by Eric Martin
Ian Welsh is the proud owner of one righteous rant:
When banks are charging 30 percent interest rates, they are not making credit available,” said [Senator Bernie] 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. […]
…[T]he 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. [emphasis added]
The bolded part is really key: there has been far too much deference to the "banking system" and not enough focus on the importance of what the banking system does. The former (at least preserved in its current "too big to fail" ungainly form) is really secondary to the latter in terms of ensuring a vital economy. In fact, the former will be a recurring drag.
In the US right now the interests of capital are paramount. Period. Every other imaginable interest takes second place, third place, or no place at all.
It hasn’t always been that way, it doesn’t have to be that way, but it’s that way right now.
I doubt that’s what Adam Smith had in mind by “capitalism”, but it’s what we have now.
It’s not a healthy or sustainable way for a society to live.
Personally, I think the choice before us is to either unwind that situation in a constructive way, or watch it hollow out every aspect of our society until the whole shooting match just collapses.
There’s a tremendous opportunity there, but I’m sorry to say that I do not see Obama, Geithner, or anyone else in a position to do so take anything like constructive action.
I’ll repeat again:
Larry Summers and Tim Geithner have been supreme disappointments.
Honestly, what separates them from people Bush appointed, or McCain would have appointed?
Why are they considered progressive (asking in terms of actual policies pushed)?
“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.”
So Fannie Mae for credit cards? What could possibly go wrong?
So Fannie Mae for credit cards? What could possibly go wrong?
Yeah, better leave it up to the private banks. We know that can’t go wrong, and at least under the private plan the interest rates charged to the public will be mind-bogglingly high. Which will help.
“Honestly, what separates them from people Bush appointed, or McCain would have appointed?”
McCain would have appointed Phil “We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness” Gramm.
He would have been worse.
Gramm’s policy would have been “You’ve heard of mental depression; this is a mental recession.”
And demanded we pass tax cuts, of course.
OK, Gary. I’ll take that cold comfort. But it is cold.
Part of this problem, IMO, is a direct consequence of the bankruptcy bill that makes it harder for individuals to declare bankruptcy.
Let’s face it, when a credit card company takes a 4% interest rate and jacks it up to 29% because a person is one hour late in making a payment (and yes I know someone that happened to)they know that, one way or another, they are going to egt taht money.
The fact is that people with high credit ratings can have this happen to them. But by jacking up the interest rates the companies have not only reduced the willingness of people to use that card, they have also made it much harder for the individual to pay.
In the long run, this will have negative effects on everybody, including the card companies themselves.
I’d guess that Gramm as Treasury Sec would act exactly as Geithner did; throw money at the banks and hope for trickle down effects. And there’s the possibility (remote, I know) that a Dem congress would put the brakes on a Republican a lot sooner.
credit rating agencies are evil: even cancelling a credit card can lower your rating.
So Fannie Mae for credit cards? What could possibly go wrong?
What could go wrong is that the arrangement might work perfectly for half a century, become taken for granted, and then under pressure from right wing extremist ideologues become more and more privatized and deregulated which would of course destroy the organization for the personal profit of a few greedy executives before the government was forced to step in again.
That could happen. If history is any guide.
I see parallels here to the fall of the Roman empire(well, one theory at least): some people date the decline to the use of slaves by the wealthy to work their estates. Yeoman farmers couldn’t compete and were forced to abandon their livelihoods for work/begging elsewhere. Thus was the middle class killed, and thus did the Senate, representing only the wealthy, become corrupt and ineffective. Yadda yadda.
“Yeah, better leave it up to the private banks. We know that can’t go wrong, and at least under the private plan the interest rates charged to the public will be mind-bogglingly high. Which will help.”
Normally you’re better on analyzing tradeoff than this. Your reaction is about as nuanced as the “They will welcome us as a liberating army” rhetoric.
