts

Our President is making a concerted effort to reform credit card issuers. Emphasis mine.

Obama Seeks Reform of Credit Card Firms’ Practices
By Michael D. Shear and Nancy Trejos
Washington Post Staff Writers

…”So that if somebody gets a credit card, they don’t find that their rates go up exponentially on a certain day based on fine print in a contract that no one is ever going to read, [like TARP?] or that we find out that certain fees — you know, interest is charged, [like on the National Debt?] an interest rate is charged on certain fees involved in a credit card,” [press secretary Robert] Gibbs said.

“He’s going to outline and go through some principles of what he would like to see and that he believes Congress can get done [Congressman Rangel could pay his taxes?] in order to protect the American people,” Gibbs added.

Obama pushing for credit-card reforms
By Ruth Mantell, MarketWatch

…Obama laid out four core principles:

  • Banning unfair rate increases, fees and penalties
  • Providing transparent and easy-to-understand forms and statements [like the IRS?]
  • Providing easy-to-access contract terms [ditto] to enable simplified comparison shopping for consumers
  • Creating more accountability in the system, with stronger monitoring and enforcement [like Secretary Geithner’s tax evasion?]

Tough talk at WH for credit card execs

…In Thursday’s meeting, Obama discussed four principles that he’d like to see included in any legislation. According to a White House statement, they included:

  • “Strong and reliable protections for consumers — protections that ban unfair rate increases and forbid abusive fees and penalties.
  • “All the forms and statements that credit card companies send out have to have plain language that is in plain sight. No more fine print, no more confusing terms and conditions.
  • “Requirement that all firms make their contract terms easily accessible and provide consumers with the information they need to go online and do some comparison shopping. It also means requiring firms to offer at least one simple, straightforward credit card that offers the strongest protections along with the simplest terms and prices. [like a flat tax?]
  • “Increased accountability in the system, so that we can hold those responsible who do engage in deceptive practices [Rangel, Geithner and many others] that hurt families and consumers. [like inflation?] This will require beefing up monitoring and enforcement, and also penalties for any violations of the law.” [Not Rangel, Geithner or any other members of the Administration, however.]

If these rules make for better credit card companies, wouldn’t they also make for better government? I mean, I’d really like to go online and compare alternatives.

My credit card agreement, for example, is the very model of transparency and simplicity when compared to the tax code. No contest. And I don’t remember any stories about Congressmen, Treasury Secretaries, et. al., having difficulty with their credit card payments, just their taxes.

Never mind that this “evil corporations” rhetoric will substantially reduce the availability of consumer credit and damage several recipients of TARP funds – the exact opposite of what TARP is supposed to be doing – the burning question is why can’t these same principles be applied to the IRS, an organization intended to be regulated by the general government?

And where’s my advance notice and opt-out form from Obama concerning the fact that my tax rates are going to go up “exponentially” (I don’t think Mr. Gibbs actually knows the meaning of the word exponential.)?

I am a creditor of the general government and I think we need to rexamine the contract.

Bailout; brought to you…

…by the same people who got us into the problem.

Think about it. In July, Sen Charles Schumer asserted publicly that IndyMac, “Could face a collapse,” precipitating the bank run that the Senator assures us had nothing to do with the bank’s collapse.

That was the week after Senator Dodd assured us that everything was fine at Fanny Mae and Freddie Mac, “Just fine.”

This week Majority Leader Harry Reid caused a huge drop in insurance company stocks, and your 401k, by announcing in a press conference that a major insurer was “about to go bankrupt.”

Main Street vs. Wall Street
By Arnold Kling

The financial bailout isn’t as bad as Main Street thinks. It’s worse.

…The American people are being given two reasons to support the bailout, namely, that it is needed to prevent another Great Depression and that it will actually earn a profit for taxpayers. Both rationales are suspect.

The most credible evidence that the Main Street economy is in danger is that “Ben Bernanke is worried, so everyone should be worried.” In fact, no economic textbook, including Bernanke’s, offers any theory that predicts depression as a result of consolidation in the financial sector.

…The other claim that is made on behalf of the bailout is that Treasury will make a profit for taxpayers by buying distressed mortgage-related assets. However, this claim is being made by the same people who did not see the crisis coming, in large part because they do not understand how the values of these sorts of securities behave.

Read the whole thing

Fire Congress

It wouldn’t be quite so galling if they could at least acknowledge it was their social engineering that cost a trillion dollars – and rising – did severe economic damage to the very people they intended to help and has screwed everybody except their corporatist buddies. Instead, Barney Frank promises to do a better job of social engineering next year.

