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There are definitely times when I miss the days of mafia rule in America. From when the mobs took over most state and big-city governments around 1929 until a new, greedier breed of dons broke the ancient rule against dealing in opiates in the late 1950s, those were dangerous times to be an honest reporter, or an honest cop. And if you made a mistake in who you dealt with or how, and made the wrong people angry, you could be murdered with impunity. So I don't romanticize that time period. But there were things that the mafia understood, that even now in these debased times that they still understand ... better than the Republicans, the right wing Democrats, and nearly all of the corporate executives who keep paying for their campaigns, and the short-sighted Libertarians who provide them with their intellectual ammunition, understand them. I'm hard pressed to come up with a better example of what I mean than this paragraph from the preface to Howard Karger's Shortchanged: Life and Debt in the Fringe Economy, which I finished only about a week ago:
... in 2003, six associates of the Colombo crime family were charged with illegal loan-sharking, among other crimes. According to the Justice Department, one underworld crew operated a large-scale loan-sharking and bookmaking [gambling] operation that preyed upon young employees of stock-brokerage firms. Usurious loans were made at interest rates of 1% - 5% a week, or the equivalent of a 52% - 250% APR (annual percentage rate). Ironically, a 52% APR loan would be a bargain for many fringe economy. Even the 250% APR charged by the Colombo loan sharks is less than the 470% APR charged by many legal payday lenders.
How can that be legal? That's a question you'll ask over and over again if you read the book. After a solid preface then a couple of somewhat weak introductory chapters, the real meat of the book, the part both most important and most readable, is the series of chapters that make up part II of the book, which examines each of the following financial services industries that are aimed at the poor and the working (or lower-middle) class, and who are eagerly trying to position themselves to take advantage of the economic distress of the middle and professional (or upper-middle) class during the next economic downturn: the sub-prime and secured credit card industry, pawnshops, payday lenders, tax refund anticipation lenders, check-cashing stores, rent-to-own furniture stores, pre-paid cellphone companies, the sub-prime mortgage lenders, buy-here-pay-here used car lots, and "debt counseling" scams. And after spending years using every technique of undercover and investigative journalism against the increasingly large, increasingly powerful, and insanely profitable companies behind all of these scams, he found that nearly all of them have several traits in common.

The first thing they all have in common is that they have all lobbied state governments and the federal government hard for every exemption they could find to state usury laws, truth in lending laws, consumer protection laws, or fair business practices laws. When these businesses each discovered that even with interest rates capped at the highest rates that even the least-protective state in the union would allow, there was still money to be suctioned out of people who were powerless to shop elsewhere, they lobbied legislatures and courts to define dozens of exemptions to the word "interest" that should never have passed the "laugh test," the one that says that no matter how good your theory is if you put it in front of a jury and they laugh at you, you're wrong. The net effect has been to raise the interest rates that are charged to pretty much the entire poor and working class, no matter what kind of financial transaction they're involved in, to rates that would make the most heartless of mafia dons blanch.

The second thing they all have in common is that, truth be told, they don't actually want you to pay them on time, let alone pay them back, and would go bankrupt if everybody did. Most of them make their money off of getting your initial deposit and application fee and transaction fee, then repossessing the car or furniture or house or whatever they sold you or you used for collateral for free and selling it. The rest are counting on the the threat of their ability to do so to make sure that you don't complain, to them or to any attorney general, about any legal or illegal fees they choose to charge you for the privilege of staving off the destruction of your life. The actual interest payments, let alone the principle, aren't designed to be paid off. On the contrary, they're designed to be impossible to pay off; the threat to actually try to collect those loans is used for leverage to steal everything you have.

