Credit Card "Bill of Rights"

I agree with most of what John says here.

Credit cards are often the lender of last resort, giving individuals the means to spend money for things they need now while giving them the flexibility to pay later.  In exchange for this temporary loan, banks charge an interest rate on unpaid balances.  These rates are based on historical behavior and the likelihood that the borrower will repay their debt. 

These rates are not randomly assigned; they are reflective of the borrower's credit history.  High rates that are accepted in advance by the borrower are not predatory, they are the fair market value for money loaned to that specific individual.  Politicians who think forcing banks to offer lower rates will help "protect" those who need these funds most are clearly misguided.  Banks won't offer the mandated lower rate.  For those people whose credit histories require a higher rate than the maximum allowed by the new government rule, those people will be denied outright.  The unintended consequence will be fewer credit cards for those who need them most.  These people will be forced to turn to payday loans - a source of funds imposing even higher rates on borrowers.

John and I disagree on the matter of banks changing the interest rate on existing balances.  Allowing banks to do this is like allowing them to readjust fixed rate mortgages after the loan has been agreed to by both parties.  This practice should be abolished.  Banks should be free to change the interest rate on future balances, but existing balances should remain at the previously contracted rate.  

Government Help Hurts
John Stossel
Wednesday, April 29, 2009

"Rate hikes and late fee traps have to end. No more fine print, no more confusing terms and conditions", said President Obama last week when advocating another big-government solution -- this time to evils committed by credit-card companies.

Credit cards are a demagogue's dream come true. What better way to win public affection than to rail against banks for their harsh terms? In the politicians' morality play, creditors are the villains and debtors their helpless victims.

A little context first: No one has a natural right to a credit card. Someone has to be willing to undertake the risk in issuing it. Banks issue cards in their quest for profits. Nothing wrong with that.

Think about what a credit card is. It's convenient access to unsecured loans, permitting consumers to buy things large and small -- not to mention emergency services -- without cash. Pay the bill promptly, and you enjoy a fantastic service for virtually nothing. If circumstances prevent you from paying the bill in full, you can set your own payment schedule, realizing there is a minimum payment and that you will be charged interest on the unpaid balance. No surprise there.

To appreciate credit cards, it is worth recalling that before they came along, people got personal loans from banks, finance companies, pawnshops and loan sharks. Such loans were less convenient, and repayment was less flexible. Some people bought things on layaway, which meant they didn't take the goods home until they were paid for. Loan sharks sometimes broke people's legs.

Credit cards didn't create consumer debt -- they are merely a superior alternative to older methods.

As President Obama and other politicians demagogue this issue, keep two things in mind: Life would be more difficult without credit cards, and banks don't have to keep issuing them. Be careful what you ask for.

Politicians are too short-sighted and vote-hungry to say such things. They want a "credit card holders' bill of rights" that would prohibit certain billing practices, like raising interest rates on existing balances. The House could approve the "bill of rights" this week.

Understandably, these billing practices endear themselves to no one, but competition makes the worst of them far less common. And as for raising rates, revolving credit means that a balance is a fresh loan each month; as the terms state, the rate can change. If issuers can never raise rates on existing balances, even when economic conditions change, they will be likely to charge everyone a higher rate to make up for the risk.

Todd Zywicki, a professor at George Mason University Law School and an expert on consumer credit, points out that the credit-card industry is highly competitive. The web is full of sites that permit easy comparison shopping. Competition has driven banks to more precisely match consumer costs to individual risk. In earlier days, every cardholder paid higher interest rates than today and an annual fee (a way around usury laws). Now, annual fees are largely gone. Rates are lower. Late and over-the-limit fees are unpleasant, but they aren't charged until a cardholder's conduct triggers them. This is not to say credit-card companies never abuse customers, but as Zywicki notes, "[T]here are ample tools for courts and regulators to attack deceptive and fraudulent practices on a case-by-case basis."

Politicians assume we are ignorant about credit-card terms. However, Zywicki points to evidence that people who carry credit-card balances are aware of the interest rate they're paying, and "those who carry larger balances are even more likely to ... comparison shop."

The "bill of rights" seems designed to prevent people from getting themselves in over their heads. That motive is honorable, but government has never been very good at such protection. The law of unintended consequences cannot be repealed, and what government gives with one hand, it inadvertently takes away with the other. Increasing the banks' costs will make it harder for poorer people to get credit cards, and that will only push them into costlier forms of debt, like payday lenders.

I've never understood how the poor are helped by limiting their choices. 

