President Obama’s promising to work on the next looming financial crisis – credit card debt.    As Americans face the finanacial hardships from crisis ONE it appears we may have crisis TWO coming right up, which is unsustainable levels of consumer debt for people who are already starting to lose jobs.      I don’t envy the president’s team in this era where they need to work to support the banking structure, get them profitable, and get them loaning money while at the same time reign in the excesses, poor regulation, profiteering, and illegal banking activity that got us here in the first place.

However quality solutions are often simple ones, and I think we could go a long way towards recovery and solvency by taking a lesson from the council of Nicea which sought to regulate interest rates in more reasonable ways than we do now  (although I think we’d need to remove the religious discrimination parts of those rules).    Usury in history. In simple terms let’s just end the outrageous top interest rates charged by the banks on their credit cards, which often top 25%.       I’d have to say these usurous rates have never had much of an impact on me because I generally pay off my balances before I get charged any interest.   Also, I used to take advantage of introductory rate schemes (where you pay a few percent until an unclear time limit after which you pay a huge percent).     If you monitor the dates and rates closely these are often a very favorable short term loan.    However if you make the mistake of doing this without resources to pay them back at the expiration of the introductory rate you’ll be hammered to pieces with rates often as high as 20% or more.

Note that the introductory rate offers seem to be worse than they used to be and more misleading due to extra fees and also note that a single month at 24% can wipe out the savings you’d enjoy from a full year at 2%.     As a general rule I’d say it’s best to avoid the “special offer” interest deals and in my opinion the Government should be requiring the banks to disclose the real APR on these offers rather than the fake number which does not reflect the fees.     If, for example, you pay a 3% fee to borrow 10,000 at “APR 3%” for  a year your actual interest rate on this is 6%, often more than a home equity line which is also more likely to be tax deductible.

A big part of the solution is to cap interest rates at levels that are less likely to financially ruin people. This in turn will lead to more responsible lending by banks who can no longer count on bait and switch and fake APR games to beef up penalties and fees (which are about 25% of all bank revenues!).      Free markets suggest we should not over-regulate, but I think even Adam Smith would have said that the free hand starts to break down when people’s bad luck or ignorance traps them into paying 30% interest.     I think much of the current banking game is based on assumptions of a lot of defaulting, and this becomes self – fulfilling as the rates skyrocket for those not paying.   You wind up with a more predatory style system where you are trying to build fees and interest rather than load responsibly.

Leave it to the BBC to come up with an excellent  summary of the situation along the Pakistan / Afghanistan border where the USA is about to invest a lot more blood and treasure in the fight with the Taleban and Al Queda and supporters in those regions.

Given the huge global  importance of this region it is amazing to me how little we tend to know about this area, though this BBC summary helps explain why things are anything but simple there.

In biology there are several kinds of relationships between animals where one or both benefit from the interactions. This obviously happens in economic relationships as well.

Something I have wondered about for some time is the size of what we might call the “commensalist” economy. Commensalism is the relationship between organisms where one supports the other without benefit to the host. Unlike a parasite, the commensalist character does no harm to the host, but also doesn’t bring anything to the table.

In defining the symbiotics in human economics we find many economic interactions where the benefits are so disproportionate or negative they would not be commensalist.  Some would be called parasitic such as scams like the Bernie Madoff ponzi scheme.

Many (probably most) economic relationships are mutually beneficial such as me buying a pizza and a Coke at the local restaurant. Here, they get my money and I get the pizza and Coke – the end products of hundreds of generally mutually beneficial economic relationships between farmers, bottlers, distributors, truckers, packagers, banks, research chemists working in the food industry, and more.

Yet I’m starting to think that the economy where one party gets a lot more than the other may be much larger than generally thought. This is very relevant as we begin to spend trillions on infrastructure and other Government projects. Will this money go for mutually beneficial projects or get sucked up into commensalist nonsense or low ROI things?

Some examples of the commensalist economy? Parents sell their house to their kids for less than a market rate, stock broker churns the account for commissions, CNBC reporters entertain but do not inform their viewers, “get rich quick” schemes in general (news flash – these do not work. Stop looking for the one that does and do some real work!), good salespeople upsell unneeded and overpriced services. In fact this last one is probably the key to my question – how much of our economy is built on “upsold” products and services and the commissions.

My hunch is that this type of economic relationship is simply huge – perhaps even 20% or more of the “truly productive” and mutually beneficial parts of our massive global economy when you factor in the massive commissions on sales which often simply reflect competition between large firms for massive private or government projects of dubious value to society.    Pork barrel military contracts, for example, offer some of the lowest ROI of any human activity in history yet they represent a significant percentage of USA GDP.

… more after some research ….

Twitter 404 Error

Originally uploaded by jnunemaker

I never really understood how CPUs managed all that information. Now I’m even more confused since cats are usually more annoying than they are helpful.

(This is from a 404 error page at Twitter)