The third thing they all have in common is that unlike every other sector of the financial services industry, in the fringe economy the rates and fees charged bear not even the slightest resemblance to the costs of doing business or the risk of default. None whatsoever. Their lobbyists say otherwise, but that leaves them with no explanation for why the fringe economy parts of previously legitimate companies are the only parts making big percentage returns. I can think of no more vivid, or personally distasteful, example than in the section on stored-value credit cards. This one personally offends me, because I was working at Mastercard International when its then-CEO Pete Hart all but invented the product. Pete Hart's vision was that by building on very trivial add-ons to our existing debit-card infrastructure, we could make it possible for any issuer to offer cards to even the poorest, least reliable, most risky customer. A stored value card was meant to be thought of as being like an old S&L passbook savings account: you put your own money in, the money sits there earning little no interest (as befits its low balances and high volatility of balance), you get it back out for free at any MasterCard (or, assuming our competitors would catch up with us, Visa or Discover) credit card terminal. The issuers would have basically no costs thanks to our turn-key and highly optimized solution, would incur no risks since no money was ever lent, and would earn an automatic transaction fee (as all credit card and debit card purchases do) at the point of the transaction. This would make it possible for them to offer accounts that could be used to pay bills by phone, to make purchases in places that only take plastic, and to save money, at virtually no cost to either the issuing bank or to the customer. We thought we were being great humanitarians. How has the product been used? Consider the fees charged by the example issuer on page 61 of the book, Four Oakes Bank and Trust. $149 (plus $10 minimum balance) in application and processing fees just to set up the account, even though our software makes this an operation that could be completed by one clerk on one computer screen in under 5 minutes with no manual back-end processing to charge for. Then $3.95 per month account fee, plus 50¢ to $1.00 fee for every deposit, plus $5.00 per month extra fee if you want paper statements issued, plus another $5.00 per month if your transactions don't total enough to meet their minimum, if they don't get enough per-transaction fees out of you to pay their (supposed, but actually almost non-existent) costs over and above the $149 one-time and $8 or so per month in fixed fees, for a type of account that gives them free float plus pays transaction fees out of the merchant fee and which costs them next to nothing to operate. It's beyond unjustifiable, it's criminal; it's got no business being legal.

The fourth thing they all have in common is that they have no fear of destroying their customers, none whatsoever. This is not explained in the book, but reading between the lines of what the few people at the lower management levels of these companies said in unguarded moments, I think it's clear why not. They have no fear of destroying their customers because they're counting on the American economy to deliver an ever-increasing number of new customers for them to suction dry. They practice honest-to-god slash and burn economics. In the unlikely even that they were to run out of current poor people, if they drove them all to suicide or homelessness, they feel that they can count on the current US economy to sufficiently bankrupt the working poor as to bring them into the fringe economy's clutches, and examination of the financials of those of these companies that are publicly traded bears this out so far. And in their internal memos and company plans and financial statements, you can smell the excitement as they plan for the day that the middle class, having lost everything that they could use to stave off disaster, falls into their clutches and loses everything to these same closely-held multinational corporations that are mostly owned by a tiny number of people even relative to the usual concentrations of wealth in America. Either they know something we don't know about the impending burst of the real-estate speculators' bubble, or they have strong suspicions.

But why hasn't the much-worshiped Invisible Hand of the Markets stepped in and remedied this? According to Libertarians, Republicans, and the Democratic Leadership Council, these wildly profitable business sectors should have attracted much new competition. And, as anybody who's driven through a poor or working class neighborhood in the last several years can tell, you has happened. According to their theory, this should have led to them being forced to compete with each other on price until the cost of their services dropped to the level where it was only barely profitable. Instead, the interest rates and "fees" charged in the fringe economy have doubled or more as the competition increased. How can this happen? Has the law of economic gravity been repealed? It can happen because almost everybody that enters the market understands that there is enough poverty to go around that there's no need to compete on price. Small numbers of honest businesses and many non-profits have attempted to enter the fringe economy with more affordably priced alternatives to the fringe economy offers, yes, and I celebrate them. In particular, I found out through this book about the National Community Investment Fund
s 3-year (2002-2005), $750k Retail Financial Services Initiative, an attempt to provide seed capital and technical assistance to non-profits like credit unions that seek to enter the same markets as the predatory lenders and under-cut them. They sound wonderful. But the net effect is negligible, because that 3/4 of a megabuck over 3 years is dwarfed by the billions of dollars that the predatory fringe economy companies had available to spend to make their products more ubiquitous and promote them so heavily (and dishonestly) that the customers can't tell the difference between them and the honest small businesses and non-profits. Once anyone, or any collection of people with a common interest, acquire sufficient power it is trivially easy for them to club to death any competitor that doesn't play by their rules.

