Do the New Credit CARD Rules Help or Hurt?

The much-lauded Credit Card Accountability, Responsibility and Disclosure (CARD) Act finally went into effect this week, after months of unethical shenanigans by the credit card industry as they tried to squeeze as much money out of consumers as possible. Signed by Obama last May, the law's implementation was put off until February in order to give the credit card companies and banks time to "adjust". What they did, of course, was play havoc with customer's money, jacking up fees, applying them retroactively, and instituting interest rates close to 1000%.

Now, though, the party is over. Or is it? Closer inspection of the law's provisions certainly seem protective of consumers: Caps on certain fees, 45-day notice on interest rate increases (which took effect last summer), and the scoop on exactly how long it will take to pay off your debt if you pay the minimum each month. These things are all good, especially the part where the print must be readable without the use of an electron microscope. The effect on consumers, though, is not quite so positive.

Eileen AJ Connelly, a reporter for the AP, writes that banks and other lenders that issue credit cards are already finding ways around the new law. Since the newly enacted restrictions will reduce their profit margins by half within three years (according to FICO), lenders have responded by creating new fees, re-instituting annual fees (almost unheard-of for the last few years) and cutting lines of credit. If you find yourself affected by these changes, consider yourself lucky: Many accounts were simply closed by credit card companies in order to reduce their risk. The account holders had no say in the matter.

Although the new 6-week notice for interest rate hikes is a good thing, there is no cap on high those rates can climb. In addition, many cards that previously had fixed interest rates have now, unilaterally by the lenders, been changed to variable rates. Since the only direction at this point for rates to go is "up", this does not bode well for card holders. Overall, credit cards will be much less accessible for everyone, particularly those with lower incomes.

Card issuers argue that not only does the new law decrease their profits, but the recession also took its toll on their bottom lines. According to the Nilson Report, lenders saw their earnings plunge from $19 billion in 2007 to $6.32 the next year. Of course, that's still a hefty profit, and, since much of the decrease was due to unemployed people defaulting, I guess they didn't suffer as much as others did. However, since the laws are written for the big guys and not everyman, their suffering is worth more. A reasonable person might expect that reduced profits during economic downturns are just a cost of doing business in the credit industry, but never mind. That yardstick only applies to small businesses, apparently. Therefore, they are able to make up their profits in new ways unavailable to the rest of us. Score another one for the big boys.

Americans Addicted to Sex-Addicted Celebrities

Dave Letterman, John Edwards, Steve Phillips and Tiger Woods. What do these four men have in common? Unless you've been living in a cave, you know that each one has recently been "outed" for sleeping with women other than their wives. Except for Letterman (who was not technically married at the time of his affair), each has seen his career ruined as a direct result of the affair becoming public. Oh, and two of them have admitted to being a "sex addict" and have done a stint in a Sex Addiction Clinic where, presumably, this particular monkey has been forcibly removed from both Phillips' and Woods' backs.

Now, just the other day, came the piece de resistance: Tiger Woods making a public apology for sleeping with several women during his marriage. He admitted that he had "cheated" and "hurt" those he loves. Okay, but why do the rest of us need to hear this? Apparently, sponsors have fled, and a public apology is believed to be the remedy. I wonder if that is part of his therapy: A kind of 12-step program, perhaps?

Americans can't get enough of this sort of drivel, it seems. Everybody likes sex (right?), and probably droves of us would have more of it if we weren't so working-class and boring. So, why is it surprising that those who lead exciting, spare-no-expense lives have more sex than we do? They have all the ingredients to attract partners, such as money, looks, money, talent, and money. Yet, each time some celebrity is found to have had extra-marital affairs, the media acts as if infidelity has just been invented (again).

Prurient interest aside, I think the real reason behind this feeding frenzy is the idea that each of these guys, particularly Woods, has been brought down a peg. Think about it. Whenever someone achieves some status that regular Joes and Janes only dream about, the media will almost immediately begin its search and destroy mission. Thus, beauty queens are dethroned for having posed nude (imagine!) earlier in their careers. Exemplary athletes like Michael Phelps become pariahs for taking a toke at a party, and the most gifted golfer in history finds himself in therapy designed to make him master of his domain. Let's face it: It took a lot of digging with heavy machinery to turn a one-car accident into the current scandal. None of this stuff was come across by accident, and every tidbit gets played for all it's worth.

Celebrities are people just like us, just richer (always) and more talented (usually). Tearing them down and exposing their foibles doesn't make them less so, but it does seem to make the general public feel better about themselves. It also doesn't make people like us any more important, or morally superior. If people want to be titillated, my suggestion is to subscribe to the Congressional Quarterly. At least knowing these peoples' shortcomings enables us to votes the bums out.