Thank you, George Will

The Wreck of the Racial Spoils System

George Will
Sunday, April 26, 2009

WASHINGTON -- Wednesday morning, a lawyer defending in the Supreme Court what the city of New Haven, Conn., did to Frank Ricci and 17 other white firemen (including one Hispanic) was not 20 seconds into his argument when Chief Justice John Roberts interrupted to ask: Would it have been lawful if the city had decided to disregard the results of the exam to select firemen for promotion because it selected too many black and too few white candidates?

In 2003, the city gave promotion exams -- prepared by a firm specializing in employment tests, and approved, as federal law requires, by independent experts -- to 118 candidates, 27 of them black. None of the blacks did well enough to qualify for the 15 immediately available promotions. After a rabble-rousing minister with close ties to the mayor disrupted meetings and warned of dire political consequences if the city promoted persons from the list generated by the exams, the city said: No one will be promoted.

The city called this a "race-neutral" outcome because no group was disadvantaged more than any other. So, New Haven's idea of equal treatment is to equally deny promotions to those who did not earn them and those, including Ricci, who did.

Ricci may be the rock upon which America's racial spoils system finally founders. He prepared for the 2003 exams by quitting his second job, buying the more than $1,000 worth of books the city recommended, paying to have them read onto audiotapes (he is dyslexic), taking practice tests and practice interviews. His studying -- sometimes 13 hours a day -- earned him the sixth-highest score on the exam. He and others denied promotions sued, charging violations of the 1964 Civil Rights Act and the Constitution's guarantee of equal protection of the law.

The city claims that the 1964 act (BEG ITAL)compelled(END ITAL) it to disregard the exam results. The act makes it unlawful for employers to discriminate against an individual regarding the "terms, conditions, or privileges of employment because of such individual's race." And two Senate supporters of the 1964 act, both of them leading liberals (Pennsylvania Democrat Joseph Clark and New Jersey Republican Clifford Case), insisted that it would not require "that employers abandon bona fide qualification tests where, because of differences in background and educations, members of some groups are able to perform better on these tests than members of other groups."

In a 1971 case, however, the Supreme Court sowed confusion by holding that the 1964 act proscribes not only overt discrimination but also "practices that are fair in form, but discriminatory in operation." But what New Haven ignored is that the court, while proscribing tests that were "discriminatory" in having a "disparate impact" on certain preferred minorities, has held that a disparate impact is unlawful only if there is, and the employer refuses to adopt, an equally valid measurement of competence that would have less disparate impact, or if the measurement is not relevant to "business necessity." One of the city's flimsy excuses for disregarding its exam results was that someone from a rival exam-writing firm said that although he had not read the exam the city used, his company could write a better one.

New Haven has not defended its implicit quota system as a remedy for previous discrimination, and has not justified it as a way of achieving "diversity," which can be a permissible objective for schools' admissions policies, but not in employment decisions. Rather, the city says it was justified in ignoring the exam results because otherwise it might have faced a "disparate impact" lawsuit.

So, to avoid defending the defensible in court, it did the indefensible. It used anxiety about a potential challenge under a statute to justify its violation of the Constitution. And it got sued.

Racial spoils systems must involve incessant mischief because they require a rhetorical fog of euphemisms and blurry categories (e.g., "race-conscious" measures that somehow do not constitute racial discrimination) to obscure stark facts, such as: If Ricci and half a dozen others who earned high scores were not white, the city would have proceeded with the promotions.

Some supporters of New Haven, perhaps recognizing intellectual bankruptcy when defending it, propose a squishy fudge: Return the case to the trial court to clarify the city's motivation. But the motivation is obvious: to profit politically from what Roberts has called the "sordid business" of "divvying us up by race."

Budget Alternatives

More facts about GM

I really like his point about the government only agreeing to bailout Chrysler if they are taken over by Italian automaker fiat.  At the least this seems a little inconsistent with President Obama's "America First" approach to manufacturing...

P.S. - Did you know the Prius sells at a loss?  Funny, you don't hear that part of the story very often...

Car Designer in Chief
George Will
Sunday, April 05, 2009

WASHINGTON -- The Constitution enumerates three requirements of those who would be president (they must be natural-born citizens, at least 35 and a resident within the country for 14 years) and now the government's thrashing about in the economy imposes a fourth: Presidents must be able to speak pluperfect nonsense with a straight face, lest the country understand what the government is doing. Obfuscation serves political salvation when what the government is doing includes promising that if Chrysler will sell itself to Fiat, U.S. taxpayers will lend that Italian firm $6 billion.

