Archive for March 20th, 2009
In his recent article called “Infinite Debt” (in the April 2009 issue of Harper’s Magazine), Thomas Geoghegan connects the dots to point out the terrible consequences of having a nation devoid of interest caps. First of all, this situation is something extraordinarily new. The law against usury had “existed in some form and every civilization from the time of the Babylonian empire to the end of Jimmy Carter’s term.” In many ways, however, it no longer exists in the United States.
Here’s what happened: the financial sector bloats up. With no law capping interest, the evil is not only that banks prey on the poor (they have always done so) but that Capitol rushes out of manufacturing and into banking. When banks get 25% to 30% on credit cards, and 500 or more percent on payday loans, capital flees from the honest pursuits, like auto manufacturing. Sure, GM is awful. Sure, it doesn’t innovate. But the people who could have saved GM and Ford went off to work at AIG, or Merrill Lynch, or even Goldman Sachs. All of this used to be so obvious as not to merit comment. What is history, really, but a turf war between manufacturing, labor and the banks? In the United States, we got rid of manufacturing. We got rid of labor. Now it’s just the banks.
Geoghegan explains that this is why the middle-class is shrinking. In 2003, financial firms accounted for 40% of the profits that accrue to US corporations. Geoghegan points out that this is more than double the share of the financial industry (18%) when Ronald Reagan left office.
As Geoghegan explains, “we use our credit cards to help liquidate our own jobs, the kind we used to have in Michigan and Ohio. By little teaspoons, the people who go into debt for kitty litter pull a bit more capital out of one sector and pour it into another.”
Geoghegan correctly explains that the dam broke when the United States Supreme Court issued its opinion in Marquette National Bank v. First of Omaha Service Corporation, a decision issued in 1978. In that case, the Court held that Minnesota could not cap the credit card of a Nebraska bank because that bank was subject to the National Banking Act of 1864. Therefore, only the state where the bank is located (headquartered) can set the interest rates charged by that bank. In other words, all you need is a few disreputable states (such as Nebraska) for there to be effectively no interest cap on any bank in the United States willing to set up its headquarters in that state. Given that banks can now charge all kinds of hidden fees and penalties, in addition to interest rates at 25 to 50% (or even 500% for payday lenders), they no longer really want us to pay off those loans. Rather, “they want us to be irresponsible, or at least to have a certain amount of bad character.”
To put this on perspective, think of the terrible old banker, Mr. Potter, featured in the Christmas classic, It’s a Wonderful Life. Mr. Potter drove a very hard bargain. He wanted everyone to actually ay off their loans. What’s fascinating is that Mr. Potter was lending out money at the exorbitant rate of 2%.
But now Mr. Potter would have more choices. If you could charge 35%, he might not necessarily think, “the law must be repaid”-at least not right away. And if he can charge 200%, he actually may not want the loan ever to be repaid.
Therefore, we have a terribly bloated financial sector that employs immense numbers of people to do… what do they do? I do remember only about 1/3 as many people working in the financial sector 30 years ago (or so it seemed). It didn’t seem like we needed these kinds of folks back then, certainly not so many of them. I really wonder whether most of these people are adding any value to society by doing what they do, or whether they are simply participating in an insane “arms race,” by which they fight to get ahead of each other in order to suck vast amounts of money out of the lives of regular folks.
Sounds like it’s time to starve the beast by putting a 20% cap on all interest rates. That’s what Geoghegan recommends.
I don’t get it.
The Wall Street Journal recently reported that
A prominent Massachusetts anesthesiologist allegedly fabricated 21 medical studies that claimed to show benefits from painkillers like Vioxx and Celebrex, according to the hospital where he worked.
This fabrication is not surprising in light of the fact that Vioxx has now been shown to be of highly questionable effectiveness and based on real world use that has arguably caused tens of thousands of deaths–people who had heart attacks because they used Vioxx when they could have, instead, continued to use the extremely safe over-the-counter drug Naproxen. But then comes the good part, a claim by Dr. Rueben’s attorney:
“Dr. Reuben deeply regrets that this happened,” said the doctor’s attorney, Ingrid Martin. “Dr. Reuben cooperated fully with the peer review committee. There were extenuating circumstances that the committee fairly and justly considered.” She declined to explain the extenuating circumstances.
There you have it. There were “extenuating circumstances” for faking data in 21 medical studies. I wonder what those “extenuating circumstances” were? The desire to get rich by conniving with a dirty drug company (see the article for the evidence)? Our did those “extenuating circumstances” include the lack of any sense of professional responsibility? Or did those “extenuating circumstances” include sadistic impulses to endanger the lives of thousands of people?
I think it should go without saying (but of course, nothing does) that anytime someone wants to protect something from “denigration” or other forms of criticism, we should all grab hold of our rights and hang onto them with a death grip. To put this case most eloquently, I offer the following.
What’s a good alternative to constantly rattling our swords and threatening Iran? Talking to Iran. Opening up a dialogue. Making it clear that there is an alternative to needless, destructive counter-productive and expensive war. Allowing Iran to save face by making sure that it is our country that takes the first step to a constructive relationship. This video illustrates one of the main reasons why I voted for Barack Obama.