The Safer Side of Bonds?

I had an idea today, and the logic goes as follows:
America's massive debt to China makes us safer. Why? There's reasonably high correlation between the following: really evil people, people who hate America, people who rely on China's economic engagement and/or tacit political support.

During the Korean War, China got involved solidly on the side of North Korea. Since then, a lot of our problems with North Korea are compounded by China's lack of willingness to play ball. But now that we owe China hundreds of billions of dollars, they can't really take sides against us in an armed conflict, and today, the Wall Street Journal reported that China may be willing to consider sanctions as North Korea pursues nuclear weapons. I think China is waking up to their new incentive structure, and we'll be seeing them take steps, if necessary, to safeguard what is essentially their investment in our future.

Alexander Hamilton said "a national debt is a national blessing," and I think we're going to start seeing it in action.

(That said, this huge debt burden may prove crippling, lead to high interest rates, rampant inflation, increased rates of corporate bankruptcy, and rollbacks in services and government programs. But at least China will help keep the nukes away.)

Most Badass TV Character

Calling all Firefly fans! River Tam, a 10-seed in Awesomeopolis's Most Badass TV Character bracket poll, has made it all the way to the finals! After a huge upset by this spunky little badass over a strong 2nd-seeded Jack Bauer, she now faces off in the battle of the brains against Dr. Gregory House. Her opponent uses his brain to fight diseases, and River, well, she can kill you with her brain.

I'm not sure how many Firefly fans I have left reading this blog (I know I used to have a lot more...say hi if you're still out there), but I'd like to endorse River Tam over Dr. House in this match. She has a special place in my heart for a number of reasons (such as this one, this one, a memory or two, and the fact that I nominated her for this contest).

For those of you wondering how these two made it to the finals, Dr. House was supported by a huge community of Hungarian fans of House, MD, and River was catapulted past Jack by a collection of Sci-Fi nerds, Joss Whedon devotees, and lonely guys who think she's cute--all of whom spend way too much time surfing the internet.

More Credit Card Law Analysis

So I did a little more research, here's an update on a few specific provisions relating to students:

PROVISION: Students may not be offered gifts in exchange for completing credit card applications.
RATING: Don't like it, but probably a net gain.
ANALYSIS: This seems like it hurts the responsible people and helps the irresponsible people. There are probably a lot more irresponsible students than knowledgeable and fiscally responsible students, so I think it might be a net societal gain by making it harder to get the irresponsible students addicted to debt, as they say. That said, I don't like the idea of punishing the responsible at the expense of the irresponsible. Just as it's easier for a credit card company to take advantage of a student, it's also easier for a responsible and cunning student to take advantage of credit card companies--by getting free stuff in exchange for what they were going to do anyway (that is, get a credit card and be responsible about it). It also restricts freedom and limits consumer choice. So from a philosophical standpoint I'm opposed to it, and it does hurt people like me, but I think I have to admit that even I expect this provision to produce some slight net benefit for the country.

PROVISION: Universities will now be required to disclose marketing agreements made with credit card issuers. Credit card companies will likewise be required to report donations and other financial transactions with universities and alumni associations.
RATING: Good
ANALYSIS: If a student's school is in a business relationship with the company offering credit cards on campus, disclosing that may take away what a student sees as an implicit endorsement. It reveals conflicts of interest, does nothing to restrict freedom or choice, and provides information to consumers. I think there are great principles involved here, and the only reason I didn't rate it higher than "Good" is because I'm not sure how big a difference this will make. But there's no downside, so it's worth a shot.

PROVISION: "Calls on" the Government Accountability Office to conduct a review of the impact of university/credit card company business relationships on student credit card debt.
RATING: Good
ANALYSIS: No "thou shalt not..." regulation in this part. It just asks the GAO to look into how big a factor these currently unseen deals are when it comes to helping and hurting students with credit, credit cards and debt. The disclosure requirements should make the studies easier to do, and it might provide some insights that make future regulation and legislation better. I'll upgrade this to a "Great" if we also use the opportunity to learn about financial education needs and how to improve that education in this country.

