fighting modern day usury

From Carl Hulse of the New York Times:

Despite complaints that banks and credit card companies are gouging customers by charging outrageous interest rates, the Senate on Wednesday easily turned back an effort to cap interest rates at 15 percent.

The effort by Senator Bernie Sanders, the Vermont independent, drew only 33 votes and needed 60, with a bipartisan group of 60 senators opposing it as the Senate pushed its credit card overhaul toward the finish line. Some Democrats and consumer groups have said that an interest cap is needed to put real teeth into an otherwise solid bill.

Other backers of the measure calculated that an interest rate ceiling would doom the popular legislation. The banking industry, which had some heavy-weight representatives monitoring the vote off of the Senate floor, warned that an interest rate limit could cause a sour reaction in the financial markets.

But Mr. Sanders said the card companies and banks were engaged in conduct that could get others hauled into court. He said one-third of all credit card holders are paying interest above 20 percent and as high as 41 percent.

“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.”

After the effort failed, Senator Christopher J. Dodd of Connecticut, the Democratic chairman of the banking committee, proposed that the Federal Reserve be asked to provide an analysis of how Congress could rein in interest rates.

Senators said they hoped to finish up the credit card bill as early as Thursday, coinciding with a town hall meeting by President Obama on credit card issues in New Mexico.

It looks like Sen. Durbin was right: the banks really do own the Senate.

So Sen. Sanders' effort to cap interest rates at 15% — the same rate that credit unions are limited to — was killed in the Senate by 22 Democrats and 33 Republicans who voted against his amendment to the Credit Cardholders' Bill of Rights Act of 2009 earlier this week. Big surprise.

The Senate did pass a version of the bill today, however, that supposedly will rein in credit card rate increases and excessive fees without a nationwide cap on interest rates. Sen. Sanders supported the bill even without the interest rate cap, calling it "a step forward in protecting consumers," although warning, "I am going to be back on this issue of usury." Good looking out, Bernie.

But while most are hailing this move as a giant step forward to providing more consumer protections for credit cardholders, Andrew Martin, who writes for the New York Times, cautions that the credit card companies will just hit the people with good credit even harder to make up for any lost revenue:

Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent flier miles and other perks in recent years.

Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs, and charging interest immediately on a purchase instead of allowing a weeks-long grace period, according to bank officials and trade groups.

"It will be a different business," said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation's biggest banks. "Those that manage their credit well will in some degree subsidize those that have credit problems."

As they thin their ranks of risky cardholders to deal with an economic downturn, major banks including American Express, Citigroup, Bank of America, and a long list of others have already begun to raise interest rates, and some have targeted consumers who pay their bills on time. The legislation scheduled for a Senate vote today does not cap interest rates, so banks can continue to lift them, albeit at a slower pace and with greater disclosure.

"There will be one-size-fits-all pricing, and as a result, you'll see the industry will be more egalitarian in terms of its revenue base," said David Robertson, publisher of the Nilson Report, which tracks the credit card business.

People who routinely pay off their credit card balance have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee and collect points for air travel and other perks.

"Despite all the terrible things that have been said, you're making out like a bandit," he said. "That's a third of credit card customers, 50 million people who have gotten a great deal."

Robert Hammer, an industry consultant, said the legislation might have the broad effect of encouraging card issuers to become ever more reliant on fees from marginal customers as well as creditworthy cardholders, who are dubbed "deadbeats" in industry parlance because they generate scant fee revenue.

"They aren't charities. They have shareholders to report to," he said, referring to banks and credit card companies. "Whatever is left in the model to work from, they will start to maneuver."

Banks used to give credit cards only to the best consumers and charge them a flat interest rate of about 20 percent and an annual fee. But with the relaxing of usury laws in some states, and the availability of credit scores in the late 1980s, banks began offering cards with a variety of different interest rates and fees, tying the pricing to the credit risk of the cardholder.

That helped push interest rates down for many consumers, but they soared for riskier cardholders, who became a significant source of revenue for the industry. The recent economic downturn challenged that formula, and banks started dumping the riskiest and lowering their credit limits in earnest as the recession accelerated. Now, a rising chorus of consumers who pay their bills off every month is complaining of shortened grace periods, new hidden fees and higher interest rates.

The industry says the proposals will force banks to issue fewer credit cards at greater cost to the current cardholders.

