EDM is right! Let the Market prevail and to the victor goes the spoils!!! Let's deregulate EVERYTHING ... Al
Al: I said that Bill's rant about undefined "greed" and "profits" was pure BS. I said nothing about deregulating "everything." Fact is, I'd like to see some regulating of the kind that protected my generation from the credit card predators and usurious interest rates.
While I don't often read or agree with the
New York Times and only read someone else's copy when on the East Coast, while at the Vintage Cup I saw on the front page something I agree with wholeheartedly: "If Fanny Mae and Freddy Mac were so much in the national interest that they had to be nationalized; why weren't they regulated?" I thought they were! I used to audit banks. We reviewed loan portfolios on a statistical basis, investigated a sample in detail, drove by properties, sent confirmation letters to borrowers...what the hell happened!
When I was a 29-year-old CPA, moonlighting my way trough a Top Ten law school in the tax department of a Big 8 accounting firm, making a good manager-level wage, and going out of town on audits, weeks at a time during the summer, I could not get a credit card because I was a "student." That's how tough it was in 1970. Now my Labrador Retriever can get plastic.
I just got my Visa bill with an $885 balance, and was encouraged to pay the minimum $25 (which would include $21.04 at 8.9% APR interest if I didn't pay currently). Thus I would liquidate all of $3.92 of the $885.00 balance. And should I be a day late, then they slap on a $29.00 penalty for not paying $3.92 of principal for one day. And if I was someone strung out on the easy credit and couldn't just pay off the balance...gotcha!
But how's this for regulation: I went to my bank in the town of 550 where I have banked exclusively for 36 years, to get cash for my RV trip to Alaska this summer. I thought $4,00 would be about right to get started, because I don't like to use plastic unless it's necessary. The teller who has known me forever says, "Sorry Ed, but I need to see your driver's license to copy." She explained apologetically that all cash transactions over $3,000 are reported to Homeland Security. It seems that the regulators put the onus on financial institutions to report all "suspicious" transactions. The banks, fearful of "profiling" Arabs, and getting sued under conflicting laws or regulations or judicial decisions, simply agreed among themselves that $3,000 and up was suspicious. This is what I mean by over regulation. Can you imagine how many $3,000 cash transactions there are every day?
But getting back to plastic, Congress did the dog and pony show with credit card honchos a few years ago: Capital One, MBNA,
et al said that if they were tamed down (regulated) then they couldn't advance so much ready cash to unworthy borrowers. Whoa! The whole pattern of federal and state regulation had been to lean on lenders to make bad loans since 1975. Remember "red lining"? How about "profiling"? Banks were damned if they did, and damned if they didn't. Making marginal loans got bankers brownie points with the likes of BHO, who sued Citi Bank for withholding credit from unworthy borrowers.
The whole thrust of regulation the past third of a century has been to expand credit...damn the consequences, full speed ahead! This federal policy finally revealed itself for what it was(and is) when the private-lender spigot ran dry and the feds had to dish out $600 to all the people who were tapped out on plastic. A bankrupt government paying a dividend; was it really any worse that the bankrupt AIG honchos went to a spa?
When I bought my first house at age 31, a two family for $26,500, I paid $6,500 down and the mortgage interest was capped by law at 8% (I think I paid 7%). The usury rate was 8% for personal signature loans, and auto loans were regulated severely. People paid off new cars over 3 years, and maybe 2 years, which was the used car pay out. Interest was deductible, so everyone cared about the rate. When you filled in your tax return the interest paid came back to haunt.
Turn on your boob tube tonight and see the terms now: "No money down! $5,000 cash back! Zero percent interest for five years. No payments till 2009!" No wonder the car market is oversold; no wonder that Chrysler, GMC, and Ford are essentially bankrupt; They sold all the 2008 models to people who wanted but didn't need a new car way back in 2004 or 2005. Now no one can afford a new car because they are still being gouged on the last one. Here's how it works:
EDM went in to buy a new riding lawn mower in April priced at $3,500. The dealer wrote it up and said that I didn't have to pay anything till October. I said I wanted to pay cash and be done with it and asked about the cash price. The dealer said the cash price in April was the same as if I paid it off in October, and explained that they lay off all their paper, no recourse, on a finance company that plays the odds: The odds were that by October 99% of the lawn mower buyers would opt to an installment payment plan at a high rate of interest, and interest would be computed back to starting in April. This is a scam, but the American mode of acquisition has become so dependent on time pay that it is considered essential to continued prosperity. Ninety-nine percent of Americans are credit junkies and will mainline "Buy Now, Pay Later" whenever it is an option.
In summary, way back when this 67 year old retiree was young and vulnerable and could have been tempted into a life of debt servitude at high rates of interest and with penalties heaped on, I and my generation were protected from self-destructive tendencies by meaningful regulations such as usury laws and stingy lenders who dolled out prudent loans consistent with a hefty down payment.
Then two things happened: Social engineering and regulating to force lenders into advancing credit where a prudent person would fear to tread, and the allowing of branch banking, whereby one bank could buy up others and get so big that loans became a financial transaction on the holding company level, local loan officers were marginalized, and lines of accountability got blurred; Fill in the form and pass it along; make no value judgments; rely on third parties for a bundle of meaningless paperwork, run up the closing costs, and when the file is 1/2-inch thick, make the loan. Brain-in-gear is not part of the deal, because the loan documents get put in a box, and when the box weighs 25 pounds it gets sold to Fannie Mae, where they never look inside. Yikes!