Reverse Mortgage Meltdown

Advice articles abound during recessions, each touting a new (or old) way to make every dollar count. When I saw an article about reverse mortgages by Saul Friedman, writing for the McClatchy-Tribune News Service, my interest was piqued. I had read about these financial instruments last September in Consumer Reports magazine, and that feature was not very flattering. It was obvious that Friedman was hawking these mortgages, so I read on to see how his perspective differed from that of Consumer.

He wrote about how many seniors are living in poverty but are not eligible for federal or state aid. If they own a house free and clear, however, they could tap the equity in their homes to pay bills and make their golden years worry-free. This is where the reverse mortgage, or Home Equity Conversion Mortgage, comes in. According to Friedman, these loans are safe because the Federal Housing Administration guarantees them, which means the borrower is protected not only from losing money if the property value drops below that of the loan amount, but also from losing the property itself. He asserts that none of these loans have gone belly up, so no taxpayer funds will need to be set aside to cover losses.

Consumer Reports tells a different story. According to their research, the number of reverse mortgage loans bailed out by the feds has increased fourfold in the last few years: from $81.3 million in 2004 to $381.3 million in 2008. Additionally, insurance policies paid for by borrowers used to cover these losses, which are now becoming the taxpayer's responsibility. What type of situation would trigger such a loss? When the money from the sale of the home doesn't cover the loan.

Friedman states that he himself has a HECM loan and has invested some of the proceeds. Consumer indicates that pressure to invest money procured from these loans seems to be part of many lenders' loan packages, regardless of whether it is a good fit for the customer. And while Friedman mentions the counseling requirement and some drawbacks to reverse mortgages, the article glosses over the negatives, which are many and could be ruinous.

The Consumer article profiles a man who lost his home after taking out such a mortgage. Since he was under age 62, the lender suggested putting the loan in his wife's name, who was older (and very ill). When his wife died, the loan came due. He could not pay off the loan, and the lender refused to re-negotiate terms. The house had fallen in value, and the associated costs of the loan and mounting interest payments caused the payoff amount to balloon. Indeed, the magazine noted that fees over the life of such a loan could easily reach one-sixth of the amount borrowed.

While the risks to seniors are legion, the banks love these loans because they can't lose: The taxpayer picks up the tab every time. And the costs are growing. The amount requested for FY 2010 was $798 million; in the mean time, the banks, insurance companies and investment firms are getting rich. Meanwhile, the equity in borrowers' homes gets dissolved by interest and fees, even if they don't take out the full amount of the loan. It's just a matter of time until our tax dollars are used to bail out the reverse mortgage industry, since there is no impetus for them to stop writing these loans, despite the mounting failure rate. By the way, where is that financial institution reform legislation?

Lack of Credit Spurs Small Business Ingenuity

Our local paper, the Daily Hampshire Gazette, ran a couple of articles recently that really got my attention. In the February 15 edition, they profiled area bank CEOs who were bleating that while they have lots of money to lend, no small businesses are asking for it. Today's paper showed a much different side of the story: An Amherst businessman, Nick Seamon, detailed his quest for a small business improvement loan. Four tries netted him four refusals.

Seamon owns the Black Sheep Deli, an Amherst eatery in business 23 years. When he heard about the America's Recovery Capital program, whereby federal loans to small businesses would be backed by the Small Business Administration, Seamon contacted several banks, all of whom refused him. This is strange, since the Obama administration conceived this program specifically to help small businesses weather the recession as well as take the risk off of area banks, thus encouraging them to make these loans. What was going on?

Monday's article sheds a little light. According to four local bank CEOs, small businesses simply aren't asking for money, which is why they aren't getting any. Not only that, but the banks in this area are well capitalized, meaning they don't even need the $30 million in paid-back Troubled Asset Relief Program money that the federal government is making available for these loans. Meanwhile, today's article published the "Top five reasons why businesses were denied financing in the past 12 months": Insufficient revenue (37%); start-up business (23%); insufficient collateral (13%) bad credit (13%) and, my favorite, bad economy (13%). Does this sound to you like businesses aren't trying to procure loans?

The sad truth appears to be that the banks simply don't want to lend money to small businesses and individuals, and, gosh darn it, they ain't gonna. The four titans of finance interviewed for the first article crowed about how the savings rate has been increasing, which means more deposits for their bank. They obviously don't feel the need to give back, however, by providing credit to the community that boosts their banks' bottom line.

