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*

Chaos on Wall Street?

What is going on with the financial markets? Is it really bad? And how did we get here? And is it over?

I wish I knew - but the problem of a free market economy and capitalism is that these downward spirals happen and sometimes take a while to get out of. This is not the Great Depression - we don't have breadlines for the majority of the nation yet.

This article is one of the best that I have read while trying to sift through the various news media outlets to find out the truth about what is going on. It details why we are in the mess that we are in, and why this is not going to be over anytime soon unfortunately. And also why no politician is going to be able to fix this problem, despite their promises of "regulation" (because Sarbanes-Oxley works soooo well...riiightt). No, unfortunately, the way that this problem is going to be fixed is banks need to start giving out loans again (but only to those who are fiscally responsible - ie, buy and pay what they truly can afford!), commodity prices and inflation need to go down, the dollar needs to strengthen, and the drop in pricing for houses needs to bottom out.

And while we are blaming the housing industry/market, let's also throw some of that blame onto Alan Greenspan during his reign at the Fed that allowed these interest rates to increase inflation above the average American's wage, and make borrowing money (ie, "credit") easier than it should have been for that American. So those people buying the McMansions (that are now foreclosing in droves), 4 luxury cars, and sending their kids to private school were overextending themselves after all, and now can't pay their bills and thus are sending Wall Street into turmoil, because they can't pay back the amount of debt they owe and have to foreclose and the banks have to write down that debt. Coupled with the fact that someone decided it would be great to make some money off of the amount of debt that someone else owes, we find ourselves in a "credit crisis". Yeah, that was a brilliant idea - make money off of negative money - that'll work! Because eventually that money will be paid off right, and since it is accumulating interest, that lump sum will be worth even more? Turns out nope - they actually couldn't pay back the loan, because they never had the money in the first place - and YET someone approved them for a loan. And then it gets all technical with the types of loans given out - adjustable interest percentage rates mortgages or interest only loans, where none of the principal was being paid down, and the loan money kept going up and up - and Wall Street placed bets on that, never foreseeing that the assets that people were banking on (their homes) were NEVER WORTH THAT MUCH!

Now that the housing bubble has burst and continues to plunge, and continues to be exasperated by Wall Street's lack of foresight, we the consumer will continue to suffer, because the commodities that we need to go down (energy, inflation, agriculture) continue to the do the opposite - they go up, weakening our dollar and deflate the purchasing power of the average American because companies have to raise their prices in order to account for the cost of commodities going up.

It is making me nervous that the government continues to bail out these companies on Wall Street (at least some of my money is being used to save some people's jobs and livelihoods though), because the government has moved into uncharted waters in terms of involvement on Wall Street. I am not a fan of "big" government, but in this era of socialist democracy, I guess there is not a way to avoid it. But when I hear stories of how two government workers had to be hired in order to do another government worker's job because she was such a mess and yet was never fired - it brings a sick feeling to my stomach (and that is a true story).

And while people continue to buy IPods, Blackberries, and Rock Band 2, you can't say that we have reached Great Depression levels - sure, we are in a recession, but while people continue to buy "stuff" that is, in the end, non-essential to their existence, there is still some faith to be had in our economy. And there doesn't seem to be a shortage of work (just go to Monster.com, or careerbuilder.com) just yet, so again, there are reasons to remain confident and not hide in the bunker yet - or stuff all your cash under your mattress.