First, for even a fully functioning credit market in very good economic times, there has to be a trade off between your risk of default and your interest rate. You can’t get around that unless you want to give money away. And if you want to give money away, I can think of better ways than having the government run a credit card bank. Bad credit risks are going to have higher interest rates. If you think you can get around that by artificially capping overall average rates without the medium to high credit risks access to credit, you’re wrong.
Second, you seem to be going even further than Ian Welsh’s idea by suggesting that it all be done through the government. Or perhaps I’m overreading “at least under the private plan the interest rates charged to the public will be mind-bogglingly high.” What exactly are you trying to accomplish? How do you think that having the Fed run credit cards is going to help? What value-added is it bringing?
Third, you are falling in to the classic fallacy of confusing laudable aims with any old available means. I would think as a regular critic of the Bush conduct in Iraq that you might avoid that.
Please note that I’m not saying anything about the recent credit card bill, which is mostly a good thing. Make it harder to change rates midstream? Fine with me. End universal default? Sounds good to me. Make disclosures better? Fantastic.
I am responding specifically to the rather crazy idea that the government should be a major player in the credit card market.
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.
This is what our overlords in DC don’t get. There is no one to lend to anymore except bad risks given the state of the economy. They’ve had a good ride papering over stagnent wages with loose credit but now the chickens have come home to roost. The 70% consumer spending economy is gone and not coming back anytime soon, nor are the retail jobs supported by that spending.
But no worries, citizens! Timmeh spotted some green shoots in his argula salad the other day.
“… some people date the decline to the use of slaves by the wealthy to work their estates.”
Huh? Slaves in Rome were used to work estates even before the Republic was founded. Spartacus’ slave war was 73 – 71 BCE. As time went on, slaves gained more rights, and fewer people were able to become enslaved (the indebted could no longer be enslaved, nor people sell themselves or their children, etc.).
What date, or period, exactly, are you pointing to as beginning this alleged changed use of slaves, and the beginning of the decline of Rome?
Lots of things contributed to the fall of the Roman empire, not least of which was the fall of the Roman Republic and the creation of the Empire. Once there was an Emperor, the Senate became vastly less relevant. Post-Diocletian, the Senate had no important powers at all.
More important to the plebians’ power declining and falling were the elimination of the Citizen’s Assembly, and then the Century Assembly and the Plebeian Council. When the Plebeian Tribune was eliminated, and the power of the Assemblies passed to the Senate, well, not much power was left to the plebes.
The Senate was always, once it was created, the representative of the wealthy elite: that was the point and rule of how it was structured, in comparison to the Plebian Council, which forbade patricians as members.
I blame Tiberius.
Well, I don’t know much about history, and that’s a fact. That’s why I referred to ‘other people’. It’s also been my experience that ‘other people’ say that there are many theories as to why the Empire fell.
But in any event, your explanation works just as well for my purposes: Once the wealthy and powerful interests capture the legitimate system of governance, polities tend to deteriorate pretty predictably, it seems.
Sebastian,
Let’s say you’re lending money at 30%. Let’s say the money costs you 5%. What default rate are you assuming?
Feel free to specify additional assumptions. For instance: you have competitors in The Free Market. If you’re making a 25% spread, and your competitors are not undercutting you, their assumption about default rates must be similar to yours.
So: what credit-card default rate is The Free Market predicting? On the loans The Free Market freely extended, mind you.
–TP
Normally you’re better on analyzing tradeoff than this. Your reaction is about as nuanced as the “They will welcome us as a liberating army” rhetoric.
I’m sorry, did I miss the nuance in your comment? I simply responded in kind, so take your own advice.
Second, you seem to be going even further than Ian Welsh’s idea by suggesting that it all be done through the government.
No. Not my intention. Just as I’m sure you didn’t mean that the government should never be involved in any way.
And the rest Eric?
What exactly are you trying to accomplish? How do you think that having the Fed run credit cards is going to help? What value-added is it bringing?
Accomplish? More lending.