My Credit Card Law Analysis

So Congress is passing new credit card legislation. Some of the ideas in it are good, and some of them are bad. Some of them will help lots of people. Some won't. A few provisions will help some poor people and hurt some rich people. Other provisions will protect some poor people and hurt some other poor people. Here's PiFry's Guide to Congress's Credit Card Legislation Rush Job. Whether you're trying to form your own opinions or sound impressive at the watercooler, this primer of a few salient points should help. Feel free to add your own ideas in the comments.

PROVISION: Banks must send out credit card bills no later than 21 days before payment is due.
RATING: Pretty Good
ANALYSIS: This prevents the old trick of mailing a bill late in the hopes of being able to charge late fee. That trick is unethical and abusive, and 21 days builds in enough time to account for two envelopes making their way through the postal system, plus ample time for the bill payer to get the money together to pay it. Ideally Congress would just outlaw the unethical tactics, but intent is so hard to prove and even harder to monitor, so a day count is the best way to go. I'm not crazy about such a stiff and inflexible regulation, but I honestly can't think of a better way to do it.

PROVISION: Banks generally must wait until a payment is 60 days late before charging the higher penalty rate on outstanding balances.
RATING: Unnecessary, annoying, and too restrictive
ANALYSIS: Why 60 days? Why not 2 months, which would be anywhere from 59 to 62 days? Why not 59 days? Why not 49 days? This is an arbitrary and unnecessary cutoff. If a payment is late, the previous provision kind of ensures the person is actually delinquent and not caught in some trick. I understand allowing some grace period for something like a medical emergency or being stuck in an airport someplace, but 60 days seems excessive. A 30 day limit might help people who need it, but a long 60 limit just lends a helping hand not to the poor, but to the irresponsible. Credit card companies may try to make up the profits elsewhere at the expense of more creditworthy customers, which violates a fairness principle I think most Americans hold when it comes to markets. (As an aside, this regulation could also be bypassed by a penalty scheme that's still legal and yet more complicated and esoteric--kind of the exact opposite of the direction in which this bill is trying to push things.)

PROVISION: 45 days mandatory notice for an interest rate change
RATING: Often good, sometimes annoying
ANALYSIS: It makes sense to require enough notice of changing rates to allow them to plan accordingly. This prevents some abuse. That said, it also rules out cards for consumers who might WANT a frequently-changing rate. If a bank wants to issue a card with a fluctuating but lower-on-average variable rate (or a consumer is willing to trade a fluctuating rate for something more important to them about the card), this will restrict consumer choice. I don't like that, and it potentially costs society some real value. I think there should be some exceptions in the final draft of the bill (I'm not sure if they're talking about it or not).

PROVISION: If a consumer's payment is received by 5PM on the due date, the payment is on time.
RATING: Awesome
ANALYSIS: The only thing this does is prevent a company from screwing with customers by putting a mid-day or early-morning deadline in the fine print. No more charging late fees for having a payment arrive with an afternoon mail delivery, and no more late fees for the postman getting caught in traffic.

PROVISION: Banks will now require customer permission before charging that customer a fee for exceeding their credit limit.
RATING: Very good
ANALYSIS: Currently, a bank can automatically charge a high fee every time a consumer goes over his or her limit (accepting the new charge). From now on, the default will be for limits to be actual limits, and charges will be declined unless the customer gives the bank permission to charge an outrageous fee for a temporary bump of the credit limit. Only downside is for the consumers who don't know they're at their limit, haven't authorized such a fee, and really really really need to charge whatever they're trying to put on their card. But you can't have your cake and eat it too.