Clinton Democrats are to blame for the credit crunch

For generations, America’s bankers have been firmly refusing credit to those they judged unworthy of it. Yet the mountain of toxic subprime debt that has threatened to overwhelm the entire financial system, and the astonishing number of mortgage foreclosures across the United States, is proof that, at some point in the relatively recent past, bankers radically altered their behaviour and began to shower mortgages on borrowers who had no realistic prospect of keeping up their repayments. What could possibly have induced them to act so recklessly, and so out of character? The facile answer to that question is greed, the lure of a fast and easy buck. The correct answer is that banks were bullied, cajoled and coerced into lowering their lending standards by politicians in pursuit of an ideological agenda.

How Government Stoked the Mania

Fannie and Freddie played a significant role in the explosion of subprime mortgages and subprime mortgage-backed securities. Without Fannie and Freddie’s implicit guarantee of government support (which turned out to be all too real), would the mortgage-backed securities market and the subprime part of it have expanded the way they did?

Perhaps. But before we conclude that markets failed, we need a careful analysis of public policy’s role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and some inevitably overreach and destroy themselves. Why did they take so many down with them this time?

Part of the answer is a political class greedy to push home-ownership rates to historic highs — from 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets.

Beware of trying to do good with other people’s money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.

Government Made the Mess

Bankers and politicians say that the government needs to save the $62 trillion credit default swap market from collapse, but how can $700 billion fix a broken market that is nearly 90 times the size of that amount of money? The total derivatives market, which is the real source of the turmoil in credit markets, is $1,400 trillion.

That is 200 times the size of this $700 billion rescue plan. If either the credit default swaps market, which involves companies placing bets on and insuring risk against the likelihood of default on different types of bonds, or the derivatives market is really broken and going to collapse, this relatively small amount of money will not stop that process from happening.

… Nevertheless, the banks and their political friends are asking investors and taxpayers to “just trust them” about the value of these assets on bank balance sheets. If it already weren’t obvious, this is the most blatant attempt yet by the “fat cats” on Wall Street and in Washington to sucker investors and the taxpayer. It’s also strikingly similar to what the Japanese banks pulled off after their bubble burst with government support, and we know how well that worked. It took Japan more than a decade to work through its banking crisis.

It failed miserably and probably made their problems a lot worse. Is that the outcome we want here? My view is that the further away we move form honest and transparent markets, the worse this crisis of confidence is going to get.

Why the Bailout is Bad for America

When government tries to redistribute wealth from rich people to poor people, it causes economic damage by discouraging productive activity by the most successful and by discouraging productive activity from those who are lured into government dependency. The proposed bailout is even more pernicious. It would redistribute wealth from poor people to rich people, and simultaneously encourage reckless behavior by recipients and impose an immoral burden on those that behaved responsibly.

Re: Wooden Arrows — The Rest of the Story

Whatever the merits or not of tax relief on kids’ bows and arrows, it’s got nothing to do with a Super-Duper-Mega-Ultra-Urgent Act-Now-Or-Else Save-The-Global-Economy Bailout Bill. No reasonable person would expect to find the urgent issue of toy arrows addressed in such a bill. So, when it is, it’s an arrow at the heart of one of the great bedrock principles of republican government: public accountability. No citizen can follow the dispositions of his legislature in a world in which the Highways (Emergency Paving) Bill also includes a tax credit for transgendered blow-up dolls. Earmarks are an affront to government by the people.

Reading all of all of the above is recommended.

This bailout is just one more in a series of disastrous attempts at central planning that began with Herbert Hoover and was perfected as a technique by FDR. When faced with what they were convinced was a crisis of hundred year proportions, Congress piled on to citizens by larding the bill up with pork and earmarks. They couldn’t focus on the problem without their Pavlovian salivation over the opportunity to redistribute some loot in exchange for votes. They may have miscalculated. Everyone except the likes of Franklin Raines and Angelo Mozilo, and, of course Chris Dodd and Barney Frank et. al., should be outraged. If not, the experiment is over. Firing Congress is probably too late, and we’re very likely to have Democrats controlling Congress and the White House going forward. Or Republicans who make inconsequentially different noises.

As a nation, we deserve what we’re going to get. It isn’t going to be pretty.

We also deserve to have some principled defense of capitalism in national elected office. But we don’t: We have John McCain, who started this debate by accepting the statists’ premises. I take little comfort in the fact that his principled lack of principle screwed him, too. Sleeping with the enemy is only a good idea if you’re James Bond, and then only once.