Help/Value Added? The Fed would not have to worry about paying exorbitant salaries, bonuses and other astronomical compensation packages. Further, the Fed would not have to undertake the massive effort to recapitalize itself on the backs of the consumers.
Thus, it could provide credit at lower rates. My point is that credit card companies are not making a simple risk/rate calculation to ensure a basic, low level of overall profitability.
My head starts to hurt when I think about our economy. It’s very hard to tell the difference between keeping the economy going in the short term to give us time to re-tool and trying to sustain something that will inevitably collapse regardless. I don’t see how credit in the form of credit cards for consumers is any answer to the problem.
It’s easier to understand that we need to get banks lending to each other and providing vital short-term credit to businesses to keep them operating. Those are things the economy needs to be healthy and there’s nothing unsustainable about them. But credit cards? Not so much.
I can see that we need to keep demand up to some degree over some time period, but then what? And I can’t wrap my head around the idea that people should be buying things they don’t really need so people can keep their jobs making those things, at least not beyond some finite time horizon.
At some point we have to start putting our resources into things of greater value. So do the Chinese and everybody else.
I really wish I knew what to do, or that someone knew, because I don’t think anyone does. Or maybe it’s just not as bad as it seems and we’ll somehow come out of this okay. That would be nice, too.
I am responding specifically to the rather crazy idea that the government should be a major player in the credit card market.
These are rather crazy times, no?
But seriously, “major player”? Maybe not. But temporary bridge? Sure. While there is no (or too little) credit flowing from the private industry.
At least, I think it’s a crazy idea that we should prop up private lenders that gouge consumers to keep them afloat.
Maybe I’m just nuts though.
I’m slightly confused about why we’re interested in increasing credit card lending. I could understand how commercial lending is vital for the economy but I don’t see why credit cards fill the same role. When businesses take out commercial loans, they tend to be much better informed than many consumers about what they’re doing. I’ve spoken with too many people who believe that credit cards provide basically free money (“just make the minimum payment every month!”) to be comfortable with very high rates of credit card use as debt instruments.
Of course I agree that the credit card industry needs to be much better regulated and I agree with all of the regulatory changes that Seb mentioned.
A couple of points here:
I’m sorry to say, but when you have members of your own party voting against cloture for confirming your own cabinet picks – and doing so to protect a widely-recognized predatory and inefficient company – the options one has are severely curtailed by ‘political reality’.
I’ll add to the curse of Casandra: It’s not that she was right, or even that she was not listened to: it’s that what she was right about was obvious to even the densest peasant. These days she would have spoken in not-too-hard-to-decipher parables about the imminent popping of the housing bubble. And shrieked in frustration as everyone from Greenspan to Cramer pooh-poohed her doomsaying.
Having done this myself during the last bubble (the dot-com bubble, that is), I can say that a lot of people who lose their jobs or who are on reduced pay rely on their credit cards for things like mortgage payments, car payments, food, that sort of thing. Lowering the credit limit on a guy who has just lost a job with a monthly $900 mortgage payment is probably the last thing you’d want to do from a macroeconomic perspective.
“Accomplish? More lending.
Help/Value Added? The Fed would not have to worry about paying exorbitant salaries, bonuses and other astronomical compensation packages. Further, the Fed would not have to undertake the massive effort to recapitalize itself on the backs of the consumers.
Thus, it could provide credit at lower rates. My point is that credit card companies are not making a simple risk/rate calculation to ensure a basic, low level of overall profitability.”
First, I was overly strident initially and I apologize.
It feels like you are confusing a huge number of different things all together at once. You want more lending, or more credit card lending? Because those are enormously different things. I’m not totally sure that we should encourage more credit card lending as a normative value. Nor am I sure that it is wise to encourage more credit card lending as an economic value. You and/or Ian haven’t made that case at all. I’m all for lending to encourage more businesses to open profitable ventures. I’m not even close to being convinced that encouraging consumer credit card spending is the way to do that.
