Thursday, January 28, 2010

Circles of Confusion

I purposely will not write on the State of the Union address for a while. It is being hashed and re-hashed. I want to listen to it and check out all the "analysis", the many sides, before I even think about writing here. I will wait until the dust settles then maybe I will but, maybe there will be nothing left for me to think about. There are so many great thinkers I may not need to think. (I am just kidding but many do let others tell them what to think.) So here is a post on other things.

After watching Frontline on PBS the other evening I couldn't help myself I had lots of "thoughts" I just needed to put down before I forget them. (Nope I am not just letting them think for me but it was a pretty good reference point.)

First a few definitions regarding "loan sharks", credit, and debt. I do not reference Wikipedia here as we are told it is a liberal reference. (Baloney but I don't want to get stuck in the liberal-or-conservative reference game.)

2 definitions of loan shark:

n. Informal
One who lends money at exorbitant interest rates, especially one financed and supported by an organized crime network.

From the Banking Dictionary: Loan Shark

Lender, other than a regulated financial institution, who makes a business of lending money at rates above legally permitted interest rates. For example, a $5 loan on Monday to be repaid Friday for $6-an annual percentage rate of 1040%, not including interest compounding. Loan-sharking was a pervasive activity through much of the nineteenth century, leading to the formation of cooperative associations, such as mutual savings banks and credit unions, to arrange small loans at reasonable interest rates. State small loan laws generally prohibit loan-sharking, although state laws differ on what is, or is not, an excessive rate of interest.

Now the Law Encyclopedia:

This entry contains information applicable to United States law only.
A person who lends money in exchange for its repayment at an interest rate that exceeds the percentage approved by law and who uses intimidating methods or threats of force in order to obtain repayment.
In most jurisdictions usury laws regulate the charging of interest rates. Loan sharking violates these laws, and in many states it is punishable as a criminal offense. The usual penalty imposed is a fine, imprisonment or both.
(My italics above.)

Definition of Usury:
1. The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.
2. An excessive or illegally high rate of interest charged on borrowed money.
3.Archaic Interest charged or paid on a loan

Now here is a link to the whole Frontline program:

This link is where you can find text or video of the Treasury Secretary Geithner interview for the Frontline program last night.

I was surprised that Sec. Geithner made sense to me in many places. (I had listened to the “one of them” drumbeat and being a lefty I considered that the beaters may know something.) But, I was also struck when he said we can't cap interest rates because some people now need credit more than before. Check out thisinterview with Nessa Feddis. She is a senior counsel and V.P. Of the American Bankers Association.
Ms. Feddis makes almost the same statement Sec. Geithner did in her interview. Or for a interviews on capping interest rates go here.
So, is he, Sec Geithner falling for the if you cap interest we can't make loans or do they all really believe it. Excuse me. I want to yell, if you don't make loans I, the taxpayer, will not make you a loan and will “foreclose” on any loans you already got.

I know it wasn't really a loan. Why, I actually own stock in many financial institutions. Or, I know this is not the way to look at it all. The whole economy could have, I think still could, collapse. I know the terrible “recession” is over. Well, except for many of the real people that walk around or sleep on main street.

This credit fiasco reminds me of the Nation borrowing so much. It is particularly interesting to look at the borrowing from China. We, the tax-payer, borrowed money from China. At the same time we were helping shut down manufacturing jobs in the U.S. by buying Chinese products. So we spent our money to help end US jobs. All the while borrowing the money from the very source of cheap goods made by people who get very little of any of the money we spent.

Or put in another way the nation spent our way further into debt by spending, spending, spending or maybe buying, buying, buying; and borrowing, borrowing, borrowing so we could end much of the manufacturing in the U.S. (we won't even mention the IOU s sitting in the SS files. G.W. Had this one right, those are pieces of paper but guess what they are coming due. So I guess we borrow that too. I'll bet this surprises you I give G.W. Credit for getting something right? Now, does this mean that we senior citizens weren't the ones cannibalizing our children and grandchildren? Yes and No. After all ignorance is bliss. So is playing ignorant.)

I hope that you get the picture it is hard to write a circle or a spiral.

But let me get back to credit and debt:
It is easy to speculate that the population as a whole might see their government cycle of spend and borrow as another justification for their own personal cycle of buy and borrow. I think I remember, it seems so long ago, a budget surplus-don't I remember that or is my mind completely gone? Did we all follow that example? Nope.
gov. savings chart. Now I do realize that other things go along with less saving, or maybe cause it, such as flat wages or no wages. Of course then there is the cost of drugs, “health care” if you will. Add to that the ads for “stuff” and the ads for cheap credit and you have contributed to the downward slope of personal savings.

As to the personal debt problem, we were already using credit in all its forms to have our “Babbittry”* now. I use the term to designate the “stuff” that goes with the attitude. Why wait for that new TV?
Now add to the “instant gratification” attitude of the American Consumer a President of the U.S. telling us one answer to 9/ll was to “spend”, borrow to spend is what many did. We were so used to credit
and debt. So some people used that excuse to get more “stuff”, or a trip, or whatever they justified.

