The Sears appliances I bought last summer came with great teaser financing from Citibank available only if I took out a new credit card. The interest rate on the card was a bargain at only 19% because of my sterling credit history. The accompanying disclosure statement informed me that the rate could go as high as 32% if I screwed up and went over my credit limit, paid late, missed a payment, acted badly with any of my other creditors, jaywalked, yelled at my kids or did anything else they frowned on.
Their disclosure statement was not required to tell me that if I paid no more than their monthly minimum my balance would double every few years.
Last week, along with a notice that their interest charges were going up, they sent a note defending the increase by shamelessly blaming the current tough economic climate – the one that they have relentlessly and unapologetically done so much to create.
Everyone knows that U.S. consumers have put away their wallets. But while American consumption and the use of credit cards is dropping like a millstone, the total amount of outstanding debt remains ominously, bizarrely, unchanged (Federal Reserve, release G 19). Because the unregulated credit industry is allowed to change the rules, their interest rates and conditions, and your indebtedness in the middle of the game, spending less does not mean owing less.
In Detroit, the elderly freeze to death when their gas is turned off. In Florida, the formerly employed live in cars for months and longer. Roughly one in nine homes are now vacant and no one seems to have a good handle on whatever has become of the foreclosed families.
The evening news is filled with stories about the newly unemployed, the newly uninsured, and those watching in their living rooms feel a chill of recognition. They look so much like the rest of us. How long before we’re a part of, instead of a spectator at, society’s unraveling?
Despite the illogical daily bluster of the Wall Street swindlers, their academic and government enablers and TVs talking bobble-heads, the trillion dollar bail out of the financial sector, has not, will not, and cannot solve the nation’s economic problems.
All that ever actually sustained our financial system was an illusion that has evaporated: confidence in the protective capacity of our government and regulatory systems. The most critical obstacle to economic recovery now is the national sense of alienation from the institutions and the government we once thought would protect us from the capitalist crapshoot. The public’s deep sense of anxiety, distrust and betrayal, the crisis of confidence, will not be fixed until our institutions are, with or without full employment.
During the 1930s President Franklin Roosevelt initiated regulatory reforms of Wall Street and the banking industry that restored a battered nation’s faith in the future. With the introduction of the Social Security safety net to protect the unemployed, the aged, the disabled and the widowed, the launching platform for the ‘American Century’ was in place.
It lasted 50 prosperous years until Reagan, Clinton, and Bush II systematically deep-sixed as many of those guaranteed protections as they could get away with, and handed the levers of the nation’s well-being to privateers. American economic power shifted from a manufacturing base to the mainly East Coast, mainly Wall Street, financial sector. Anti trust laws were decimated and mergers infested the economy leaving consumers with fewer and more expensive choices as well as declining wages and increasing responsibility for themselves, their families and their future. Now, corporations reign anew, the safety net is in tatters, and people are scared. Again.
Thanks to our politicians, much of the way back has been sealed off. Shoring up American workers and American jobs is decried as ‘protectionism’ by the same lost souls in the media and government who brought us ‘free trade’ and the current national and personal catastrophe.
There won’t be a return to the American century, but there can be a good life in our future, and a workable transition now, if we strengthen the safety net while we work for re-regulation and responsive politicians. Here are my suggestions:
First, people thrown out of work by Wall Street grifters and their government enablers deserve a little dignity in the form of a guaranteed income for the duration. Unemployment benefits should be extended until the economy recovers, possibly ten years. Pay for it by yanking back, clawing back, and redirecting the $1.7 (so far) trillion bail out for banking and Wall Street hucksters whose behavior throughout has been the very definition of criminal, a fact that only our politicians seem to misunderstand.
Second, the banking system must be reformed from the ground up. The American people are starved for honesty, accountability and transparency in finances that now seem out of their hands and out of control. Bring ethics, reason and capitalism back to the financial sector by letting banks that have driven themselves into bankruptcy fail and regulating the new ones that form. Stop using the American taxpayer to protect the lawless from the results of their own behavior.
Usury laws must return to the financial system to keep credit users from being thrown under the bus by rapacious and unpredictable creditors, and to lessen the sense of chaos in the social fabric.
Third, stop foreclosures by freezing the teaser rates for anyone who still has a job and a house they want to keep. Our wealthy bankers can afford to make a reasonable profit instead of a windfall on every transaction, but if it can’t, well, taxpayers should foreclose them.
The feds have a huge problem with buying toxic mortgage assets because no decision maker wants to admit that they have no value. If derivatives were ‘marked to market’, investors could lose big time, and politicians Paulson, Bernanke and Geithner certainly don’t want to inconvenience the wealthy. Better to stick taxpayers with a fairy tale and let us restore those fortunes.
In return for our unwilling largesse, the least bankers can do is ‘mark to market’ personal mortgages so homeowners are paying on actual value instead of the false prices created by the policies of the banking system. The banks have it coming. Couldn’t happen to nicer people. Besides, what else are they using their bailout billions for?
The most recent ‘stimulus’ theory, that banks should reconfigure mortgages to 31% of a person’s income with the Treasury subsidizing the difference up to 38% of income, is crazy. We don’t need to provide additional taxpayer dollars to hedge funds. Banks should lower mortgage payments to 31% of income because we’ve already given them boatloads of loot! Like all the other bits of insanity drifting out of the fog in Washington, D.C., this one is on track to become the latest citizen-financed boondoggle.
Fourth, health care must be provided to the increasing numbers of uninsured by federally funding Medicaid and taking the burden off the fiscally drowning states. While we’re at it, we must also rethink Medicare. To control costs we’ll have to give up the outdated, corrosive and costly third party payer system as well as the flagrant violation of common sense that prevents the government from negotiating drug prices.
Fifth, forget the stop-gap teensy tax cut drivel and permanently eliminate the payroll tax on everyone making less than $75,000 a year as well as on the vulnerable small businesses that provide so many jobs. That will put another 7.65% of personal earnings into the economy and give businesses another 7.65% of payroll to use as needed.
Now that’s a stimulus!
The payroll tax is unconscionably regressive, hitting hardest those making the least. It should be replaced with a tax on all earnings above the $75,000 threshold, not just wages, and it should not be capped. That should guarantee the future of Social Security and eliminated one endless, tiresome conversation from the national discourse. Instead, maybe we can begin to discuss the cost of keeping military bases in 100 countries. Or we can talk about how to elect a responsive government.
Contributing their share to the Social Security system seems like the least the wealthy can do given the massive financial rewards they’ve received from the political and economic stability our tax dollars buy them. Not to mention the tax dollars that are now restoring their fortunes. I’m sure they’ll be happy to do their part.
That’s my plan.
In the meantime, I’ve canceled my Citibank credit card.