Barack Obama displayed reality-denying virtuosity last week when, announcing the cashiering of General Motors' CEO, and naming his replacement, and as the government was prompting selection of a new majority of GM's board of directors, and as the government announced the next deadline for GM to submit a more satisfactory viability plan than it submitted at the last faux deadline, and as the government kept the billions flowing to tide GM over until, well, whenever, the president said: "The United States government has no interest in running GM."

Actually, his administration prefers to do that rather than allow bankruptcy to infuriate the United Auto Workers union, which was pre-emptively grateful to Obama's administration with lavish contributions to candidate Obama. The president supposedly showed "toughness" in sacking a conspicuous member of a particularly unpopular little cohort, CEOs of big corporations. He will need more grit if, as his administration hints, this time it is serious, that its patience is wearing thin, that someday GM could face "controlled" or "prepackaged" or "surgical" bankruptcy. One suspects that those adjectives intimate that it will be faux bankruptcy, gentle in dealing with the UAW.

Last November, five months and $17.4 billion in auto bailouts ago, this column noted: "Some opponents of bankruptcy say: GM must not be allowed to fail before it perfects batteries for its electric-powered Volt, which supposedly is a key to the company's resurrection. This vehicle was concocted to serve GM's prolonged attempt to ingratiate itself with the few hundred environmentally obsessed automotive engineers in Congress. They have already voted tax credits of up to $7,500 for purchasers of such cars -- bribes that reveal doubts about consumer enthusiasm for them at a price that would reflect cost."

In December, GM, by then a mendicant groveling before its congressional masters, ran a full-page newspaper ad apologizing for having "disappointed" everyone, vowing to stop selling so many "pickups and SUVs" (which were 11 of GM's 20 most profitable products in 2008), and promising "revolutionary new products like the Chevrolet Volt." Another ad, which appeared before December and is still running, features a car attached to an electric cord, and says the Volt amounts to "reinventing the automobile."

Last week, in an unenthralled summary of GM's "viability" plan, Obama's administration said: "GM earns a large share of its profits from high-margin trucks and SUVs, which are vulnerable to a continuing shift in consumer preference to smaller vehicles. Additionally, while the Chevy Volt holds promise, it will likely be too expensive to be commercially successful in the short term."

The stunning shift in consumer preferences that should make the White House's freshly minted auto experts feel vulnerable has been reported under headlines such as "Like a Rock: Hybrid Car Sales Plummet" (Wall Street Journal, Dec. 9) and "Hybrid Car Sales Go from 60 to 0 at Breakneck Speed" (Los Angeles Times, March 17). Absent $4 gasoline, customers, those nuisances with their insufferable preferences, do not want the vehicles the politicians want them to want, even with manufacturers now offering large rebates and other incentives.

The two best-selling vehicles in America this year are large pickup trucks (Ford F-Series and Chevy Silverado). In February, Toyota sold 13,600 Tundra and Tacoma pickups and 7,232 Priuses. It sells the Prius at a loss, which it can afford to do because it makes pots of money selling pickups. Has the Car Designer in Chief, aka the president, considered the possibility that what he calls "the cars of tomorrow" will forever be that?

His administration cannot be faulted for failing to do well what cannot be done well -- industrial policy, wherein the political class, with negligible experience in commerce, flounders. The administration can, however, be faulted for trying. The government's wallow in the automobile industry, under this and the previous administration, merits a hockey coach's evaluation of his team: "Everyday you guys look worse and worse. And today you played like tomorrow."

You Break it...

Obama and GM

Dick Morris and Eileen McGann
Wednesday, April 01, 2009

GM, now renamed Government Motors, has a new CEO: President Barack Obama. By replacing the head of the company and demanding a restructuring of its board in return for further financial TARP aid, Obama has taken upon himself the responsibility for the future of the company. As Gen. Colin Powell said when Bush was considering invading Iraq and toppling the Saddam Hussein government, "If you break it, you own it." Now it is Obama's company.

This move will backfire big-time! The auto giant is very, very unlikely to be saved by this current TARP infusion. Doubtless, it will need more in the near term. But the resentment now focused on the management of the company will then turn to Obama. Having demanded a replacement of the management, it is he who will be held responsible for the company's future.

And, each time GM asks for more money, Obama will face a choice: take personal responsibility for laying off 100,000 autoworkers or anteing up the additional cash. By intruding himself so deeply into the management of the company, Obama makes himself central to its future. If Obama lets the company fail, having already extended credit, he will have all of Michigan on his case. If he keeps coming up with more and more tax money, he will earn the contempt of the voters.