Citigroup and Capital One referred comments to the ABA. Discover and American Express declined to comment. Bank of America intends to "provide credit to the largest number of creditworthy customers possible, while also remaining prudent in our lending practices," said Betty Riess, a spokeswoman. Together with JPMorgan Chase, which has said the changes will force it to limit credit availability and raise fees, these banks comprise 80 percent of the credit card industry.

Ah, the insanity of American corporatism.

in the news today (5/15/09)

Once again, there's a lot of interesting stories in the news today, which I happened to have time to read at my new favourite lunch spot, Chez Machin.

One of today's biggest headlines involves Nike. According to today's edition of the Oregonian, Nike is planning on cutting a total of 1,750 workers, including 500 at their Oregon headquarters, even though the company itself has been relatively successful during the current recession.

As the article points out, "Nike's sales have actually held up fairly well during the recession, growing consistently until its last quarter." So why the huge layoff? Apparently, it's part of a massive restructuring plan that's been in the works since February.

"It isn't necessarily an exercise about cost-cutting," Dobson [Nike's director of corporate-responsibility communications] said. "It's about realigning the business for the future."

That's right. Despite the fact that Nike has fared relatively well throughout the current economic slump, the company is ever on the lookout for ways to cut costs — including laying off more than 7% of the 6,800 workers at Nike headquarters in Oregon — in order to realign the business for the future.

So just what will Nike do with the estimated $225 million in "savings"? Will it share that money with the rest of its employees who are lucky enough to keep their jobs? It's possible, but not likely.

According to the article, "Nike hasn't said what it plans to do with that savings, but Svezia [a New York investment analyst who follows the company for Susquehanna Financial Group] said the company may try to expand in fast-growing countries such as China or experiment with new retail strategies." As Svezia put it, "Nike is a growth company. They need to spend to generate growth."

Too bad that growth will come at the expense of Oregon workers, among others.

In other news, Speaker Pelosi continues to defend her previous denial that she was briefed about the use of waterboarding. According to the Huffington Post:

House Speaker Nancy Pelosi bluntly accused the CIA on Thursday of misleading her and other lawmakers about its use of waterboarding during the Bush administration, escalating a controversy grown to include both political parties, the spy agency and the White House.

The CIA's response: "It is not the policy of this agency to mislead the United States Congress."

Of course not. The CIA would never do anything like that. But then again, it is Nacny Pelosi we're talking about here. I don't know who I distrust more.

Meanwhile, the LA Times reports that President Obama's war-funding measure easily passed the House on Thursday despite the fact that 51 Democrats dissented.

Cheers to the 51 Democrats who stood up to President Obama and voted against his $97 billion war-funding measure — which will largely go to financing Obama's strategy of adding 21,000 U.S. troops and trainers in Afghanistan and counterinsurgency training in Pakistan — and jeers to Rep. David R. Obey (D-Wis.) who voted for the measure while at the same time saying, "This is a bill that I have very little confidence in."

Um, then don't vote for it?

In local news, the Oregonian reports that a Portland woman who was injured during an arrest in 2006 won $18,500 in a settlement after she sued the Portland Police Bureau, the Multnomah County Sheriff's Office and the Cherry Park Condominium Association. According to the article:

Lyudmila Trivol had sued the Portland Police Bureau, the Multnomah County Sheriff's Office and the Cherry Park Condominium Association after the association's president at the time allegedly directed that the family's minivan be towed from its assigned parking space. The minivan's wheels, according to Trivol's side, were parked 6 inches into the bark dust.

An attorney for the condo association argued that it was more like 3 feet.

Trivol -- a Ukrainian immigrant who speaks almost no English -- felt targeted by what the suit describes as repeated, xenophobic harassment by the association and its president at the time, Michael Graybeal. Trivol's husband had been arguing with the tow-truck driver and had sliced one of the truck's tires with a knife.

According to the suit, Officer James Botaitis and Deputy Bret Burton forced Trivol to the ground by putting her in a hold, snapping a bone in her arm, on May 27, 2006. Trivol said the officers stepped on her back and pushed her face to the mud, as seven of her children and grandchildren watched.

Good for her. She deserves every penny of it after the police BROKE HER ARM while wrestling her to the ground.

In yet another documented case of police brutality, the police contended that she was "swearing, yelling and blocking the truck as she stood in the street in front of her home" and "charged at the tow-truck driver and kicked Burton in the shin as he lifted her." But, as the story continues, "prosecutors dropped the case after her attorneys submitted dozens of photographs taken by a neighbor showing her giving police and the driver lots of space as she stood on the sidewalk."