The net effect of this is that more and more neighborhoods every year are infiltrated by these invidious vermin, and every year tens of millions of more people fall into their clutches. Some of these are people who made a mistake, but for the most part these are working people whose "mistake" was having an employer cut their health insurance, or being out-lawyered in a child-support case, or being injured on the job by an employer that out-lawyers them on damages. These are people who did everything they were told. They stayed in school, they stayed out of trouble, they go to church, they work hard at their jobs, the cut every corner on costs, they try to invest in their neighborhoods and try to save for their children's education. But instead of getting what every almost every American of the last 400 years was promised if they did that, instead of being able to rely on getting by and being able to have reasonable faith that their children will live a better life than them, they're finding that everything about the modern economy is designed so that normal, foreseeable, daily and monthly expenses eat every penny of their livelihood with nothing left to save. They find that even they do save anything up by working extra hard and being extra-frugal that the current US economy finds excuses to suction their bank accounts dry even if they do nothing wrong. And worst of all, once that happens they are dumped onto the tender mercies of people whose business plan is to make sure that not only do these people never get ahead; their perfectly (lobbied for) legal business plans is to steal from these people everything they own and then effectively kill them. That's so disgusting that a mafia leg-breaker would have an attack of conscience instead, it's so immoral that it's condemned by every religion in history (including Christianity, if you actually read the what their Bible has to say about those who place heavy burdens on the poor), and until fairly recently it used to be illegal -- and still should be.

If there is anything, politically and economically, that I stand for, it is this: we must stop them. We must revoke the loopholes and exemptions they have used to evade usury laws, eviscerate bankruptcy protection, and rob customers of their livelihood. We must do everything in our power to use the existing tools that we already have to replace our long-wrecked Savings and Loan system with something aimed at the same goals, at enabling even the poorest worker who is also the worst abuser of credit to save money, to not be robbed in transaction fees, to fully participate in the modern economy for free or at affordable or even subsidized rates, to find some kind of political and technological solution to provide the unbanked with affordable, honest, non-profit banking services however limited. That's right, hit them from both sides: regulate their sleaziest, greediest, most destructive and dishonest (and therefore most profitable) business practices out of existence, and if need be subsidize competition for them. Because somebody, the gods help us, has got to stand up for the American Dream while there's still at least one generation alive who remembers the promise.



( 64 comments — Leave a comment )
Apr. 27th, 2006 12:14 pm (UTC)
The way the US is these days, it seems like nothing that sounds even vaguely like socialism has a chance at being accepted.

Ah well. I'll just count myself lucky I live in a country that has decent social welfare systems. For now, at least.
Apr. 27th, 2006 09:04 pm (UTC)
What's even vaguely socialist about making it possible for people who are poor or working class put their money into private savings accounts at the same price that everybody else pays? What's even vaguely socialist about insisting that their payment services and loan businesses be priced according to actual risk instead of having a huge and discriminatory poverty tax tacked on?

Progressive Republicans (back when there were any, a century ago) and Progressive Democrats have always been enthusiastically pro-capitalism. Nobody's more enthusiastically in favor of entrepreneurial capitalism than I am. What anti-trust regulation and banking regulation are about is not socialism, it's about preventing socialism. If predatory businesses are allowed to make capitalism look bad to sufficient numbers of voters, as almost happened during the Trust days and during the Great Depression, they make the alternative to capitalism politically inevitable.
(no subject) - dalziel_86 - Apr. 27th, 2006 11:24 pm (UTC) - Expand
(no subject) - bradhicks - Apr. 28th, 2006 04:27 am (UTC) - Expand
(no subject) - dalziel_86 - Apr. 28th, 2006 11:17 am (UTC) - Expand
Apr. 27th, 2006 12:55 pm (UTC)
This was a fantastic post. I'm going to crosspost it to my board.
Apr. 27th, 2006 01:21 pm (UTC)
Amen. We've got those bastard title lenders and paycheck advance companies here, spreading like wildfire. They're malicious crooks, and both they and the politicians who allowed the laws to be abused and mutilated to the degree to allow these things to happen need to be tossed into jail.
Apr. 27th, 2006 01:30 pm (UTC)
I can believe that charities and non-profits can't compete effectively against even medium-sized companies, but any theories about why the big banks aren't moving in?

