How to solve the financial crisis- really.

While Dayton is feeling the brunt of the foreclosure crisis- fundamental financial problems are going to plague our country until someone steps in and does something. Today, Fed Chairman Ben S. Bernanke did his part dropping the discount rate half a point:

Fed Changes Direction With Rate Cut

Saying it now feels that the recent disorder in financial markets has raised the risk of an economic downturn, the Federal Reserve today approved a half-percentage point cut in its discount rate on loans to banks. The move sent markets surging on Wall Street and in Europe…

The cut today in the rate applied to banks that seek funds at the Fed’s so-called discount window appears meant to assure banks that may be having trouble raising money that the Fed will do everything in its power to ensure cash is available at low rates.

Unlike a change in the federal funds rate, a change in the discount rate does not have a direct impact on consumers. The federal funds rate influences everything from car loans to mortgages because it affects how much banks charge each other when they borrow money. The discount rate, however, applies only to banks that are having short-term financial difficulties.

But, that isn’t going to stop Joe-Bob and Mary-Jo from losing their home, or worse. The real problems are three-fold:

  1. Our dependence on foreign oil
  2. Our dependence on cheap goods made in China and elsewhere
  3. Our crazy credit card policy

Since we can’t fix our infrastructure to move to public transit or energy efficient vehicles- and since the people with the oil still like to buy guns and planes from us- the first one will have to sit.

Number two- well, as long as we continue to let CEO’s make 400x what their workers make, and reward offshoring of jobs- that too, will have to sit. Just a note to college drop-out billionaires like Steve Jobs and Bill Gates: if you keep sending your money over to China to get cheap labor, one day, all those American dollars may come back into the market and buy your companies: note, ask IBM about Lenovo.

Number three: Could be solved tomorrow. When Joe-Bob is late on his credit card payment, current practice is to bump up his rate to 29% and leave it there- along with allowing him to continue to charge. Change this policy- and Joe-Bob may be able to make his mortgage payment. Interest rates over 25% used to be illegal. Now, they fund crazy bank profits. Instead of playing with the Federal Funds rate or the discount rate- Congress could cut 10 points off every Americans credit card bill and the economy might go into high gear. The policy has to change to one of counseling and restricting use when consumers can’t make payments- not increasing the charges. Make this change, and you’ll be a lot closer to smart financial policy that is sustainable.

Of course since the guy who gets hit with this penalty doesn’t lobby Congress- nothing will happen to help him.

If you enjoyed this post, make sure you subscribe to my RSS feed! If you wish to support this blog, please head over and use our services at The Next Wave Printing for all your printing needs. We have 4 Color Business cards starting at just $13.50.

16 Responses

  1. PhotoJim August 17, 2007 / 3:18 pm
    The problem you’ve identified with credit cards David is another symptom of the disease of predatory lending, right along with sub-prime mortgages. Nearly everyone has to get their piece of the action – bankers, brokers, brokers to brokers, etc., etc. – all overpaid do-nothing’s who don’t give a crap about the victim, the consumer on the street who is forced into foreclosure, bankruptcy or worse. We have too many people out there who consider manipulating and stealing to be actual “work” worthy of their grossly inflated salaries and stock options. And if you call them on it, well then “you are the one with the problem.” There are still plenty more Enrons out there, more than we would like to admit. Underlying our looming economic crisis is a far more serious problem – that of us as a society and where we place our priorities.
  2. gene August 17, 2007 / 6:27 pm
    The Photo man is right on, these companies are a HUGE problem. But we still have to put some blame on the people who sign the paper work – not all of them are innocent, some are just plan stupid. The same stupid people who sign paper work and fail to read and understand the agreement also have too many kids they can’t pay for, go job to job in search of some bullshit American dream, and pay to much for, well, everything else in life – like eating out too often, buying brand new purses and tickets to ball games they can’t afford, buying a brand new shiny car, purchasing cigarettes before the bills are paid, etc…… it does work both ways, and accountability on both the lender and borrower need to be addressed.

    A perfect example is a buddy of mine, I will call Davis, who has been in HUGE debt for 10 plus years. He just got out of debt, and then what did he do…….. two new TVs, new house, new this and that, right back to where he started. Life, and money, and being in debt IS NOT A GAME. But too many people act like it is a game.

    Our society does has misplaced priorities, but that includes those who are lent the money. Do a better job of managing your OWN LIFE, and maybe such shit companies shall vanish into thin air. Just a thought.