Fortunately, attorney Allen Peters was kind enough to send a letter to the Portland Police Bureau and the sheriff's office reminding them that, "Law enforcement officers do not have a right to order people to be silent and to remove themselves from a public sidewalk, and it is outrageous that these particular officers believe otherwise."

Finally, I read three interesting letters to the editor in today's Oregonian. The first is by Erin Quinton highlighting the current contract status (or lack thereof) of Portland teachers:

I did it! I showed my solidarity. Did anyone notice? I managed to complete an entire week of teaching Kindergarten by working my "contract hours." These are things that I found were impossible to accomplish while working to the rule:

Painting: Farewell! No time to set up or clean up.

New literacy and math centers each week with a variety of differentiated materials to meet each child's learning needs: Ha!

Small group instruction during writing: Gone.

Clean tables? What germs? Boogers rule!

Replenish art supplies: The closet is on the other side of the building and by the time I pick up the key and collect materials half my prep time is gone.

Field trips: Goodbye. No time to make calls, arrange dates and details of trips, fill out the three-page application for scholarships for our Title I school, etc.

Biweekly classroom newsletter with cute pictures of kids: No can do.

Score writing assignments, create individual folders for individual skills support, fill out summer reading list for the library: Don't even ask!

You get the idea. I implore the district to return to the bargaining table, be cognizant of what most of your teachers donate to their jobs and settle the current negotiations immediately.

The second is from Hunt Norris, a former banker, who argues for more borrower protection from outrageous bank fees:

When I became a banker in 1973, interstate banking was not legal. At that time, if you had an overdraft on your checking account, the fee per item was $3. I just received my checking account statement from Bank of America, which has raised the fee to $39 per item.

As the restrictions on interstate banking came down, I have observed an alarming increase in bank fees. I checked the CPI for August 1973 and compared it to the CPI for March 2009. This index has risen 371.6 percent over that time period. If overdraft fees had increased the same amount as the CPI, today those fees would be $14.15. I checked the minimum wage for 1973 and found that it was $1.60. Today the minimum wage is $7.25, a 353.1 percent increase.

During my 17 years as a banker, our branches in the poorest neighborhoods were the ones that generated the greatest income from overdraft fees, meaning the people paying the most in overdraft fees were the people who could least afford it. In 1973, at minimum wage, it took 1.9 hours of work to earn enough money to pay one overdraft fee. In 2009, it takes 5.4 hours of work to pay one overdraft fee. These fees are out of control.

Whether the reason is a reduction in competition due to interstate banking or some other reason, the free market is not keeping these fees in check. Governmental regulation, in my opinion, is necessary for the protection of the consumer.

And last but not least, the third is about the closing of the Oregon School for the Blind by Carlene Benson:

With all due respect to our legislators, and if I may be blunt, closing Oregon School for the Blind ("House panel votes to shut School for the Blind," April 11) is a blatant land grab of the property and has nothing to do with the education of vision impaired children, other than the convenient fact that it's already zoned for educational use for a new nursing school that Western Oregon University would like to share with the hospital.

It's disappointing that none of the legislators and state administrators involved have the integrity to talk about what this is really all about. This is not about education. It's always been about the property and it's very disingenuous to pretend otherwise, especially at the expense of the blind children who will not get these services anywhere else if the Oregon School for the Blind is closed. They are at the school now because it's already been decided through their Individual Education Plan process that their own districts can't provide the needed services, and that the School for the Blind is the best place.

what they apparently don't teach you in basic training

Police Brutality: Cops Punt Man In The Head, Then High-Five (VIDEO)

Lesson of the day: Don't kick unarmed suspect in the face after they've given up and placed themselves in a defenseless and yielding position with arms and legs spread when a news helicopter is filming everything we do.

P.S. Tell fellow officer it's probably not a good idea to repeatedly strike suspect with flashlight when a news helicopter is filming everything we do either.

capitalism, socialism, the grameen bank and the lessons it can teach us

A friend of mine pointed out this interesting synthesis between capitalism and socialism in which capital is being distributed based on need rather than profit and yet still capable of making a sustainable profit: Muhammad Yunus - Nobel Lecture.

He described it as, "The use of capitalism to defeat its affect on the third world."

(It's just the kind of thing I've been looking for. Thanks, Jeff.)