PROVISION: When carrying multiple types of balances on the same card (with different rates), banks must apply payments to the highest interest portion of the balance first.
RATING: Very good
ANALYSIS: It was an old trick to say "0% interest for balance transfers!" and let someone put $6,000 on a new card that had a 24.99% rate for everything else. Then even if the customer was responsible and spent $100 the first month while paying $200 on the bill, the credit card company would say "OK, you now have $5,800 outstanding on the balance transfer and $100 outstanding on which you owe 24.99% interest." It was basically a trap to roll all the new spending into a very high interest loan until they paid for the balance transfer. There were tons of these tricks, and now they'll be illegal. Good for consumers--especially less savvy ones--and bad for credit card companies (who will probably take it out on customers like me who always pay off everything). The downside to this comes up when a consumer would want to pay the lower-rate balance off first, though such situations are hard to think of outside of contrived examples.

PROVISION: Promotional rates must last at least 6 months.
RATING: Terrible
ANALYSIS: Promotional rates are marketing. As long as the duration of the promotional rate is made clear from the beginning, we shouldn't force companies into using specific types of marketing offers. This kind of invasive micromanaging helps very little and bans (or makes more difficult to provide) all sorts of offers which could, if used correctly, be very beneficial to consumers. A plain-English disclosure requirement would work much better here.

PROVISION: Issuers can't raise the base (non-promotional non-penalty rate) for a year after issuance.
RATING: Meh, whatever
ANALYSIS: This one probably isn't a big deal in the long run; it does offer some protection; and the above regulation allows the effective rate to change once (promotional to non-promotional), but seriously, let the market decide this kind of thing. If we're requiring 45 days written notice for a rate change, how necessary is this? On the other hand, it could prevent someone from having to change credit cards a lot, which would reflect negatively on their credit rating...in analyzing this I reach an indifference point.

PROVISION: Certain pieces of information will have to be disclosed in plain English and written in 10-point font or bigger.
RATING: Awesome
ANALYSIS: Disclosure regulations are good. Disclosure regulations which mandate important information be presented in a legible and understandable format are even better. These kinds of information include everything from expiration dates on gift cards (and similar devices) to how much it would cost to pay off a balance making the minimum payments. Useful information for consumers presented clearly. Fantastic. Nine thumbs up.

Finally:
PROVISIONS: Young people and students are going to see a very different landscape in a lot of ways. I'm getting conflicting information on what this will entail.
RATING: Hard to say right now, but it's looking worriesome
ANALYSIS: I've heard a lot of reports floating around, but generally it seems like the little ideas are good and the big ideas are bad. Little ideas include more disclosure on relationships between colleges and card issuers and banning certain marketing practices like a university-endorsed booth offering frat boys a free slice of pizza if they sign up for a credit card. Big ideas include forcing parental cosigners for young people, and parental consent for increases in credit limit. My big problem with this: how are young people supposed to develop good credit on their own? Having a credit card was very helpful to me in college in developing a credit history, and it's saved me a lot of money over the years. Those who have their own income can apply for a waiver, but the cutoff age being talked about is 21. This means for 3 years a full American citizen who isn't a minor will be treated like a second class citizen. 21 is a rare age limit, and we use it for things like drinking due to all the extra drunk driving deaths. Is a credit card really that dangerous? Some would argue yes, but they'd be equivocating, and this doesn't sit right with me. This could help protect some, but also hurt and inconvenience a lot of people.

That's the end of my primer; I have to go do other things now. Hope it helped. One last note: I'm hearing a lot of talk about how the credit card companies will jack up fees and cut benefits for responsible card holders to make up the difference...I'm not sure how true that is though. I'm sure we'll see a little bit of that, but at the same time, if credit card companies have to make more money on regular business and less on fees, they may be competing even more vigorously for the big-spenders (after all, the companies do get a percentage of EVERY TRANSACTION that takes place on the credit card as well). I think the effects may cancel each other out, by and large.

