Sunday, August 17, 2014

The Debt Underworld

I read this article on the Web site of the New York Times, adapted from thisbook by Jake Halpren, about the shady world of debt collectors. It’s a real eye-opener. I already knew that the buying and selling of old debts was a questionable business, but I never realized the extent to which it is infected with thieves and cheats. But it’s only the extent that surprised me. I think that the debt economy as a whole cannot be conducted with complete honesty the way it is set up.

More on that in a moment, but the article is largely about the theft of consumer debt accounts. Unscrupulous collectors get data for accounts they do not own, and collect on them anyway. The legitimate (as much as these things can be legitimate) buyer of the debt goes to collect and finds—surprise—that someone else has already collected the money. One of the proposals to solve this problem is a database:
A centralized loan registry might help, and there are some in development. Mark Parsells, the chief executive of a company called Global Debt Registry, has developed a database that tracks the ownership of consumer debts once they are sold off by banks or original creditors.
But this sounds remarkably like MERS, the database of home loan notes that has caused so much trouble in the mortgage industry. Not only has MERS sidestepped the time-honored system of recordation of mortgage transfers by separating the note (the debt instrument) from the mortgage (the security), but their database has proved to be of questionable accuracy. The problem with databases is that they contain information about a loan, not necessarily accurate information, and nothing concrete, like a signed contract.

Of course, a lot of consumer debt is issued in the first place without any kind of signed contract, so where is the proof that the debtor agreed to this debt in the first place, much less that the buyer (or the second buyer, or the tenth) has any right to collect, knows the correct amount, and even has the right person?

These are not easy problems to solve, and yet I don't even think they get at the heart of the matter, which is how most consumer debt is created in the first place. And here I'm talking about credit issued by banks, which account for most loans. For one thing, because of the special place that banks hold in our economy, the vast majority of the money they lend to you and me is created out of thin air. Yes, just like the Federal Reserve, federally-chartered banks have the power to create money.

So they loan you money. They may pretend that they agonize over lending you that money, but the downside risk is very small and you can bet that whatever tightening of credit is foisted upon us in tough times will loosen up long before the tough times do.

So, say you've gone into hock with some bank, via your credit card, to buy a big-screen TV. You never actually signed anything to get the card; you did something online and they sent you the card, and you agreed to the terms the moment you used the card to make a purchase. And you bought this $1000 TV set. Why did you pay that much? Because it's a good round figure, that's why.

Now, the bank, if they are following the rules, put up about $100 of that money, and the rest they just created as an entry on their books. If they are not following the rules, they may have put up only about $20. Really. And they probably won't get into any trouble over it.

Now the bank has very little at stake. The company that sold you the TV is okay, because although they traded a set for the money, they have the money in hand after a certain waiting period. They paid a fee for that safety net, but it's just the cost of doing business.

And you got a TV. But what happens if you lose your job and can't pay the credit card bill? You are liable for the full amount, plus interest, plus fees, plus penalties. Now, maybe the bank will take you to court to collect. But often, they won't. They will "sell" the debt.

As an aside, when did a contract, and agreement between two parties, become a commodity that can be sold like so many bushels of corn? Isn't trust a part of any agreement? How do we know we can trust our new creditor?

So, back to the subject. When your bank "sells" the debt, they are only selling an electronic spreadsheet with the salient information. They don't even guarantee that the information is accurate. So the amount, the interest rate, and even the Social Security number might be wrong. And who's to say that they have only sold that information once?

And, certainly, as Mr. Halpren's books reveals, even if the bank is totally above-board with its information transfer, the collectors down the line may not be. And no database is going to stop a crook from calling you in the middle of the night trying to collect that 10-year-old credit card debt that he or she bought the information for, but never owned. And how many debtors are going to know how to find out for sure?

Of course, there are two things that would help this situation tremendously. One is to eliminate fractional reserve banking and debt-money creation in our economy. If banks were only lending money they were liable for, they would be more careful about lending. Tight credit isn't a bad thing; consumers in particular should think twice about borrowing money for anything.

The other thing we could do is go back to signed contracts. Actually putting pen to paper (a "wet-ink" document) and making the physical contract part of any sale of the debt would give a true paper trail. Would it slow down the whole credit-issuing process? Yes! Would the economy come screeching to a halt? No. Credit doesn't drive the economy, it drains it.

And making debt harder to issue, harder to accept, and harder to collect can only make things better.

Wednesday, July 23, 2014

Is Tesla the New Ford?

An article in the online edition of PCMag featured the newest model of Tesla's electric car. The headline wondered if the new $35,000 Model 3 is Tesla's "Model T moment," referring to Ford's introduction of a new, low-cost car in 1908.