Of course, it's only one example, and it's not a perfect one at that because only about 58% of borrowers have cross over the poverty line, but I think that it at least goes show that the system is not the entire problem. And as one person wisely pointed out, "[We] should not be too quick to write off experiments of this kind because they don't fit our own standard bias."

Personally, while I agree that capitalism itself often fosters greed and violence in the way that it's structured, especially considering the fact that profit is the bottom line, my opinion is that the problem isn't with capitalism as much as it's with the inclination of people to abuse it. The way I see it, socialism would help to limit the economic and societal conditions that foster things like greed and violence, and that's why I consider myself a socialist, but that's not the end of the struggle. It's just the beginning.

Others strongly disagree with this position, however. One person, for example, wrote to me saying, "Capitalism isn't abused by people. It abuses people."

That may very well be, but my view is that capitalism doesn't so anything on its own; it's simply an economic system that is utilized by certain people. And even though I agree that it often fosters greed and violence in the way that it is structured, I'm of the opinion that any economic system can be abused by greedy, selfish people.

As I said, I believe that socialism — and by "socialism" I mean a mass movement towards economic democracy — would help to limit the economic and societal conditions that foster things like greed and violence, but I don't think that it can eliminate them altogether. I don't buy the idea that capitalism is to blame for all the evils of the world, and that once capitalism is replaced people will all of a sudden stop being greedy and selfish. What I think is missing in discussions like this is the idea of personal responsibility. Yes, the capitalist system is unfair and set up to promote aggressive competition, but people also have to be willing to take responsibility for their own actions. We can't blame the system for everything.

I guess my point is that I don't think vilifying capitalism serves any purpose other than to antagonize people who self-identify themselves as capitalists or the average worker who currently supports the capitalist system in general. I'm more than willing to acknowledge and discuss the weak points of the capitalist system, the strong points of the socialist system and how to work towards implementing such a system, but I'm not willing to deny the places where capitalism has contributed to the development of society or the advancements made in areas like agriculture, medicine, science, etc. (I'm also a firm believer that a successful transition from capitalism to socialism requires a certain level of infrastructure and technological advancement.)

So even though I realize that capitalism has its limits, I think making enemies of the "capitalists" and their resources is counter-productive. What is more productive, in my opinion, is trying to get the majority of the working class to recognize and understand these limits, as well as the fact that there are viable alternatives available.

At least, that's where I currently stand. My position is always amenable to change.

support la teachers union

From the Associated Press:

A judge has forbidden Los Angeles teachers from staging a one-day walkout Friday to protest planned layoffs and class-size increases.

Los Angeles Superior Court Judge James Chalfant says the restraining order he issued Tuesday will protect the health and safety of students.

The layoffs and class-size increases were approved by the school board in hopes of closing a huge budget deficit facing the nation's second largest school district.

United Teachers Los Angeles President A.J. Duffy contends the walkout is a way of standing up for students.

District officials say a work stoppage would be illegal, disruptive and dangerous.

So let me get this straight: staging a one-day walkout to protest planned layoffs and class-size increases is considered "illegal, disruptive and dangerous," but overcrowded schools with fewer teachers isn't? Bullshit. I think some civil disobedience is in order.

Even if it's true that the planned one-day protest would violate the terms of the contract the United Teachers of Los Angeles signed with the Los Angeles Unified School District, somebody has to stand up for the students and against the endless funding cuts, lay-offs and overcrowding.

Education should be a priority, not the first thing to get ransacked whenever states are short on cash.

today's two tidbits

From today's New York Times:

President Obama’s top antitrust official announced on Monday that the administration would restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or to keep them from gaining market share.

The new enforcement policy reverses the Bush administration’s approach, which strongly favored defendants against antitrust claims. It returns to a policy that led to the landmark antitrust lawsuits against Microsoft and Intel in the 1990s.

The head of the Justice Department’s antitrust division, Christine A. Varney, announced the policy reversal in a speech on Monday before the Center for American Progress, a liberal policy research organization. She will deliver the same speech on Tuesday to the United States Chamber of Commerce.

Ms. Varney said that the Bush administration policy “lost sight of an ultimate goal of antitrust laws — the protection of consumer welfare.”

Looks like the U.S. is finally catching up with China and Europe when it comes to enforcing antitrust laws.

In other news, Dell has apparently unveiled a new website called Della, which is offering a new computer lineup targeting women. The website even offers tips on things that help simplify life such as an online task manager application aptly named "Remember the Milk."