  3. Bruce Kettelle August 18, 2007 / 9:28 am
    How much leverage does this first time homebuyer really have as an individual? How can it be fair for that individual to be responsible to be able to understand all the details an army of corporate lawyers have constructed to protect the lender from every angle? Would a lender ever sign a loan agreement drafted by the borrower?

    Protectionist legislation should not favor either side but it does need to fairly represent the under represented individual that is lured to the table by corporate marketing in their chase for the American dream. Clear understandable terms provided well in advance of the ‘closing date’ are still not the norm for borrowers. Too many times I hear about all the paperwork provided right before closing that is so detailed a ‘non-lawyer’ feels there is no choice but to accept the complex terms. With all the deadlines of the closing (movers, home inspection, taking time off from work, etc) to meet the date in the sales contract the individual should have the benefit of government oversight, regulation, and protections from of the lending industry.

    As for credit cards and payday loans there should be a reasonable cap on fees and rates otherwise these companies will act little better than mafia styled loan sharks. The ‘Game’ Gene refers to is not that played by the individuals, it is the one played by the odds makers at the loan companies. They create high fees and rates to cover the costs of loans made to risky customers that cannot repay. Then all the legitimate borrowers end up paying for those bad loans that should have never been made in the first place. That’s taxation without representation.

  4. gene August 18, 2007 / 11:28 am
    You are completely right – but the GAME I refer to is buying shit you can’t afford and staying out of debt – maybe you should re-read what I wrote. People spend too much money on eating out, shoes, football tickets, etc……. this does not involve “complex terms” – T

    Therefore, if our little r’neckie friends want to purchase a home, they should, BECAUSE IT IS THEIR CASH, THEIR LIFE, put money down, read the terms, and pay the house payment before cigarettes, beer and Buckeye tickets. And if they don’t understand the terms, they should have stayed in school OR do what most other people do, CONSULT your smartest friends, people in the business, elders, or even an attorney. And if they don’t have such people in their life then they are too stupid to be buying a house – most of these people refuse to surround themselves with smarter people, think their ‘pack of smokes’ is a necessity and ‘hangin’ with their homies’ is a right, rather than buckling down and taking, oh say AN HOUR OR TWO OF THEIR LIFE to read the most IMPORTANT AND RELEVANT PAPERWORK they will ever sign. These companies DO suck, but personal responsibility, to all you liberal folk, needs to be apart of a normal, functioning and productive person. Sorry, I have standards that YOU people don’t actually take seriously. Keep promoting your ‘hand out, bail out” arguments, so our country can be filled with non-responsible, non-productive losers who are to lazy to read or consult people about their own life. Maybe these people need to take a little personal ownership of their own life, God forbid.

  5. David Esrati August 18, 2007 / 12:10 pm

    Gene, you are being an ass.
    There are perfectly good, smart people, who are paying for medicine and food on credit cards- because they get laid off from their job where they were making decent money- but not enough to pay the CEO 44 million in one year.
    Not everyone is a beer-swilling, tobacco chewing, redneck, buying big screens.
    I’ve got a bachelors degree. I’ve bought 5 pieces of real estate- and trust me- the amount and number of forms keeps growing- and the details keep getting more screwed up. And even with paying a “title company” and buying “title insurance” somehow- a lien still popped up after the fact- so, guess what- the system is borked.
    Credit card companies change the terms all the time- with notice- but no real options for their customers- since all of them are regulated by the same three “credit rating” agencies- and if you shop around- and apply for different cards- then you are dinged for having too many inquiries. I can assure you the same rules don’t apply to me- as applied to Ken Lay- and he’s a crook.
    One day, I hope I’m perfect like you Gene.

  6. gene August 18, 2007 / 3:10 pm
    I guess I just do a better job of managing my own money and my own life. Somehow, some way I came up with the idea to take personal responsibility of my own life. And, yes, I am perfect, so thanks for noticing. I am tired of people not taking care of themselves, always looking for a hand out or bail out. You, more than anyone, just proved my point. WE KNOW THEY ARE CROOKED – WE KNOW CC COMPANIES ARE A PAIN – WE KNOW TITLE COMPANIES GIVE YOU FORM AFTER FORM – so YOU chose to deal with them – there are other ways. The mask, my friend, makes you an ass hat.
  7. Bruce Kettelle August 18, 2007 / 3:12 pm
    Dave don’t worry about Gene. He’ll never miss a house payment or skip out on a credit card bill. In fact I’m pretty sure he grosses about $150K so maybe he should be taking all of us out to dinner once in a while.