This bailout was the largest single step on the Road to Serfdom this country has ever taken.

World’s greatest deliberative body? ROTFLMAO!

How Did the Bailout Bill Get So Long?
The original bill was just three pages long, now it’s up to 450 – in a week. How did they read it all? Who wrote it? WTF does it condemn us to?

They don’t know, either.

Senate Folds Mental Health Parity Into Wall Street Bailout Bill

Seems appropriate. They should have done the mental health thing before the bailout vote, though.

Bailout bill: rum, racetracks and wool research
Nelson says bailout money could come from China

I’m all for drunken Chinese racing-sheep research.
(Note to bettinak, See? Borrow from the ChiComs. Probably better if we’d just printed it.)

By the way, when did the House become the chamber of serious deliberation and sober second thought?

And as I go to post this, I note this from James Taranto:

By a vote of 74-25, the U.S. Senate last night approved a bill aimed at “providing stability to and preventing disruption in the economy and financial system and protecting taxpayers”–popularly called the bailout.

Or, as it is formally known, the Paul Wellstone Mental Health and Addiction Equity Act of 2007.

When the House rejected the same measure Monday, it was known as the Emergency Economic Stabilization Act of 2008. The Providence Journal explains what happened:

In part, it has to do with the U.S. Constitution. Article 7, Section 1 says tax bills must originate in the House of Representatives.

In order to improve chances that the bailout bill, which the House defeated on Monday, would be approved this time around, the Senate tacked on several popular provisions, such as extending the life of business tax cuts that were set to expire and changing the alternative minimum tax, a much-loathed part of the tax code intended to ensure that the well-to-do pay their fair share but that in recent years has increasingly affected the middle class.

And an element of the tax package was legislation advanced by [Rhode Island’s Rep. Patrick] Kennedy that requires health-insurance companies to offer coverage of mental illness on a par with that of physical illness.

Once the Senate added those provisions to the rescue bill, it qualified as a tax bill, which the upper chamber is constitutionally prohibited from originating.

In order to get around the Constitution, the leaders turned to the time-honored stratagem of finding a live but dormant House bill–Kennedy’s mental-health parity bill–to use as a shell.

“They take out the entire text” of Kennedy’s old bill, “and then, by amendment, they substitute the other bill,” said Don Ritchie, an assistant Senate historian.

So the bailout ended up attached to a measure that extends benefits to people suffering from depression and is named after a lawmaker who died in a crash. Never let it be said that the U.S. Senate lacks a sense of humor.

It’s time for a revolution.

Ambisinistrous II

Yesterday’s post elicited a comment from bettinak, who contributes to She closed with “To be fair, I will post your article and my comment on my blog, I hope you do the same.”

Well, she “posted” my article as an unlinked URL (like those I just provided to her blog). No big deal except for her readers who might have appreciated a bit of, you know, context. In any case, I thought I would provide some context, and some education, by also posting my TOC comment response as a comment at her blog. Unfortunately, when I went to do that I found that it either doesn’t like Macs, or it doesn’t like Firefox. Couldn’t get it done. So, I’ve decided to reciprocate at a higher level. This (you can also just scroll down) is my post upon which Bettina comments. Here’s her comment:

Yes, rely on Sarah Palin to carry your libertarian agenda tonight. Good luck! :)

Your “fact sheets” on tax proposals (only 5% of those targeted for a tax cut by Obama pay taxes) and on bank bailouts are so flawed, it’s amusing…Lehman was allowed to fail, AIG might still fail.

Wall Street investment bank giants are dead on arrival already. The only institutions “bailed out” will probably your and my community banks– you know, the one that gives a you a small business loan when you need it as well as foreign institutions that hold a giant portion of our debt. But of course, you think, the world will continue to invest in US instruments even if they turn out as worthless as – say- Chechen junk bonds? You probably think we don;t need foreign investments to carry our one trillion dollar federal budget deficit, nor do we owe anyone pay back to restore the trust in our “this the greatest nation in the world’s” financial system. Let everything default and money will continue to flow our way..:)

Yes, the poor minority homeowner wanna bes caused it all, along with the liberal political cronies who enabled them. How about your friend, Sen. John McCain’s economic advisor and longtime ally, Republican Sen. Phil Gramm?