“But seriously, “major player”? Maybe not. But temporary bridge? Sure. While there is no (or too little) credit flowing from the private industry.”
I said major player, because you are quoting someone whose major proposition is to take over Citibank and Bank of America (Why Bank of America by the way???) for the purpose of lower credit card rates. That would be major player, for sure! And again, what temporary bridge are you trying to make with credit cards? Wanting to encourage “Credit flowing from the private industry” is not the same as “We need to have government issued credit cards”. I don’t see how you go from one to the other.
“At least, I think it’s a crazy idea that we should prop up private lenders that gouge consumers to keep them afloat.”
And if we don’t like credit card practices like universal default, or surprising rate changes, we can legislate against that. Which just happened. Which I support.
But that isn’t even close to “let’s just have government issued credit cards”.
It seems to me that the whole idea is weird. What are people supposed to be buying with these government credit cards? Food and shelter? If the government is doing that, why not just straight up have the government provide food stamps and housing credits? General stimulus? Why not just have the government provide straight up cash?
‘m slightly confused about why we’re interested in increasing credit card lending. I could understand how commercial lending is vital for the economy but I don’t see why credit cards fill the same role.
When 70% of your economy is consumer spending, you really don’t have much choice. Especially when increasing wages is anathema.
Couple of thoughts:
I am 100% guilty of conflating credit with credit card companies. I should have been clearer.
That said, it’s not necessarily about more credit card lending, just credit card lending at lower rates.
I believe, normatively speaking, that keeping credit card rates lower would be beneficial.
As for rules: that’s sort of what just happened, but too many good regulations were gutted.
Oh, and credit is preferable to giveaways in that the former must be repaid, and thus represent less of an expenditure for a bank in receivership or the FDIC.
Hairshirthedonist: “I don’t see how credit in the form of credit cards for consumers is any answer to the problem. It’s easier to understand that we need to get banks lending to each other and providing vital short-term credit to businesses to keep them operating.”
Turbulence: “I’m slightly confused about why we’re interested in increasing credit card lending. I could understand how commercial lending is vital for the economy but I don’t see why credit cards fill the same role.”
You guys both ask the same reasonable question. Here’s what I think is a reasonable answer:
Consumption is ultimately the whole point of the frenzied to-and-fro that we lovingly call “the economy”. Investors and/or lenders can “keep a business operating”, but if an operation doesn’t have CUSTOMERS, it’s not a business. If people can’t get credit to buy cars, there’s no point lending to or investing in a car factory.
So, consumer credit is what makes business credit worthwhile. If you have customers with credit, you have a viable business. If your customers don’t have credit, no amount of business credit is going to make your business viable.
–TP
When 70% of your economy is consumer spending, you really don’t have much choice. Especially when increasing wages is anathema.
But spending financed by credit card debt is not sustainable. Given the ridiculous interest rates and outrageous fees, it is even worse than financing consumption with HELOCs.
Having done this myself during the last bubble (the dot-com bubble, that is), I can say that a lot of people who lose their jobs or who are on reduced pay rely on their credit cards for things like mortgage payments, car payments, food, that sort of thing. Lowering the credit limit on a guy who has just lost a job with a monthly $900 mortgage payment is probably the last thing you’d want to do from a macroeconomic perspective.
SoV, thanks for explaining. This makes a lot of sense. My only concern here is that credit card companies seem like a really crummy vehicle for supporting people who have fallen on hard economic times. If we’re going to loan money to such people to help keep them afloat, I’d much rather it go through credit unions or some other financial institution that doesn’t have as long a history screwing customers over.
“If we’re going to loan money to such people to help keep them afloat, I’d much rather it go through credit unions or some other financial institution that doesn’t have as long a history screwing customers over.”
Or we could just institute Milton Friedman’s negative income tax.