    The part he keeps coming back to is the example of the borrower that keeps borrowing when he is already behind or over extended. The point I am trying to make is that the company see’s those people as an asset they can apply high fees and rates to. But when they do default it becomes my problem as my preferred rate creeps back up to pay for those losses. I would rather not pay for other peoples mistakes. If the lenders want to keep loaning to Gene’s friends (I have no choice in the matter since they all seem to do it) then maybe someone needs to tell them not to. Since I’m just a little guy with only one attorney then I would expect state and federal government to represent us in that matter with well defined legislation and not legislation written by the lender’s lobbyists.

  8. David Esrati August 18, 2007 / 3:19 pm

    Gene: Never refer to me as your friend.

  9. gene August 18, 2007 / 3:19 pm
    How did you know I make over $150k ? Again, you are all correct in regards to these companies – thanks again – We all know they are out to fuck us, just keep spreading the word so everyone understands they are trying to steal from you – you are all right – now, with that being said, knowing that these shits exist, DONT DEAL WITH THEM – I DONT – THERE ARE PLENTY OF REAL COMPANIES DOING HONEST BUSINESS – DO YOUR HOMEWORK. But, people won’t BC they are too lazy. YOUR LIFE, TAKE CARE OF IT YOURSELF. Now do you guys are a clue how it works, or do you still want you hand held while you take a piss. Grow up an act like adults.
  10. gene August 18, 2007 / 3:28 pm
    Your FRIENDS and NON FRIENDS think you are an ass hat. BTW, it is an expression, but your too much of a genius to figure that out. David, do you take responsibility for you own life? I think so, and I expect that from others, my friend.

    Have a nice day my friend. I hope you have a nice dinner my friend. David Esrati like to wear a mask. Happy typing my friend

  11. Greg Hunter August 19, 2007 / 2:56 pm
    Back to the Financial Crisis – Short and Sweet. From the time of the Erie Canal, the scammers in NY have set up ways to route hard earned food/money from the American Interior through the fleecing capital of the world NYC. The boys in NY have convinced the American people and now the world that the Stock Market is a good place to measure the progress of world business. To me it is nothing more than leveraged buyout of the world’s resources to promote an unsustainable lifestyle. Do yourself a favor and never vote for anyone from NY. Unfortunately, Ohio is the new Alabama and our pols have Guiliani and Clinton in the lead. Damn! Ohioans are a dumb bunch.
  12. PhotoJim August 20, 2007 / 9:45 am
    Yes, each of us must accept responsibility for our own choices in life, but unfortunately for some of us those choices come at a time within our lives when we are most vulnerable, inexperienced and most trusting, which usually falls somewhere during our 20’s. The true sin of the system are those who deliberately take financial advantage of another’s trust, lack of experience and education and lack of knowledge and access to the resources available to them. And this occurs in all levels of society.

    Ultimately the responsibility for the problem lies with those who should no better but choose instead to go after the quick and easy $$$$’s.

  13. gene August 21, 2007 / 10:46 pm
    Ultimately we must blame someone else for our problems. David Esrati blames the city of Dayton for most of his problems, the state of Ohio for his other problems, and of course George Bush for all the world’s problems. Yes, I see what we are getting at here – it IS EASIER to blame other people. Gosh, this is fun.

    I blame David Esrati for not making the city of Dayton a better place. Yes, he tries. But, ultimately, he has not done enough to help Dayton. I don’t see any real change. I blame David Esrati for this, as well as all the DPS teachers, and the mayor and commission. Not the citizens – they have rights.

    I blame the bank when I write a check and don’t have enough funds to cover said check – I also blame every teacher I have ever had for not making me smart enough to add or subtract. I also blame those same teachers for not teaching me what the state capitals are, and when I had to go to state court, well, I ended up in Toledo.

    I blame mother nature for making my flowers die, even though I have a hose.

    I blame PhotoJim’s parents for giving him the funny name PhotoJoe.

  14. David Esrati August 21, 2007 / 10:59 pm

    and everyone is blaming me for giving Gene a soapbox.
    Damn.

  15. gene August 22, 2007 / 9:38 am
    Keep pointing your finger David Esrati – It is easier to blame other – see 98% of you posts/topics. Thanks for being David Esrati.
  16. PhotoJim August 23, 2007 / 9:28 am
    oops, I meant to “know” when I wrote “no” in my previous post. My bad.

    Gene, PhotoJim is my registered user name for posting on WordPress blogs. My real name is Jim Crotty. Click the “PhotoJim” and it’s not too hard to figure out.

Leave a Reply

Your email address will not be published. Required fields are marked *