Zombie Debts

According to the Wall Street Journal, there is an increasing trend among collection agencies and U.S. banks, of pairing credit card offers with debt repayment agreements as a way of re-aging debts that have passed the statute of limitations. Some of these offers are becoming subject to legal scrutiny either because they do not make it clear that the subject of the offer is agreeing to enter a loan repayment program, or because they deceive the consumer into believing that the debt in question is still current.

Nevertheless, some subjects of these offers report being pleased at receiving them, and indicate that they would accept another of the same, because it provides them an opportunity to reestablish credit when most lenders would not deal with them. I’m not so sure that the warm embrace of these practices by certain consumers means that the trend is a good one. Quite the contrary, I think it says something terrible about the banks involved.

I’m not especially bothered by the allegedly deceptive practices. I know it’s a little unsympathetic of me, but I suppose that if a person is eager to sign up for a credit card in the shadow of persistent and disastrous financial difficulties, they damned well ought to be repaying defaulted loans no matter how they were finagled into the agreement. I can understand undertaking and gradually paying on debt, and I can understand letting it lapse and then living without it altogether, but failing to manage it and yet still accepting it as a part of your life just seems like harmfully inconsistent decision-making.

What bothers me about the practice, then, is something that the WSJ article points to, itself:

“[Some lenders] are leery about subprime borrowers. But the debt-driven credit cards show some banks tiptoeing back into subprime lending after suffering big losses during the financial crisis.”

I’m no economist, but trends like this make me almost convinced that financial bailouts and the like from Washington have served to avert disaster in the short term, but have actually made the underlying problems worse. Money lenders are evidently viewed as so fundamentally important to the structure of American prosperity that their failure is unconscionable, which means that from a slightly different perspective, their failure is simply impossible. The money will always be there in one form or another, so no matter how risky a lending practice is, the institution will be covered against catastrophic losses.

In this sort of situation, the only things an investment bank has to fear are public outcry and government scrutiny, not a failure of their own investments. If that’s the case, the rational thing to do is to maximize profits with little regard for long-term risk, and just be careful not to get caught. Banks can’t really be blamed for that attitude; their self-interest is best served by such practices, and it’s not their fault that there are no consequences to mitigate their desire to pursue them.

So it seems natural to me that lenders would “tiptoe back into subprime lending.” The short-term profits were so tremendous in the past and the long-term consequences so comparatively small. That is, long-term consequences were small for the lending institutions themselves, though not for the rest of the country. If those institutions continue to resurrect debts that have been shown to be worthless, as well as lending more money to the people who couldn’t support those debts, I can only assume that recent history will repeat itself with greater clarity, complete with marvelous benefits for a small minority and disastrous consequences for the rest.

Breaking points don’t come from those who reap the benefits of existing trends; they come from the people who stand to lose from the same. Political will can stop the rational reversion to perilous bookkeeping and lending practices by pushing for a situation in which both risk and reward are again shared by the same institutions. Alternatively, some of the lower class people who are the objects of subprime lending could interrupt these trends themselves by sloughing off the illusory promises of a lifestyle beyond their means, and learning to save instead of spending, and to live without anything they can’t buy in cash. For that change, I’m waiting for the breaking point whereby people start to realize that massive debt is existentially worse than subsistence.

The trouble with the former possibility is that I’m not sure that political institutions actually having any power over, or even independent of financial institutions anymore. The trouble with the latter is that the same rational imperatives of self-interest that lead banks towards subprime lending also lead individuals to accept the terms of any loan that they can ultimately survive.

Democrats' Notions of Dealmaking

As appalling as was the discourse surrounding the efforts to raise the debt ceiling, I am far more appalled by the dialogue that I’ve been witnessing since the bill passed the House. It disgusts me when I see this measure referred to as a “deal,” and I’m positively sickened when it’s referred to as a “compromise.” I know by now that to expect Democrats to stand up for a cause, to be proactive and take an aggressive lead in lawmaking would be asking too much, but is it really unrealistic to imagine that they might come away from one of their terrific capitulations and express a little outrage, a little anger, or even just a little definite opposition?

Instead of any of that, virtually all of the Democrats I’ve seen commenting on this 100% Republican plan talk about it as if it’s a good thing. They use those words, like “compromise,” implying that both sides gave up a little something for the greater good. But the reality is an increasingly familiar story, in which the legislators who present themselves as being a little bit closer to sharing my views give up the very essence of their position, and all of the preceding debate and rancor comes to look like nothing more than an elaborate show designed to maintain the illusion that there is an opposition party. Why doesn’t that illusion instantly fall apart when we consider that that would-be opposition party still holds control over the majority of the government, but none of the policy discussions?

