I work in Canadian retail banking, so I feel fairly well-qualified (or appropriately biased) to comment on this topic (to an extent, as substantial differences exist between Canadian and US markets).

I’ve been monitoring the debate and commentary as the subject has gained some prominence in the past year or so on such sites as Mish’s Global Economic Trend Analysis, Calculated Risk, and Naked Capitalism and feel that each has been providing important input, but have opted to under-represent certain viewpoints (though collectively, I think they have everything covered).

The New York Times (and the usually excellent PBS Frontline in an upcoming episode airing Nov 24, 2009, @ 9:00pm) are currently working on a major series called The Card Game to put all the trends in recent changes ahead of impending legislation into a collection of anecdotes and statistics.  And sadly, the series — so far anyways — are failing to provide the level of intelligent commentary that those above-mentioned blogs provide.

From the NYT article, “A Squeeze on Customers Ahead of New Rules”.  Please be advised the following large snips are mostly, but not entirely in order.  Really, the article isn’t long and manages to encapsulate a large number of telling statistics, so just read the damn thing.  Now here’s the parts that I felt begged for comment:

[Rates are up, lines are being reduced, applications are more heavily scrutinized, fees are changing, blah blah blah...]

“One recipient of new credit card terms is Anita Holaday, a 91-year-old in Florida, who received a letter last month from Citibank announcing that her new interest rate was 29.99 percent, an increase of 10 percentage points.

“I think it’s outrageous they pursue such a policy,” said Susan Holaday Schumacher, Ms. Holaday’s daughter, who pays her mother’s bills. “That rate is shocking under any circumstances.”

While the average interest rates charged by banks are lower than Ms. Holaday’s, her situation is not all that unusual. The higher rates and fees reflect the grim new realities of the credit card industry — the percentage of uncollectible balances has hit a record even as a new law may further limit the cards’ profitability.

…

She said she haggled with Citibank to try to get her mother’s bills forwarded to her house in Washington and, during the process, two bills were inadvertently paid late, resulting in the rate increase.“How unbelievably unfair for an older person who might not understand what this is all about,” she said. Citibank declined to comment on the account.”

Okeedoke.  Now this seems like a typical attempt at an unequivocally sympathetic case, and is standard fare in a general-population paper like the NYT, but what the hell do we learn out of this?  That Citi DOESN’T have an age-specific manner of adjudicating accounts?  I don’t want 91-year-old women paying high interest, but I don’t want credit card companies having separate risk and fee structures for every different age.  Seniors often enjoy special banking benefits as-is, and credit cards just seem to be one of the few areas where these perquisites seem to be lacking.

Ms. Schumacher expresses her outrage at the hike in interest rates, unacceptable to her “under any circumstances”, which the authors opt to omit from the article.  We are given no indication that the rate change was outrageous at all.  If Ms. Holaday has been late on payments recently, would that be acceptable or at least understandable reason to raise interest rates?

And of course, that final paragraph quoted (taken from the tail end of the article, where the rest was from the article’s start) reveals that Ms. Holaday has been late in her payments for at least the past two months and her interest rate hike notification came a month ago.  So what’s the fucking problem?

Oh right.  The problem is Ms. Holaday is 91-years-old, making her exempt from what is a very typical outcome of a series of late payments: A higher interest rate.  And that, by the way, is not a new response to late payments initiated due to mounting credit card losses or impending legislative changes.  It’s just another facet of the credit card business model of making customers with poor payment histories pay a premium over the most responsible borrowers.

Really, it’s not Citi’s responsibility to make sure a clients bills are forwarded to the client’s daughters house.  Or to assume a lesser degree of personal responsibility or ability to manage her personal finances of 91-year-old lady.  My grandmother isn’t 91, but doesn’t even read or speak English and her finances are fine because our family understands that it’s not the banks responsibility to make sure she pays on time.  The fact is, my grandmother should never be able to apply for a credit card as she would never understand the documentation, and my family skirts the rules by helping her with it, must like many families certainly do.  As far as her banks know, my grandmother can read a 12 page credit card application in dense legalese and agree to the terms and conditions.  And since I know better, if I hadn’t received my grandmother’s bill this month, I wouldn’t leave it up to her or her bank to make sure it all worked out:  I’d just pay her bill with a safe amount well beyond what she could possibly owe to protect her credit score and I wouldn’t wait for her mailed bills (that I’m not legally entitled to open) to make it to my door.  I know bills are due every month and I know my grandmother uses her credit card.  Because I don’t receive a letter isn’t enough for me to forget that fact.  If it was, maybe I’m not properly equipped to be handling other people’s finances for them.