Gary, I think the negative income tax is a good idea that we should implement in general, but I’m not sure that it provides a good solution to the problem that SoV explained. If you have a good job and then set up fixed expenses that depend on that job, you need an immediate cash infusion to hold you over when you suddenly lose that job. That buys you time to either find a new job or restructure your life by ditching some of those fixed expenses in an orderly manner (i.e., sell your house over the course of a few months rather than a few weeks so you don’t have to take really bad offers). A negative income tax will eventually transfer money to you, but it might take up to a year or two, by which time it is too late. The NIT seems better suited for dealing with long term gradual changes in income rather than short term shocks.
But spending financed by credit card debt is not sustainable. Given the ridiculous interest rates and outrageous fees, it is even worse than financing consumption with HELOCs.
No argument here. However, a debt-based consumer and service based economy with a huge FIRE sector is all the people in charge have known for twenty years, and they’ve done mighty well with it. Switching back to a manufacturing economy is not seen as an option, and there is no third choice.
All you really need to have is a short-term outlook and total disregard for the prospects of the middle class; situation normal in other words.
Why is spending financed by ANY kind of debt “sustainable”?
–TP
“Or we could just institute Milton Friedman’s negative income tax.”
Well absolutely! 🙂
Credit card lending at a lower rate isn’t really a value in itself. If we had disclosures like “with the current balance you will owe an additional X in 1 year at this interest rate” and “Payoff time at minimum payment” I would be pretty much happy with credit card rates at nearly any interest rate. (I also support credit card companies being toward the end of the line in bankruptcy to prevent too much abuse). It is sort of a sliding scale on how many people you want to have access to credit vs. rate.
As for the last point, again are we talking about credit cards or more general lending? The case for business lending is that it forces a close business/bank analysis regarding business plan and outlook for the lending. It isn’t really anything like that for consumers with credit cards. It seems like whatever you are trying to do with consumers would be better spent on a negative income tax or something else. When you broaden the base to ‘consumer in the US’ I’m not sure what you gain by going through the banks. The government is already spending money from the consumer in the US. To the extent that it is deficit spending it is already borrowing from our future. So it is not really less of an expenditure in any large sense by making the consumer pay it back to the bank/US government. With a business loan we are talking about targeting a specific business case. So the loan makes sense because we are giving to a small party for the specific purpose that they should be profitable in the near future, allowing them to give it back. Pretty much none of that holds for money we are giving to a general US consumer base.
Weird that I’m the one arguing against the loan side of a loan/giveaway question. [contemplates the strangeness of the world]
Why is spending financed by ANY kind of debt “sustainable”?
If there is good reason to believe that spending you can’t afford right now will increase your future cash flow, I’d call that sustainable. When a medical student takes out a loan to pay for medical school on the assumption that they’ll be able to pay back the loan and significantly increase their earning power once they become a physician, that looks sustainable to me. In contrast, if I buy lots of stuff using a HELOC that doesn’t in any way improve my ability to make money in the future, that is not sustainable.
The key is whether you have a good reason to believe that this cash will increase your future cash flow. For people that just lost their job, I think you can make a good case. For people who are just spending randomly on credit cards, especially those who don’t understand the implications of credit card debt, I don’t think you can make a good case.
But in practice, consumers spend with credit cards and that consumption spurs the economy – which is consumption based.
Given that reality, I do believe that keeping rates within reasonably low parameters would be a good thing.
At least as long as the lenders are receiving trillions in taxpayer money. If the other option were negative income tax, I’d consider it.
“If the other option were negative income tax, I’d consider it.”
When your stated option is “take over a one of the larger credit card businesses and have the government run it” I don’t see why we can’t at least strongly consider trying to push through a negative income tax. I mean we are already talking about things way out of the norm. And the EITC already exists, so it isn’t that much of a stretch.
Write it up Seb, I’ll co-sponsor it 😉
First, for even a fully functioning credit market in very good economic times, there has to be a trade off between your risk of default and your interest rate.
Yes. But. When the lender is allowed to raise the rate dramatically on any excuse it reduces the incentive to evaluate the credit of the borrower before issuing the card. Issue the card now, and change the rate later.