Socialism has its price. By taking over the management of a company, you become the determinant of its fate in the public's mind.

Obama does not seem to realize that government takeover is the beginning, not the end, of the problem. He should have stuck with being president and leave making cars to others.

And, as the new CEO of General Motors, what will his policy be on corporate compensation? Will the public tolerate his letting his new company pay salaries sufficient to attract the talent necessary to salvaging the firm? Or will he have to rely on a bunch of kids right out of school, willing to work for one or two hundred thousand a year, for the company's salvation?

When it comes to the hard work of cutting retiree health benefits, reducing salaries, laying off workers and closing plants, is Obama willing to resist calls for his intervention? Is he up for getting the blame for all the "heartless" measures GM will have to take to salvage its future? He has put himself squarely in a position to pay a steep political price for his assumption of power in GM.

Most troubling is the sense that Obama cannot have thought this through. He can't have planned this. President Clinton used to say at strategy meetings that we needed to think three or four moves ahead and not just "kick the can down the road." Obama is clearly not following his predecessor's advice.

He realized GM needed money. He knew the public would have a fit if he gave it. So he decided that he would appease his electorate by exacting blood from the company's management and directors by using his guillotine on some of its old grey heads.

But, had he thought before he acted, he would have realized that it would have been far better to have criticized GM from a distance even as he extended more money rather than to, in effect, take over the company.

The president's protestations that the government does not want to own a car company are quite beside the point. It's his now, and he better figure out what to do with it. 

The Devil is in the Details...

While I don't totally blame government leaders for relying on statistics compiled by others, using statistics that are so blatently wrong definitely skews the debate...

The Myth of 90 Percent: Only a Small Fraction of Guns in Mexico Come From U.S.

While 90 percent of the guns traced to the U.S. actually originated in the United States, the percent traced to the U.S. is only about 17 percent of the total number of guns reaching Mexico.

By William La Jeunesse and Maxim Lott

Thursday, April 02, 2009

EXCLUSIVE: You've heard this shocking "fact" before -- on TV and radio, in newspapers, on the Internet and from the highest politicians in the land: 90 percent of the weapons used to commit crimes in Mexico come from the United States.

-- Secretary of State Hillary Clinton said it to reporters on a flight to Mexico City.

-- CBS newsman Bob Schieffer referred to it while interviewing President Obama.

-- California Sen. Dianne Feinstein said at a Senate hearing: "It is unacceptable to have 90 percent of the guns that are picked up in Mexico and used to shoot judges, police officers and mayors ... come from the United States."

-- William Hoover, assistant director for field operations at the Bureau of Alcohol, Tobacco, Firearms and Explosives, testified in the House of Representatives that "there is more than enough evidence to indicate that over 90 percent of the firearms that have either been recovered in, or interdicted in transport to Mexico, originated from various sources within the United States."

There's just one problem with the 90 percent "statistic" and it's a big one:

It's just not true.

In fact, it's not even close. The fact is, only 17 percent of guns found at Mexican crime scenes have been traced to the U.S.

What's true, an ATF spokeswoman told FOXNews.com, in a clarification of the statistic used by her own agency's assistant director, "is that over 90 percent of the tracedfirearms originate from the U.S."

But a large percentage of the guns recovered in Mexico do not get sent back to the U.S. for tracing, because it is obvious from their markings that they do not come from the U.S.

"Not every weapon seized in Mexico has a serial number on it that would make it traceable, and the U.S. effort to trace weapons really only extends to weapons that have been in the U.S. market," Matt Allen, special agent of U.S. Immigration and Customs Enforcement (ICE), told FOX News.

A Look at the Numbers

In 2007-2008, according to ATF Special Agent William Newell, Mexico submitted 11,000 guns to the ATF for tracing. Close to 6,000 were successfully traced -- and of those, 90 percent -- 5,114 to be exact, according to testimony in Congress by William Hoover -- were found to have come from the U.S.

But in those same two years, according to the Mexican government, 29,000 guns were recovered at crime scenes.

In other words, 68 percent of the guns that were recovered were never submitted for tracing. And when you weed out the roughly 6,000 guns that could not be traced from the remaining 32 percent, it means 83 percent of the guns found at crime scenes in Mexico could not be traced to the U.S.

So, if not from the U.S., where do they come from? There are a variety of sources:

-- The Black Market. Mexico is a virtual arms bazaar, with fragmentation grenades from South Korea, AK-47s from China, and shoulder-fired rocket launchers from Spain, Israel and former Soviet bloc manufacturers.