Now that I’m done blaming poor Ms. Schumacher (I am actually sympathetic to her to a degree, as caring for elderly relatives in a climate where so few people are even able to take care of themselves is a massive responsibility), let’s rejoin the article as they continue blaming the credit card companies:

“As banks have become more aggressive in making changes, lawmakers have accused them of trying to impose rate increases before many of the new rules take effect in February. On Monday, the Federal Reserve provided new evidence of the banks’ actions. About 50 percent of the banks responding to the Fed’s survey said they were increasing interest rates and reducing credit lines on borrowers with good credit scores. About 40 percent said they were imposing higher fees. The banks also said they were demanding higher minimum credit scores and tightening other requirements.”

Now this is a pertinent bit of news and I don’t doubt it’s accuracy, but the article suggests the changes are all due to impending legislation.  It seems to me that it could be largely due to changing economics (there’s a crisis going on, and all), and loss mitigation.

Just because a credit card company is raising rates or raising fees, it doesn’t mean they’re ONLY trying to collect more interest or fees (believe it or not).  It is only logical to me that when customers are defaulting on credit card debt at a high pace (10% charge-off rate, so says the article), and the average interest rate is now 13.71% (so says the article), reflecting what appears to be a very low margin for profitability (expected losses over $2 billion in credit cards for JP Morgan over the first half of 2010, says the article), that you do your best to reduce your exposure within that line of business.

Most customers have multiple credit cards and logically (I know, consumers seldom operate all that logically…) should the interest rate or fee structure become less favorable on one card, it would make sense to move your business (and balances) over to another card.  Suddenly the 10% charge-off chance is now some other sucker bank’s problem.  It may be a bit of a circuitous route to the same result of just canceling someone’s credit card account, but it does provide them with an opportunity to earn a bit more or accelerate the inevitable default should the client not have the option or will to leave.

Let’s not forget that the credit card companies are rightfully seeking a profit, and profits for credit card companies have to come at the expense of the merchants (remember all those poor small businesses closing up shop?) and the cardholders.

“The nation’s largest banks are scrambling to figure out a new business model that fits within the new rules and current economic conditions. Those banks made handsome profits over the last decade by charging high interest rates and penalty fees to a small group of customers who routinely paid late or exceeded their balances.

Already, banks are shifting to a model in which a smaller pool of Americans will be eligible for credit cards, and customers with cards will probably pay more for the privilege through annual fees and higher interest.

Meanwhile, the banks are in the process of shedding customers considered too risky. That means tens of thousands of Americans will no longer be able to splurge on Nike gym shoes or flat-screen televisions unless, of course, they have enough cash to pay for them.”

Now here’s the most important facet of these changes (or perceived changes):  These changes may reflect the credit card companies adapting to a new economic outlook, a new and sustained level of heightened loss rates and risk, and the fact that the current model of making all their profits on the least responsible credit card users may not fit the changed economics.

Only one source I have read aside from this article has broached this very important topic, and that’s the always-thorough Naked Capitalism (I’m sure she had earlier comments about this subject as well but they were embedded in related posts that I wasn’t able to find right away).  The current business model relies almost entirely on the irresponsible users of credit (and probably usually least able to afford high rates) to pay the kind of premiums necessary to subsidize all the freeloaders like myself who use no or low-fee credit cards, pay zero interest, and receive rewards/points/cash back with every purchase on top of the grace period.

Sadly, as is true in all areas of business, those with the lowest product knowledge and fewest alternatives are in a poor bargaining position and tend to get it in the ass for credit card terms, and are like-wise first to suffer when the lenders feel a pinch.  (Not to say I haven’t suffered.  My favorite no-fee credit card is introducing an annual fee!  Sure, I get several times the amount of the fee back in cash for using the card every year, but I still don’t like paying the $XX.XX.  Though perhaps this isn’t the best post to bitch about that…)

The alternative business model is roughly what Yves Smith describes in the Naked Capitalism post I linked to earlier:  Annual fees for most cards, lower interest rates, and probably more strict approval standards.  Which is probably going to make the same number of people unhappy (though will at least spread the suffering somewhat).  Of course, there’s a reason why we arrived at the business model that we have currently:  Credit-worthy borrowers can take their business wherever they want, and they’ll want to keep as much of their current freeloading setup as possible.

Now for the happy ending:

“… JPMorgan has started a program that can help consumers categorize their spending and pay down their balances more quickly.

And Bank of America is promoting a line of consumer products so simple that the terms and conditions fit on one page. The BankAmericard Basic Visa, for instance, has no rewards and a single interest rate.”

Now this is fantastic news to me, and probably something that makes notorious credit-card-contract-hater Elizabeth Warren (her wiki here) very happy.

The problem as I see it in my biased eyes is that credit cards are seen as vital to modern life and so common place that card users do not bother to read their agreements.  After all, how bad could they be if everyone’s got one (or six)?  And the credit card companies do not help at all, with dense contracts written in tiny fonts with broad ‘outs’ written in that allow terms to change with little to no explanation.