These increases are pernicious. When your rate goes from, say, 10% to 30% it doesn’t affect the amount you can afford to pay each month. It just affects how that payment is split between principal and interest. The result is simply that you pay for longer – much longer – and if you do go bankrupt the credit card company has a bigger claim.
Okay, I’m going to start this with a rant.
How many times do I have to say this? NO ONE HAS THE LEGAL AUTHORITY TO TAKE OVER CITIGROUP OR BANK OF AMERICA OR ANY OF THE OTHER INSTITUTIONS YOU ARE DISCUSSING. I’ve posted links to the relevant portions of the US code in the past. If you had bothered to read it, you would have seen that the law is very specific: the FDIC has the authority to take over COMMERCIAL banks. Not investment banks. Not hedge funds. Not insurance companies. Not credit card issuers. Commercial banks. That’s it. Trying to take over an entity such as Citigroup without its consent would be ILLEGAL. We had enough of that during the previous administration. As soon as you find yourself writing a sentence that says, “The government should take over Citigroup,” stop, and erase the whole paragraph, because you’re not going to say anything useful. Don’t even say that the administration should get Congress to pass a law giving it the authority to do so. Given that a crucial part of your argument is that Congress is beholden to the banks, as witnessed by the elimination of cramdowns and watering down credit card regulations, you aren’t going to get it. Just stop.
Did I use the caps lock enough on that?
As for the substance, Sebastian is basically right. Getting the government into the credit card business is a terrible idea. Aside from the usual problems of letting the government run major financial institutions, extending more credit card debt is a bad idea, for reasons stated above. Yes, a part of the reason credit card rates are so high is because it allows banks to collect more money, but that’s not the main reason. The main reason is that, right now, credit card debt is extremely risky. The estimates of default rates over the next year are above 10%. The government would either have to charge rates too high to make the program useful, or accept that an extremely high percentage of the accounts are going to go bad. That’s not lending; that’s an extremely inefficient method of transfer payments. Just increase unemployment benefits, for god’s sake.
The credit that needs to be salvaged is bank-to-bank, and bank-to-business borrowing. Those are the loans that create jobs. Those are the ones that we need to get unstuck in order to start growing again. That is a necessary, but not sufficient condition to recovery. The other part is that businesses have to have confidence that they are going to be able to sell products that they borrow money to make. Right now, that means more stimulus spending. Worrying about credit cards is just a distraction.
I always hesitate to even start reading economics posts on this blog, because they are always so frustrating. The front page posters repeat the same arguments over and over, despite the fact that they didn’t make sense the first time. Eric and von have different incorrect posts that they make over and over, but both of you do it.
“Yes. But. When the lender is allowed to raise the rate dramatically on any excuse it reduces the incentive to evaluate the credit of the borrower before issuing the card. Issue the card now, and change the rate later.”
Which is an argument for the credit card bill that just passed. Which I support.
That has nothing to do with having the government take over Citibank and Bank of America’s credit card operations.
I totally agree that such operations are bad. But I’ve already said that in this thread. [sigh]
Can’t say that having the government in the credit card business is all that crazy. Why not? Credit should be treated as essentially a utility. But it’s not my prefered solution, my prefered solution would be serious anti-usury laws and an expansion of credit unions. However, as noted, Fannie Mae worked just fine for decades, till it was semi-privatized and allowed to engage in outrageous behaviour, including massive amounts of lobbying.
I would actually have federal credit cards only be allowed to be used for certain types of purchases and not for others, but that’s too big a subject to go into in comments – suffice to say that credit should be given at low rates for things which are productive and useful for the economy, and every $ of GDP is not equal.
In any case, allowing usury, which is what has occured, is very detrimental to the strength of the economy.
Rome: while slavery existed in the Republic, it exploded in the late republic due to the numerous succesful wars. The expansion of the latifundae did indeed destroy the Italian yeoman farmer class, and it became harder and harder to raise fewer and fewer legions in Italy, let alone in the immediate region around Rome. There’s some reason to believe that had a lot to do with the fall of the Republic, as legionaires became more and more disconnected from Rome proper. They may have been citizens in many cases, but they were not Romans.
