Economic Stimulus the Esrati way

I’ve heard some crazy ideas about sending everyone a check to try to get the economy going. Unfortunately, that’s a short term salve with a hefty bill.

A simple solution would require the banks (who’ve gotten us into this credit crunch in the first place) to take a bit of a spanking, but, with the Fed currently auctioning off money like a fire sale, we are in crisis mode already.

The simple solution:

  • Cap all credit card interest rates at 18.9%. At almost 4x the fed funds rate, banks should still be able to make money. Along with this, reset all ARM’s immediately to the current prime. With the prime the lowest in years, this should help most homeowners free up some cash to pay down other debt.
  • Stop compounding penalties on credit cards. Either a late fee, an over the limit fee, or an increase to max rate- but not any combination. Also, when cards go over the limit, deny further charges. Letting people continue digging into a deeper hole is criminal.
  • Cap all salaries for publicly traded companies at 1 million, unless the company has increased it’s workforce AND payroll in the United States that fiscal year. If CEO’s want more money, they must take the companies private. No more gambling with shareholders funds. This would be mandatory for 1 year as an emergency measure, reevaluated annually by Congress until the dollar stops dropping and foreclosures ease.
  • Set a deadline of June 1, 2008 for stock trading speculation. After that date, all investments must be held for at least 1 year, without paying penalties of 90% on all capital gains. Volatility of the markets is causing panic and irrational behavior.

To prove a point: Google has not changed it’s business model in the last 6 months- explain this stock chart:

Stock Chart for Google in last 6 months

At some point, the casino atmosphere on Wall Street has to stop. We used to measure by GNP, now, we seem more interested with the DIA and the NASDAQ.

Before anyone starts saying that we have no right to intervene in the operation of public companies, may I remind you that we have bailed out Chrysler, imposed protectionist tariffs to protect Harley Davidson, and allowed the folks at Enron and Countrywide to cash out with huge jackpots while making billions disappear. Unfortunately, it’s these same people who make the millions, that are funding our politicians campaign chests.

These may seem like radical measures, but to the people who are losing their jobs, their homes, their retirement plans- while the wizards on Wall Street are cashing in multi-million dollar paychecks without producing anything tangible, we’re headed for a complete economic collapse. When other countries are considering dropping their currency’s link to the dollar, it’s time we made sure that the buck stops here, before it slips any deeper into debt.

Handing back tax dollars, while going deeper in debt, is a desperate move by an administration that has already hawked the farm and gambled it away. We need to admit we’ve been operating in an irrational mode for the last 8 years and buckle down and start making things and jobs again here in this country.

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22 Responses

  1. J.R. Locke January 20, 2008 / 9:06 am
    I absolutely agree with these proposals Mr. Esrati. The ideas on credit cards is dead on. I think it would also be something everyone can get behind. A very real populist position. Put it out front.
  2. Juan January 20, 2008 / 1:49 pm
    “Cap all credit card rates…” – Most, if not all, states already have interest rate caps on what credit card companies can charge in their states. If you ever bother to look at the fine print on credit card offers you’ll see many of these rates. I hate to break it to you, but credit card rates are generally based on the credit worthiness of person with the card. When I was in college and got my first card, the rate was somewhere around 22% or so because I had no credit history. Now, because I keep my balances relatively low, my rates are substantially lower because I’ve established that I can pay my bills and don’t over extend myself. The higher rates generally go to people that have established that they pay late or not at all. Shouldn’t the banks get a higher return because they are taking a higher risk? By the way, David, why 18.9%? Why not round that up to 19%? Or why not make it 18% so it’s easier to divide by 12 months (ie – 1.5% per month)? Do you have data to support the rationale for 18.9% or is it a number that you pulled out of thin air?

    “Stop compounding penalties…” – What’s the rationale behind this? The penalties are punishing because they are designed to stop bad behavior. I would think that a normal, thinking person, once they have been hit with multiple penalties on a card would sit and say “hmmm, what can I do to avoid these in the future?” Well, if they cared, they would think that. I’ll be honest – I’ve had my share of late payments and my credit scores suffered as a result of it. My work schedule rivals that of what David purports his to be and I’m not the most organized person in the world. But, after making late payments and paying those penalites I sat back to figure out what to do about it. My solution was relatively simple in that I simply set up recurring “reminders” in Outlook that come up a week before each card is due. I could have just as easily mapped out the due dates on an old-fashioned paper calendar if I didn’t have software, but I chose what works for me. The point is, I took PERSONAL RESPONSIBILITY for the situation and rectified it. You are advocating new laws in order that people abdicate their responsibility.