I love my credit cards.  I love the features they offer.  I spend days or even weeks researching the cards that worked best for the way I intended to use them before applying for them.  And I am fine with my more feature-heavy cards coming with small books to explain the various insurances and warranty perquisites that come with them.  But I’m someone who stays up until 2am writing a 2,400-word commentary on an article about credit cards.  I may not represent the vast majority of credit card users.

Most people just have them because they think they have to, and enjoy the ease of making purchases even if they are paying a lot of interest for the right not to plan ahead and have cash available for every purchase they make.

JPM’s bit of innovation (actually present at some Canadian banks I know of already, but I am unsure if JPM’s offering is an innovation for the US market) helps remedy the budgeting issues associated with profligate credit card use (I’m sure to their advantage:  After all, it’s very likely that a service that would help pay down debts faster would focus on high interest credit card debt first, thereby reducing JPM’s exposure).

And the return of the simple no-frills card through Bank of America is exactly what we need now that a few centuries worth of history have made it clear that people are notoriously poor financial consumers and that is unlikely to ever change.  Too bad without the esteem of being platinum or gold or similarly garish, the card will likely appeal little to those irresponsible consumers who might benefit from it, but have other options.  But I suppose those with the credit scores and incomes to be able to pick and choose their cards are probably the ones BAC wants using their more complicated cards.

… and the cow goes moo

Mish (and some of his readers) make some fantastic observations, especially timely as we are enjoying a moment to catch our breath in the bursting housing bubble, about an analogous bubble that he convincingly describes as having similar precedents.  Is it safe to say there will be similar antecedents?

“The cost of education has spiraled out of control with the cost of higher education far exceeding the payback unless one gets lucky in the jobs lotto process.

Many college graduates will be paying back student loans for 20 years or more. This is what happens when government tries to make things affordable. The same thing happened with affordable housing.”

When I applied to (and was declined by) some of the premier US universities  about ten years ago, the greatest shock during the process was the section where they expected me to list famous/powerful people that I knew and would presumably make me more eligible to attend the best schools in America.  The second most shocking part was the price.  As an international student, in the late-90s/early-aughts, I would have been paying somewhere between $40,000 USD and $60,000 USD for my schooling PER YEAR of my undergraduate program.  And my mildly-jacked tuition quotes as an international student are comparable to current tuition prices at Harvard, which was brought up to an average of $43,655 per student or the 2006-2007 years according to The Crimson.  And The Boston Globe reported that tuition, room and board, and student fees  rose to $47,215 in the (I believe) 2008-2009 year.  (Of course Harvard is just an example and I am in no way saying they were among the schools whose closed door I was able to observe in near-proximity.  But it was.)

That may not sound like much to any Canadian readers out there (our ‘elite’ institutions could easily be compared to the best state schools in the US and even could compete in many regards to many of the large US Ivy League institutions) and my undergraduate degree over the same period (as a domestic student, of course) was costing me between $4,500 CDN and $5,500 CDN per year.  Even including residence and the entirely sufficient albeit high in cardboard content meal plan it would be around $13,000 a year.  After the exchange rate conversion at the time, that would have been about $10,000 USD if memory serves.

As much as I’d feel like a BSD with an impressive degree from one of those institutions where mere mention of gets respectful silence.  And you have to mention in most polite company in hushed tones lest you be considered a braggart.  But for fuck’s sakes, a 4-yr degree in my case in Canada saved me about $120,000 USD.

Regardless of your level of talent, unless you pursue the career that will immediately net you the highest potential payout (any collapsing industries you can think of that meet that description?), is it realistic to be able to pay off that debt before age 25?  Or age 30?

Is it at all realistic to be able to save up and independently finance your education with summer and part-time work through a student’s entire high school life, even without considering the support many students are now providing to their families?

When heavy financing becomes a requirement for all but the superstars (full-ride athletes and scholars) and the ultra-well-heeled (those who fill up the “who I know and why I matter” section a bit better than I), Americans (and to a lesser extent, Canadians) are indoctrinated to a lifestyle of living on borrowed cash.  Of putting off financial planning for after the expense.  And for deferring difficult decisions into the uncertain future (that’s now, btw).

Not only does this add to the epidemic-level infection of debt-ignorance in American culture (go ask your Asian friend, if you have one, what they think of borrowing money to buy cars, stocks, or anything other than a primary residence, and then ask them the follow-up of how stupid and crazy and probably fat they honestly think Americans running up five-figure credit card debts during the good times, on top of no down payment — multiple — home and  — multiple — car purchases)… This arrangement eliminates the possibility for those talented students who wanted to go to personally fulfilling but perhaps lower-compensating professions to at least keep pace with previous generations’ concepts of success and failure.  For a real life example, see this USA Today article:

“”The first person who helped me was my pharmacist,” he says. Dillon, who no longer has epilepsy, would like to go into pharmaceutical research. But he knows he’d earn more money as a pharmacist for one of the big drugstore chains.