The decline of the Empire, otoh, had a lot more to do with the rise of virtual serfdom, but is much bigger than that (for example, by the late Empire a lot of fine craftsmanship had been lost. In terms of technology/knowledge the dark ages had already begun.)
“I always hesitate to even start reading economics posts on this blog, because they are always so frustrating.”
Funny, that’s how I feel about the Israel/Palestine posts/comments.
Sebastian,
Sorry I sounded like I was criticizing you. I didn’t intend to.
I did understand your position, and was just trying to point out that one thing wrong with the current situation is that it allows banks to be cavalier about checking credit and try to recover later.
FNMA and its equivalents in related loan industries were able to consistently provide loans at low interest rates because investors and lenders believed the US government (the US taxpayer) would make them whole in the event of massive defaults.
So people could buy houses on credit and get loans to go to college even in bad economic times.
You can argue that we should revoke the implicit backing of the US government for these things and go back to times when an economic downturn meant that no one (really, no one) would be able to get a loan to buy a house or a loan to go to college during economic downturns.
If you argue that, you are irrelevant to the discussion. It’s not going to happen. Go find a randian gulch to hide in
You can argue that we should allow corporations with the implicit backing of the US government to leech off profits for the top executives when times are good, and then to leech off more profits when times are bad even as they go to the US taxpayer for bailout money.
If you argue that, well, that’s what’s happened and will probably continue to happen in the near future. The US economic system is nothing if not dysfunctional.
I would argue that if the risk belongs to the US taxpayer, then the profit belongs to the US taxpayer.
Socialism works.
How many times do I have to say this? NO ONE HAS THE LEGAL AUTHORITY TO TAKE OVER CITIGROUP OR BANK OF AMERICA OR ANY OF THE OTHER INSTITUTIONS YOU ARE DISCUSSING.
Would it be illegal to pass a law giving the federal government that authority? If not, then that is the answer.
After all, if it’s a question of that, or letting these institutions fail, receivership is an attractive option.
So the fact that we lack the authority should not and does not end the conversation in terms of what the best option would be.
The death of the middle class has been presided over a Treasury Department run and educated by Goldman Sachs. So as the stock market has rebounded fairly quickly, the real economy, real working stiffs, will not.
We need more people like this who want to do things the right way.
People like this who want to do things the right way.
Would it be illegal to pass a law giving the federal government that authority? If not, then that is the answer.
No, which is why I addressed that very question in my comment.
But then what is the point that I’m missing? I don’t recall writing in this post that it wouldn’t require Congressional action.
You think that’s impossible, I say it’s the best possible course of action, and I will make that point regardless of the Obama admin & Congress’ shortcomings.
The sad thing is — because the Fed and Treasury Departments deemed it more important to help the very institutions that gamed the economy — the recovery will leave behind those who can least afford it.
Today’s New York Times featured a telling multi-article spread on rising foreclosures, going beyond statistics and putting a human face on the problem affecting ordinary folks.
Too often economic news is told in numbers. Unless you are a Wall Street executive — or call 1600 Pennsylvania Ave. your address — you might be able to relate to these stories.
I think one of the great failings of the Obama Administration has been the failure to help those who need it most in the mortgage crisis.
Helping those who created unethical loans, who encouraged high-risk lending, who sought profits over purpose has been a perverse policy that will ensure we go through this again.
Having a Democrat in charge was supposed to be different.
For those of us who live paycheck to paycheck, the NYT reporting is a scary reminder of how easy it is to become a foreclosure statistic. How easy it is to lose your home.
Somewhere along the line, President Obama, the former community organizer, forgot that.
I regret that several links in my previous two postings did not go through. In preview form, it showed they had.
Therefore, I am sorry for the lack of clarity and context.