Wednesday, January 31, 2007

The Iceman Cometh, Part 2

Not again! Another winter ice/snow storm is currently going through Oklahoma. The first wave come through today. Another one is coming through tonight. And yet another one is going to come through Friday.

The first one took out my carport and totalled my roof. I guess I need to drive my car real careful; otherwise, it will probably get totalled too.


It's snowing instead of icing. I can handle snow, even though the roads are slick. And it's good packing snow, too. So if you come by my house, I'll pelt ya.

Debunking the Ten Myths About the Bush Tax Cuts

A pernicious post has been making the conservative/Republican blogs in the last couple of days. Conservatives are claiming that the Bush tax cuts actually increased government revenue, and it would have been even higher had we just raised the lowest income class' taxes.

Here are the "Myths":

Myth #1: Tax revenues remain low.
Fact: Tax revenues are above the historical average, even after the tax cuts.

Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.

Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves.
Fact: It assumes replenishment of some but not necessarily all lost revenues.

Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.

Myth #5: The Bush tax cuts are to blame for the projected long-term budget deficits.
Fact: Projections show that entitlement costs will dwarf the projected large revenue increases.

Myth #6: Raising tax rates is the best way to raise revenue.
Fact: Tax revenues correlate with economic growth, not tax rates.

Myth #7: Reversing the upper-income tax cuts would raise substantial revenues.
Fact: The low-income tax cuts reduced revenues the most.

Myth #8: Tax cuts help the economy by "putting money in people's pockets."
Fact: Pro-growth tax cuts support incentives for productive behavior.

Myth #9: The Bush tax cuts have not helped the economy.
Fact: The economy responded strongly to the 2003 tax cuts.

Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.

Matthew Yglesias and Angry Bear are both starting to write articles about it. A lot of good rebuttals can be found in the comments. Among the more notable:

(At Matthew Yglesias' site)

The 18.4% number is from the CBO. I wrote an email to Sullivan about this and posted it on my website. The problem is that in 2000 taxes were 20.9% of GDP and spending 18.4%, while in 2006 taxes were 18.4% and spending was 20.3%. Taxes have gone down (contra Heritage, which was just using estimates), and spending as in fact gone up. But the increase in spending is in part due to defense (from 15 to 17% of the budget), but mostly due to medicare and medicaid, which have grown from 17 to 25% of the budget. Sullivan calls this a "middle class entitlements" problem, but it's really a health care problem. As usual.

Posted by: arbitrista on January 31, 2007 06:17 AM

Sully posts this under the sub-head, "Some things the Left won't tell you..." And he has a point. Heritage is fond of saying, "The rich pay all the taxes". Indeed, the Left won't tell you this without adding, "They also make all the money."

Practically every "myth" listed by Heritage is a) a serious spin job and b) even so, symptomatic of the rich getting insanely richer, while the poor and middle classes stagnate. Sullivan somehow thinks this supports the idea that we need to cut middle class entitlements.

Posted by: lewp on January 31, 2007 08:27 AM

What Heritage and Sully are really skimming past in a big hurry is the distinction between on-budget and off-budget (Social Security and Medicare payroll tax) receipts. There has been, and continues to be, a serious shortfall in on-budget receipts, made up for by the long-expected surge in payroll taxes that we're supposed to be saving up for my g-g-generation's retirement.

Look at the last two pages (pp.33-34 in the text) of Table 2.3 of the 2007 budget (big-ass PDF) (same link as Ragout gave above), and you notice that, between WWII and the onset of the Reagan tax cuts, the on-budget revenues were between 13.7% and 17.9% of GDP.

During the Reagan-Bush years (excluding 1982, when the budget was still semi-Carterish), the on-budget revenues were between 12.6% and 13.8% of GDP. During the Clinton years, between 13.3% and 15.9%. In the Dubya years, 11.6% to 12.9%.

So Sully and Heritage are hiding fundamental untruths about the budget behind the false front of a technically accurate statement.

Posted by: RT on January 31, 2007 09:49 AM

(From Angry Bear ***Warning*** Highly technical information follows)

"regarding myth#4: Couldn't Riedl be correct in that over the longer run (FROM 2003 - 2006) the tax cuts have had a cumulative effect and finally began paying for themselves 3 years later?"

The short answer is no. The reason is that the tax cut would have to be replicated in the second, third, fourth, etc. years as well. In other words, you would have to make the tax cut permanent. If that's the case, then you can never catch up. If the tax cut pays for itself in 3 years, then by that time you've already accumulated another 2 years worth of increased deficits.

A supply side tax cut depends upon the assumption that workers will forego leisure and work more hours (i.e., push out the supply curve) if tax rates are lower. So going from a 90% marginal rate to a 70% marginal rate definitely pays for itself through supply side effects.

Oftentimes you hear people talking about tax cuts as a demand stimulus paying for themselves. On the demand side this is impossible. It is mathematically impossible. To see why look at the old Keynesian fiscal multiplier formula. For example, let's take a very primitive multiplier formula of:

Y = 1 / (1 - c(1-t)) x A


c = the marginal propensity to consume

t = the marginal tax rate

A = autonomous demand

Start out with c = 0.9 and the marginal tax rate = 0.9 and A = 100. In that case the multiplier is:

1 / (1 - (.9 x (1 - .9))) =

1 / (1 - (.9 x .1)) =

1 / (1 - .09) = 1 / 0.91 = 1.10

So demand would b e 1.10 x 100 = 110

Now lower taxes to 10 percent and keep A = 100.

1 / (1 - (.9 x (1 - .1))) =

1 / (1 - (.9 x .9)) = 1 / (1 - .81) =

1 / 0.19 = 5.26

So cutting taxes would give new income of:

100 x 5.26 = 526

Under the old regime tax collections would have been 90% of 100, or $90.

Under the lower tax rate of 10%, total income would be much higher ($526 vers $100), but tax collections would only be 10% of $526 = $52.60.

The point is that there is no way tax cuts pay for themselves unless there is a parallel supply side effect. Just working it on the demand side won't get you there. And the supply side effect depends upon the marginal worker's tradeoff between income effects (higher income means increased demand for leisure) and the substitution effect (lower tax rates increases the opportunity cost of leisure).
2slugbaits | 01.31.07 - 7:30 pm | #


(Back to me again) I am thinking part of "Myths" that are listed are also based on nominal tax revenues, not adjusted for inflation. One of the posters at Angry Bear mentioned low interest rates (therefore deficit borrowing costs are lower compared to previous years); so that may be a factor as well.

What really got me was Myth #7 is basically complaining that low-income tax cuts are to blame. Yeah, if only we taxed the poor more, we'd eliminate the deficit....

I'd be interested to hear some other's rebuttals of any of the "Myths."

The Iran Problem

In an editorial in today's New York Times, Thomas Friedman asks us to take a small test:

Let’s start: Country A actively helped the U.S. defeat the Taliban in Afghanistan and replace it with a pro-U.S. elected alliance of moderate Muslims. Country A regularly holds sort-of-free elections. Country A’s women vote, hold office, are the majority of its university students and are fully integrated into the work force.

On 9/11, residents of Country A were among the very few in the Muslim world to hold spontaneous pro-U.S. demonstrations. Country A’s radical president recently held a conference about why the Holocaust never happened — to try to gain popularity. A month later, Country A held nationwide elections for local councils, and that same president saw his candidates get wiped out by voters who preferred more moderate conservatives. Country A has a strategic interest in the success of the pro-U.S., Shiite-led, elected Iraqi government. Although it’s a Muslim country right next to Iraq, Country A has never sent any suicide bombers to Iraq, and has long protected its Christians and Jews. Country A has more bloggers per capita than any country in the Muslim Middle East.

The brand of Islam practiced by Country A respects women, is open to reinterpretation in light of modernity and rejects Al Qaeda’s nihilism.

Who is Country A? Answer: Iran.

Friedman suggests that we need to re-open a dialogue with Iran:

More important, when people say, “The most important thing America could do today to stabilize the Middle East is solve the Israel-Palestine conflict,” they are wrong. It’s second. The most important thing would be to resolve the Iran-U.S. conflict.

That would change the whole Middle East and open up the way to solving the Israel-Palestine conflict, because Iran is the key backer of Hamas, Islamic Jihad, Hezbollah and Syria. Iran’s active help could also be critical for stabilizing Iraq.

This is why I oppose war with Iran. I favor negotiations. Isolating Iran like Castro’s Cuba has produced only the same result as in Cuba: strengthening Iran’s Castros. But for talks with Iran to bear fruit, we have to negotiate with Iran with leverage.

How do we get leverage? Make it clear that Iran can’t push us out of the gulf militarily; bring down the price of oil, which is key to the cockiness of Iran’s hard-line leadership; squeeze the hard-liners financially. But all this has to be accompanied with a clear declaration that the U.S. is not seeking regime change in Iran, but a change of behavior, that the U.S. wants to immediately restore its embassy in Tehran and that the first thing it will do is grant 50,000 student visas for young Iranians to study at U.S. universities.

