The Consequences of (Yet Again) Failing to Stand Up to the Banks
The Senate just stopped limits on credit card rates. Sometimes it takes a socialist to say the obvious:
"When banks are charging 30 percent interest rates, they are not making credit available," said Mr. Sanders, who noted credit unions are limited to 15 percent. "They are engaged in loan-sharking."
The banks have been given, loaned and guaranteed trillions. They are given access to money at very close to zero percent. They then lend it out at much much higher rates. As Sanders notes, 1/3 of credit card holders are being charged more than 20%, some as high as 40%.
That's usury. More to the point, it means that for all intents and purposes they aren't making credit available.
Does anyone wonder why consumer spending dropped again? Would you borrow at 20% to 40% to buy anything other than food or pay for housing, when jobs are still being lost at over half a million a month? No one with any sense would.
Months ago I noted that the simplest way to get banks lending again would be to either have the Fed lend directly to consumers, or have the FDIC take over a major bank like Citigroup or Bank of America and use that bank to lend at decent rates.
Instead of doing that, the Bush and then Obama administrations decided to give money, guarantees, loans and nearly free money to banks which were impaired and which needed to gouge their customers as hard as they could to make a profit. The result is that treasury secretary Timothy Geithner keeps saying the financial sector is fine, while more Americans lose jobs, consumer spending drops, banks won't allow homeowners to get out from under bad mortgages even when it would save the bank money, and a new round of foreclosures is on its way.
On top of that, the mark to market rule was changed to allow banks to keep assets on their books at mark to model (ie. mark to fantasy) values.
All of this money will have to be paid back eventually. The strategy is simple enough.
1) Give the banks money.
2) Let them not acknowledge as much of their losses as possible.
3) Allow them to gouge taxpayers for as much as possible, to dig themselves out of the hole over a number of years.
The end result of this is going to be Japanification--at best. Not a "lost decade" as many folks have said, but a semi-permanent wavering between slight job gains and job losses, where a good economy never, ever, comes back. And because the US, unlike Japan, is not a net exporter, it's questionable how long Japanification can work in the US, in any case.
The banks took trillions of dollars of losses. The refusal to make them take their losses; the refusal to wind up any of the big banks; the refusal to recognize that what is important isn't the banking system but what the banking system does, and thus the unwillingness to cut past the big banks and lend directly means that those trillions of dollars of losses are going to have to be paid back by consumers and taxpayers. You will pay. You will pay not just in high interest rates, but in lower wages, and for many of you, a lack of jobs. The economy will not, before the next recession after this downturn, return to the same level of employment the US had before this crisis.
All of this because neither party, and neither President, had what it took to stand up to the banks.
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First, extending unsecured credit is loan sharking. If loan money with no collateral, then the only way to make money is to charge a whole bunch of interest.
Start a little credit-card company with 100,000. Take on 20 customers and loan each one of them $5,000 at 10% - to paid off with a single payment of $5,500 at the end of the year.
If every borrower pays off his loan:
10,000/100,000 = 10%
Great, you make a $10,000 gross profit
With one default
15,000/95,000 = 16%
With two defaults
20,000/90,000 = 22%
With three defaults = 29%
The numbers would not be that bad that fast with a real card company, but defaults run up the required interest rate very fast.
It also does not help when we should have a way better credit card reform bill than the one Dodd proposed and that Sen. Sanders proposal for a rate cap was shot down. Why are we supporting and electing officials into office who are not doing the will of the people? Many dems have said they will not vote for the credit card reform even though it does not go far enough in consumer protections. Why? Are they waiting to become the minority again so they can then whine, there's not enough of us to get anything done?
Bernie Sander's amendment was bad, so it got shot down.
If had not been so greedy and had gone for a reasonable 20 to 25% cap, he probably would have gotten it.
I absolutely agree. Ever since tarp began I have been posting on here that the treasury should have funnelled fund thru the fdic, local credit unions and community banks and charged them with refinancing foreclosures directly at current lower market values, lower rates and maybe longer terms, payoff the loans to the banks, make them write off the losses and presto chango, they now have good money instead of "toxic assets" . Homeowners get to stay in their homes and the credit unions and local banks boost their assets and can make more money for their members and stockholders in the form of dividend increases.
The banks shareholders will obviously receive a lower dividend for at least the 1st year, but the stock will rise again as the bank shows itself to be more solid.
This solution makes complete sense and I don't understand 1) why geithner was chosen as treas. sec when he was in the heart of this mess, 2) why Obama does not see that geithner and paulson only were looking out for the welfare of the banks and not the people.
We are undermined at every turn by those few who believe their personal wealth is more important than America's welfare. They trade our security for their luxuries, because they are spoiled humans with no other purpose than to leech off the labor of the many.
This just in: http://blogs.wsj.com/independentstreet/2009/05/14/sba-loan-programs-getting-back-on-track-mills-says/
2 months behind schedule?
The priorities are quite clear to those of us on Main Street.
Is SBA a cabinet level position yet?