But Seamon has taken matters into his own hands. He is issuing "deli dollars" to customers, thereby raising the capital he needs to make repairs and renovations to his business. I think he's on the right track. How else to teach these big blowhards, who don't blink at taking our money for their own use without ever returning the favor, a good lesson? Let's bring back the community Savings and Loan and Building and Loan, where customers know where their money is coming from. Everybody pitches in and everybody profits. After all, that's the way things started; maybe it's time to start over again, and cut the big guys out. Now, there's a "downsizing" idea I can believe in.

Health Insurers Profit, Consumers Lose

I shouldn't have been surprised to see the article by Noam N. Levey concerning a report of the gargantuan profits made in 2009 by health insurance companies. After all, the battle between the voters and the insurers, refereed by congress, has been decided in favor of the industry. Who do we have to thank for this outcome? Our own elected, but industry-subsidized, legislators.

If the health care reform debate accomplished anything, it made the health care insurance leviathan more powerful than ever. Given a chance to enact laws that would level the playing field in favor of working people, our (mostly Republican) legislators chose, instead, to invite these greed-driven industry captains to the bargaining table. Then, without equalizing the debate with any representatives of we, the people, proceeded to hand them everything they asked for, plus the kitchen sink. By publicly protecting their interests, rather than ours, they showed exactly who they are really representing, and it ain't us, babe.

The "government takeover" rhetoric that helped kill the public option as well as the very public support of the industry's exemption from anti-trust laws surely emboldened these firms to take profit to new levels. The report, based upon the documents filed with the Securities and Exchange Commission, shows an industry that increased profits by 56% while the country was mired in a deep recession. How do they explain this aberration? They blame their stockholders, of course.

Industry analyst Sheryl Skolnick is quoted as saying, "It's a terrible thing to run your business for Wall Street". According to this logic, the industry is required to keep raising prices in order to please stockholders. Was it stockholders, then, that caused California's Anthem Blue Cross to raise premiums by 39% on many of its customers? How about the decision by three of the five largest insurers to allocate less of the premiums collected to paying patients' claims, and more to salaries and profits? Somehow, I can't believe that these CEOs are taking their orders from investors, particularly when the result is more profit in their own pockets.

The huge sums insurance companies poured into congress last year are really paying off. As long as this country is run more by corporate interests than the interests of the electorate, no real reform will ever take place.

The Republican Marketing Machine

Have you ever wondered why the Democrats always seem to be in a muddle? Even when they are fighting for issues close to the hearts of many Americans, they seem to flub it up. The party best known for representing the working class has become almost useless to us, since everything they try to do seems to get turned around. Even with a majority, they can't bring home the bacon. What is wrong with them?

The primary problem, of course, is the Republican Party. Despite having a congressional majority for thirty years and the White House for eight, they are now managing to blame all the ill-considered and lame-brained decisions that came out of those years on the Democrats. And what are the Dems doing against this onslaught? Well, nothing. They're "negotiating". They're "conceding". The one thing they are not doing is standing up for themselves.

While "negative campaigning" always seems to irk the voting public, there is no doubt that it works. People will believe nearly everything you choose to tell them, as long as you say it often enough. Ridiculous assertions like "death panels" becoming part of Medicare and health reform become gospel truth to the minions incapable of thinking past the end of their noses. That is the strength of the Republican party: They know their audience, and they know how to market themselves. It doesn't hurt, either, that they don't mind being rude and obnoxious, and taking credit where it is not due.

Take the "Tea Party" example. They are using the Internet as a primary tool to get the word out (whatever that is) and organize. Who originally came up with this idea? The Democrats, of course. Howard Dean pioneered this concept and Barack Obama used it to much greater effect. The conservatives don't mind hijacking others' ideas, even if they profess to despise them. And how about that Scott Brown? The Republicans pulled off a real marketing coup with that one. Getting a Republican elected to Ted Kennedy's old seat is like having both sides of your Democratic face slapped. Where were the Democrats while all this maneuvering was going on?

If the Democrats want to regain what they have lost, they need to fight fire with fire. Voters who should know better are letting themselves be swayed by lies, and the party of the people should be stepping up to shout down these unscrupulous pols. The conservatives don't mind copying from the other side whatever strategy works; neither should the Dems. They'd better hurry, though, because they've got a lot of catching up to do.

Sarah Palin for President?

Sarah Palin's speech at the "Tea Party Convention" in Nashville this past weekend certainly received plenty of press. If you hadn't heard about her Presidential aspirations before, now you know. Snippets of her rousing oration have made many a thinking person wince in embarrassment. Sarah Palin for President? What is the world coming to?