I understand the feeling. But how much connection is there between the people on the street and Iran's leadership? In a recent issue of National Geographic Adventure, a reporter published a report of a trip she had taken through the backcountry and the mountains in Iran. Included in the report were some photos of the old American embassy. Her guide was nervous about her fellow reporter's "transgression." The fellow reporter, a photographer that accompanied her, had taken a picture of the wall outside what used to be the American embassy, which has a mural of the Statue of Liberty with the face painted as a skull. The old embassy is now the headquarters of the Iranian Revolutionary Guard. It is known locally as "the U.S. Den of Espionage."

A lot of this kind of imagery could probably be alleviated with dialogue. But here is something that concerns me more: yesterday on Charles Smith's blog Of Two Minds Charles mentioned how Iran's current leaders see Israel as a "one-bomb state."

The President of Iran has made no secret of his desire to destroy Israel, a small nation which zealots gloatingly describe as a "one-bomb state," meaning that one nuclear bomb would wipe the country from the map.

Thomas Friedman has previously stated somewhere that the Islamic militants need to learn to love life (or their children) more than they hate us. I think it is that kind of irrationality that we fear. The "one-bomb solution" would kill not just Israelis, it would kill all Palestinians, too. Not to mention a lot of Jordanians, Lebanese, Egyptians and others.

Instead of Sting's Russians, maybe we now need to say: I hope the Muslims love their children too.

One of the innovations in Christianity was the development of the belief in the Brotherhood of Mankind: the idea that God loves every person regardless of where they are from. It hasn't always been followed, but the concept was there in Christianity from the very beginning. Is it possible for this same concept to be adopted by Islam? Or is it there already, but we just never hear about it because the militants are just so vocal and sensational?

Or does Everybody Love a Holy War?

Tuesday, January 30, 2007

Many in UK Facing Debt Problems Fear Bankruptcy

If you didn't pay close attention to this story, you would swear it about events in the United States.

Of course, most debt problems here in the U.S. are due to medical bills, not overuse of credit.

Thousands of women who are in desperate debt are shying away from bankruptcy because of the social stigma.

Refusal to take this difficult decision is piling on misery and creating even greater debt problems, according to a study from the Consumer Credit Counselling Service.(CCCS)

The CCCS says that 61 per cent of the people it recommends to go bankrupt are women - three quarters of these are single.

However, more than half of these women refuse to take this drastic step, seeing it as a sign of shame and failure.

It seems many of these are older women who have been plunged into a sudden financial crisis by the break-up of a relationship or job loss.

A Sad Foreclosure Story from Florida

(I've edited this a little for spelling.)

Bankruptcy and foreclosure


What is the name of your state? FL

I’m from FL.

I’ve read a lot of the posts here and respect the advice of the forum. I have a couple of questions about Chapter 13. I make over 50K, so I think Chapter 7 is out. I had a real estate deal gone bad. I bought a house and construction was slowed down because of the hurricanes so I had to buy another in the mean time, when it came time to close my wife didn’t want to move, so we tried to rent or sell it. A year later no luck. Now the bank is going to foreclose on it, and to top it all off my mortgage payment on my primary now went up $500 and month because they didn’t calculate the taxes correctly. They used the value of the land only to get me to qualify for the payment knowing that they wouldn’t hear about it until a year or more later. There is also no way I will ever be able to sell my primary no because with the taxes and insurance having gone up so much, and the properly values have gone down ( my neighbors house is better and they had to sell it for 150K less than I paid) I will never get close to what I owe. I’ve had some good real estate deals in the past, and was able to cover my mortgage for year, but have put everything I had into it. I do have some unsecured debt, but could pay all of it if I had to. Can I get out of my primary, and what happens to the primary if you are behind and want out, or stay? With my investment house, I don’t know [whether] to let it go into foreclosure. I can’t catch up with the payment and I’m concerned about get a judgment that I will have to pay for the rest of my life, because that will never sell for what I paid for it, and at a foreclosure sale that will never get ½ of what I own. I’m really ready to go back to renting until the market stabilizes, but who will rent to me if I have a foreclosure and a bankruptcy? Thanks.

It is cases like this that show the new means test is hurting unfortunate debtors. This would have been an easy Chapter 7 (liquidation bankruptcy) under the old law. Besides, a lot of the overvaluation of property in Florida is based on mania and fraud (which are, in many cases, tied together).

What are we going to do with an entire generation stuck in the same predicament? What a mess. Our country is so going in the wrong direction.

Are You Saving Too Much?

Nevertheless, a small band of economists from universities, research institutions and the government are clearly expressing the blasphemy that many Americans could be saving less than they are being told to by the financial services industry — and spending more — while they are younger. The negative savings rate, they say, is wildly distorted.

According to them, the financial industry, with its ostensibly objective online calculators, overstates how much money someone will need in retirement. Some, in fact, contend that financial firms have a pointed interest in persuading people to save much more than they need because the companies earn fees on managing that money.

Actually, this is probably true somewhat. Most of the online calculators and financial planning literature says that you need to save one million dollars ($1,000,000) in order to retire comfortably. That may be true in California, but it is not true here in Oklahoma unless you are already a millionaire. You could probably retire on close to half that -- even assuming a return of 6% on your investment -- as the cost of living here in Oklahoma is much lower.

Even so, the real problem is that American's are not saving enough.

Such an idea would fly in the face of almost every exhortation to a nation of spendthrifts that saving more is an imperative. After all, even as people are living longer, corporate pension plans and Social Security can no longer be relied on to ease most Americans through their retirement years. Fidelity, the nation’s largest provider of workplace retirement savings plans, says the average 401(k) account balance is only $62,000.

Don't forget that doesn't take into consideration that Americans have too much debt on top of that. That is a greater problem than not enough savings.

Executive Order Makes Regulatory Agencies Political

From the New York Times article:

In an executive order published last week in the Federal Register, Mr. Bush said that each agency must have a regulatory policy office run by a political appointee, to supervise the development of rules and documents providing guidance to regulated industries. The White House will thus have a gatekeeper in each agency to analyze the costs and the benefits of new rules and to make sure the agencies carry out the president’s priorities.

This strengthens the hand of the White House in shaping rules that have, in the past, often been generated by civil servants and scientific experts. It suggests that the administration still has ways to exert its power after the takeover of Congress by the Democrats.

So is this an attempt to relegate Congress to a ceremonial role now that the Republicans are no longer in control?

More from the article:

Typically, agencies issue regulations under authority granted to them in laws enacted by Congress. In many cases, the statute does not say precisely what agencies should do, giving them considerable latitude in interpreting the law and developing regulations.

The directive issued by Mr. Bush says that, in deciding whether to issue regulations, federal agencies must identify “the specific market failure” or problem that justifies government intervention.

Besides placing political appointees in charge of rule making, Mr. Bush said agencies must give the White House an opportunity to review “any significant guidance documents” before they are issued.

"Laws enacted by Congress" have been signed by the President. If he wants to veto a bill, then veto it. Although I suppose a Democratic President could rescind such an order, this still seems like an attempt at a kind of "backdoor veto."

The White House told agencies that in writing guidance documents, they could not impose new legal obligations on anyone and could not use “mandatory language such as ‘shall,’ ‘must,’ ‘required’ or ‘requirement.’ ”

So we are going to make compliance with the law voluntary now?

This is what all this really seems to be about:

The executive order was issued as White House aides were preparing for a battle over the nomination of Susan E. Dudley to be administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget.

President Bush first nominated Ms. Dudley last August. The nomination died in the Senate, under a barrage of criticism from environmental and consumer groups, which said she had been hostile to government regulation. Mr. Bush nominated her again on Jan. 9.

With Democrats in control, the Senate appears unlikely to confirm Ms. Dudley. But under the Constitution, the president could appoint her while the Senate is in recess, allowing her to serve through next year.

Some of Ms. Dudley’s views are reflected in the executive order. In a primer on regulation written in 2005, while she was at the Mercatus Center of George Mason University in Northern Virginia, Ms. Dudley said that government regulation was generally not warranted “in the absence of a significant market failure.”

In other words, they want to spurn the will of Congress. Isn't that what elections and the veto pen are for?

Monday, January 29, 2007

Robert Lawless on BAPCPA

BAPCPA stands for Bankruptcy Abuse Prevention and Consumer Protection Act

I am going to steal this line from Robert Lawless:

Blaming the bankruptcy system for bankruptcy filings is like blaming hospitals for serious illnesses. In enacting the new law, Congress did little but close the hospital that treats financial distress.

Is Market Fundamentalism the Problem?

Over 20 years ago, Ronald Reagan repeatedly said: "Government is not the solution. Government is the problem." The acceptance of this idea has led to several rounds of tax cuts and cuts in social programs. The populace, having generally accepted the central idea that government was inefficient and ineffectual, elected politicians that voted to cut social programs and cut taxes because, the voting public was repeatedly told: "you can spend your money better than the government can."

Now we are starting to come full circle; the political pendulum is swinging back. Market Fundamentalism, as a progressive think tank called the Longview Institute calls it, is starting to be questioned. The Longview Institute provides a definition of Market Fundamentalism:

Market Fundamentalism is the exaggerated faith that when markets are left to operate on their own, they can solve all economic and social problems.