    By the way, banks write off millions every year due to credit card fraud and bankruptcy. Are you in favor of changing the bankruptcy laws to disallow people fully to dismiss their unsecured credit card debt in exchange for lower credit card rates? What about a law that outlaws commercials like the one I’m hearing on the radio 10x per day telling you to call an 800 number to “get out of your high interest credit cards”?

    “Cap all salaries…” – You must be kidding! Oh, no, you’re not. The shareholders and boards of directors of these public companies decide on what the compensation should be. Remember back to your first business classes as to what the purpose of a corporation is – it’s to provide a return on investment to it’s shareholders. Providing (hopefully American) jobs is a side benefit. Trust me, I don’t like to see jobs going to Asia or South of the border either, but that doesn’t all have to do with executive compensation. Unions, health care costs, and a number of other factors are all contributing to this. I know that you keep liking to mention companies like Enron and CountryWide, but these are the exceptions. There are thousands of great publically traded companies that don’t cook their books. Oh, by the way – by how much would a company have to increase it’s American workforce and payroll in order to give the CEO more than $1mil? Will 1 person and $1 do it?

    “Set a deadline of June 1…” – So, what constitutes “speculation”? And why a year? Why not two years? After all, Warren Buffet advocates the old (and wise) “buy and hold” philosophy. You cannot seriously think this is a good idea. After all, conditions change. I might buy a stock with the intention of holding it for many years but the company may begin to tank. Am I stuck with it then? If I see it going down fast, you are telling me “too bad, you’re going to have to continue to lose money.” What if, six months into the investment, I need to liquidate the stock before the 12 months in order to pay medical bills? And why stop at just stocks? How about bonds? How about bank CDs? Those are both investments that have some degree of speculation. ie – if you invest in a CD instead of a stock, you may be speculating that the market is going to continue on a downward spiril for the length of the CD. If the market looks like it’s going to turn around, then you are speculating the opposite and may want to convert CD investment into a security. Why not include real estate as well. Many people speculate in real estate. Look at the housing market out West – that market was increasing by double-digits a couple of years ago. Many people bought on speculation and continued to drive those “values” (actually, prices) up. That’s part of what’s contributing to the housing bust now.

    Why not have to total government takeover of all publically traded companies. HRC has already said that, if elected President, that she wants to “take those profits” of Exxons and use them for something she deems appropriates. That kind of talk brings big cheers at campaign rallys, but the reality is that many of those same people cheering are indirectly or directly invested in these companies via their company, union or trade association retirement funds.

    This irrational behavior has been going on for more than the last 8 years though. As much as you may hate to hear it, it was going on while Bill Clinton was in office as well. Just take a look at the tech boom and subsequent bust. There were people that were investing millions of dollars in companies on just a promise of something big. And, going back to the latter part of the Carter era – I remember that it was possible to take a $1000 investment in something called a cattle future and turn it into $6300 overnight and then all the way up to $100,000 over the course of 10 months.

    I will agree with you on one thing though. I think that government bailouts of companies (ie – Chrysler) is wrong, although it did save a lot of jobs at the time. The government is going to do it again though because of the subprime crisis.

  3. David Esrati January 20, 2008 / 1:59 pm

    You are missing the point- moves by the fed- aren’t relevant to the general public. What we are doing is supporting a very small part of the economy- that least needs it.
    I’m not going to be able to explain it to you- you don’t want to listen. But, I hate to tell you- the cap is at 29% or so- and it’s impossible to pay off at that rate.
    As to the 18.9%- you’re right- it’s a number out of thin air- just like what the CEO of Anthem got in a year- $44 million. Or the president of UHC- $134 million.
    Reality is- these people are cashing in on money that isn’t theirs- and cutting jobs to do it. It may be too late to fix the damage. We have major banks and financial institutions selling big chunks to China and Oil Sheiks.
    Just remember when it comes to the boards of directors- they have proven not to be impartial or above reproach. Otherwise, explain Enron, Countrywide etc.?

    A government which robs Peter to pay Paul, can always count on the support of Paul. – George Bernard Shaw

    Right now, Peter is losing his shirt- while Paul is cashing out.

  4. gene January 20, 2008 / 2:56 pm
    David, when you get in, PLEASE PLEASE PLEASE PLEASE ask that all you honest workin’ Americans in DC get paid $34,000.00 per year – well, mainly because they (and future you) will never get any real s&%t done but also because once you start cappin’ our ass we will be a cappin’ your asses. Oh, wait, that does not apply to politicians. How about you donate your future salaries to the poor. Oh, that is right, it is the OTHER guy that has to pay. Good luck in your Economics class.
  5. Juan January 20, 2008 / 4:00 pm
    Go Gene! (By the way, weren’t you banished from here?)