-- Russian crime organizations. Interpol says Russian Mafia groups such as Poldolskaya and Moscow-based Solntsevskaya are actively trafficking drugs and arms in Mexico.

- South America. During the late 1990s, the Revolutionary Armed Forces of Colombia (FARC) established a clandestine arms smuggling and drug trafficking partnership with the Tijuana cartel, according to the Federal Research Division report from the Library of Congress.

-- Asia. According to a 2006 Amnesty International Report, China has provided arms to countries in Asia, Africa and Latin America. Chinese assault weapons and Korean explosives have been recovered in Mexico.

-- The Mexican Army. More than 150,000 soldiers deserted in the last six years, according to Mexican Congressman Robert Badillo. Many took their weapons with them, including the standard issue M-16 assault rifle made in Belgium.

-- Guatemala. U.S. intelligence agencies say traffickers move immigrants, stolen cars, guns and drugs, including most of America's cocaine, along the porous Mexican-Guatemalan border. On March 27, La Hora, a Guatemalan newspaper, reported that police seized 500 grenades and a load of AK-47s on the border. Police say the cache was transported by a Mexican drug cartel operating out of Ixcan, a border town.

'These Don't Come From El Paso'

Ed Head, a firearms instructor in Arizona who spent 24 years with the U.S. Border Patrol, recently displayed an array of weapons considered "assault rifles" that are similar to those recovered in Mexico, but are unavailable for sale in the U.S.

"These kinds of guns -- the auto versions of these guns -- they are not coming from El Paso," he said. "They are coming from other sources. They are brought in from Guatemala. They are brought in from places like China. They are being diverted from the military. But you don't get these guns from the U.S."

Some guns, he said, "are legitimately shipped to the government of Mexico, by Colt, for example, in the United States. They are approved by the U.S. government for use by the Mexican military service. The guns end up in Mexico that way -- the fully auto versions -- they are not smuggled in across the river."

Many of the fully automatic weapons that have been seized in Mexico cannot be found in the U.S., but they are not uncommon in the Third World.

The Mexican government said it has seized 2,239 grenades in the last two years -- but those grenades and the rocket-propelled grenades (RPGs) are unavailable in U.S. gun shops. The ones used in an attack on the U.S. Consulate in Monterrey in October and a TV station in January were made in South Korea. Almost 70 similar grenades were seized in February in the bottom of a truck entering Mexico from Guatemala.

"Most of these weapons are being smuggled from Central American countries or by sea, eluding U.S. and Mexican monitors who are focused on the smuggling of semi-automatic and conventional weapons purchased from dealers in the U.S. border states of Texas, New Mexico, Arizona and California," according to a report in the Los Angeles Times.

Boatloads of Weapons

So why would the Mexican drug cartels, which last year grossed between $17 billion and $38 billion, bother buying single-shot rifles, and force thousands of unknown "straw" buyers in the U.S. through a government background check, when they can buy boatloads of fully automatic M-16s and assault rifles from China, Israel or South Africa?

Alberto Islas, a security consultant who advises the Mexican government, says the drug cartels are using the Guatemalan border to move black market weapons. Some are left over from the Central American wars the United States helped fight; others, like the grenades and launchers, are South Korean, Israeli and Spanish. Some were legally supplied to the Mexican government; others were sold by corrupt military officers or officials.

The exaggeration of United States "responsibility" for the lawlessness in Mexico extends even beyond the "90-percent" falsehood -- and some Second Amendment activists believe it's designed to promote more restrictive gun-control laws in the U.S.

In a remarkable claim, Auturo Sarukhan, the Mexican ambassador to the U.S., said Mexico seizes 2,000 guns a day from the United States -- 730,000 a year. That's a far cry from the official statistic from the Mexican attorney general's office, which says Mexico seized 29,000 weapons in all of 2007 and 2008.

Chris Cox, spokesman for the National Rifle Association, blames the media and anti-gun politicians in the U.S. for misrepresenting where Mexican weapons come from.

"Reporter after politician after news anchor just disregards the truth on this," Cox said. "The numbers are intentionally used to weaken the Second Amendment."

"The predominant source of guns in Mexico is Central and South America. You also have Russian, Chinese and Israeli guns. It's estimated that over 100,000 soldiers deserted the army to work for the drug cartels, and that ignores all the police. How many of them took their weapons with them?"

But Tom Diaz, senior policy analyst at the Violence Policy Center, called the "90 percent" issue a red herring and said that it should not detract from the effort to stop gun trafficking into Mexico.

"Let's do what we can with what we know," he said. "We know that one hell of a lot of firearms come from the United States because our gun market is wide open."