I suspect we are just now starting to see the pendulum swing back toward the idea that sometimes government provides the only effective solution. After the Jack Abramoff and Duke Cunningham scandals, the Enron and other major corporate bankruptcies, the attempt to privatize Social Security, our health care mess, the current housing bubble and the rising debt problems have led the public to question just how "efficient" the markets really are. Many of these problems are based on excessive greed by private business interests to outright financial fraud using government as the conduit to commit the crime. The public, I suspect, has become dissillusioned with the idea that the "market" will solve their problems. The public appears to now be starting to think: "the free markets are not the solution, they are the problem."

The problem right now is that our country is out of balance. We do not have laws strong enough to protect the working class against Enron-type dealings. Corporations can file bankruptcy and leave long-employed workers without pensions and health care. Wages for the working class are not keeping up with inflation; the executive's salaries are rising precipitously at the same time that their employees continuously face insolvency. Health care costs, along with excessive interest rates and fees on short-term and revolving debt, are leading to financial insolvency of the working class. Furthermore, lending institutions and their lobbyists were able to get the very bankruptcy laws they wanted -- without any debate or amendments -- into law and reduced their risk of loss like they say they needed. But did it lead to a reduction in interest rates and fees? Nope. Just the opposite. Interest rates and fees have continually risen even though the risk is less now.

This proves that laissez-faire economics just don't work. The lack of government regulation and interference has allowed excessive greed to ruin the market for those with less economic bargaining power. So, at this point in our history, government is not the problem; it is the solution.

Sunday, January 28, 2007

More on the New Casino Economy

The Okiedoke Blog has a piece about one of the fired Dayton Tire Plant workers winning $280,000 at a local casino. A comment there makes the same point I made earlier about our new Casino Economy. That is to say: workers feel like they have a better chance of success playing at a casino than they do working at a job -- even though they know the odds are in the house's favor. The commenter at Okiedoke, however, linked it to Oklahoma history: pointing out Oklahoma's historically depressed (and suppressed) wages lead to Okies feeling as though traditional values of thrift and the work ethic don't create as much opportunity for success as gambling.

Mike Shedlock on the Credit Card Hearings

From his post:

Had it not been for Donavan's complaint about credit card companies being able to change contract terms at will for any reason, a reasonable person might have wondered if he was a banking industry shill rather than some sort of consumer advocate. His concern over contract changes seems to indicate otherwise. But if Donavan really wants to be a consumer advocate I think he should pursue the legality of those contracts and take a good hard look at current bankruptcy laws instead of attempting to punish the prudent. If anything, Donavan should be encouraging those with balances to pay them off rather than punish those who do.

There is no need to punish the prudent anyway. After all credit card companies make a profit off card transactions by charging merchants a processing fee on every transaction. Enough is enough.

Lawsuit May Limit Access to Yosemite National Park

YOSEMITE NATIONAL PARK, Calif. - The plunging waterfalls and soaring crags chiseled by the Merced River draw millions of visitors each year, but the crowds are precisely what threatens the waterway and the park.

Efforts to safeguard the Merced have spawned a court battle over the future of development in Yosemite National Park's most popular stretch. The case may come down to the challenge facing all of America's parks: Should they remain open to everyone, or should access be limited in the interest of protecting them?

In November, a federal judge barred crews from finishing $60 million in construction projects in Yosemite Valley, siding with a small group of environmentalists who sued the federal government, saying further commercial development would bring greater numbers of visitors, thus threatening the Merced's fragile ecosystem.

"The park's plans for commercialization could damage Yosemite for future generations," said Bridget Kerr, a member of Friends of Yosemite Valley, one of two local environmental groups that filed the suit.

The government is appealing, fearing the ruling could force the National Park Service to limit the number of people allowed into Yosemite each day, a precedent it doesn't want to see echoed in other parks.

"I don't think we've ever had a ruling with these kind of implications," said Kerri Cahill, a Denver-based planner for the park service. "It's going to have a direct influence on the public who care about these places."

I had the fortune of visiting Yosemite National Park back in May 2004, if I remember correctly. I remember that the day after I arrived, the waterfalls were at their peak. It made for some great photographs. Here are some you can find at Webshots Yosemite gallery.

The Yosemite Valley is a pretty limited space; and the National Park Service has several buses that run throughout the Valley. If there really is a concern, why not create a parking area outside the park entrance -- or at least outside the Valley -- to reduce any potential harm from auto emissions? However, even I thought they could use more accommodations in Yosemite Valley itself -- or at least near it. As far as the limited parking space, I was usually able to find a spot while I was there, but then I didn't visit the park during its summer peak, either.

Many people have complained about the fact that the available lodging is a little too rustic. The walls are so thin that you can hear people in the next room pretty easily and the shower setup is such that you have to walk outside (even for the hotel rooms) and should probably be updated with a modern design. A lot of the lodges were built over a hundred years ago, and, honestly, the shortcomings they present can distract from the enjoyment of the park. I realize that most people will come back again and again despite having to "rough it." But I also think that continual upkeep and upgrades is a fact of life. I would rather that the National Park Service increase the cost of the accomodations that are available so that they can improve the services, and accommodations they provide, even at the risk that some will fear that it will become "a playground of the rich."

Experts Question Bush's Health Care Proposal

An interesting note that I found in the article:

In their desire to achieve universal coverage, some Democrats have also begun to raise questions about the employer-based system. “We have to ask ourselves if the employer-based system of health care is still the best way for providing insurance to all Americans,” said Senator Barack Obama, Democrat of Illinois, noting that workers frequently changed jobs.

I more or less made the same point in a previous post.

Friday, January 26, 2007

New Bankruptcy Law Not Changing Behavior

From Credit Slips (click on title for link):

More importantly, the bankruptcy filing rate has never been a particularly good measure of the number of families in financial distress. A better indicator of how many families are having difficulty managing their debts is the percentage of credit card debt that is charged off each quarter (the lavender line below). Here, too, BAPCPA has had an effect. The charge-off rate spiked in anticipation of October 17, 2005 as families that thought they might need bankruptcy filed (and thus charged off debt) in anticipation of the new law's effectiveness. The difference here is that the rebound has been much more pronounced. While chargeoffs are not yet back to the level of late 2005, they are getting close.

USA Today Reports on Yesterday's Hearing

From the article:

In 2005, about 44% of credit card issuers surveyed by the non-profit group Consumer Action assessed universal default interest rates. Those issuers included Citigroup, Washington Mutual, HSBC Holdings and Wells Fargo, according to the group.

"Even consumers who always pay on time cannot avoid the price abuses," said Michael Donovan, an attorney at the National Consumer Law Center.

Other questionable tactics involve applying penalty interest rates retroactively to prior purchases and lowering loan limits that trigger fees and higher rates.

Based on Federal Reserve figures, Plunkett estimated outstanding credit card debt amounted to $750 billion to $800 billion in November 2006. The industry has more than 640 million cards in circulation.

Thursday, January 25, 2007

Bill to Create National Health Care Introduced in Congress

House Resolution 676 introduced by Rep. John Conyers (D-MI) to create a national health care system for all U.S. residents. It has been referred to the Committee on Energy and Commerce. If you support the creation of a national health care system, call, write or email your Congressman and Senators and tell them to support this bill.

Billings Gazette: Payday Loans Reduce Troop Readiness

From the article:

The average interest on payday loans in Montana, for example, is 521 percent (the sixth highest in the nation). In contrast, credit card companies generally charge about 30 percent interest for cash advances.

No wonder the military was concerned when it discovered that 20 percent of our servicemen and women use this type of loan. Last fall, Chief Master Sgt. Robert Moore at Malmstrom Air Force Base explained the problem to the Great Falls Tribune: "We expend a lot of time and energy helping them get their debts under control so they are more ready and capable to perform the mission."

Congress responded to this issue by imposing a 36-percent interest rate cap on payday loans to members of our military (the bill that included this provision passed 398-23 in the House of Representatives). Lending companies argued that the law would ultimately hurt soldiers by interfering with supply and demand and taking away a form of credit. The Pentagon didn't buy it: Soldiers would still have plenty of access to credit through credit card cash advances, small consumer loans, credit union loans, emergency assistance programs, and so on.

The troubling story of how predatory lending became a national security problem raises an important question. How can a loan be predatory and abusive when provided to one class of consumers but a healthy and beneficial part of the economy when provided to anyone else?

Senate Banking Committee Hearing on Credit Card Practices Webcast

Click on the title view the live hearings. I will edit the post later if the link changes after the hearing is over.

Stephen Colbert on Bush's Health Care Proposal

Last night on the Colbert Report, Stephen Colbert made the same observation I made yesterday in prose -- only funny.

***Update*** I think I found the link:

Here is the transcript:

Colbert: What made the President's speech so groundbreaking was all the new stuff we heard from the President -- like a domestic agenda. Take his proposal to fix that whole health care mess with the only proven cure-all: tax breaks.