And if you do a little research and a little math, it doesn't seem so far off the mark. The average wage in 1908 was 22 cents an hour. An average worker then would have toiled around 3750 hours to buy the $825 Model T. Today's average wage is about $24.50 an hour overall, so today's average worker would put in about 1429 hours. (You can argue with these numbers if you want; reliable statistics are hard to come by with so many interpretations of the word "average.")

So, by the numbers, the Tesla seems to out-Ford the Model T, at least at this initial price point.

But the Model T revolution was not about numbers. It was about creating the mass market, not just for cars, but for all manner of manufactured goods. By going for the common masses instead of the upscale few, Ford created not just a new car, or even a new kind of car, but a new kind of industry destined to make what were once luxury goods available to almost anyone in the Western world.

With all due respect to the folks at Tesla and their new technology and their new vision of how we power cars, nothing they are doing at this juncture looks like a Ford kind of revolution.

Not only that, but over the next fifteen years or so, Ford brought the price of the Model T down in nominal dollars, even as wages were going up. By the mid-20s an average factory worker could buy a Model T with 465 hours of labor. You can just barely do that now, if you are lucky enough to earn that "average" wage of $24.50. But I'm not holding my breath to see if a Tesla can be brought down to the under-$12,000 price point.

I think electric cars can be an important part of our future transportation, if enough other things change. But in spite of the rhetoric, Tesla has not yet reached that incredible turning point embodied in the Model T.

Wednesday, May 7, 2014

Same Shift, Different Day

Among the things I don't miss about having regular cable TV are ads. For a long time, we got by with the Internet connection and Netflix streaming, plus DVDs borrowed from the library and, occasionally, rented, to provide us with on-screen entertainment. But certain TV shows my wife wanted to see more current episodes of were not available on Netflix, we added Hulu plus to the mix. And the ads came back.

Now, I don't watch much TV, so it's mostly in the background, and I especially ignore the ads. But there was one that caught my attention and raised my hackles.

In it, a man who works nights has complained to his doctor that he is fatigued, sleepy at work, and suffers from insomnia. And his doctor diagnoses him with SWD, or "Shift Work Disorder."

"Aha," I said to my wife, who was shaking her head, and probably thinking the same thing that I was. "I bet there's a drug for that."

Sure enough, going to the advertiser's Web site, you find information about this horrible disorder that didn't have a name or a diagnosis until someone decided that there was a market for a drug to cure it. You can't tell right away that it's from a drug company, of course. It all looks very public-service, and only if you scroll to the bottom do you see in tiny print: © 2013 Cephalon, Inc., a wholly-owned subsidiary of Teva Pharmaceutical Industries Ltd.

Now, I'm not a raging anti-pharma kind of guy. Drug researchers have done a lot to prolong our lives and make us feel better in the process.

But drug company executives, especially advertising executives, have also done a lot to convince us that we all suffer from horrible disorders that, prior to the advent of widespread drug advertising to consumers, we would have called "life."

Now they want us to run to our doctors to ask for a drug to cure a disease that our poor befuddled physician may never have heard of in his or her life. And this overwhelming campaign of disinformation (or, at the very least, skewed information) doesn't make your doctor's life any easier. Is there a drug for that?

Of course, the way to fight back is to be vigilant, think before you reach for the pill bottle, develop alternate strategies to deal with your problems, and realize that, well, shift happens.

Saturday, April 26, 2014

Narrowing

I've been trying to maintain too many blogs of late, and so I've decided to scale down. I've eliminated one blog altogether, which had little of interest posted to it and garnered only a tiny number of viewers. Another blog, Unravelling Money, has been deleted, but the few posts in it have been imported into this blog because I think they're worthwhile.

I'll continue to write on the subject of money in this blog, but keeping it from wandering off and becoming its own blog is better for my brain, which is already spinning a bit from all the juggling I'm doing.

Saturday, March 1, 2014

Miscellany

My last two posts here were about corporate wrong-doing and stupidity, and you might think that that is all that's on my mind of late. And it would be easy to slip into that mode of thinking, especially since my wife works for a large corporation and brings home so many wonderful examples that I could be drawing from.

But there are many things on my mind lately. I was just watching a documentary on an independent film channel I discovered (on my Sony Blu-Ray player, of all things) about the lies that are perpetuated through our various monuments. It made me think about how much I enjoy learning about history the way it really is, and not the way it's taught in school, or in popular culture. The truth might hurt, but it is, in the long run, a better story, with fewer perfect heroes and more human beings.

I've also been having fun listening to TED Talks. I don't always agree with everything that's said, but I almost always find it interesting. Earlier today I was listening to a gentleman from India named R.A. Mashelkar, talking about innovations in India aimed at, as he put it, creating more with less for more and more people. In other words, not just making things more available and affordable, but making them radically more available and affordable, for the 4 billion people in the world who survive on less than two dollars a day.