Where was the call to save, or to buy bonds, give your time, something other than spend your money. What money? Use your credit card or overdraft protection: it is just that easy. As the old ads used to say “Buy now pay later!”

So now there are many who cannot even pay the rent, electric bill, water bill, doctor's bill, and on and on, unless they get their over 400% loan until the paycheck or the income tax refund gets to them. And there are still those who get that loan to buy their toys, their Babbittry.*

Now instead of looking at our own failures many will find someone to blame. And are right to do so. Consumers have had lots of help getting into trouble.
There will always be loan sharks for those who need or want them. Though it is not like from the old movies, the feds. aren't going after these loan sharks. In fact after watching and re-watching the interviews, it almost looks as though some government officials either won't touch them because they agree with the the practices, or want to keep their previous and future jobs open.

So I am right where I was about health care in a previous blog. We are all somewhat guilty for the mess. We, meaning many consumers, the shark; the government; and many politicians.

Well, I guess this post will cause a ruckus. So be it.

As Artemus Ward said: "Let us all be happy and live within our means; even if we have to borrow the money to do it."

*You can find the book Babbitt by Sinclair Lewis, 1922 on Google or you can buy it on AmazonIt is not a fun read in total, some descriptions of daily life are funny, but it is a worthwhile read. George F. Babbitt is a Realtor selling houses in the burbs around Zenith “for more than people can afford to pay.” (page 2) The book jumps right away into the love of gadgetry and newness, justifications, and “keeping up with the Jones” as well as mid-life crises.

Change George Babbitt's occupation to mortgage broker if you like or leave it Realtor depending on where you live and your state's licensing laws.

I give you this "lefty" quotation:

ETHICS -- LOBBYING FIRMS PREPARE TO OFFER JOBS TO RETIRING MEMBERS OF CONGRESS: The last few months have been marked by a series of congressional retirements. To date, 19 members have decided that they will not be seeking reelection this November, including the recent retirement announcements of Sens. Chris Dodd (D-CT) and Byron Dorgan (D-ND). With all of these Capitol Hill veterans soon to be looking for new work, Roll Call reports that "law firms and lobbying shops are preparing for a flood of résumés from soon-to-be unemployed Members." With so many retirements already confirmed -- "and many more likely to come after Election Day -- K Street's top firms will have their pick of the litter." Since 2005, at least 195 members of Congress have crossed over to lobbying, according to Congressional Quarterly. Some of these former lawmakers were instrumental in lobbying against health care reform last year, as "three of every four major health-care firms have at least one former insider on their lobbying payrolls." "Depending on their committee assignments," retiring lawmakers could see "baseline offers as low as $250,000 for part-time gigs, all the way up to $1.25 million salary packages for former chairmen and party leaders." There is no indication, however, that any of the retiring lawmakers have already begun negotiating post-retirement employment. "Both Senators and House Members have to publicly disclose to the Secretary of the Senate and Clerk of the House within three days of starting negotiations with the private sector. None of the retiring Members has made that move yet."


  1. Hi Kanna;

    I like the savings chart. It looks like we started saving during 1980? I think that is interesting. It looks like we started spending right after that year.. that is also interesting. I am one of those who borrows. I know better, but I still seem to slowly go into debt. My dad and I have talked about this for years and wondered when credit would run out and everything would fall apart. I guess it has happened to a degree already.

    I think it makes perfect sense that an article about debt and banks and such should go in circles because it is one big circle that can't keep working for long because it feeds on itself. I have wondered for a long time how long they could sell things that people can't afford and can live without. Now, we are having trouble affording the necessities. Those who make the things that we don't need are working less and less, so they can't buy the things that they don't need.

    So, anyway, I enjoyed this post even if the subject leads to depression (pun).

  2. Thomas, thanks for commenting.
    There is a NYTimes article on small business "Loan Sharks" It is in the business section.
    The Place They Go When Banks Say No.
    Sorry I can't get the link in here right now.

    We all use credit in one way or another. Home loans and maybe car loans are pretty much locked in, education, for most, definitely cannot be paid in cash.

    Saving right now, if you could, does not pay any real interest. So bury your savings in the back yard? Naw, somebody would find it or you would worry yourself to death protecting it.

    My husband and I were discussing how to quit using our credit card. We pay it off but don't like the credit card business.

    The thing is many places don't want checks anymore and can you imagine carrying enough cash just for gas, groceries, a little of this or that, for a week?

    Our lives are set up for credit. We rarely have nearby stores. If you shop on-line at all, which is sometimes the cheaper way to go,
    how would you pay cash. Well, money orders.
    But many on-line "stores" don't want to wait for that either. And it requires trust by both parties.

    So how to untangle the whole economy from this mess? I don't know and I doubt many do know.
    I know the sticker shock of looking for a pair of sandals-Off season. Business can't get consumers so they raise prices then there are fewer consumers and on it goes.
    All of it is a vicious circle.

    I enjoyed the pun. But don't get depressed in any of its forms. As a sometimes depressive, I can tell you it does no good. It just starts its own circle or spiral.

  3. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


  4. Jacob, or Alisha,
    Thanks for reading and the comment.
    I am happy to have people contribute to the discussion.
    Please feel free to comment but please do not use this blog to promote business.