President Bush: And for the millions of other Americans who have no health insurance at all: this deduction would help put a basic health insurance plan within their reach.

Colbert: It's simple: most people who can't afford health insurance also are too poor to owe taxes. But, if you give them a deduction from the taxes they don't owe, they can use the money they're not getting back from what they haven't given to buy health care they can't afford.


And that's the Word.

Wednesday, January 24, 2007

State of the Union Response

I felt that Sen. Webb's response was far more powerful and relevant that Bush's speech. Particularly this part:

When one looks at the health of our economy, it's almost as if we are living in two different countries. Some say that things have never been better. The stock market is at an all-time high, and so are corporate profits. But these benefits are not being fairly shared. When I graduated from college, the average corporate CEO made 20 times what the average worker did; today, it's nearly 400 times. In other words, it takes the average worker more than a year to make the money that his or her boss makes in one day.

Wages and salaries for our workers are at all-time lows as a percentage of national wealth, even though the productivity of American workers is the highest in the world. Medical costs have skyrocketed. College tuition rates are off the charts. Our manufacturing base is being dismantled and sent overseas. Good American jobs are being sent along with them.

In short, the middle class of this country, our historic backbone and our best hope for a strong society in the future, is losing its place at the table. Our workers know this, through painful experience. Our white-collar professionals are beginning to understand it, as their jobs start disappearing also. And they expect, rightly, that in this age of globalization, their government has a duty to insist that their concerns be dealt with fairly in the international marketplace.

In the early days of our republic, President Andrew Jackson established an important principle of American-style democracy - that we should measure the health of our society not at its apex, but at its base. Not with the numbers that come out of Wall Street, but with the living conditions that exist on Main Street. We must recapture that spirit today.

It really is a question of values. Are we in this together, or aren't we? Senator Webb's "two different countries" reference is quite sapient. At the same time the executive's pay and benefits are rising, American worker's wages are not -- and yet the very costs that are rising the fastest are being pushed off onto them.

It's as if the American working class is being told: Health care? "Buy your own plan (and lose the benefit of the economies of scale)." Education? "No more scholarships or grants; use student loans and pay it back over your lifetime (and give up hope of getting ahead)." Pensions? "Make cuts in your budget to save. Besides, we will just file bankruptcy and avoid the obligation if you don't."

Our country is getting ripped apart at the seams. It seems as if the wealthy and powerful don't think they need anyone else. Among the upper class, the concept of Social Darwinism has become fashionable again. It's the law of the jungle; it's everybody against everybody. The upper class have been saying "Why should we have to share? We don't need you anyway. We can just move to another country if you raise our taxes."

It's the new American Tribalism. Here in America, the tribes are being divided by class rather than race, ethnicity or faith; but it is tribalism nonetheless.

We need to answer the question: whose values are we going to apply? Are we in this together or are we not?

Tuesday, January 23, 2007

A Simple, Cheap Cure for Cancer?

From The Daily Reckoning:

Science News reports that a well-established drug called DCA kills cancers by turning off their notorious immortality. Unlike developmental compounds, DCA has been used for many years to treat other illnesses and is therefore known to be safe.

Furthermore, it is off patent, so it can be purchased cheaply.

Scientists at the University of Alberta cultured human cancer cells outside the body and found that DCA killed lung, breast and brain cancer cells, but healthy cells were left alone. Likewise, rats that had been infected with human cancer showed drastic improvement over the course of several weeks.

An exciting development -- if it turns out to be true.

Paul Krugman Follow-Up at the Economist's View

From his follow-up there:

I believe - and the evidence, I think, supports this belief - that the big problem is "adverse selection." An insurance plan offered to everyone at the same rate would be a great deal for relatively sick people, a poor deal for the healthy. So one of two things happens to private insurance. Either plans go into the "adverse selection death spiral," as sick people flock in, driving up rates, driving out more healthy people, and so on. Or insurance companies spend a lot of the money they receive in premiums screening out "high-risk" clients, so that the system has huge overhead and the neediest cases are excluded.

The clean solution to this problem is for the government to provide insurance to everyone. Other rich countries do that. So do we, for older Americans, veterans, and others. Actually, government health insurance is already bigger in America, in dollar terms, than private insurance - it covers fewer people, but that's because the elderly, who cost more, are handled by the government.

Monday, January 22, 2007

Hurricane Katrina Loan Application Exchange

You've might have seen this already, but I got this through a forwarded email. I have made some alterations for grammar and style.

Many of you reading this know that New Orleans residents are challenged often with the task of tracing home titles back potentially hundreds of years. With a community rich with history stretching back over two centuries, houses have been passed along through generations of family, making it quite difficult to establish ownership.

Here's a great letter an attorney wrote to the FHA on behalf of a client that was absolutely priceless! You gotta love this lawyer . . . it's too good not to share! Everyone who has ever bought a house will enjoy this.

A New Orleans lawyer sought an FHA loan for a client. He was told the loan would be granted if he could prove satisfactory title to a parcel of property being offered as collateral. The title to the property dated back to 1803, which took the lawyer three months to track down. After sending the information to the FHA, he received the following reply:

(Actual letter):

"Upon review of your letter adjoining your client's loan application, we note that the request is supported by an Abstract of Title. While we compliment the able manner in which you have prepared and presented the application, we must point out that you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin."

Annoyed, the lawyer responded as follows (actual letter):

"Your letter regarding title in Case No. 189156 has been received. I note that you wish to have title extended further than the 194 years covered by the present application. I was unaware that any educated person in this country, particularly those working in the property area, would not know that Louisiana was purchased by the U.S. from France in 1803, the year of origin identified in our application.

For the edification of uninformed FHA bureaucrats, the title to the land prior to U.S. ownership was obtained from France, which had acquired it by Right of Conquest from Spain. The land came into the possession of Spain by Right of Discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India by the Spanish monarch, Isabella.

The good queen, Isabella, being a pious woman and almost as careful about titles as the FHA, took the precaution of securing the blessing of the Pope before she sold her jewels to finance Columbus' expedition.

Now the Pope, as I'm sure you may know, is the emissary of Jesus Christ, the Son of God, and God, it is commonly accepted, created this world.

Therefore, I believe it is safe to presume that God also made that part of the world called Louisiana. God, therefore, would be the owner of origin and His origins date back, to before the beginning of time, the world as we know it AND the FHA. I hope you find God's original claim to be satisfactory.

Now, may we have our damn loan ?"

The loan was approved.



111 Brad Street points out that this is just an Urban Legend. Apparently this tall tale has been around for quite a while.

Paul Krugman: Bush's "Gold-Plated Indifference"

In today's New York Times, Paul Krugman takes on President Bush's attack on middle- and lower-income worker's "gold-plated" health insurance. In his radio address to the country, Bush said we should “treat health insurance more like home ownership.” Krugman rightly called Bush to task on his statement:

Going without health insurance isn’t like deciding to rent an apartment instead of buying a house. It’s a terrifying experience, which most people endure only if they have no alternative. The uninsured don’t need an “incentive” to buy insurance; they need something that makes getting insurance possible.

Most people without health insurance have low incomes, and just can’t afford the premiums. And making premiums tax-deductible is almost worthless to workers whose income puts them in a low tax bracket.

Of those uninsured who aren’t low-income, many can’t get coverage because of pre-existing conditions — everything from diabetes to a long-ago case of jock itch. Again, tax deductions won’t solve their problem.

Correct. The problem is that the working class cannot pay for health insurance on the wages they are receiving. It isn't like employers are dropping health insurance and then paying workers the difference. Workers are told that their benefits are going to be cut, and that they will have to cut into their family budget to make up the difference if they want to keep their health insurance. If you have to pay $11,000 per year to insure your entire family, getting back $1500 in the form of a tax credit isn't going to make up for the other $9500 worth of stuff you had to give up.

According to press reports, the actual plan is to penalize workers with relatively generous insurance coverage. Just to be clear, we’re not talking about the wealthy; we’re talking about ordinary workers who have managed to negotiate better-than-average health plans.

What’s driving all this is the theory, popular in conservative circles but utterly at odds with the evidence, that the big problem with U.S. health care is that people have too much insurance — that there would be large cost savings if people were forced to pay more of their medical expenses out of pocket.

Mr. Bush, on the other hand, is still peddling the fantasy that the free market, with a little help from tax cuts, solves all problems.

What’s really striking about Mr. Bush’s remarks, however, is the tone. The stuff about providing “incentives” to buy insurance, the sneering description of good coverage as “gold plated,” is right-wing think-tank jargon. In the past Mr. Bush’s speechwriters might have found less offensive language; now, they’re not even trying to hide his fundamental indifference to the plight of less-fortunate Americans.

The public isn't crying for more ways to burden them and give tax breaks to those who don't need it; they are demanding that they be treated with some dignity and granted access to the health care system. Bush's plan doesn't do that. Bush's plan is a "let them eat cake" policy.

Sunday, January 21, 2007

Even the Rich Are Borrowing Large

The Wall Street Journal is reporting that wealthy individuals are borrowing at a faster rate than middle class Americans. From the article:

Just as the rich control a disproportionate share of national wealth, they also account for a disproportionate share of debt. The richest 1% now hold 7% of the nation's debt, with a total of $650 billion in borrowings, up from 5% in 1998.