My first guesses are that banks are generally not serious about expanding their business--they might crank up fees, but that takes much less thought than figuring out new markets. I read a WSJ article a while ago about a bank which started marketing to Hispanics--it worked, but it took a hard internal fight to make it happen.

A related theory is that there's prejudice involved. Again, I don't think most businesses are all that serious about expansion, and seeing people who you aren't comfortable associating with (and who associating with might actually lower your status) as potential good customers is a considerable effort of imagination and perhaps empathy.

The question of whether bank regulation has made it so hard for competition to come in that the banks don't have to bother seeking new markets is left as an exercise for the reader--I really don't know the answer.

Also, the big banks might be subject to regulations which forbid offering somewhat higher interest loans to poor people. On the other hand, if those payday loan etc. companies can get the regulations changed in their favor, so can the banks.

Do you have any ideas about why the left has let this problem slide so far? Two guesses at my end: the left has gotten more interested in the most desperate situations--if you're trying to help the homeless, you might not get around to preventing the working poor from being ripped off. The other is that a lot of the left fundamentally mistrusts business, and is no more capable of working towards honest business than anarchists are capable of working towards honest government. Ok, and a third guess--the potentially politically effective left has been bought off by the same people who've bought off the right.
Apr. 27th, 2006 07:38 pm (UTC)
I can believe that charities and non-profits can't compete effectively against even medium-sized companies, but any theories about why the big banks aren't moving in?

I remember from reading other articles about this that a lot of banks are moving in - they buy part ownership of these profit machines and suck in the money.
(no subject) - bradhicks - Apr. 27th, 2006 09:00 pm (UTC) - Expand
(no subject) - drewkitty - Apr. 27th, 2006 10:19 pm (UTC) - Expand
Apr. 27th, 2006 01:47 pm (UTC)

There's people here in Portland trying to get the "payday loan" industry regulated, and they don't like it one bit. Ha! The local "alternative" newsweekly did an article where they compared three customers of those places to to three owners of them. One of the customers is on SSI and had to borrow around $100 for a pair of orthopedic shoes. After all the interest that was tacked on, she paid well over $1500 for them. The people who own that service live in a huge house in a fancy part of the suburbs, obviously.

My uncle owns one in Georgia, and my dad went to visit him and his wife and kids. He came home saying, "Y'know, my brother's going to be a millionare in a few years...but I have no idea how he sleeps at night."

I have told people, repeatedly, that all things considered? It is far more expensive to be poor than to be rich.

I recently got a secured credit card. But I went online to a few non-profit places first and compared them...I got one from a place called Orchard Bank. The interest rate kinda sucks, but the fees etc. are pretty low compared to a lot of them. My credit is pretty bad at the moment, and I wanted to make it better, but even more than that, I wanted to buy things from Ticketmaster or websites and stuff like that. It gets tiring to ask people if I can borrow their credit card if I pay them back in cash, for things like shoes and movie tickets.
Apr. 27th, 2006 02:45 pm (UTC)
What about a Visa check card? My ATM card has a Visa logo attached, which means I can use it just like a credit card to buy stuff (but I have to have the money in my checking account in advance obviously), rent a car, get tickets, check into a hotel, etc.