I also wonder what the Tea Party was thinking. I understand that they are trying to become a force to be reckoned with, and they are steadfastly moving in that direction (even though direction is not their strong point). So, for their first convention they invite...Sarah Palin? Sure, she knows enough about national politics to fill a thimble, but does anyone, including the GOP, take her seriously?

Sound bites of her speech leave one astounded. Her statement that what this country needs is a "...commander-in-chief, not a law professor at a lectern", despite getting thunderous applause from conventioneers, doesn't make sense. You can't swing a dead cat in the U.S. Congress without hitting someone with a law degree. So, what's her point? That what we need is a former beauty queen? Not only does this comment make her look silly, it doesn't say much for the intelligence level of the average Tea Partyer, either. Thankfully, she had admitted brushing up on issues and events that spread beyond the state of Alaska. Well, good. The hokey, stupidey thing hasn't really done her much good so far.

What does the Republican party think of all this? They seem to be biding their time, keeping their distance. John McCain, who we can all blame for unleashing Palin onto the national political scene, has declined to criticize her publicly. Stand-up guy that he is, he probably never will. It will be interesting to see however, how he and the GOP handle this "Palin thing".

Who is the "Tea Party" Coalition?

More than 200 years after the famous "tea party" revolt, the term is popping up everywhere: Newspapers, magazines and of course, the Internet. A somewhat loose, but evolving movement, the common thread holding it together appears to be voter anger. White, middle-class anger, but real and boisterous. Too many taxes, too much government and the erosion of individual rights seem to be the primary concerns of those who profess to be deeply involved in this coalition. These are not new complaints; what is new is that they are being loudly voiced so early into a new administration. Does anyone really believe that all these issues came about within the last year?

While it is apparent that this movement is gaining ground, it is unclear which party they will eventually align with. Both Democrats and Republicans have been trying to harness this "energy", with the GOP coming out on top. At the recent "Tea Party Convention" in Nashville, Sarah Palin was the featured speaker. So, this must mean that the Partyers are rallying around the Republicans, right?

Well, maybe. An AP article by Liz Sidoti notes that, although the Partyers don't consider themselves a "third party", it has been mostly Independents running for office who have attached themselves to this movement. Additionally, members themselves profess not to really know where this new coalition is going. The McClatchy News Service quotes Rebecca Wales, spokesperson for SmartgirlPolitics.org as saying that it has been difficult to boil down the coalition's message to any one issue, but that, "we're unified in the fact that we do get out. We mobilize quickly and it's powerful when we do." Well, that certainly clears things up.

It is understandable that many of us are upset by the way our tax dollars have been used: Unwinnable wars, bailouts for financial institutions who refuse to follow the rules and turn around and hand out tax money to their friends in the form of bonuses. But blaming a new administration is not going to solve the problem. Top-down changes in government need to occur, and big money and corporate influence need to butt out. Okay, "Tea Party" members--get to work. Any group that can manage that gargantuan task will certainly earn my vote.

Where are All the Jobs?

Obama's State of the Union Address was about many things, but one subject dominated: Jobs. His stimulus package, featuring job-creating projects, is already facing hurdles in the Senate, due to a new concern about deficit spending. If only lawmakers had thought of this when they passed, like greased lightning, the bank bailout bill. Maybe fewer of us would be out of work now, especially if that $700 billion had been earmarked for job creation!

A problem exists, however, in that well-paying jobs are scarcer than hen's teeth these days. One of the few in that category, the autoworker, has certainly seen his/her fortunes plummet with the problems suffered by the auto industry. Manufacturing used to be a fairly secure job sector, with good benefits and hourly wages. According to an article published last September by Leo Hindery Jr., Leo Gerard and Donald Riegle, Jr., those jobs paid 15% more, on average, than non-manufacturing positions in 2008. Additionally, manufacturing jobs induce a radiating effect, creating other supporting positions as well as additional spending for every dollar invested. These authors were encouraging the inclusion of "Buy American" language in the economic stimulus package.

The question is, where are all these manufacturing jobs? Surely, not in this country. Starting in the 1970s and encouraged by the Nixon administration, businesses began shipping their production overseas to poorer, "developing" countries in order avoid unions, environmental restrictions and other curbs on their pursuit of the almighty dollar. When I was a youngster living in eastern Massachusetts, I would go job-hunting at any number of factories on Friday and have a new job for Monday. These weren't high-paying jobs, but they paid the bills and if you lost that one, there was another to be had in short order. It's been a long time since job hunting was that easy.

What is the result of this capital flight? Increased profits for corporations, certainly, though how much profit is enough has never been clearly defined. For workers, it has spawned a generation of college graduates flipping burgers, and non-college graduates spending a lot of time in the unemployment line. At this point in time, unemployment is the highest it has been in 30 years, and more people are staying unemployed longer.