Debt for this group grew faster than for any other group in the Fed survey. Total debt held by the top 1% increased 150% between 1998 and 2004, compared with growth of about 100% for those in the 50th-to-90th percentile wealth range. The rich, in short, have joined the great American borrowing binge. Call them the leveraged elite.

After buying up second (and third and fourth) homes and funding ever-more lavish lifestyles, today's risk-friendly rich are embracing debt as a way to expand fortunes and fund increasingly acquisitive lives.

The problem for the middle class is the costs for necessities such as health care, housing and education are rising faster than inflation. Their problem is compounded by the fact that wages are not keeping up with inflation.

It appears that the problem for high-income earners is that they are borrowing in an attempt to get ever larger returns on their investments.

"There is a drive by the merely rich to keep up with the obscenely rich."

[However] on the whole, their balance sheets remain healthy. According to the Fed, the debt held by the top 1% amounted to only 3.7% of their total wealth. That compares with 24% for Americans ranked in the 50%-to-90% groups.

What concerns me about this statement is that many of the calculations that measure wealth are based on inflated values of real estate and stocks that both arguably have overinflated values. What happens when the real estate loses value and stocks fall due to a selloff? There's no doubt that, on average, the wealthy will still be solvent. But what will such a correction do to their penchant for risk?

Saturday, January 20, 2007

Demand for Universal Health Care Grows

From the article:

WHY HEALTH CARE IS HOT NOW: It's been talked about and debated for years, but wide agreement is emerging over the problem of health care's rising costs, which swallow wage increases and have threatened to overtake state spending on primary education. Businesses say they're at a disadvantage with global competitors.

The system can't survive another few years on the same track without collapsing, said Pennsylvania Gov. Ed Rendell, a Democrat.

"If California, Pennsylvania and Massachusetts prove it's doable - and Maine has already to some extent - it will create an unstoppable momentum," he said.

Puttin' On the Ritz

This is Taco's remake of the Irving Berlin classic Puttin' On the Ritz, the Depression-era song that referred to the Roaring Twenties activity of dressing up and going out on a night on the town. (This is the censored version -- the original had characters and dancers in blackface when Gary Cooper's picture appears and during the dance routine later in the video.)

As a matter of political commentary, are we repeating (or at least rhyming) history in this regard?

Well, in any case, enjoy the video.

Friday, January 19, 2007

Fewer Seniors Passing Assets on to Their Children

From The Mess That Greenspan Made Blog:

Their money is increasingly spent on life's essentials - food, utilities, and medical costs - all of which have risen at a brisk pace in recent years. In many cases, the combination of a pension and a paid off home has been replaced by a meager retirement income, high bills, and a reverse mortgage.

A decade ago, homes were routinely passed on free and clear to surviving children, ten years from now heirs may be surprised to find out how little is left after years of borrowing by their parents to make ends meet.

Thursday, January 18, 2007

An Update on Margin Debt

Click on the title for an update from Barry Ritholtz at The Big Picture (now with a chart to give a perspective on its size).

When It Ice Storms, It Pours

As an update to my previous story, my carport collapsed this morning. It's a good thing it didn't happen as I was going outside, or when I had someone come by this morning to give me an estimate on replacing it. It's also a good thing I pulled my car out from underneath it yesterday when I first noticed it sagging; otherwise, it would have crushed my car, too.

When the carport came down, it did some minor damage to the house and knocked out the flood lights as it was attached to the house. It also did some damage to the fence since part of the fence was right underneath it. It pulled down the phone and cable lines and that will have to put back up. What a mess. I can't go out the front gate because of how and where it fell.

It made a loud crashing sound and all my neighbors heard it, too. When the guy came by this morning to look at it to give me an estimate to have it replaced, he said it would definitely come down this weekend because of the snow.

I have also noticed that there is some discoloration on my front porch area that has developed, indicating that I may have a roof leak now, too.

Then I went out to my car to run some errands. The car wouldn't start. I called the dealership and they said they thought it sounded like the starter was going out. You know, they say "good news comes in threes." I guess the opposite is true for me. I think that if I didn't have bad luck I wouldn't have any luck at all.

More Warning Bells About Margin Debt

Barry Ritholtz of The Big Picture blog is starting to raise some concerns about rising margin debt. I previously asked: Is This Why the Stock Market is Staying Up? I referenced an article that I had seen at Credit Slips (who followed-up on what they had seen somewhere else).

According to Mr. Ritholtz, he has not seen evidence that it has gotten too high -- yet -- "but it getting close," he says.

Anyone who is in the stock market probably needs to take a close look at this phenomenon.

Wednesday, January 17, 2007

Ice Ice Baby

My yard and driveway (and the road in front of it) is a four-inch-thick solid sheet of ice. It is so thick and solid that even when I drive my car over it, it doesn't give. No tracks even. It is treacherous to walk on. And drive on. Good thing I don't live on a street with a slope.

Now we are being told to expect 8 inches of snow this weekend. Great.

I just went outside and saw that my carport has buckled under the weight of the ice. Had to call the insurance company. Great. That's all I need. At least I have homeowner's insurance. With 8 inches of snow, I have to worry a little about the roof because of the weight. I hope it holds up. We rarely get that much snow at once. Come to think of it, we rarely get that much snow all winter.

What I wouldn't give to be in New Zealand right now. It's summer there. The weather service there says it will reach 23 degrees Celsius with a low of 14C. That's about 75 and 57 Fahrenheit for us Americans.

We could sure use a little more of the "warming" part of Global Warming right about now.

Inflation or Deflation?

Maybe it's both:

Indeed, Tuesday's WSJ had an article that detailed

"Increasing numbers of Americans are encountering similar choices as employers ask them to buy their own benefits, including disability and life-insurance policies, medical and dental coverage, and even benefits not normally found in the workplace like homeowner insurance and identity-theft coverage. Few businesses are actually replacing employer-paid benefits with these so-called voluntary benefits -- "voluntary" because you pay for them yourself. But some experts predict that eventually, American workers will have to buy many of the benefits they now get free at work, much the way most of the burden of funding retirement savings has shifted from employers to employees in recent years."

Paying for something that was previously part of your compensation package? Pick your poison: Either that's wage and income deflation, or price inflation.

New Report says Consquences of Medical Debt = Increased Credit Card Debt, Worse Health Care and Depleted Assets

From page 16 of the report:

According to a 2005 survey by the Employee Benefit Research Institute and the Commonwealth Fund, greater percentages of health care consumers in high-deductible plans spend more than 5 percent of their income on out-of-pocket medical expenses and insurance premiums. For those with household incomes below $50,000, the numbers are even starker: 92 percent of people in high deductible plans spent more than 5 percent of income on out-of-pocket expenses and premiums, while 34 percent of those with comprehensive insurance did so. Medical bill problems and medical debt are more frequently reported by people in higher deductible plans. As these types of plans proliferate, out-of-pocket expenses could grow even more, thus increasing the potential for medical debt.

Oh, but the credit card companies have an answer:

In recognition of the growing market for patient out-of-pocket costs, the credit card industry has developed “medical credit cards” designed specifically for medical expenses, which have recently entered the marketplace. In some cases, health insurers and financial institutions are teaming up to offer products featuring high deductible health insurance and lines of credit to meet the increase in out-of-pocket expenses associated with the higher deductible. Several HSA servicers are now incorporating integrated lines of credit into their HSA products. That there is a market for credit cards specifically designed for these out-of-pocket costs indicates that patients are having difficulty meeting these expenses. To the extent that interest rates or penalty fees are applied to these expenses when credit cards are used to meet them, patients are paying even more. In other cases, credit card companies are working in conjunction with health care providers to shift bill collection from the provider to the credit card company, and are offering incentives such as bill discounts for patients who use the credit card, particularly uninsured patients. Many of these credit cards charge interest, and, like traditional consumer credit cards, a late payment can trigger penalty rates and fees, thus exacerbating medical debt. In a deregulated lending environment, once medical debt is subsumed under credit card debt, it is subject to the same maze of terms, conditions, and fees to which all consumer credit card debt is subject. More oversight of this burgeoning industry is needed to protect consumers from medical credit card debt.

It is these very kinds of abuses of people in their weakest moments of life that shows we cannot go with a privately funded health care system. Patients need to focus on getting well. The stress that results from worrying about paying for medical debt -- especially when someone is sick or injured and cannot work -- only compounds the injury or illness. Increased stress levels impede the body's natural disease-fighting mechanisms. Our current health policy of burdening the patient with more medical debt is like kicking someone when they are down.

Christianity in Baghdad

A priest in Baghdad discusses the everyday fear that Christians have since the fall of Saddam. Near the end, he talks about how he doesn't think the West (Bush?) isn't really Christian as claimed. He thinks that it is just a ruse to spread capitalism.

It's a very insightful video.

Hat tip: Talking Points Memo.