I appreciate that it won't help build your credit up, but it's useful otherwise.
(no subject) - drewkitty - Apr. 27th, 2006 10:20 pm (UTC) - Expand
(no subject) - thesecondcircle - Apr. 28th, 2006 01:49 am (UTC) - Expand
(no subject) - bradhicks - Apr. 28th, 2006 03:46 am (UTC) - Expand
(no subject) - thesecondcircle - Apr. 28th, 2006 02:52 pm (UTC) - Expand
(no subject) - aprilstarchild - Apr. 28th, 2006 05:43 am (UTC) - Expand
(no subject) - thesecondcircle - Apr. 28th, 2006 02:53 pm (UTC) - Expand
Apr. 27th, 2006 02:51 pm (UTC)
Those scumfucks nearly ruined my life when I had some financial probems last year (although admittedly the legit banking industry didn't help much...)
I've moved house and not told them my address. I paid off something like four times the principal anyway, they're not getting another penny out of me, and if they have the law on their side, I have right on mine.
Apr. 27th, 2006 02:53 pm (UTC)
This post lacks a baseline understanding of economics. Risk is what it is, and the person advancing the cash must be compensated for that risk.
Apr. 27th, 2006 03:06 pm (UTC)
Risk for a bank is opening 5 minutes early.
(no subject) - drewkitty - Apr. 27th, 2006 03:56 pm (UTC) - Expand
(no subject) - (Anonymous) - Apr. 27th, 2006 08:19 pm (UTC) - Expand
(no subject) - en_ki - Apr. 27th, 2006 03:14 pm (UTC) - Expand
(no subject) - genuinechris - Apr. 27th, 2006 03:40 pm (UTC) - Expand
(no subject) - en_ki - Apr. 27th, 2006 04:05 pm (UTC) - Expand
(no subject) - bradhicks - Apr. 27th, 2006 08:43 pm (UTC) - Expand
(no subject) - genuinechris - Apr. 27th, 2006 08:49 pm (UTC) - Expand
(no subject) - bradhicks - Apr. 27th, 2006 09:11 pm (UTC) - Expand
(no subject) - genuinechris - Apr. 27th, 2006 09:26 pm (UTC) - Expand
(no subject) - bradhicks - Apr. 27th, 2006 08:40 pm (UTC) - Expand
(no subject) - genuinechris - Apr. 28th, 2006 01:01 pm (UTC) - Expand
(no subject) - drewkitty - Apr. 27th, 2006 10:24 pm (UTC) - Expand
(no subject) - genuinechris - Apr. 27th, 2006 10:28 pm (UTC) - Expand
(no subject) - bradhicks - Apr. 28th, 2006 04:05 am (UTC) - Expand
Apr. 27th, 2006 02:55 pm (UTC)
Wow. O_O

That does it; I want to work with you.

I'm a friend of bakadragon, kukla_tko42 et al. Friend of some friends, you know? You've seen me at the Schubox a time or two. ;)
Apr. 27th, 2006 08:40 pm (UTC)
Re: Wow. O_O
Yeah, I know who you are. We do work for the same "company," remember? :-)
Re: Wow. O_O - nysse - Apr. 27th, 2006 11:16 pm (UTC) - Expand
Apr. 27th, 2006 03:58 pm (UTC)
Brad: what do you think of credit unions, the community banking alternative?

Also, what do you think of investment clubs, investment lotteries, and other ways of scraping up capital from among an impoverished, desperate, but willing to work population?

For extra sacred-cow-kicking, explain why investment clubs and lotteries would never work in the African American community -- or show that they would, and write a stiff letter to the NAACP.
Apr. 27th, 2006 08:50 pm (UTC)
My only problem with credit unions is that the banking industry is keeping them tied up in knots, successfully hampering their expansion. I'm very much pro-credit-union. Heck, the credit union is the closest thing we have left to what savings and loan institutions were meant to be.