“When I get out, I’m going to have that $150,000 weighing over me,” he says. “What I decide is going to be dependent on that debt.”"

I try to think about it with a loose example (I apologize if my numbers and assumptions are a fair deal off:  I am a Canadian, as I’ve suggested above, and am not as familiar with what would be typical incomes and expenditures for a recent US university graduate.  Blame Harvard for denying me that personal experience.  Stupid Harvard):

Specifically, how does a graduate from (let’s say) Harvard, completing her studies in the 70th percentile of her graduating class (which probably puts her at or near the 99th percentile of her age cohort in academic achievement as is typically measured), pay off a $120,000 USD education debt by the time she’s 28 assuming no interest, no marriage, no babies, no sugar-daddies, etc.?  Besides, if she is lucky enough to be so talented, going to work for Goldman Sachs?

She would have to apply roughly $20,000 a year post-graduation towards the principal.  That’s after rent, after maybe her first not-too-fancy car, after taxes, other living expenses, likely some periods off work especially immediately after graduation.  Can it be done on an average $60,000 income per year for those six years post-graduation?  $80,000?  Would it be a stretch at anything under $100,000?

And even if this achievement is attained (and I think it’s fair to describe this hypothetical young woman’s wiping out of $120,000 of debt in six years as an achievement), as a 28 year-old woman with a low-six-figures annual income, a very impressive piece of paper signed by someone important at an Ivy League school, is she keeping up with expectations?  Can she afford to marry, start a family, and own her own home with white picket fences (my understanding of the prevailing middle-class expectation) by the time she’s 30?  Well, unless she and her husband pay for the wedding on their credit cards and buy a home with no money down…  The same USA Today article linked to above refers to this very real dilemma of cascading college debt effecting the issues that would have once been thought of problems for a different life stage:

“Those higher payments carry huge implications for this generation of college graduates. The weight of debt is forcing many to put off saving for retirement, getting married, buying homes and putting aside money for their own children’s educations.”"

Have we managed, aided by the the big, fat, clumsy hand of government assistance Mish describes, to price out the ideal of middle-class success to even middle-class kids in the 99th percentile of achievement?  And what will happen to the 98th percentile?  And those middling intellects in the 97th?  (And can you guess where I placed myself?)

[I know my math is rough (please see my many excuses above) but I'd love to hear what those who went through something analogous to the US student debt cycle experience, and correct where my math or assumptions stray too far from reason.  I just wanted to imagine and illustrate a very sympathetic and fairly realistic case where even doing everything right in America, absent an NBA-ready body and buttery j, can lead to something short of middling success by the end of young adulthood.]

[... And for those really interested in the idea of finding ways of maintaining a high level of learning and reducing student expenses, check out this old post of mine about what I was hoping to be a cheap online textbook revolution.  Also has my bitchy personal anecdotes that I'm ashamed to admit I actually enjoyed reading just now.  Can anything be more self-centered than typing up an opinionated post on a blog no one reads that links to another post in that very same blog that mostly consists of various personal anecdotes?  Look on my works, ye Mighty, and despair!]

… and the cow goes moo

So I’m enjoying the heck out of this Vanity Fair article from the November issue.  It really manages to highlight the chaos of the time, the impotence of the leading government authorities (able to only make uncompelling and rather simplistic recommendations… Think of a basketball fan e-mailing Bryan Colangelo ESPN Trade Machine links to get Andrew Bogut on the Raptors…  Not that I’ve been trying to or anything), some of the rather obvious personal concerns of the parties concerned (think Paulson’s relationship with Goldman Sachs), and the degree that the big investment banks were at the whim of momentum.  And the investment bank’s exposure to an unconventional bank run of hedge fund withdrawals.

Fascinating stuff with the usual classy photos that make Tim Geithner look like an angry loaner with a blog, and Henry Paulson look like the goddamn devil himself.

All the names and characters are presented in a manner (whether accurately or not, I have no idea) that leaves them practically interchangeable… save one: Citi’s CEO Vikram Pandit.  Please read the whole article if you have an interest, but here is one caption that captures Pandit’s oddly logical thinking, lacking in some of the bravado and personality-infusion that characterizes much of the utterances of the other major players [all emphasis mine]:

““I haven’t been able to reach you for four hours,” Geithner barked into the phone. “That’s unacceptable on a day like today!”

Apologizing, Pandit explained that he had been talking to his team about the Goldman proposal, which they had ultimately rejected. “We’re concerned about taking on Goldman,” Pandit said, trying to explain his rationale for turning them down. “I don’t need another trillion dollars on my balance sheet.”