Tuesday, January 16, 2007

Bush Using Patriot Act to Remove Prosecutors

LA Times: Foreclosures increase 51 percent nationwide

However, here is the kicker:

The Southwest region was the hardest hit, accounting for one of almost 2.2 foreclosure filings. The region includes Arkansas, Louisiana Oklahoma, Texas and the Western states. Four states in the region -- Louisiana, New Mexico, Oklahoma and Oregon -- reported fewer foreclosure filings last year compared to 2005.

Foreclosures are rising currently due to several plant closings locally. But that appears to have more to do with local economic conditions than overpriced houses.

Monday, January 15, 2007

Is Iraq the New Yugoslavia?

Before the Iraq war, Thomas Friedman of the New York Times wrote that Iraq could become the new Germany -- that is, it could unleash a country of great productivity and innovation -- because it was being held down by a brutal dictator; or, by invading, the U.S. would be creating a new Yugoslavia -- we could simply be taking a broken country and unleashing a civil war wherein ethnic, religious and tribal factions -- because they could only be held together by a brutal dictator.

Well, Mr. Friedman, I think we probably have your answer. It appears that Iraq is becoming a new Yugoslavia. It is a country that is being torn apart by all kinds of divisions: ethnic, religious and tribal. Could we have avoided this? Possibly. But like you said: this was a "war of choice." And we couldn't have fought it much worse. We went in with "just enough troops to lose." From the very start, we didn't win the peace. You said regarding the Iraq war: "if done wrong, the world will never be the same."

In Friedman's editorial from January 26, 2003, entitled Thinking About Iraq (II) Friedman wrote:

Think of it this way: If and when we take the lid off Iraq, we will find an envelope inside. It will tell us what we have won and it will say one of two things.

It could say, ''Congratulations! You've just won the Arab Germany -- a country with enormous human talent, enormous natural resources, but with an evil dictator, whom you've just removed. Now, just add a little water, a spoonful of democracy and stir, and this will be a normal nation very soon.''

Or the envelope could say, ''You've just won the Arab Yugoslavia -- an artificial country congenitally divided among Kurds, Shiites, Sunnis, Nasserites, leftists and a host of tribes and clans that can only be held together with a Saddam-like iron fist. Congratulations, you're the new Saddam.''

Congratulations! Iraq looks a lot more like the latter than the former.

So what now, Mr. Friedman? How do we put the Humpty Dumpty nation back together again? I realize hindsight is 20/20; but now that we have removed Saddam and his henchmen, how do we stop the sectarian violence? How do we convince people who seem to hate each other more than they love their children to stop their madness?

I certainly don't have the answer. Do you, Mr. Friedman?

Sunday, January 14, 2007

Banks Gone Wild

Joe Lee, a federal bankruptcy judge, and author Thomas Parrish in the New York Times (subscription required) write about the interaction between usury and the new bankruptcy law. From the editorial:

Thirty years ago, the unlucky R. Z. would probably have struck many of his acquaintances as something of a deadbeat: Hadn’t he voluntarily run up a debt and then tried to slip out of the deal? T. P., on the other hand, would have received sympathy as the victim of a heartless usurer (if interest rates equal to one-third of the principal had been legal in those days).


As for the morality involved in lending money at exorbitant rates, the word “usury” itself has taken on a quaint, archaic sound, like “jousting” or “necromancy.” What happened?

In 1978, the United States Supreme Court delivered a landmark decision that freed banks to charge the interest rates allowed in their home states to customers across the country. This decision, at a time of high inflation, unleashed a national credit storm: states scrambled to relax usury laws in order to attract banks, while banks rushed to establish affiliates in states that weakened or abolished such laws. R. Z. and T. P. are the natural products of this unhappy change. One obvious recourse for people like them is to file for bankruptcy. There’s the stigma to consider, of course. But making such a move would allow R. Z. to end the harassment by the collection agency and both men to make fresh starts free of unsecured debts.


In 2005, these suffering financial institutions succeeded in securing the adoption of new federal legislation, the marvelously named Bankruptcy Abuse Prevention and Consumer Protection Act. Nobody who favored this bill chose to see that the bankruptcy epidemic had been produced in large measure by the banks, or that the real hidden costs were the usurious interest rates these banks charged borrowers.


A group of credit-counseling firms that provide bankruptcy screening — a step the new law requires — report that 97 percent of the clients could not repay any debts at all, and 79 percent sought relief for reasons beyond their control, like job loss and large medical expenses and, notably, rising credit card fees and predatory lending practices.


In adopting the provision, Congress disregarded the advice of every disinterested group that has looked at the question, including three presidential commissions, the Congressional Budget Office and the Government Accountability Office. It also ignored a past House Judiciary Committee report, which declared that such compulsion might well amount to the imposition of involuntary servitude.

Mark Twain once said that "no man’s life, liberty, or property is safe while Congress is in session." It certainly wasn't for debtors in the last Congressional session. Can the Democrats -- who don't have enough votes to override any Presidential veto -- make any meaningful change in credit-related abuses by lending institutions? I doubt it.

Federal Reserve Claims "Payday Lending Not Predatory"

America's Rent-to-Own industry is touting a soon-to-be released report wherein the Federal Reserve of New York is claiming that high-fee, high-interest-rate loans in poor and lower middle class neighborhoods are good for America.

A forthcoming study, “Defining and Detecting Predatory Lending,” by Donald P. Morgan, Research Officer, Federal Reserve Bank of New York, and Samuel G. Hanson, Graduate Student, Harvard Business School, concludes that payday loans are not a “welfare reducing” form of credit. To the contrary, the authors suggest that payday lenders enhance the welfare of households by increasing the supply of credit.

“We define predatory lending as a welfare reducing provision of credit.”

I define it the same way Wikipedia does:

Short-term loans with proportionally high fees, such as Payday loans, credit card late fees, checking account overdraft fees, and Tax Refund Anticipation Loans, where the fee paid for advancing the money for a short period of time works out to an annual interest rate significantly in excess of the market rate for high-risk loans. The originators of such loans dispute that the fees are interest.

The Center for Responsible Lending did a study showing that payday lenders cost American families $4.2 billion every year in predatory fees. This practice creates a Debt Trap. The interesting thing is that these reports are from 2003, so I am sure that the problem is worse now.

You know, we used to have laws against usury. I find it interesting that the most vocal Christian leaders in this country say nothing about this, or other related, issues. Jesus himself drove the money changers (that day's payday lenders) from the temple. Why won't today's Christian leaders do the same for America?

Jesus and the Money Changers by El Greco

Friday, January 12, 2007

Paul Krugman on Schwarzenegger's Health Care Plan

From his editorial (subscription required):

There are three main reasons why many Americans lack health insurance. Some healthy people decide to save money and take their chances (and end up being treated in emergency rooms, at the public’s expense, if their luck runs out); some people are too poor to afford coverage; some people can’t get coverage, at least without paying exorbitant rates, because of pre-existing conditions.

Single-payer insurance solves all three problems at a stroke. The Schwarzenegger plan, by contrast, is a series of patches. It forces everyone to buy health insurance, whether they think they need it or not; it provides financial aid to low-income families, to help them bear the cost; and it imposes “community rating” on insurance companies, basically requiring them to sell insurance to everyone at the same price.

As a result, the plan requires a much more intrusive government role than a single-payer system. Instead of reducing paperwork, the plan adds three new bureaucracies: one to police individuals to make sure they buy insurance, one to determine if they’re poor enough to receive aid, and one to police insurers to make sure they don’t discriminate against the unwell.

Thursday, January 11, 2007

The Iceman Cometh

Local weathermen are predicting one of the worst ice storms Oklahoma has ever seen this weekend. So, if I don't post for a while, don't panic. Your sometime daily dose of Satellite Sky News and Views will return as soon as I get my electricity back. (They are predicting widespread electrical outages this weekend.)

I had a very long day at court today. So I won't have a lot to say tonight. As we say in Oklahoma: I'm tarred (tired). I had to do some hurrying today. And I don't usually get in such a hurry. I'm an Okie. We don't walk, we mosey. I had to get a court order done during my lunchtime, and if you know how much I like my lunchtime, you know I wasn't moseying. So forgive me if I decide to somewhat take the night off.

After I got back from my long drive, I headed over to the local Wal-Mart Supercenter. Yes, I know, a moment of cognitive dissonance given what I have reported before. I filled up my car with $1.85 per gallon gasoline (something else that is far cheaper in Oklahoma than in California). I also stocked up on important supplies. The place was packed. Everyone else was doing the same thing that I was: preparing for disaster.

It's the end of the world! Run for your lives! The Iceman Cometh!

Wednesday, January 10, 2007

Update on House Hunting in OKC

I talked with a foreclosure attorney yesterday while I was at the bankruptcy court here in Oklahoma City. He told me that just one law firm was referred 600 cases for foreclosure just last month alone. It is expected that these houses will come on the market in April or May.

I don't think that spells a "market bubble" so much as a depression of prices due to the economy going downhill. Realtors are not quite sure how it will affect the market here. But the most likely result is that prices (which are already cheap by national standards) will probably fall even further. Not by California or Florida levels, mind you, but probably some as all of the foreclosed properties come on the market.