But they can't be the whole solution to the problem, because being full-service institutions, there's no way they're going to build one within walking distance of every poor and working class neighborhood. That's why I keep thinking that the non-smartcard Stored Value Card needs to be what we meant it be when we inventeded it, the cornerstone of a business model that can be rolled out to every church, every food pantry, every social service agency, every gas station, every convenience store, every grocery store and bodega in America. There's no reason why SVC terminals shouldn't be as ubiquitous as lottery terminals, because they'd require about the same amount of labor per customer, return a small but steady income with no fiscal risk, and to the benefit of the neighborhood businesses I mentioned increase foot traffic.

I don't really know much of anything about investment clubs, and have never even heard of an investment lottery?
(no subject) - drewkitty - Apr. 27th, 2006 10:13 pm (UTC) - Expand
(no subject) - bradhicks - Apr. 28th, 2006 04:01 am (UTC) - Expand
(no subject) - genuinechris - Apr. 28th, 2006 01:05 pm (UTC) - Expand
Apr. 27th, 2006 05:19 pm (UTC)
Here in Oregon, our governor just signed a bill to clamp down on predatory lenders. It won't go into effect for a while, but already the payday lenders and others are up in arms, shouting about how it'll put them out of business to have to use fair lending practices. It'll be interesting to see how it all plays out.
Apr. 27th, 2006 07:36 pm (UTC)
Perspective from a victim
Speaking from firsthand experience, I agree that the marginal credit industry needs help, and in a bad way.

Short version:
I had, at one point, a fairly standard, decent credit card, with a $5,000 limit. I had stock options, which I cashed out, used to pay for a house, wedding, and car. Due to a tax mixup, I ended up being double taxed for exercising my options, so I refinanced my house under an ARM, and when the time for refinancing came, I had no job to refinance under, no wife to pull income from, and no fully paid car, so I owed a lot of money, was paying 20% interest on a home loan, and lost my house. As I couldn't find a job that paid enough to cover my debt load, I ended up also losing my financed car as my fully paid car broke down, and had to be scrapped, as I couldn't afford to fix it. Looking into selling my house before it foreclosed, there was no practical way to sell my house for the payoff amount for my mortgage. After fees for listing and selling, I would have, after selling the house, still owed the bank over $6,000.00, and that was if I could sell it at fair market value. The scary thing is, now that my income is back in their comfort zone, they are contacting me again to try to get me to give them another house.

I might have been tricked once, but at this point, until my debt load is gone, I have no interest in any business that is interested in me as a credit risk. With a repossession and a foreclosure and a defaulted student loan at the current point, anyone who thinks I am a good credit risk is obviously trying to abuse my money. I don't even have a bank account, although I do make enough to need one. On that, I use someone elses, who currently, and until I have my debt managed, has no official legal connection to me.
Apr. 27th, 2006 08:26 pm (UTC)
Re: Perspective from a victim
My general approach since I've moved to the US has been to refuse anything offered and chase anything refused, as I have found that what they're giving away you don't want, and what you want/need people will try to keep from you.
Re: Perspective from a victim - genuinechris - Apr. 27th, 2006 10:43 pm (UTC) - Expand
Re: Perspective from a victim - monkeyd - Apr. 27th, 2006 10:59 pm (UTC) - Expand
Re: Perspective from a victim - monkeyd - Apr. 28th, 2006 12:12 am (UTC) - Expand
Re: Perspective from a victim - bradhicks - Apr. 28th, 2006 04:08 am (UTC) - Expand
Re: Perspective from a victim - genuinechris - Apr. 28th, 2006 12:39 pm (UTC) - Expand
Re: Perspective from a victim - bradhicks - Apr. 28th, 2006 12:56 pm (UTC) - Expand
Re: Perspective from a victim - genuinechris - Apr. 28th, 2006 01:09 pm (UTC) - Expand
Apr. 28th, 2006 04:14 am (UTC)
Re: On a related note
Yeah, I knew that. I can't prove it, but I strongly suspect that the fringe economy bloodsuckers know this, and it's why they're so urgent to clean up their images and reposition themselves as middle class, such as in the TV ads we saw a little while back for "Check Into Cash" check-cashing and payday-loan corporation that portrayed the customers as people who wore suits and/or business casual clothes.