    David, you obviously didn’t pay too much attention in your Econ classes at WSU! Those moves by the Fed that aren’t relevant to the general public – well those are the moves that also affect the prime rate to which you want to reduce all ARM mortgages to. How does that not affect the general public?

    I am FULLY AWARE that the cap in Ohio is 29%. My point is there is a cap. And the people paying the 29% got there because they bit off and keep biting off more than they can chew. They’re buying things they can’t afford like big screen TVs and furniture on terms like “12 months same as cash”, not paying any attention to the fact that the 24% interest rate is RETROACTIVE TO THE PURCHASE DATE when if the balance isn’t paid in full in 12 months. These pesky little terms are spelled out in big print (as per Fed regs) on the lending agreement, but people choose to ignore them. And if you can only afford to pay the minimum, then you shouldn’t be buying stuff anyway. But people know they can get out of having to pay it by declaring bankruptcy, ignoring collection efforts, etc. and they just don’t care. So, maybe the solution to this is to have a federal law that caps all consumer lending to either a flat dollar amount per person or to some provable percentage of a person’s income? That way people can’t get in over their heads, the banks will have less to write off (so they can make the same bottom line without having to charge more than 18.9%), and bankruptcies, foreclosures and other financial emergencies will lessen.

    As far as me not wanting to listen – that’s crap! I am always willing and eager to listen to other points of view. But you’re just spewing rhetoric that gets back to excusing people for their behavior. And you are coming up with positions that have you as “Paul” in the GBS quote above – ie, the people in the wealthy Montgomery County suburbs (Peter) should be made to pay for DPS schools (Paul) since it’s somehow “our fault” that DPS and Dayton are in such a mess. What a load of crap!

    It all comes back to personal responsibility. I have taken responsibility for my own finances in order to pay my bills and not over extend myself. I buy used cars instead of new, I save and pay cash for most things and while I do charge things, I pay off my balances quickly. Others can and should do the same.

    As far as the boards at Enron and CountryWide – they are the exceptions. That’s why it’s news! And, Anthem and UHC – I would imagine in the last 12 months both of those companies increased their US headcount and payroll, so according to your new proposals, those salaries are OK!

  6. J.R. Locke January 20, 2008 / 4:04 pm
    Juan between 50-80% of all American households live paycheck to paycheck. Rarely do they choose to mispayments or just forget. Most families I know juggle money to make monthly payments, especially when an illness hits. That is why those penalty do not deter customers from the action or lack there of.
  7. J.R. Locke January 20, 2008 / 4:16 pm
    “It all comes back to personal responsibility. I have taken responsibility for my own finances in order to pay my bills and not over extend myself. I buy used cars instead of new, I save and pay cash for most things and while I do charge things, I pay off my balances quickly. Others can and should do the same.”

    Classic, straight from the conservative play book. Wish it applied to all those other things that they try to get their hands on. Like all my children’s money for wars or all this pesky law enforcement for recreational drugs.

  8. David Esrati January 20, 2008 / 4:17 pm

    Juan, and when the people can’t pay, and the banks go belly up- who bails them out?
    It’s time we hauled back on the credit availability. If you are late, stop the approvals.
    As to why they are late, I guess you don’t ever get sick, downsized or have something else crop up.
    The rates on credit cards haven’t dropped since the prime has dropped.
    The rates on ARM’s that are out there- hasn’t dropped. Yet, the fed is going to drop the prime again, forcing the dollar even lower- to try to do what a simple reset of the ARMS would do. Mine resets in April- reset it now- and save me about $300 a month.
    I actually did pay attention in Econ.
    We will continue to have a difference of opinion, but, no where do I think it’s OK that any CEO get paid $100 million in a year- that money doesn’t belong to him, it belongs to the stockholders.

  9. David Esrati January 20, 2008 / 4:20 pm

    And right now, the Government is considering yet another robin-hood type boondoggle, handing out checks to the tune of $100- 150 BILLION to the taxpayers to undo this mess.
    That sure doesn’t sound like the Government staying out of things.
    We’ve been hemorrhaging jobs and running a dangerous trade deficit for too long. It’s time we started rewarding the on-shoring of jobs, and fiscal responsibilities of big business.