Geithner could only laugh to himself—Pandit should have been so lucky as to own Goldman. “This is a bank,” Pandit said. “And a bank takes deposits and a bank has a prudency culture. I cannot envision a bank taking its deposits and investing them all in hedge funds. I know that’s not what Goldman is, but the perception is that they’d be taking deposits and putting them to work against a proprietary trade. That can’t be right philosophically!””

I think his bank is a monumental failure, but this Pandit guy I feel I can understand.  Lord knows how he managed to get where he is with that kind of thinking though.

[I should add the article is actually an excerpt from Andrew Ross Sorkin's book, Too Big to Fail.  Interesting stuff in a diary-of-a-mad-man sorta way.]

… and the cow goes moo

Dun dun duuuuun!

Not surprisingly, the New York Times’ article about the creation of life settlement securities has caused a bit of an uproar within the community of people who can read boring articles about financial arcana and muster a sense of outrage (Naked Capitalism, for one.  As her post title suggests, Yves Smith is seemingly not so bothered about the same issues as Taibbi, predictably, is outraged about).

Nutshell summary of the article:  There are these things called life settlements, where someone takes over, in a manner, someone else’s life insurance policy.  The original policy holder gets cashed out at a reasonable fraction of what the eventual policy payout would be, getting money when they’re above ground to spend it, and the ‘investor’ gets to cash in at the death of the original policy holder.  Especially if the policy holder dies nice and early, which would provide the greatest return on investment.

The financial wizards on Wall Street apparently want a piece of this hot action, and so want to get a vig on every future transaction of this type by creating a market to package and distribute (and, of course, market) these settlements as securities, so more investors can engage in this type of morbid gambling, and I suppose diversify they’re investment at the same time.  All while our surviving major financial institutions collect fees on the securities’ transactions.

Get it?  Good.

It’s a rather gruesome subject but actually does merit some consideration on numerous points that the two posts address.

To start off with the sexy (and, in my mind, most obvious point): Holy crap, we’re betting on when people will die now?

That was Taibbi’s response in one sentence.  Understandable response, and certainly my first reaction to the news of life settlements many months ago.  But aside from the obviously repugnant notion that each stroke and heart attack is accompanied by a dark suit on Wall Street doing a fist pump and shouting “Cha-CHING!”

But there is another party involved: the original policy holder (if I keep calling them that, I’ll forget they’re people… an integral component of financial innovation).  As much as the original policy holder may have intended for his or her life insurance policy to ensure that surviving family would be taken care of and the horrific financial turmoil of our wedding-level-extravagant Western burial ceremonies would be less taxing, shit happens.  If those loved ones who were so much the center of concern in the writing of the policy need money a bit sooner than you need eternal rest, a life settlement sounds pretty damn logical.  I certainly wouldn’t want to feel like my rigorous constitution were keeping my kin in financial distress.

And, of course, there’s the less Oscar-bait-plot and much more entertaining scenario: That your loved ones have grown dickish in your declining years and you’d rather their ecstasy from the news of your passing be tempered by the surprise that the beneficiary of your life insurance is a pension fund or numbered company: A drop kick from beyond the grave, if you will.

And having read Matt Taibbi’s articles since he wrote for the now renamed The Exile, the disappointing Buffalo Beast, Rolling Stone Magazine, and his numerous blogs (Alternet and The Smirking Chimp no longer gets updated since he moved to True/Slant, it seems), and having read even a few of his books, I can safely speak as much as for Taibbi as he could himself:  Taibbi LOVES that dropkick from the grave scenario.

So why the hate, Taibbi?  Beyond that your arch-nemesis, Goldman Sachs, appears to be prominently involved.  Can’t an old man enjoy the the fruits of his misfortune while he still draws breath?

Now the less sexy and more serious issue is brought up by Naked Capitalism (of course).   And really, how many other blogs would skip right past the whole “betting on granny’s weak heart” component and go straight to:

“On a small scale, this is a useful service to people who are in a bind. But the ramp up that Wall Street intends, of marketing the idea more aggressively and securitizing the policies, is likely to put all life insurance customers at a disadvantage.

The big reason is that many policies lapse (as in the owner of the policy fails to make payments. Those lapses are included in current pricing models. Investors will not miss payments, which means insurance providers will pay out more often than in the past on life insurance policies, which in turn means their profits will deteriorate, which means they will raise rates on everyone.”