An awful lot of people who've been using second mortgages or home equity loans to pay off their credit card debt don't seem to realize that the paperwork they signed, as with nearly every mortage in America, allows the lender to "call" the loan if the amount of equity they have in the house goes low enough. Let's say that your outstanding loans on the house total $200k, but you're OK with that because the house is appraised at $200k. Now let's assume that some time very soon housing prices drop sharply, and that your mortage lender gets into enough trouble to trigger audits. If an appraiser comes out and concludes that your house is only worth $175k and you owe $200k on it, the terms of the loan allow them to give you only 30 days to come up with the extra $25k or else lose the house.

An awful lot of people could, and probably will, lose everything.
Apr. 28th, 2006 12:30 am (UTC)
Hi, there. I obtained your link from another LJ user who recommended that I take a look at this post.

Your observations are acute, and follow a pattern used by the U.S. government and its cohorts at the World Bank, CIA, and others, to place oil-rich third and fourth world countries in a permanent state of indebtedness and therefore, under the U.S. thumb (and they've been doing this to countries that have other natural resources, like opium poppies, timber, etc). They started doing it under government and military auspices, then switched their nefarious deeds to "corporations" to avoid being held to at least a minimal level of accountability.

I recommend reading Confessions of an Economic Hit Man. Contrary to many of his initial reviewers, , I know that the guy knows his stuff, and he explains the mechanisms of over 40 years of U.S. global bankrupting of countries' that you are observing right here in your own country today.

If some of his claims about his recruitment, activities, and statements of his actions seem far-fetched, just let me say this in the man's defense--I have been exposed to my own set of unusual "recruiting" attempts by the US intelligence community, and I have worked closely with people involved in the very activities he describes. I know how the "government to privatization" shell game works, and I have watched it very closely myself.

My BIG question for everyone is: historically, bureaucracies, oligarchies, monarchies, and just plain empires went down the tubes when their governmental organizations' essential purpose grew to serve only their own selfish purposes, and a tiny cadre of insiders.

How did THOSE bastards get removed from power, and how did more equitable, satifying types of rulership get put in place?
Do tell, please!

Tell it all!

These parasitic, totalitarian systems of government ALWAYS have life cycles (including collapse) that have been tracked by many types of scholars.
Apr. 28th, 2006 12:32 am (UTC)
Ooops! "acute" in 1st line of my post should have been "astute".
Apr. 29th, 2006 03:06 pm (UTC)
My tentative approach to blaming regulation was to suggest that maybe regulation acts to limit the number of banks to the point where they aren't competing with each other enough, and thus none of them have a strong enough incentive to offer lower rates and clearer terms. (Your description of banks as an old boys club where fitting in counts for much more than competence suggests that it isn't an especially competitive industry.)

I wonder why the rates are going up and getting worse--why didn't they start high? Maybe the banks are feeling their way towards what they can get away with, or maybe it's a matter of when particular regulations get repealed. Any other theories?

A lot of why I'm a libertarian is that I don't trust government to be more honest or benevolant than business. When businesses get control of the legislation or regulations which are supposed to control them, libertarians call it "regulatory capture". Is there any other standard term for it?

I'm inclined to think it would help if the top regulatory offices were elective. It's just one bit of information every few years, but (to judge by governments with voting vs. governments without voting) it does limit some of the worst abuses.
Apr. 29th, 2006 11:24 pm (UTC)
I don't fully understand it myself. But one unmistakeable aspect of it is that the more players there are in a scam, the more political power they have that can be wielded to lobby to have the laws against their behavior repealed. The pawnshop industry in Missouri, as in most of the country, operated under a set of laws aimed and ameliorating the ease with which thieves can use them to dispose of stolen goods. They hated those laws, not least of which because most pawnbrokers don't seem to have any problem with being fences as long as they get paid; after all, it's not as if they stole the stuff, is it? So they lobbied every year for a lot of years to get the laws requiring ID checks, the laws requiring them to return stolen property if the cops find out that it's stolen, the laws requiring them to keep things they buy in the same jurisdiction they were bought in so that police can spot-check after thefts, and so forth repealed. They didn't get those changes until the number of pawnshops increased a lot during the Reagan recession. Now pawnshops in most states routinely package goods up as soon as they get them and ship them to other pawnshops across the country, all but guaranteeing that stolen property will never be found. Something rather similar applies to anti-usury laws as they applied to credit cards and to title loans and payday loans; it wasn't until there were a lot more businesses in these scams that their lobbyists were able to persuade legislators that the consumer protection laws were bad laws.