Of course, the good news for me is that I received three (3) calls for bankruptcy services yesterday alone. I haven't had three calls in a day for bankruptcy services since before the law changed. One thing about the law practice: it's feast or famine. We bankruptcy attorneys have been suffering from a famine for over a year. I think we are due for a correction. The main reason why people have not filed in the last year is because the price doubled, when you add in the extra attorney fees (up 50%), increased court costs (up 50%), costs of credit counseling (not required under the previous law) and other assorted "paperwork" costs that didn't exist under the old law. I think you are now starting to see the debt problems bubble to the service.

The math just doesn't lie. We have had a lack of internalized costs to society (i.e. health care costs) coupled with overconsumption (i.e. people buying stuff they don't need, with money they don't have, to impress people they don't know) that has put the country in a position of having too much debt floating around. The old saying "you can't get blood out of a turnip" is still true. That excessive debt will have to be resolved somehow. Restricting access to the bankruptcy courts will not cause those debts to be paid back, they will just result in more suffering and stress for the middle and lower classes whose wages have not kept up with those costs.

No one in congess that I am aware of have been talking about regulating interest rates and fees on credit cards. The credit card companies (who were most instrumental in lobbying for the change in the bankruptcy law) have been raising interest rates and fees (and increasing profits) to excessive levels -- even though their costs of borrowing have not gone up. They have also instituted "Universal Default" clauses which punishes someone who ends up being late on any bill, even if they are never late on their credit card payments. What we are seeing is excessive greed by those who already have more than they need.

Our values are out of whack. We are overdue for some kind of correction in our values as well as our markets.

Senator Kennedy (D-MA) Wants to Extend Medicare to All

"Members of the House and Senate have a guaranteed health plan for ourselves and our families," Kennedy said in his prepared remarks. "It's time to provide the same guarantee for every man, woman and child in the nation."

The Massachusetts Democrat said too many trends in health care are going in the wrong direction.

"Insurance coverage is down. Costs are up. And America is heading to the bottom of the league of major nations in important measures of the quality of care," he said.

Advocacy groups say they're optimistic that Congress this year will expand health insurance coverage to more Americans. They are particularly lobbying to increase funding for coverage of children living in families that make too much to qualify for Medicaid, but not enough to afford the monthly health insurance premiums offered through the private sector.

Monday, January 08, 2007

House Hunting in Oklahoma City

Today I went out looking for a new (for me) house. Most of the houses were overpriced given the market here. Almost all of the houses I looked at required pretty extensive work to make it ready to live in, but they were on the market for a price that was close to what they would be expected to sell for in move-in condition (around $70 square foot). Even the bank-owned property, which needed probably $15,000 worth of work to make it livable was on the market for $72,000. In top condition, the house would be worth around $79,000.

Mind you, I am looking for a house with about 1000 square feet. (For my European and Australian readers, this is about 100 square meters).

What I am finding out is that houses larger than 1000 sq. ft. are not selling for as much money per sq. ft. as the smaller houses.

Finally, I looked at a fixer-upper that is being offered for $49,000. That amounts to less than $50 per sq. ft. However, it will require probably about $10,000 in repairs. This doesn't seem like such a bad deal. On the other hand, I have not seen the results of any inspections, so there might be something wrong that could not be seen upon a visual inspection.

It certainly is not like the madness that is taking place on the coasts and many cities around the country.

The War on Wages

Representative Barney Frank (D-MA) gave a talk last week wherein he talked about the challenges for the working class. A few choice clips from his speech:

What I do want to talk about today is the economy, and it's a problem that we have in America, and it's a problem that is worldwide. It is the increasing separation of the well-being of the average citizen from overall economic growth.


The rising tide lifts all boats has always been a problem. If you think about that analogy, the rising tide is a very good idea if you have a boat. But if you are too poor to afford a boat and you are standing tiptoe in the water, the rising tide goes up your nose.


That debate appears to be over. We've given out a handout. One of the things that struck me yesterday when we were putting that together was we got some quotes from various people from the left, from the right, from the center about inequality in America and it struck us as we looked at them that we couldn't tell who said what. That's why you were given them as a kind of a matching test. There is now a consensus. The income of 80 percent to 90 percent of Americans has substantially lagged economic growth. That fight about whether or not it happened is over. The questions, though, are now: One, should we be worried about it; two, if we are worried about it, can we do anything about it; and, three, what?

Well, there were some, particularly conservatives, who said, "Oh, don't worry about inequality. Inequality, that's just a matter of jealousy. As long as everybody's got something, that's OK."

FRANK: Well, of course, part of the problem with that is that the definition of what is adequate is not a fixed point. What you believe to be adequate, what your kids believe to be adequate, what you need to live a decent life, is an evolving concept.

It's also the case that when a handful of people have a lot of money, they may be driving up prices for others. There are people, I guess, who don't care about inequality as a moral issue. I do.

But there is a broader point here about why it matters, and that's the political factor. One of the consequences of this separation between economic growth and the well-being of the great majority of citizens is that an increasing number of citizens don't care about economic growth. Not surprising. Not only do they not benefit, but in many cases they get the short-term disruptive effects.

I mean, there was a great concept from Joseph Schumpeter of creative destruction in which, as the old economic order is destroyed, resources are freed up for the new order.

Well, increasingly, we have people who see the destruction in their own lives, but don't see that they're going to be part of the new creation.

And so, for those who don't care about inequality as a moral issue or don't care that there are people who are hurting, think about what it does politically. We are now in a situation in which many of the people in the business community are very frustrated because they cannot get adopted at the national level policies that they think are important for growth.


Let me give you an example of what I think is the disingenuousness of those who say we should do trade without any regard for the environmental and labor practices of our partners.

George Bush says that one of the main reasons we cannot do the Kyoto Treaty is that it will not cover India and China, and that will put Americans at a competitive disadvantage because we will be bound by it and they won't be.

Many of us say: Yes, you know, you're right; there is a competitive advantage by not following environmental laws when we are. Let's then require of India and China that, if they want access to this great market that's the United States, that they have to do something about the environment. And we're told: Oh, no, you can't do that; that's introducing something that doesn't belong in a trade bill.

Similarly, with wages, the World Economic Forum, headquartered in Davos, just put out their CEO survey in which they noted that the Asian exporters -- the most active Asian exporters -- and the Baltic states pay wages well below what competition would suggest and what productivity would suggest -- therefore, according to the Davos report, giving them a competitive advantage in getting people to do business there.

In other words, my conservative friends understand that mistreating your workers and ignoring the environment give you a competitive advantage. They just don't want us to do anything about it.

Historically, I think they haven't wanted us to do anything about it because a lack of those things in those countries becomes a reason not to do them here.

At any rate, we are now stalled. We can't get any progress on trade, on foreign direct investment, on immigration, to some extent on the implementation of productivity.

That's why the business community ought to care. Even if inequality doesn't bother them, even if Mr. Nardelli getting $210 million for being fired when other people make $7 an hour for working very hard, even people untroubled by that -- and I envy them the ease of their consciences; they must get a lot more sleep than a lot of us do -- if they don't care on those grounds, they ought to recognize that we are in gridlock;

Editorial comment: There are people who argue that sociopaths are often more successful in business precisely because of their mental illness.

And I understand -- people say to me, "Well, look -- look at what Wal-Mart does. I mean, look what it does for the consumer."

Well, if you can't afford health care for your kid, a cheap T- shirt is not much of a consolation.

And this anti-union policy that we have has been a serious problem. The health care situation in America. We should be -- and this is in business's own interest. It costs more to make a car in Michigan than in Ontario -- by a significant amount -- solely because of our health care system.

If we were to have a universal single-payer health care system, which took health care out of the wage system -- stop depressing wages -- we encourage people to join unions, and we did other things, including in the tax system, we would begin to reverse the inequality.

And there's one very important piece to this, and that's the role of government. Government plays a very important role in achieving the quality of our life and in reducing inequality.

That didn't used to be controversial. A guy named Roosevelt got elected four times on that issue. That was the New Deal: use our collective capacity to work together not to interfere with the free enterprise system, but to work alongside it so you reduce inequality.

Corporate profits as a percentage of the national economy have gone way up in the past five years. God didn't do that. The economy did it and the government helped and -- although to some of these people God and the government are the same thing, but I obviously don't agree with that.

We have now got the beginning, I hope, of an uptick in real wages. But you know what's happening? Many of these same business community leaders and others who complain about they can't get support for trade and they can't get support for immigration and they can't get support for foreign direct investment, they're now worrying about wages going up. Read the financial pages of the papers. There is only one concern about inflation: wages may go up.

Wages have significantly lagged growth. They have significantly lagged productivity. And if they even begin, as they have now, to start going up, respected opinion tut-tuts and says, "Oh, that's a terrible idea; we can't allow that to happen."

Ben Bernanke, to his credit, has said, "Well, if wages go up to the level of productivity, it's not inflationary."

