Wednesday, January 27, 2010

Where's Robin Hood When You Need Him?

I love PBS.  Public television may be a communist, socialist, pretentious, and pernicious organization (according to my father :)) - but you can't deny the quality programming and opportunities for learning things of real value that they consistently offer.  I've already watched one amazing program, called "This Emotional Life", which is a post for another day, but I want to talk about Frontline's investigation into the credit card industry that was on last night.

I am outraged.  The practices that have gone on, both encouraged by the industry itself and deregulation by the Congress that it pays billions of dollars to, have led to a business system that is so unbelievably unethical.  There is a way to make money honorably and then there is the way that the banking industry has decided to make a profit, which is upon the backs of poor people who can't afford the high interest rates that they get charged once they miss one payment.  They end up getting sucked into an endless, bottomless abyss cycle of debt that they have a slim chance of escaping on their own, unless they declare bankruptcy and thus effectively wipe away any chance of securing credit again!  My heart broke as I saw the journalist interview Citizen Joe after Citizen Joe and the sad stories of how they never missed a bill payment until one day, something happened (because life does happen).  This one guy for instance always paid his bills on time his entire life.  Then he got tonsil cancer.  He battled through the treatment successfully, but then was laid off from his job.  Now unemployed, he missed one payment...and then one more...and then another - each time with his interest rate climbing higher and penalty fee after penalty fee being added to the bill.  It is highway robbery.

The banking industry's defense is that they have to make money somehow.  How are they going to make a profit?  They claim that the fees and terms of the credit card contract are clearly spelled out.

But then you see the piece of paper that they send with their credit card "offers" and it's all in the tiniest print, with terms only a person with a finance degree can truly understand.  And the kicker is that it's purposefully designed that way.

The Frontline program then addressed the credit card reform that Congress passed in 2009.  But here is where politics comes into play - and by politics, I mean lobbyists (who prey upon both sides of the aisle, both Democrat and Republican).  The problem with getting a bill through the houses of Congress is that they can become derailed by money.  And the money is held by the lobbyists and industries that are affected by these bills - industries like the banking industry.  Through compromise and bipartisanship (or not) a bill gets through both houses of Congress - where it can than be derailed by the President, who may or may not sign it.  Sometimes the White House is influential in getting the bills passed - sometimes they are influential in stopping the legislation from even making it out of committee.  It really is a miracle that any law ever gets passed with these restrictions.

But significant bills can get passed - and that's when the constituency arises and makes their voice more powerful than the lobbyists of the industry that is against its reform.  The problem with the credit card reform bill that was passed in 2009 was that it was given 8 months before it went into effect.  What do you think the banks did during that 8 months?  If you guessed they figured out the loopholes of the bill, you would be correct.  The bill still allows them to raise their interest rates arbitrarily and without any forewarning.

And it's not just the regular individual citizen that is affected - Frontline detailed a story about a small homebuilder who relied on a flow of credit to pay his employees, purchase building materials, etc.  He now stands on the precipice of having to close down his business because of the hike in interest rates.  He can't pay his employees because his credit card bill is so high - how is a business supposed to forecast or build a business plan when it may have an ever-decreasing cash flow but they can't plan for how much it will decrease by?  It hurts entrepreneurs and other small businesses - the very people that a strong economy is built upon.

The only thing that gives me hope against the power of the banking industry lobbyists is that the fact that this small reform bill was passed.  It is a first step.  Any reform movements that have gone on to have a significant impact on society always started off small and with small legislation.  The lobbyists can be overcome by an outraged public that continuously pushes for even stronger reform -and that is the stage where we find ourselves now.  Will the public push hard for more economic reform?  Or will Wall Street be allowed to continue on its merry way?

Closing thought - Timothy Geithner is a crook and should not be in charge of the Treasury Department of the United States.  The banking industry must have jumped for joy when his nomination passed through Congress. If Obama was really serious about reforming the economy and the banking industry that helped spiral us into the recession, he should have pushed through that rarest of commodities - a banker with integrity - a Robin Hood, if you will.

*And sorry for such a long post*

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