[Apologies for the big snip today:  I highly recommend reading Yves' post in full, which goes into detail about how Japan's approach to financial innovation differs and the very practical relevance of Japan's system to a large scale proliferation of these securities]

So Yves surprisingly portrays life settlements, especially it’s wider adoption, entirely in the negative.  I do not mean to disagree with her conclusion that there will be higher numbers of life insurance payouts due to the understandably more diligent payment of premiums by investors, but why is this depicted only as a negative for policy holders in general?  I feel Ms. Smith woefully neglects counterpoint that many of those who have perhaps paid premiums for years or decades and allow their policies to lapse due to distraction (being on your death bed, I imagine, could cause that) or due to financial stress (being on your death bed, I imagine, could cause that too) are able to obtain a healthy portion of their eventual payouts.

Due to life settlements’ wider adoption, many more are likely to receive a partial payout rather than pay premiums for years only to fail to maintain coverage at the very end.  Insurance companies will lose profits as a result, and will likely pass on leaner profits into higher premiums, but these profits are a direct transfer to financial institutions and investors (perhaps not a very sympathetic group at the moment), as well as the elderly and their families who find themselves under financial strain.

Is that so awful? [Aside from the whole rooting for death's speedy embrace of a financially desperate stranger thing]

… and the cow goes moo

For those who are still waiting for their issue of Fraud Magazine in the mail, Bob Morris at Polizeros produces some rather shocking excerpts from their article about Harry Markopolous.

My favorite excerpt:

“Her supervisors told her to stop her Madoff inquiry and work on mutual fund investigations instead. Her supervisor was Branch Chief Mark Donohue, who answered to Eric Swanson, director of the department, according to Post reports. Eric Swanson is the one who later married Madoff’s niece.”

Alliances formed through marriage.  How old-timey.

(Note to self:  Father many attractive daughters and marry them to the dim-witted and morally-suspect guardians of the nation’s wealth)

At least that relationship hasn’t escaped the scrutiny of law enforcement, according to the Wall Street Journal Law Blog.  No news yet on whether or not Eric Swanson managed to marry off a daughter to a higher-up at the SEC or the Justice Department in-time to save his skin.

Check out the article and Bob’s post if you find the whole “Bernie Madoff stealing tens of billions of dollars over decades with no real scrutiny by law enforcement” thing interesting.  It’s nice to have a blogger whose partner is a Certified Fraud Examiner who reads something like Fraud Magazine.

Though I do wonder how Markopolous feels about posing for a magazine with a big “FRAUD” over his head.  I guess it’s a good thing the magazine probably doesn’t have much newstand presence.

… and the cow goes moo

Or so I can only assume reading this article on ESPN.com about our latest, greatest acquisition:  The over-rated chucker who shot 42.7% and scored 15.8 ppg during the just-completed playoffs.  Bravo, Bryan Colangelo.  We’re now ready to compete against powerhouses like Maccabi Tel Aviv and CSKA Moscow.  We need clawback provisions now for both Colangelo’s Executive of the Year and Sam Mitchell’s and Coach of the Year awards…

During the deepest recession since WWII, with something like half the teams in the NBA losing money (some like the Indiana Pacers losing in the neighborhood of $30m per year), the overpaid-at-$6.864 million Hedo Turkoglo decided to opt-out of the final year of his contract and ask for an offensive $10 million per year.  This, despite displaying clutch but overall middling offensive prowess during the season and his playoff run, disappearing during some of the biggest games, and playing defense with a level of effort that made Pau Gasol look like Kevin Garnett.

And which group of jackasses apparently actually pays his asking price? My hometown Toronto Craptors.

To top it off, Hedo Turkoglu is an unathletic 30-year old (claimed… but we all know enough to be suspicious of the ages of foreign-born players.  A safer bet may be 32) who now has a guaranteed paycheque for the next five years, despite his stats having declined across-the-board from the 2007-2008 season to the 2008-2009 season.

We not have a starting five of Jose Calderon (one of the worst defenders in the league whose main strength is high-percentage shooting), a yet-to-be-named shooting guard, Hedo Turkoglu (one of the worst defenders in the league whose main strengths are clutch shooting, pushing off to create a shot, and being from Turkey), The RuPaul of Big Men (a mediocre defender who doesn’t want to be in Toronto anymore, tends to be a mismatch for heavier PFs, and whose greatest skill is a very reliable 17ft jump shot), and Andrea Bargnani (who has poor defensive mobility, and whose only real strength is his 3-point shooting).  We might need to add another digit holder for the visitor’s scoreboard.

I can’t wait until 2013 when we’ll have his juicy expiring contract to deal to a team desperate to save money.  Maybe we can get a one-legged Amare Stoudamire in return?

… and the cow goes moo

Barry Ritholtz excerpts a list from his new book, Bailout Nation, listing those most directly responsible for the financial crisis.  It would be easy to quibble about the order of some (really, Reagan just below Clinton?  When you’re trying to make a list of those directly responsible, I would think Reagan would be far below the likes of Paulson, Rubin, and Summers) but there was one entry that I really disagree with:

27. Appraisers (the dishonest ones)

Adding his parenthetical comment makes the accusation appear safe enough, but Mr. Ritholtz knows as well as I do that appraisers make their money only when originators/lenders/brokers send business their way.  Appraisers don’t sell their services direct to the home buyer in any meaningful volume.