He starts out talking about the $2000 Tata Nano car, an amazing innovation that required radically rethinking the way cars are designed and made. It caught a lot of flak because it wasn't perfect—but then, a lot of very expensive cars weren't, either—and the proposed US version, which I haven't heard anything about in around two years, would cost more like $8000, but it's still a huge milestone, and I hope it will make more people stand up and take a look at how we can use innovation to make the goods that we here in the Western world take for granted available to nearly everyone.

And then maybe there won't be billions living in poverty. Maybe we really can lift all boats.

But that's not going to happen if we continue to think in 19th- and 20th-Century Industrial-Age terms. Conventional thinking, which can provide stability when things are going well, is just holding us back now. Not that I'm in favor of any old innovation that comes along. That just gives us junk like Rebecca Sitton Spelling and any number of bizarre educational ideas that have crept into the schools lately. Any new idea needs to be carefully scrutinized and tested on a modest scale before being widely adopted.

But that doesn't mean that everything that's old is good, either. My schooling, at least the elementary level, was far better than any of my kids have received. But I've heard educational ideas, tested out in the real world, that have the potential to far surpass anything that was happening in the 1960s and 70s.

But like the young engineers that designed the Tata Nano, we have to stop thinking that all the answers have already been provided. We have to start from the proposition that good ideas can come from anywhere, even from disciplines that seem to have nothing to do with the problem at hand. With the distributed intelligence born of the Internet, there is more access to these ideas than ever before in history.

We just have to develop the mindset to accept new ideas, and the mental filters to choose the ideas that can actually work.

And the balls to try them even if they might not work. And, in another expression from R.A. Mashelkar, the process must include innovation, passion, and compassion. Without the last, the benefits of the innovation will flow toward the top earners in the world.

Which, odd as it may sound as we struggle with our daily finances, includes people like you and me.

Wednesday, January 29, 2014

Stealing Productivity

Although the pace of growth has slowed recently, over the last three to five decades worker productivity has made huge gains. But pay for workers, adjusted for inflation, has stagnated, and in a lot of cases even declined. The practical upshot of that is that regular people, you and me, are working harder, or at least more efficiently, and we're not getting any of the benefits. Someone is stealing our productivity.

The most obvious culprits are those higher up the corporate ladder who are happy to take the extra profits and loathe to share. Pay for top executives has increased, not only in dollars, but as a multiple of the average worker's pay. For all the talk about hard work being the path to the top of the income ladder, it seems that those who are working the hardest (or at least, working a lot harder than they used to) are making the least.

But it's not just corporate executives who are stealing our productivity, it's the US Government as well. And not just by taking our money in taxes and giving it to, for example, horribly-run banks and investment firms. By spending far more than they take in taxes, the government is making it necessary to borrow money to operate, money that we have to pay, with interest.

Not only that, but the bulk of this money is borrowed from the Federal Reserve, which creates the money out of thin air. And the Fed, on its own, injects money into the banking system. This causes inflation, making prices rise, which further erodes our rewards for a job increasingly well-done.

And in the long run, this is not only unjust. It's stupid. The whole idea that we've been sold that money is what makes an economy run ignores what the money represents: real transaction of trade, trading labor for goods, and goods for labor, and goods for goods. Money is just the store of value.

But if too much of that value is taken away by inflation, or if it flows to the top and gets hoarded, or traded around as if money itself had any value, then the economy flounders.

Because if that CEO takes all the extra money from productivity, and another CEO, and another, who is left with money to buy the goods that their companies produce, or the services they provide? How can they complain that sales are down if they don't give their own workers enough to generate sales? Even Henry Ford, no great friend of labor, understood this simple concept: workers are also consumers.

Who can turn this situation around?The government? What incentive do elected officials, the ones who spend the money, have to do that? They get elected with money from big companies, and they get brownie points for spending money from the public trough regardless of how much hot water that gets us into. That part of the equation will only be resolved in our favor when we stop electing the same parties over and over and start electing those bold enough to end the current system of debt money.

And what of the big corporations? Will it take some act of Congress to stop that injustice?

I'm afraid that may happen if enough people get angry enough. But I think in the long run, government solutions will create more problems than they solve. I think that the real pressure needs to come from shareholders, who must come to understand that the best long-term prospects for their investments come, not from creating more millionaire and billionaire CEOs, but from creating more customers with money in their pockets to spend on what their companies are selling.

And there's only one way to do that: pay workers a wage that reflects the real value they add to the bottom line. It's not just fair. It's a much smarter approach.