” In 1999, former Senator Phil Gramm (who is, incidentally, Senator John McCain’s economic adviser and cochairs his presidential campaign) set out to completely gut the Glass-Steagall Act… allowing commercial banks, investment banks, and insurers to merge … Sen. Gramm was the driving force behind the Gramm-Leach-Bliley Act, as he had received over $4.6 million from the FIRE sector (Finance, Insurance and Real Estate donations) over the previous decade, and once the Act passed, an influx of “megamergers” took place among banks and insurance and securities companies, as if they had been eagerly awaiting the passage of Gramm’s Act. “Shortly after George W. Bush was elected president… Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act. It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision — lobbied for by Enron, a major campaign contributor to Gramm — that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities. Interestingly enough, Gramm’s wife, Wendy, had been part of the Enron board, and her salary and stock income brought in between $900,000 and $1.8 million to the Gramm household, prior to the passage of the Commodity Futures Modernization Act…”

The people who speculated with other people’s debts caused this crisis and they were from your side of the fence.

Your experts say:

“Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.” Hey, I hope you come through for us!

Great idea to let everything bankrupt! That way, if AIG fails, and credit markets dry up, the municipal bonds insured by AIG and dependent on income from their investments will go to hell, too, taking with them the communities themselves. Then you Libertarians can sit there and live out your Libertarian utopia: No taxes, no infrastructure, no roads, police and schools– a return to caveman society. a dog-eat-dog world of survival of the fittest. I prefer a society in which we take responsibility for each other’s mistakes best as possible to help all of us out of this crisis with probably, positive returns in five years

Here is the response I couldn’t make on her blog:


Thanks for your comment.

I can’t see where I (or any of those quoted) claimed only 5% of those to whom Obama wants to give a tax cut actually pay taxes. What I said was 2/3’s didn’t pay taxes. That was a place holder from a draft and I neglected to change it. It’s 41% of Americans who don’t pay taxes, but will get a “refund” under Obama’s plan.

I am correcting the post.

Actually, it’s far worse than that, Obama’s plan actually increases marginal tax rates at the low end of incomes:

As the chart shows, Obama’s give-and-take tax policy results in marginal tax rates of 34 percent to 39 percent in the $31,000 to $45,000 income range for this family. That’s an increase of 13 percentage points or more from the current rates.

What accounts for the higher rates? First, Obama expands the maximum child and dependent care credit for families with one young child from $1,050 to $1,500 and phases down the credit over a longer income range, from $30,000 to $58,000. Throughout this income range, the credit is phasing out at a rate of $30 per $1,000 of income, thus raising the effective tax rate by 3 percentage points. Obama also makes certain credits refundable, which introduces a tax penalty of 10 percent or 15 percent, depending on the income bracket.

I don’t know, but now that I think about it, maybe he’s giving tax cuts to the people whose taxes he’s raising and that’s how he gets 95%.

Yes, Lehman failed. Your point? So did Bear-Stearns, IndyMac, WaMu, Wachovia… If AIG fails it will be with the US government as an 81% owner.

I’m not going to bother to reply to inferential speculation about what I think. I will point out that much of our trillion dollar deficit is owed to the Chinese already, and they’ve threatened us with it.

So to get the $700 billion, we’ll either borrow more from them or just print it. Which do you prefer?

If 0 down, interest only, ARMs were such good idea for the “homeowner wanna bes,” we can certainly ask Dr. Phil’s question -”Hows that workin’ out for ya?”

On the Glass-Steagall reform, I’ll let Bill Clinton, who signed it, respond:
[When] asked … whether he regretted signing that legislation. Mr. Clinton’s reply: “No, because it wasn’t a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.

“But I have really thought about this a lot. I don’t see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn’t signed that bill.“”

The people who speculated with other people’s money were first and foremost Fannie and Freddie as front-men for the Democrats in Congress. They wildly encouraged greed in Wall St. and no doubt Wall Street deserves to be punished – typically that would mean failure. These weren’t capitalists, they were corporatists, so they expect to be bailed out as Fannie and Freddie promised. As Barney Frank said, “I want to roll the dice a little bit more in this situation towards subsidized housing.” Snake-eyes, Barney.

I’ll again skip over the parts where you tell me what I want, and go to the bottom line: It’s fine that you “prefer a society in which we take responsibility for each other’s mistakes best as possible to help,” it just isn’t relevant to your hope for positive returns now or in 5 years, much less are your intentions useful to people with marginal credit who could have gotten loans before Fannie and Freddy screwed things up and now won’t be able to – bailout or no bailout.

Finally, you do realize that the $700 billion was a number picked out of a hat? No one has a clue whether it will even be effective in anything except devaluing the dollar.