And Mr. Ritholtz has been among the most vociferous in pointing out that these companies that order the appraisals, and the individuals at those companies who are compensated based on their mortgage volume, had been incentivized to order appraisals that met a certain dollar value which turned out to be very optimistic during the housing bubble years.

And when the lenders desire overvaluations (Ritholtz points out that they are doing so right now, even to the point of saying the National Association of Realtors and Mortgage Brokers’ Association may be “pro-fraud”) and are the only customers for appraisers, the choice is between providing the highest number in your estimate range or trying to find another job… And I can’t imagine there are many openings within the real estate industry for those with an appraiser’s skill set.

Mr. Ritholtz’s conditional in parentheses does absolve those who left the industry from his scorn, but I would argue it is hardly fair to those who chose an occupation that they would prefer to do in a forthright manner, but were no longer to do so if they wished to stay off the Bad Appraisers quarantine list (which probably has a striking amount of overlap with the unemployment rolls).

(For more on the blacklisting of appraisers that fail to perform in-line with the brokers and lenders’ wishes, please see Calculated Risk’s Tanta’s explanation of the principle behind it)

… and the cow goes moo

I have very little to say about each of these links except that it’s been a glorious week or so of online reading.  I could not bring myself to close these articles from my Firefox tabs without recording them for posterity (as self-centered as I am, it appears I believe widely-circulated articles available on the Internet cease to exist when they leave my screen).

First, from The Atlantic Monthly (yes, I still call it that):

What Makes Us Happy? – By Joshua Wolf Shenk

An excellent, beautiful in that New Yorker-sorta way interrupted (by experiment subject narratives) interview with the man that has been behind the decades-old longitudinal Grant study at Harvard.  It makes me think my Bachelors in Psychology isn’t such a scarlet letter after all.

George Vaillant, head of the study for the past 42 years tries to plumb from the disparate measurements and surveys conducted since 1937 – questions changing to reflect the interests and eras that the study has now outlived – and from the ups, downs, ups and downs again from the cohort of Harvard men the cues to living well and growing up.

The author of the article beautifully ties Vaillant’s near-theology – which often sounds little different than self-help pablum – to Vaillant’s own surprising neuroses and private scandals.  Perhaps in doing so revealing a little known property of Psychologists (and Psychology students) outside of the discipline:  Our interest in mental illness is entirely self-serving.  Physician heal thyself.

And despite the shames of the researcher and the researched, the article lifted my spirits.  The technical feat of the collection, the triumph-against-adversity of the project itself to remain fecund and funded, moreso than even the subjects, is story of a hero.  Even if the hero is a collection of bits and bytes, papers in aged folders, and punch cards stuffed away in some filing cabinet monument in Boston.

Now from Chinese finance and economics magazine, Cai Jing (don’t worry, it’s in English):

Tight Spot for Fed, Blind Spot for Investors – Andy Xie

Mr. Xie provides what seems to me a very thorough and intuitively consistent synopsis of the state of American and international investment, with a US-centricity to his analysis despite the source of the article.

He provides a good anaylsis of the various push and pull forces active in the currency, Treasury, and commodities markets, tying his observations to current action within the equity markets and providing some broad predictions that may give pause to those on the sidelines (like myself) that have been failing to decipher all the noise of the market into something that resembles language.

On Mr. Xie’s implicit recommendation, I think I’ll invest in something loud with two wheels wrapped in Pirelli Diablo Super Corsa SPs.  I think that’s what he’s saying, anyways.

And now for something completely different!

The Ninth Life of a Berkeley Boomer – John Dolan (single page view)

Mr. Dolan always writes wonderfully (though the low-rent site which I enjoy and frequent doesn’t seem to stress spellchecks) and has some especially fascinating insights into the life of the near-literati; the failed writers who became failed academics who became just plain poor.

Here he captures the story of a friend much like himself: talented, but lacking the good sense to slow his pace to stay within the proximal zone of his ‘betters’ that would ultimately judge him and decide his fate.

In its telling, he reveals the life of some of the members of the true American elite: The filthy rich and the chieftains of academia who rule their roosts.  And even to them, a smart person cannot escape subjugation by them.  And a crazy person doesn’t escape their useful purposes.

He describes a secret bit of life that I probably always lacked the talent to access, or at least the high school extracurriculars.  And my entrance essays truly sucked.