HuffPo: please add a Main Street section ... there's a lot to be said
Now the Bankers' Dozen- Dems wearing whigs and red coats- (baucas, bennett,byrd,carper,johnson,lincoln,landrieu,nelson,pryor, specter, tester,and dorgan) are joined by 11 others who are unwilling or unable to save the american people from WALL STREET greed and gouging. I just can't believe, that on two bills ( one was the bankruptcy amend) that would help so many millions of Americans, that the US Senate especially Dems failed to serve and protect. Imagine the power of helping millions of people pay off debt honorably instead of subjecting them to further humiliation by creditors who practice legalized USURY. It is immoral and in other societies illegal. Senator Mikulski of MD did not vote on this amendment. (Where was she???) Ben Cardin from MD did vote on the side of the people. AKAKA(D-HI),Bayh (D-IN)Bingaman (D-NM) Cantwell (D-WA)Hagan (D-NC)Kaufman (D-DE) Lieberman (ID-CT)Murray (D-WA)Nelson (D-NE)Shaheen (D-NH) Stabenow (D-MI), Warner (D-VA)-the rest of the Dems wearing whigs and red coats. They might as well wear the uniforms of the "Economic aristocracy".
This will make 8 posts--counting my 3, on what is without doubt the most important issue facing us all today. Where is that infestation of locusts, the alternate universe of posters, who flock to sites by the 2,3 and 5 thousand posts? Oh, that's right, they'll take their lead from the one or two who direct their flight and show up on some other site tonite to discuss everything but the things that matter.
I'm sorry Ian. Your blog deserves to be the lead--then maybe you would see what I mean. I'm disgusted by the behavior of our representatives, our president, and even more, by those who want only to see their name go up on a site where all their "friends" are. They are as much to blame for where we are as the banks themselves!
That was a rant, and I'll own it. Keep up this good work. There are people who appreciate it.
And one more thought:
When our economy has been thoroughly trashed, as you predict, and the IMF and World Bank ride to our rescue (using our money, again) and offer loans to restore our productivity, you can bet that the requirements will include huge chunks of American infrastructure and natural resources being "privatized," just as those things have been in every 3rd world country where they have lent money. Research Chile's battle over the control of its own water supply once it was privatized and sold to a company in England! Look at the demands made of African agricultural countries to produce foods that their own people do not eat only for export to Western Markets to pay on the interest of the IMF loans!. All this while those people who grow the food starve.
This will be our future--America returned to the status of a huge colony: our country will be r.a.p.e.d for its minerals, forests, gas, and foods and we will produce only raw materials that we then will be forced to buy as finished goods from the countries that will be more than happy to sell them back to us at a profit. We once fought a revolution to free ourselves from that same state of affairs.
Paul, brave article. This is the destruction of the middle class that the conservative reactionaries have promised us ever since FDR had the courage to fight the banks and create that middle class in this country.
It is not a simple matter of bank greed, or Washington complicity.
It is a program, a well thought out and cleverly implemented corporate/financial attack on the engine of this country--working, middle class people--with the goal of destroying the strides our class has made by eliminating wage increases, unions, affordable health care, and, when the inflation hits that you mentioned, our retirements and life savings. They will settle for nothing less than a return to the days when workers were treated like dogs and the bosses and owners were royalty.
The strange part is that our American Corporations grew fat during the decades from 1945 through the early 70's by riding on the efforts of a newly empowered and loyal work force that was paid a fair wage and spent that wage on the goods that our nation produced. So I can only assume that they have all the money they need and that this pogrom against workers is based solely on attaining the same sorts of power and its privileges that dictators and oligarchs enjoy.
I meant "Ian," of course...
Yes, Yes, I couldn't comprehend how Congress didn't give a hoot. They are so corrupt, it is insane the guts they have when elections are always around the corner. Congress must think (we the people) will forget who voted to continue usury from the banks.
Last year, while passing out pro Obama info at various events I came across many who said they gave up voting years ago. "Why?" said I. I got a lot of different excuses, but the one that stuck with me is, "What's the use? They're gon'na' do what they want to do anyway." I was stunned, but damn if it isn't the TRUTH! Obama is now covering up for Bush and making his administration even more opaque. He also seems to be paying off the Ultra Rich, via the Fed, Geithner and Summer. You know, promise one thing while doing the opposite. And I'll only believe it when I see the sheeple get a chance to opt for single pay Universal Health care!... And who in hell knows WHAT Obama has in mind for Afghanistan/Pakistan!
Not to mention my two bought and paid for senators, Murray and Cantwell, who can only be counted on to vote as directed by Big Money Lobby.... And that for the last 8 years, the majority of democratic politicians lined up and voted for everything Dubya wanted.... That said, I'm not giving up... I'm still searching for my Bernie Sanders here in WA. But I suspect the chances of finding another Bernie growing in the dirty soil of US politics are astronomical....
great comment, thank you... I want a 50% tax credit for interest above and beyond the deductions and exemptions... I also want a 50% tax credit for state taxes and property taxes.. and a tax writeoff for driving to work... Can you believe this country where Warren Buffett gets to write off millions a year for his jet, maintenance gas and crew and you and I cannot write off our daily drive to work like they do in FRANCE....
If we the sheeple ever awaken into We The People surely we'll take to the streets and rid ourselves of political parasites who only serve themselves.
What's "wrong" with American voters? Their diet of MSM information is mostly comprised of toxic brain sludge.
The "recovery" is like a train wreck in slow motion. What is wrong with American voters that they keep the Senate in office?
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