  10. gene January 20, 2008 / 4:39 pm
    CEO’s are paid too much so don’t buy the stock. I don’t see too many people complaining about this except for the Liberals who don’t have a stake in these companies – and if you do, get out. In other words stockholders are happy when they see a return, bottom line. And if they see a return, they don’t care too much how much someone is paid so long as they are paid. IT IS NOT YOUR MONEY – PLEASSSSSSSSSSSSSSSSSSSSSSEEEEEEEEEEEEEEEE READ THAT AGAIN – IT IS NOT YOUR MONEY – so keep your hands off it. We have way bigger issues than this, but one man’s wealth is another man’s worry. Why do people love MY MONEY more than I love MY MONEY – hell, I am the one who work so hard for it, why is everyone else drooling over it. Do you want to drool over my house as well – too many square feet for all the urban folk ?

    Juan is right – Americans buy stuff they can not afford – they need to change first.

    You need new tag lines David – I like the bit on another man’s wealth or something about “Your Personal Responsibility is the Government’s Responsibility – 2008!” or other fun/hand holding cheers for your run in 2008.

    I just want to know what you want me to do with MY MONEY? I don’t mind over paying people, hell, it is the Democratic way!

  11. gene January 20, 2008 / 4:44 pm
    BTW I oppose handing out checks – that I do agree with David on – unless the check is for several hundreds of thousands of dollars, then they can write me one.
  12. David Esrati January 20, 2008 / 4:51 pm

    Gene, your argument doesn’t hold water. All Americans own stock- because our government invests in securities- and sells bonds on the market.
    Ever wonder where the State invests it’s money? How about PERS? How about the insurance you buy- it’s backed with stock. Your myopic understanding of how markets work in a macro sense is why you don’t get any of this.
    Everything is linked together- in a crazy, very intricate way.
    The markets have to be stable in order to not have inflation, depression, recession, stagflation or economic meltdown- which is what we’re headed for without serious intervention.
    The other candidates are whistling dixie. Please, Gene, Juan, head over to Mike Turners site and ask him what he’s going to do?

  13. Juan January 20, 2008 / 5:33 pm
    Head over to MT’s site??? Am I not welcome here anymore, David?? :(

    Actually, we do agree on a couple of things – mostly that we disagree! ;) But, like you and Gene, I also oppose handing out these checks. The trade deficiet has been going on too long so we need to do things (like revamp the oppressive corporate tax structure) to make it attractive for companies to stay here. And you’re right – the government isn’t staying out of things (re: the checks) but I never said they were. My points were that you were calling for EVEN MORE gov’t involvement in the free market.

    Also, we agree that credit card rates don’t generally fluctuate with prime, but ARMs do and they are usually adjusted annually (DE’s in April, mine in July). Those are the TERMS OF THE CONTRACTs that we and the mortgage company both agreed to David. If you don’t like the terms, get a new mortgage, but don’t expect the nanny government to come in and do it for you. I am looking at refinancing mine at around 5% soon, but I may wait a bit longer to see if rates drop more.

    I also think that the gov’t should start cutting back on earmark spending and also cut back on a lot of other fat. I oppose most set aside contracts (I think we might agree on that one too, David) I think that congressional staffs should be cut. I think that there should be term limits as the congress isn’t doing a good job of this “citizen legislator” thing that I think the founding brothers envisioned. I think that the government’s main role should be funding infrastructure and national defense. I don’t think it’s the gov’ts role to pay for or provide healthcare (or healthcare insurance) but these are topics for another post.

    RE: JR Locke’s comment – I know you meant this as insult, but, thank you. My comments may be straight from the conservative playbook, but I live by them. And I do agree with you on the war on drugs – it’s pointless and costly. Set up legitimate dealers and tax them and set up treatment centers. Treatment works much better than prison.

    Like David, I am a small business owner and I have been sick before and not generating income. I don’t have rich father or grandfather that sends me money to keep my business going. At one point, following the tech crash, I went for almost three years without a regular paycheck – making sure my employees (as well as their health insurance) were paid before I took any money home. I juggled paying business expenses and my mortgage, often going to the bank at 5:00 on the last day of the grace period to make that payment. I took out a considerable amount of money from the bank and did use credit cards more than I should. And in the years following the tech crash I’ve been working my ass off to pay those cards and loans off as well as trying to prepare for the next 12 months or so as we weather this little downtown. In the past I’ve qualified for subsidized daycare (but didn’t pursue it) and qualified for the earned income credit (took that one!) I could have probably gotten food stamps as well, but never looked into it. Instead I focused on bringing more work into my business. Prior to getting my college degree I worked blue collar jobs. I was laid off twice but never collected unemployment. So, yes, I know just a wee bit about struggling to pay bills. So, JR, get off your high horse with your snide comments like “classic, straight out of the conservative playbook.” Maybe if everyone took care of their own house we wouldn’t even be having this discussion.