… and the cow goes moo

I thought I’d pull together a bit of a collection of points and points of view in regards to the debate on health care.  The debate over health care is probably the most significant political discussion Americans will have during the Obama presidency, so I couldn’t pass up mentioning it.  And it happens to be a subject where I, as a former pre-med student, have more than a passing curiousity.

There certainly is a lot of noise that can be left out of the discussion, but this is one of the most important and appropriately handled political discussions that I have witnessed.  There is a fair ratio of sound-minded opinion and factual presentation to character assassination (very little so far, outside of the usual Obama-is-Black-Lenin talk) and misrepresentation and I’ve been happy to read most of the analysis that has crossed my path.  It’s like I’m in a room full of adults, for the most part.

As a Canadian who is very satisfied with our health care system, even if I am often upset with it’s practitioners and the more general prevailing approach to health care (I was born here and have never had to seek medical attention abroad, so I cannot compare directly), I enjoyed the NYT’s Nicholas Kristof’s (This Time, We Won’t Scare – June 10, 2009) anecdotal example of health care experiences from someone who had to experience both the Canadian and US approaches in succession.  Certainly as anecdotal evidence, it is meant for memorable impact more than analysis, it nonetheless manages to include a very important part of the debate that may be under-represented in statistics:  The experience.

The article points out two very poignant facts that are often overlooked as being perhaps more of emotional value then practical value, but in the field of medicine where impractical emotions can have drastic effects on physiological and behavioural responses to treatment, I would argue the lack of attention to matters such as these represent an ongoing failure of medical practice.

The two facts Kristof (and his subject, Diane Tucker) bring to the fore are: (1) the creature comforts that can be lost in a medical system like Canada’s, where there is less of a first-class and economy-class segregation of medicine (though you can certainly pay to get more even in Canada, the ‘more’ in question is irrelevant to the actual treatment); and (2) the apparent weighting of priorities in the US system, between treatment and payment.

Kristof’s subject, Diane Tucker, pays the paltry sum of $49/m for her health coverage as a Canadian resident (a deal even from my perspective, as a 20-something year old with heart like bull) and for it she receives prompt emergency service and initial response, albeit in less luxuriant quarters and with high school cafeteria-level food and perhaps (depending on what tier of American health care you wish to compare to) longer wait times for health visits required for non-emergency concerns.

The more acute and shocking revelation in the article to me, as a Canadian, is the clear message being sent by medical corporations in America when services are needed:  Before we decide to treat you, we have to be sure you can afford to pay us for it.  Apparently the first thing that Ms. Tucker needed to do when she visited a US hospital was to prove she was afford the treatment she required (or for the hospital to ascertain how much ‘treatment’ she could afford to obtain… I’ll get back to this in a second).  Perhaps I am misinterpreting this aspect of American health care, but to me the message is clear:  Prove to me you are worth helping before you prove to me you need helping.

Kristof spends much of the rest of the short article assassinating (justifiably) the character of some of those spearheading the movement against anything approaching universal health care, which interested me very little.  But the contrast between Canadian and American treatment approaches for Ms. Tucker are worth considering befor ean outcome is reached.  Weigh out the benefits of one system over the benefits of the other before you pick a favorite.  And please keep in mind what medicine should be.

[Note: I plan to continue commenting on this subject over the next bit, as I already have a few other articles and news sources saved.  Time permitting.]

… and the cow goes moo

I think I can respond on behalf of every non-delinquent cardholder in America:  I dare you.

The story is all over, but here’s my usual source’s article (The New York Times):

“Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.

Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies aregoing after those people with sterling credit.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.”

I call bullshit.

Even considering the recent spate of poor decisions that have blown up in the faces of banks and credit card companies, even they aren’t stupid enough to pick on customers who have choices.  Granted banks and credit card companies probably do not make much money on clients who never pay any interest (I think I paid $7.49 in interest on my credit cards in my lifetime… I misplaced my statement once and paid it a week or two late) but they do make money off retailer fees and annual fees.

And who the hell with a good credit score and good income is going to stick with a company that eliminates the beloved grace period, increases annual fees above its competitors, or removes our favorite travel and cashback perks?  We are not the chronically-delinquent cardholders that the proposed legislation is meant to protect: We have options.  And we can take our business wherever we want.

Let’s see how many retailers are willing to pay American Express service fees when AmEx holders no longer benefit from grace periods or card rewards.  And let’s see how many new cardholders are gained from competing companies when the first credit card company eliminates their perks.  If my credit cards no longer offer me any real benefit, I’m more than happy to return to making my purchases with cash or debit and save the retailer some fees.

This is a bullshit bluff meant to stroke outrage among the influential moneyed classes and nothing more.  There is no substance behind this threat and that should be patently obvious.  Let’s see what equally bullshit news organizations pick up on this argument in service of ignorance or the companies that stand to lose should the legislation pass.

… and the cow goes moo