But part of it has unmistakably been cultural and political. As I've bitterly complained, the real lasting legacy of Ronald Reagan is that he persuaded vast numbers of Americans that it is morally OK to hate the poor. And that attitude, one that considers poor people to be evil people who it's morally okay to rob because that's a fair punishment for whatever moral failing causes them to be poor, unmistakably drove both the expansion of businesses that rob the poor, the extent to which they rob the poor, and the legislatures' tolerance for such robberies. With those attitudes in place, I don't care how many check cashing places open in your neighborhood, none of them are going to compete with the others on price. As I've already said, why would they when it would just ruin the game for everyone? Why would they when there's a never ending supply of poor people to rob when we saturate existing markets or destroy the current crop?
(no subject) - nancylebov - Apr. 30th, 2006 03:46 am (UTC) - Expand
(no subject) - bradhicks - Apr. 30th, 2006 03:54 am (UTC) - Expand
May. 16th, 2006 03:02 pm (UTC)
All true. I once had a kick-ass job at a good salary. However, financial instability and mismanagement at that company forced a series of layoffs, and I took the "cash out" option during one of them. Within less than two years, I went from being an upper-middle-class demi-celebrity to a struggling member of the working poor... and for the last six years, I have stayed that way.

Why? Part of it has to do with the standard of living my then-wife and I had grown accustomed to. I make no excuses for that. Still, even at our worst we were never terribly extravagant. No big-screen TVs, no vacations in Switzerland, no drug habits or clubbing binges. Our biggest splurges involved toy-store trips, restaurants and occasional CD purchases - a tiny portion of our incomes during even our most extravagant days. The thing that killed us was our house and the furniture in it; after I was laid off (and the economy died a horrible death in the early 2000s), the loan interests and credit card interest rates shot through the roof. Same with our student loans; despite sending my lender over twice the amount of money I had borrowed for college, I soon wound up behind in my payments - with ruinous amounts of fees and interests being piled up every month. Things got worse for both of us after my wife and I divorced. I won't deny some degree of responsibility in my situation, but when you make a $1000 payment on your credit card (over a third of its balance) only to see your interest hit the maximum rate allowable by law (29.5% at the time - probably higher now) while your allowable credit level is yanked down THE FOLLOWING MONTH to below the post-payment level so that the lender can also charge you a $150 over-limit fee... well, it's hard not to see that as a predatory violation of good-faith dealings.

In the last six years, I have played by all the rules of good citizenship, fiscal responsibility and prudent consumerism. Yet despite a huge resume of award-winning work, I cannot find a job that pays living wages in my field. Unable to get ahead in my payments (despite shoveling over $10,000/ year down the beast's throat), I finally declared bankruptcy last year, just before the laws were changed. If I had not done so, I'd be even more screwed than I currently am. Still, despite my payments to my college lender that doubled my original loans, I currently owe almost the original loan amount in interest alone. Because I have a job that exceeds the "official" definition of "poverty," I'm not eligible for any form of surcease. And so, the interest piles on the interest, driving the total higher than my annual income - on a student loan totaling $15,000, made over 20 years ago, which has been paid off twice over!

You're right, Brad: we're not SUPPOSED be able to get out from under the debt load. It's designed to keep us shackled, paying beyond our means to pay, beyond the amounts we borrow, beyond any ability short of a miracle to save anything. Meanwhile, those same lobbyists work hard to dismantle what social securities we still possess. I have to wonder how bad things will get before the flames begin to rise...
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