The fact is, we have a catch-up period for wages and people are now saying, "Well, you know what? Productivity may be slowing down, things may be getting worse. We'll have to clamp down." Yes, well, you know what? Everybody else has had a pretty good dinner except the people working for wages. Everybody else ain't a lot of people.

But telling the people who work for wages, "Oh, sorry, just as you were about to eat we're closing the restaurant" -- do it if you think it's right, but don't be surprised when their reaction is this negative one you get.

It has always been my philosophy that no one should be deprived of food, water, shelter, medical care or the means to provide for themselves. Obviously, keeping wages so low and not having some societal provision for health care conflicts with that philosophy.

John Edwards, who just announced that he is running for President of the United States, has stated that "poverty is the great moral issue of our time." I agree. Of course, we are both lawyers, so it is not surprising that we think alike.

I am a capitalist, so I think it is important to maximize profits. But I am also a lawyer, so I also understand the importance of "doing justice." It is also part of my philosophy to balance maximizing profits with the importance having social justice. Right now, our country is out of balance. We have a system that is maximizing profits, but it is not doing social justice.

Saturday, January 06, 2007

The Golden Rule . . . for Republicans

"I think they're getting off to a bit of a rough start," said incoming House Minority Leader John Boehner of Ohio

"What we really expect out of the Democrats is for them to treat us as they would like to have been treated," Boehner said.

Believe it or not, he actually said this. Of all places, it was on Fox News.

Friday, January 05, 2007

Paul Krugman: Do Less Harm

From his editorial:

Universal health care, much as we need it, won’t happen until there’s a change of management in the White House. In the meantime, however, Congress can take an important step toward making our health care system less wasteful, by fixing the Medicare Middleman Multiplication Act of 2003.


What should Congress do? The new Democratic majority is poised to reduce drug prices by allowing — and, probably, requiring — Medicare to negotiate prices on behalf of the private drug plans. But it should go further, and force Medicare to offer direct drug coverage that competes on a financially fair basis with the private plans. And it should end the subsidy to Medicare Advantage, forcing H.M.O.’s to engage in fair competition with traditional Medicare.

Conservatives will fight fiercely against these moves. They say they believe in competition — but they’re against competition that might show the public sector doing a better job than the private sector. Progressives should support these moves for the same reason. Ending the subsidies to middlemen, in addition to saving a lot of money, would point the way to broader health care reform.

Is This Why the Stock Market is Staying Up?

Click on the title for the link.

McMansions on the Way Out?

The size of the average American house more than doubled between 1950 and 1999, according to U.S. Census Bureau statistics. From 1982 to 2004, the typical new single-family house grew about 40% from 1,690 square feet to 2,366 square feet.

In the face of these increases, however, the size of the average American household has shrunk from 3.3 to 2.6 people.

This seeming paradox betrays the trend toward ever-larger houses for what it is: a real estate fashion, and an irrational one at that. And like all fashions, it's doomed to reverse eventually.


What's so awful about these big, bad houses?

Here's the usual litany: They use more building materials, wasting natural resources. They take more energy to heat and cool than a small home, consuming more nonrenewable heating oil or natural gas and more electricity (most of which is also generated by fossil fuels, creating more pollution).

Big houses also cost more to buy — a fact that often seems curiously overlooked — so many people can only afford to buy them in less expensive locations, usually far from where they work. This necessitates longer commutes, which squander yet more fossil fuels and absorb much of the free time people were hoping to spend in their big new houses. So much for appealing to conscience.

Yep, and as I have been finding out in the Oklahoma City area, the smaller houses are more popular and are holding their value, while the larger houses are losing their value.

The way of the SUV and McMansions may be falling by the wayside.

Thursday, January 04, 2007

American Roulette

From the article:

It used to be that when the economy thrived and productivity grew, pay for working people rose accordingly. Yet as the Times reported this past summer, the first six years of the 21st century look to be “the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.”

People have put up with all this because it happened so quickly and for the same reason that the great mass of losers in casinos put up with odds that favor the house: The spectacle of a few ecstatic big winners encourages the losers to believe that, hey, they might get lucky and win, too. We have, in effect, turned the U.S. into a winner-take-all casino economy, substituting the gambling hall for the factory floor as our governing economic metaphor, an assembly of individual strangers whose fortunes depend overwhelmingly on random luck rather than collective hard work. And it’s been unwitting synergy, not unrelated coincidence, that actual casino gambling has become ubiquitous in America at the same time.

It used to be.... I have been thinking this a lot lately. And the metaphor of the casino is one I have been thinking about, too. As more Native American tribes here in Oklahoma open up casinos as a means of partially funding their governments, I drive by them and think "this is what it is coming to: the only way that a lower or middle class person can hope to break out is to win a jackpot at a casino or win the lottery." Thrift and hard work are being discouraged.

Let me give an example of what I mean: you work for a company all your life only to find out that the money you expected in retirement has been paid to the executives who then have driven the company into bankruptcy. As a result, you lose your health care and pension benefits that you worked for your whole life. I can see someone looking at that situation thinking "what's the point? I'm not ever going to see my retirement anyway. I might as well take my chances at the casino; the odds are better."

It's a Values question. Are we going to encourage people to work, or aren't we? If we reach a point where people think that they have better chances at a casino, they'll probably go there.

Somewhat OT: By the way, as I also do Native American law, and I regularly go on Tribal complexes. I can also tell you that some tribes have put the casino money to work, while others are not proceeding so quickly. I may elaborate on this point at some time in the future, but for now I will keep my thoughts private.

Home Mortgage Early Payment Fees Added

From the Warren Reports:

Mortgage lenders are now marketing ways to convince you to pay off your loan early so that they can charge you more fees.

From the post:

Is this a smart deal for consumers? Probably not. ....

First, there is the opportunity cost. What else could you do with the extra money? It (almost) goes without saying that you should first pay down your higher interest debts, such as credit cards. (Caveat: If you are on the brink -- then instead pay your secured debts first.) Once those bases are covered, consider saving or investing the surplus. Remember that your mortgage interest payments are tax-deductible, which means that the real interest rate is 10-35% lower (depending on your tax bracket) than the APR listed on your statement. Can you beat that in the stock or bond market over the long term, based on your risk profile? Quit possibly yes, especially if you have a fixed rate mortgage that you locked in while rates were low, and you are young enough to invest somewhat aggressively. At the very least, in a conservative money market or CD, you might match the cost of money in your mortgage, and thereby create an emergency cushion for yourself.

Second, are the transaction costs. Of course the idea of sending an extra mortgage payment now and then has been around for ages. Indeed, that familiarity is what the mortgage lenders are now trying to capitalize on. But that was too simple. Now paying extra is a “service” that the lenders want to charge big bucks for. I’ve seen two different versions of this appeal. In one, Citimortgage wants $375 to sign you up and then charges $.075 every two weeks. In another offer, a lender wants a $9.00 service charge with each payment!

Third, there is the fine print. Check out the back of one of these mailers. The one on my desk has a Clause 7 which includes, “.... I understand that you [the lender] will have interest-free use of the biweekly amounts from the date they are drafted until the date these amounts are used to make a mortgage payment. ...” And when does that happen? Clause 8 suggests that only after paying 26 of these bi-weekly payments (equaling one year). So, the money is doing nothing for you during this time – only further enriching your lender. (I’ll blog more extensively on the suspense account shenanigans at a later date.)

It gets worse. Clause 8 includes, “I understand that under the terms of my mortgage, my loan may be subject to a prepayment penalty to the extent allowed by law.” That’s right, your friendly lender is soliciting you to do something which they will later penalize you for doing. Prepayment penalties are endemic in the sub-prime lending market. (PDF) Depending on the fine print in your mortgage, that could cost you 4-5% of the original loan amount.

Skilled Labor Shortage?

From the article:

One survey from employment service ADP released Wednesday showed U.S. private sector employment shrank in December, the first decline in 3-1/2 years.

But many economists and labor market experts say that job growth and the economy overall would be significantly stronger if employers could find the skilled workers they really need.

"I'm hearing across the board, across industries, companies indicating they can't exploit market opportunity because they can't find people with the right skills," said Jeff Summer, an executive at Deloitte Consulting who leads the firm's management practice. He said that there's virtually no long-term unemployment for skilled workers.

"It's down to the nub already," he said. "Supply and demand is completely out of whack."

They never say what skill sets they are looking for. It also sounds like they are not looking in the right places.

"Just paying people more won't be the answer. They really need to be treating the talent market as a customer market more than they ever have before."

Maybe it's because you are not willing to consider offering more money for the skill sets you are looking for. Have you ever considered that said skills are worth more money? I have to confess, however, that I don't understand the second sentence and how it relates to the "labor shortage."

Have you also noticed they never mention what those skills are? I am thinking that it's deliberate on their part. I would sure like to see the specifics.

Ownit Files Chapter 11

From the article:

In its filing, Ownit listed its assets as between $1 million and $10 million and said it owed $170 million to its 20 biggest creditors. By far the biggest portion of the debt resulted from soured mortgages, although Dallas said glitches in recording payments and other technical problems also played a role.

Glitches? What is all that about?