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Virtue, And Collateral Damage

with 6 comments

For some reason or the other, I’ve spent the last couple of days having the worst pollen-induced sneezing fits so far this summer.   They’ve been bad enough so that I’ve sometimes sat around thanking The Universe Broadly Conceived for the fact that they didn’t happen a week ago, because sneezing like this I’d never have gotten my revisions done. 

They may having something to do with the fact that a) last night we had a power outage that lasted about three and a half hours and b) today, I had to go running around in a car without air conditioning.

Whatever the reason, I’m sneezing.

But I’ve also been reading the comments, and checking out a few things, so here goes.

And I’ll get to the hedgehog–and Trollope’s Paliser series–sometime, someday.  It gets a little crowded in July.

But here goes.

1) I did a little further checking into Western Sky Financial and found this:  although I’m sure it’s much easier to get a loan from them than it would be to get one from your local bank, it isn’t actually easy.

The loan application is long and detailed, and requires all the information that your bank would ask you, and lots more than your ordinary credit card application. 

As far as I can figure out, you’d need to prove at least $3000 a month in income, which isn’t riches but isn’t living in a cardboard box poverty, either. 

They also check your credit rating, so they can’t be accepting just anybody, for just any reason.

This brings us to the question of why somebody in this position–with at least $36,000 a year in personal income, with a steady job they’ve held for a while–would want a loan like that.

And of course there are reasons that obviously stem from desperation:  the hospital won’t operate without a downpayment, you need bail, whatever.

But my guess is what we’re actually looking at is this:

2) The runoff from the new credit card consumer protection laws that went into effect a couple of years ago.

There was a time back there when somebody–it might have been Bank of America, but I’m not sure–said they’d pretty much issue a credit card to anybody who walked in the door and had or opened a checking account. 

The Feds were understandably worried about this, because the banks issuing these credit cards were FDIC insured, which meant that if they went bust the Federal Government had to make their customers whole, up to $250,0oo per depositer.

New banking law went into effect, further regulating such things as what interest rates banks were allowed to charge on credit card debt, when they were allowed to charge it, and what fees the banks could collect.

Contrary to what some of us believe sometimes, banks are not usually raving full bore loonies.  They want to make money, and they expected to make money on the credit card debt they allowed to the bottom rung of their credit card holders.

The problem was that, with the new limitations on interest and rates, they could no longer make money on those bottom rung holders.  You have to charge a lot of interest to make sure you can make up for the truly astonishing rates of default in that bottom rung.

Once the banks couldn’t charge those rates, they started dumping their bottom rungs of card holders and refusing cards to bottom rung applicants who asked for them.

But

3) Those bottom rung applicants still needed credit. 

And in step people like WSF.

Like Robert, I’m not happy with the idea that the government should step in to protect me from myself by making sure I shouldn’t be able to make the deals I want to make, even if those deals are demonstrably and objectively idiotic.

(I have no trouble with the credit card regulations, because their real purpose is to protect the government (and the taxpayer) from having to bail out federally insured banks.)

But the simple fact is that most of the people who are going to qualify from WSF’s 139% (or worse) interest loans would have qualified in the old days for a bank credit card with a 45% top rate and a punishing but still restricted fee schedule–and been better off.

They are, in other words, collateral damage–but not the kind of collateral damage that can be easily solved by “getting the government off our backs” or “putting in place consumer protections with real teeth.” 

Both of the usual responses leave something to be desired. 

The consumer protections people simply will not deal with the problem of where the people on the bottom rung will go to get loans.  They seem to think that lenders will continue to lend to that bottom rung even when they can no longer charge the highest interest rates.

The government off our backs people have two choices:  advocate the end of federal insurance for banks or tell me why I should keep bailing out the depositors of banks who do stupid stuff like give credit cards to people who think “financial planning” means making sure you have enough left over from the keg party to hit the casino.

There is, in fact, no answer here, no actual way out of the problem.  But that’s a gloom and doom scenario for another day.

At the moment, I want to suggest a book, one that oddly intersects with all this talk about bottom rung borrowers and usurious finance companies.

The book is called The Bourgeois Virtues:  Ethics for an Age of Commerce by Deirdre N. McCloskey.

This is one of those books I recommend that I know, instinctively, most of you will never touch.   It’s long, it’s complicated, it’s nonfiction, it’s on an aggressively “intellectual” subject–bleh.

What’s worse, in this case, is that I can’t actually pin a genre on it, and it’s only the first of what is supposed to be at least a four volume investigation of the topic (it may have expanded to six).

The topic is an attempt to prove, through historical example, that capitalism both requires virtue and inculcates it in those who practice it, and that these virtues are not the self-interested ones of Ayn Rand but a combination of the pagan ones (justice, temperance, fortitude, courage) and the Christian ones (faith, hope and love (caritas/charity).

I can’t pin down the genre because this woman has one of the most distinct writing styles I’ve ever encountered.  Reading this book is like getting drunk with somebody who has an IQ of 250, the reading habits of Father Tibor Kasparian, and virtually total recall.   You go from Anaximander to Madonna videos to Napolean to the rise of Dutch mercantilism to the Tokugawa shogunate to Thomas Aquinas to…

I want this woman’s mind.

She knows and has worked with practically everybody (both Milton Friedman and Paul Samuelson, for instance), and teaches Economics, History, English and Communications at the University of Illinois at Chicago.  She seems to read about eight languages. 

Oh, go here:

http://www.deirdremccloskey.com/main/bio.php

Oh, and she’s a transsexual, and a practicing member of a liberal Episcopalian church who definitely identifies as Christian.