Only six Democratic senators voted against a debt ceiling increase that includes trillions in spending cuts and absolutely no revenue increase. How can that be explained other than by supposing that they either tacitly accept the positions of the Republican party or that they just don’t care enough about their contrary views to fight for them or even to register them publicly. Republicans have no qualms whatsoever about casting purely symbolic votes. Why do Democrats refuse to do the same, opting instead to demonstrate complete support for legislation crafted entirely by their so-called opponents? Twenty-eight Tea Party Republicans voted against this bill, and that suggests that there are nearly five times as many senators in the minority party who are in opposition because the completely conservative measure is not conservative enough than there are Democratic senators against it because no aspect of it is liberal in any way, shape, or form. Does the Democratic Party stand for anything whatsoever?

My representative in the House voted in favor of the bill, and his subsequent remarks reflect an unwillingness to so much as discuss what went wrong, or to acknowledge that this was anything less than the best thing for the country. Representative Brian Higgins has said that what is important now is moving forward and addressing job creation. I wonder if he believes that the two issues are unrelated. I agree that job creation is of paramount importance, but I think it was important before this fiasco was completed. As a matter of fact, that’s a significant part of the reason why the means by which we raised the debt ceiling was so important in the first place. If legislators continue to push for cuts without revenue, the support apparatus for the unemployed and impoverished can’t escape the chopping block forever, and the government will have no means by which to institute genuine job creation measures. Now that a lack of compromise has been turned into a bipartisan congressional act, it’s not appropriate for Democrats with an active conscience to leave it at their backs and call the issue settled. It’s not appropriate to forget that this is a terrible deal, and to suppress anger and avoid blame. And it’s not appropriate to describe this as a compromise, as even the President has been doing.

I’m pleased that one of the senators from my home state of New York, Kirsten E. Gillibrand, voted against the Budget Control Act, but given the fact that her voice is such a small, ineffectual minority in the party that controls her chamber of Congress, she is one of the very few major party candidates who retains my support after the passage of this act. This is a breaking point for me. I never considered myself a Democrat, but naturally I voted that way more often than not. From this point on, however, I will vote for neither Democrat nor Republican unless I have a damn good reason to believe that that label does not fit the particular candidate. The very best thing that can be said of Democrats in recent years is that they’ve attached such high value to compromise that they’ve made an ideology of capitulation. I’m not interested in voting for congressional representatives whose primary legislative goals are to present an image of bipartisan agreement at all costs. I want representatives who will fight tooth and nail to pass laws that they, and hopefully by extension I, think are best for the country. Is that too much to ask?

What the Right Question is Really Worth

[Be aware: this is a long post. If you click "Read More," it means, in this case, about six thousand words.]

Last Monday, Tell Me More ran a story titled “What a College Major is Really Worth.” The piece discussed a new report from the Georgetown University Center on Education and the Workforce, and consisted of an interview with one of the authors of the study, Anthony P. Carnevale. Before hearing from him, however, the host, Michel Martin, began the segment by pointing out that during this graduation season, some are “questioning the real value of attending college.” Now, I think that’s an excellent question to ask, but I honestly don’t understand where Martin is coming from in asserting that it is by any means a common question, at least among the segment of the population that is not made up of recent college graduates. Aside from myself and others like me, I don’t see anyone asking that question. Certainly not current high school or college students, or any educators.

Lower Outlooks

The S&P's decision to lower it's outlook on U.S. debt is being variously described as a "threat," a "wake-up call," and a "warning shot across our bows." Perhaps without intending to, all of these phrasings suggest an element of power and deliberate manipulation on the part of the S&P. And what I find fascinating, and fairly shocking, is that no such well-intentioned warning was deemed necessary for private banking institutions when, no long ago, the S&P revised their rating methodology to include the assumption that banks will always be bailed out by the government.

I think the tension between those two judgments ought to be given a great deal of attention. Isn't there something seriously wrong when private investment banks can be considered essentially immune to default, but national treasuries cannot? Placing these two pronouncements by the S&P in context with each other, can there be any doubt as to where the greater share of the power in this country resides? Who's in charge when it is explicitly assumed that the government will bail out financial institutions, while it is accepted that the government must stand or fall on its own, with no expectation of the financial sector to float it the cash to keep running?

I'm looking for one of two breaking points from this. Either we fully acknowledge the injustices of the economic imbalance of which this is a part, and move to change the structure of a system that demands that governments take a back seat to financial systems, or we sit back and watch as a decreased rating for the government undermines the bailout assumption and drags down the ratings of the banks until both institutions are fractured and depleted.

Those are just the breaking points, though. The more likely outcome, as always, is the preservation of the status quo, which in this case means that the government will agree to raise its debt ceiling again, and Congress will ram through some dubious budget compromise to capitulate to the "threat" that has been issued by the S&P, which is, apparently, powerful enough to easily push around the entire federal government.