Can Obama turn this around? I can't see how. An AP article by Mae Anderson from October 13, 2009 stated that 80% of economists queried said that the recession was over and the recovery had begun. Well, nearly four months later, it is obvious that they were wrong. Hmmm, I wonder how many economists are are now standing in unemployment lines?

Republicans Stonewall, Democrats Dither and Nothing Gets Done

The recent dust-up between Obama and the Republican party in Baltimore once again plays up the fact that our government representatives are not only at odds with the American public, but also with each other. Despite the fact that we have a two-party system of governance, there is a basic requirement that they must work together in order to get anything of importance done. More often than not, though, we wind up with a system stuck in first gear as our elected officials engage in ego-indulgence, greediness and downright unethical behavior in order to feather their own nests. This appears to be the state of affairs at present, and people are getting sick of it.

While the exchange between the President and GOP can certainly be considered healthy, no forward movement appears to have been achieved. Republicans keep repeating that they have the plan to save the day, all the while complaining about "deficits". Why the sudden concern over deficit spending? Republicans accused the Obama administration for getting us into this hole, but the facts don't uphold this view.

The two wars that were begun during a Republican administration have so far cost this country $1.05 trillion dollars, with little if any positive return. Combined, they cost approximately $150 billion each year. Certainly, Democrats voted in favor of these actions as well, but the fact is that the Republican party was in control at the time. And let's not forget who was at the helm during the lightning-fast creation and passage of the no-strings-attached financial industry bailout bill.

When it came to health care reform, the GOP actively obstructed any positive outcomes for taxpayers, while consistently handing health care and insurance industry lobbyists whatever they wanted. However, an AP article published late last year spotlighted how, in 2003, Republicans pushed through a Medicare expansion bill that was completely deficit-financed. This bill, which the Democrates opposed, has added tens of billions to the deficit, according to author Charles Babington. How does the GOP defend this? Orrin Hatch, R-Utah, was quoted as saying, "it was standard practice not to pay for anything," six years ago. Oympia Snowe, R-Maine, opined that "dredging up history is not the way to move forward." Well, history is our teacher, and if we can't learn from it, how exactly are we to "move forward"?

When people voted for Obama, they were voting for change. What they got was intransigence, sophomoric displays of ego and constant, tiresome sniping. Can Obama move the country past this stalemate? Time will tell.

Toyota Drops the Ball on "Sudden Acceleration" Problem

The Today show featured an interview with Jim Lentz, president of Toyota Motor Company, regarding the automaker's suspension of sales and recent recall of eight vehicle models. He stayed cool and collected under Matt Lauer's questioning, which included queries regarding not only what the company is currently doing to solve the problem, but also about when they knew the problem existed. Lentz stated that Toyota is shipping pedals to dealers starting today, and that the company had no knowledge of this issue until last October.

Anyone watching this interview would agree that Lentz was setting the stage for deniablility once the lawsuits start coming, which they will. Lents neglected a few issues here, such as the fact that the recall was the result of pressure from the Obama administration; that Toyota had, previously to today, only shipped new pedals to the factories, while dealers cooled their heels waiting for parts to fix the scores of cars coming in off the streets; and the fact that the LA Times has reported 19 deaths attributed to the "sticky" pedal problem.

When Lauer mentioned accelerator problems occurring over the last decade, Lentz replied that the first problem with sudden acceleration was due to "car mat entrapment" and not the current issue of sticky pedals. He said the first problem is now "fixed" and Toyota only learned of the second issue last October. Yet a November 12, 2009 article by Jim Motavalli details the experience of a man whose 2007 Lexus suddenly accelerated on the highway. Luckily, he kept his cool and was able to bring the car to a halt. He filed a complaint with the National Highway Safety Administration, who, as it had in five previous cases, returned a verdict of "no fault" on the part of the automaker. This incident occurred in March of 2009, and there was no mention of "mat entrapment".

How, then, could Toyota have no knowledge, if it had to answer investigative questions from the NHTSA? The answer is, of course, that they must have known. If the company spent as much time and energy admitting to and fixing these serious problems as it does trying to deny accountability and ready itself for lawsuits, perhaps its reliability would not be in question right now. It is unfortunate that one of the best automakers around has fallen victim to the "protecting the bottom line" mentality, instead of stepping up as it did when the frame failure issue became apparent on Tacoma trucks. Toyota denies that its rush to grow and expand is to blame for its current woes. Lentz denied that the company ever had as its goal to become the biggest automaker. Maybe it was just attempting to become "too big to fail".