    OK, let me climb down off that soap box. I was getting dizzy up there anyway! ;)

  14. David Esrati January 20, 2008 / 6:10 pm

    Juan, you are welcome here- but, I’m trying to get elected. Find the things you like.
    I’m suggesting forcing the reset of the ARMs now- instead of dropping the prime again. It’ll have a greater effect on stimulating the economy in a hurry- and won’t cost the taxpayers. The banks are buying money cheap in auctions from the Fed- in order to do that- they need to work with us a bit.
    Same on the credit cards. A little adjustment, and voila- the public can feel better, without spending 150 Billion.
    That’s all folks.
    Simple stuff. Stop reaming me a new one. Turner is sitting pretty with his big buck financing (see Jeffrey’s research) – I’m doing this on a shoestring. Can I have some credit from you guys? Please?

  15. Juan January 20, 2008 / 11:37 pm
    OK, David, I’ll back off a little bit. I’m just trying to get you ready for the crap that MT will start throwing at you after March 3. From now on, when you come up with a policy proposal that I think is outrageous, I’ll just post an “ARGGHHH!!” ;)

    Try to find thinks I like – Well David, I like your chutzpah! Or kahuna’s! Or whatever else you want to call it!

  16. Juan January 20, 2008 / 11:37 pm
    “thinks I like” – I meant THINGS I like. I gotta get some sleep!
  17. gene January 21, 2008 / 12:20 pm
    I understand the economy, but in the end stockholders are the people who need to complain, and not too many of them are complaining….. as far as I can tell. Your problem is that you want to spend other people money – the monies paid to a CEO do not necessarily go to stockholder or employees, nor does a company have to have any employees – it is not required for companies to employee people, something you fail to realize. Keep it simple David, bc when you lose you have a lot of complicated excuses.
  18. Bruce Kettelle January 21, 2008 / 1:39 pm
    “I think that congressional staffs should be cut.”

    Juan, what did you base this statement on? Are you suggesting that congressmen anwer all their own mail? Do all their own research?

  19. Juan January 21, 2008 / 2:31 pm
    Well, like David I like to pull stuff out of thin air! ;)

    Actually, I am not suggesting that they do all of their own work, but I think that a lot of these staff positions are “favors” and do not necessarily entail “real work.” Do I have any studies or stats to back it up? No, I don’t – it’s just a feeling based on observation over the last 20+ years that I’ve been politically interested.

    As far as doing all their own research goes – I think that may not be a bad idea. The way to accomplish that would be to limit congressional bills to one “topic” or law instead of all of the embedded crap that gets put into various bills (especially funding bills) now. Maybe if they did their own research, they might actually pay attention to what they’re voting on instead of relying on the word of staffers. After all, didn’t we send these guys to DC to act in our interest?

    I’d be interested in your comments though, Bruce. Maybe I’m way off base on this?

  20. Bruce Kettelle January 21, 2008 / 6:39 pm
    I lived in DC for awhile and knew a guy in his twenties that worked for a senator’s office. Long hours and mundane work was his typical reply but he worked on the “hill” and was proud to have that on his resume. Most don’t make a career out of it, just a stepping stone. Here’s some facts about how many there are and how much they make.

    FYI he spent about 110% of his time answering constituent mail and he wasn’t the only one doing so in his office.

  21. Juan January 21, 2008 / 10:21 pm
    THANKS for the info, Bruce.
  22. J.R. Locke January 22, 2008 / 7:50 am
    Juan clearly my comment was not meant as an insult since you and Gene both tend to talk about typical conservative supply side economics and personal responsibility. Insult? Just making the obvious(like Gene when he calls people on here the big L word). No go J.R. go for me?

    Now credit cards may have all the writing in the contract but what happens when you lose your job because of a change in your industry? Is that American’s simply spending more than they should? What happens when your real wages(and anticipated real wages) do not increase or even keep up with inflation or real expenses(like the price of transportation).

    When anyone makes a budget they can try to predict what will occur, sometimes it works sometimes it doesn’t. But to say that Americans spend too much….doesn’t that go completely against what we heard from our president after 9-11 or during every holiday season? Isn’t our rampant consumerism what keeps us moving forward in a growth economy. Wouldn’t American frugality cause a complete collapse of our current economy….just saying.

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