Are you kidding me, Dell? First, you screw over the Irish workers who've been manufacturing your computers for Europe and the Middle East since 1990 by moving your manufacturing base to Poland because of the cheaper labour, and now you're marketing sexist computers? Lame.

re: 1 billion

In regard to 1 billion, I was asked by someone why I'm blaming capitalism when the Associated Press report itself states that:

Systemic problems — such as weak infrastructure and dependence on rain — are to blame for poor nations' near-stagnant production. Bad roads in rural areas, lack of proper food storage facilities and a lack of irrigation infrastructure continue to keep farmers in poor countries from producing more, Diouf said.

The answer is simple. Because it seems to me that the system is inefficient when it comes addressing the needs of humanity.

According to one UNEP report, "over half of the food produced today is lost, wasted or discarded as a result of inefficiency in the human-managed food chain."

Just look at how much perfectly good food is thrown away by grocery stores, for example. People actually make a living out of cooking and eating the perfectly good food they throw away. Hell, even Giles Coren, restaurant critic for the British newspaper the The Times, did a segment about it on the The F Word. (He ate a banana right out of the garbage, and then proceeded to have a picnic with everything they collected.)

And what about the 30 million tons of unwanted fish currently discarded at sea per year? How many people could that feed?

In addition, food that could go to feeding people goes instead to things like feeding livestock and the production of biodiesel. The same UNEP report underscored the fact that "over one-third of the world’s cereal harvest is being used as animal feed" and cautioned that "continuing to feed cereals to growing numbers of livestock will aggravate poverty and environmental degradation," while Secretary-General Ban Ki-moon noted that "soaring food prices brought intense focus ... on the inflationary role of biofuel production."

The world as a whole — but especially wealthy, industrialized nations like Canada and the United States and other large producers like Brazil, China, the EU, India, etc. — has the capacity to produce enough food to feed those who can't produce enough on their own, but due to the lack of profit involved it doesn't.

As one article in Forbes illustrates, even though genetically modified seeds are the potential "saviors of the global hungry":

In the past, there's been little incentive to develop this new lab-grown abundance. Demand in the U.S. grows mostly in step with the population, which hardly grows at all. This led to the industry taking a bad rap for overproduction--for stuffing calories into Twinkies or letting crops rot in silos.

The bottom line is that under the current system, profit is the determining factor in agricultural advances, production, storage and distribution.

In the United States, for example, supply control policies were used to decrease overproduction until 1996 to control prices. Why? Because too much supply equaled lower prices, and lower prices equaled lower profit. And this "problem" isn't just limited to the United States.

The Economic Times had a story earlier this year about wheat oversupply and profits in India. It notes that, "To add to the problem of too much unsold stocks, India is poised to reap another good harvest this year. In short, Indian wheat prices look set to plummet in a market where customers—corporate and retail—will be wooed with a vengeance."

Of course many countries like Canada and the United States do distribute food aid to poor and famine-plagued countries, but not nearly enough. And it can be argued that they do so in order to get rid of surplus that might otherwise lower prices, and subsequently, profits. As Alan Maas puts it, "The effect is to keep food prices high at home and undercut competitors abroad, especially in developing countries—while the world's poor go hungry."

I may be wrong, but I'm convinced that the ICFI is right when they conclude that:

There is no solution to the farm crisis, however, within the framework of the capitalist market. A fundamental contradiction under the profit system is the accumulation of vast surpluses of agricultural commodities which cannot be sold at a profit, side by side with, on a world scale, enormous unmet social needs for food, clothing, and raw materials. Children starve in Africa and India while American farmers go bankrupt for lack of buyers. This contradiction can only be resolved when agriculture is integrated into a reorganized world economic system in which rational planning, not private profit, is the driving force.

I'm not trying to vilify capitalism, I simply don't think that the capitalist system, at least the way that it's currently structured, will ever be able to address the needs of humanity as a whole. So even though I think capitalism has contributed a lot to the development of society — a contribution which I sincerely appreciate — it has its limits; and I think the fact that an estimated 1 billion people will go hunger illustrates that.

As I've said before, perhaps socialism is the next evolution of economics that will lead the world to a wonderful new level of prosperity and cooperation, and then again, perhaps not. But ultimately, I think it all depends on what direction we want to take our global society.

I suspect that Adam Smith, the "father of capitalism," was right in that the pursuit of self-interest will improve the general welfare, but only when we realize, as a collective whole, that we are all in this together. Otherwise, with the focus of production always on profit rather than need, I don't see how anything will ever change.