The whole thing is just sort of dizzying.

The book, in the meantime, is very, very good. 

And the works cited is 30 pages long.

And other people should look into the subject–which includes the subject of why the bourgeoisie is so thoroughly vilified even though what they’ve actually done is generally positive for the welfare of human beings. 

And after that–well.  All I can say is that a friend of mine just send me a HUGE box of golden age fair play mysteries (lots of Sayers), I’ve still got to talk about the hedgehog, and the passing of the News of the World will surely put fans of the page 3 girls into mourning for weeks.

After all, you could say she was attractively built.

Written by janeh

July 9th, 2011 at 5:58 pm

Posted in Uncategorized

6 Responses to 'Virtue, And Collateral Damage'

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  1. Just a quick note – the McCloskey book and several others are available on Kindle for reasonable prices.

    jd

    9 Jul 11 at 9:09 pm

  2. Go Kindle!

    Mique

    10 Jul 11 at 12:03 am

  3. Forget Murphy’s Law and Parkinson’s Law. I want to expand just a bit on something Jane touched on, namely —

    The Law of Unintended Results:
    “We are doing A in order to achieve B” usually results in either (1) we did A but we did not achieve B, or (more commonly) (2) when we did A in order to achieve B, not only did we fail to achieve B, but we also caused C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, W, X, Y, Z to happen, any one of which, taken alone, would have left (mankind, our country, our state, our town, our family, whatever) less well off than if we had not done A in the first place.

    This law is applicable to government, the legal profession, medicine, business, the military, religions, interpersonal relationships, and just about every kind of human endeavor.

    Oddly enough, although this Law of Unintended Results has clearly been in effect pretty much all the way back to the earliest recorded history (hence such sayings as, “The road to hell is paved with good intentions”), most entities, from governing bodies to armies to multinational corporations to neighborhood businesses all the way down to individuals (“I am spanking Johnny in order to teach him not to hit people smaller and weaker than he is.”) seem to think this law does not apply to them.

    A corollary of this law is: “We did A, after which B happened, which means we get to take credit for having achieved B.”

    The most cursory listing of the Unintended Results of the bills and budgets passed by the U.S. Congress in the last, oh, say, fifty years, would be a multi-volume set that would rival the OED.

    If U.R. awards were given out, my number one pick for “Worst Damage Caused with the Best of Intentions” would be the No Child Left Behind Act, followed closely by the war in Iraq.

    Charlou

    10 Jul 11 at 5:39 am

  4. During the first lecture/discussion of the semester for my Interpersonal Communication course I present some information to my students that forms the foundation for everything we will discuss throughout the remainder of the semester. That discussion includes 3 basic precepts: 1) Choices have consequences, 2)We have freedom to choose, and 3) We are responsible for the consequences of the choices we make.

    The discussion that ensues from this small presentation is always fascinating. Some students (I’m sure based on hard experience) grasp this concept and embrace it immediately. Others deny its truth and those are the ones who I predict will struggle throughout their lives.

    While we are not able to control everything that is done to us by others, we always have the ability to choose our response to events. (In some cases, it’s the only thing we get to choose.) And, by extension, we then must take responsibility for the consequence of the choice we made in that particular situation. Even if, as Charlou says, instead of our predicted or desired result of B we wind up with C, D E and all the others, we made the choice.

    judy

    10 Jul 11 at 9:44 am

  5. Did the No Child Left Behind Act cause the damage or was it corrupt schools and teachers cheating to exploit the benefits of the act? We’ve had a lot of that sort of corruption down here in Australia in the last few years. The legislation is not necessarily the problem. It’s maladmininstration by incompetents and crooks is the problem.

    As for Iraq, it doesn’t even register on the scale of unintended consequences. World Wars I and II will continue to scoop the pool for that (pick just about any campaign in either war) until hell freezes over.

    Mique

    10 Jul 11 at 10:00 am

  6. I keep going around and around on this one. I don’t think there’s a perfect solution to be had. I agree that as long as you insure the banks’ depositors–and there are good reasons to do so–there’s a legitimate governmental interest in how the money is loaned out. You could reduce the collaterial damage by removing some rate restrictions–counting on the banks’ self-interest that the rates charged will make up for defaulting borrowers. Or you could permit banks in which the deposits aren’t insured–but in some ways that’s what Western Sky is. And people with bad credit–hopelessly bad credit, not $36,000 a year and desperate this week–still sometimes have a legitimate need for money.
    I would suggest three things. First, anti-trust laws exist for a reason. Several firms doing what Western Sky does would at least ensure the lowest interest practical interest rates for any particular level of borrower. Second, it is entirely proper to insist–see “plain English” laws–that the borrower knows exactly what he’s getting into. Third and probably most important, we’re discussing government and business doing something which really ought to be private charity. When Joe is “between jobs” but still needs to bury his wife or wear a tux to his daughter’s wedding, or when if he had a car he could get a job, the proper response is a “whip round” among his friends or the Pastor’s Discretionary Fund, not a way to make money out of the situation, and not another government bureaucracy. The old-fashioned rent party had and has a point.
    Just because it’s not a good investment or a national interest doesn’t mean the money shouldn’t be spent.

    As far as collateral damage goes, let’s not forget the pressure to make everyone a homeowner–housing bubble, anyone?–or the pressure for educational degrees (with or without education) with consequent student loan guarantees and inflated tuition. It takes really good intentions to rack up serious collateral damage.

    Wars are more often miscalculation. The most common last words of governments and empires are “they won’t fight over THAT” and “they’ll be home before the leaves fall.”

    robert_piepenbrink

    10 Jul 11 at 1:45 pm

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