My Dramatic Readings

This editorial from today’s New York Times talks about what we have lost by no longer reading aloud to one another (and no longer playing music for one another). I know many who would agree with this piece, and I too agree with the author that such activities had and have great value, ranging from a different kind of literacy and literary understanding to a lost form of familial intimacy. That said, I think that by and large this author is completely wrong.

The first logical fault lies in claiming that aside from convenience, we gain nothing from hearing books on tape instead of read aloud at an in-person gathering and from hearing music recorded by professionals instead of played in a cozy living-room recital. I say that even if it were NOT as convenient, these things could still be considered massive improvements. Audiobooks are often read by professional actors or voice actors, and even the less-professionally done volumes still get the benefit of editing and redoing portions. We are getting a higher quality product. When I read aloud, I stammer sometimes. I don’t always read far enough ahead with my eyes to begin a sentence with the inflection or tone intended by the author. I may be quite deficient compared with the average bookworm of a century or two ago, but even they can’t compete with trained pros who get do-overs and editing equipment. My audiobook is of a higher quality.

And that argument goes double for music. Sure it’d be nice to hear a waltz played on the family harpsichord by my neighbor’s daughter, but does she take requests? She can’t possibly have the 5,000 song repertoire my iPod has, and even if she did, my iPod can learn a new song faster. A collection of friends can’t master all the techniques, songs, instruments, styles, and vocal impressions required to recreate my favorite compositions, and I don’t even think I have enough friends to replicate the London Symphony Orchestra. Which brings me to my next point: the London Symphony Orchestra is BETTER than my friends. Apologies to any musically inclined readers, but there’s no way a social network can match quality recordings of the best the world has ever seen. Metropolitan orchestras, original cast recordings from musicals, historical recordings of bands long gone, and nearly instant access to the best of modern innovation…all these things are at our fingertips now.

Now, I’ll still read to my children. And I’ll play my audiobooks as I drift off to sleep because it’s convenient. But I’ll also play music for my children even when I’m capable of singing to them instead—because I suck at it. And audiobooks read by the author will always have a place in my home, because that out-loud version is guaranteed to better represent the author’s intended inflections, tones and more ineffable qualities. Technology doesn’t stop us from doing these things, but the fact that we frequently choose not to may be telling. Convenience is huge, but so is quality.

We can lament the decline of human interaction brought on by computers, cell phones and iPods, but when it comes to the recitation and recreation of pre-composed prose and music, I’ll accept modernity’s technological embrace over Jane Austen’s contemporary parlors, because not only is it more convenient, it’s better.

Question: Can any of my readers who have taken the GRE tell me how well these practice problems approximate what I'm likely to see on the test? As an incentive, the sooner I ace this test, the more time I'll have for creating quality content on this blog! Also I'll owe you one.

This political cartoon comes from Max Power. It does beg an interesting question: how much difference does there have to be between a successful government program and a ponzi scheme?

My Bag Tax?

The City Council in Philadelphia is proposing a 25 cent charge per-plastic-bag used at a store...small businesses would get to keep the revenue for themselves, larger ones would have to give some of it back to the city as taxes. I'm not sure how I feel about it, but I've been asked by a few readers to share some thoughts, so here's my first-cut analysis.

Some people are asking "why not just ban it?" On principle, government should intervene and ban really harmful stuff, but there's a whole category of other things which provide value, but which people tend to over-consume due to a market failure (a negative externality). This occurs when someone gets most or all of the benefit of an action, but only incurs a small portion (or none) of the cost of that action. The government doesn't want to ban a helpful activity altogether, but it needs a way to keep it in check, lest people hurt society for their own benefit. Governments cap emissions on cars, for example (if cars could pollute more, they'd be cheaper, and drivers would get all the benefit while passing most of the cost onto everyone else who has an equal stake in having clean air). Taxation is a powerful market-adjusting tool if applied correctly...one of the greatest public health measures of the century in this country has been the cigarette tax.

A tax also makes sense because it helps generate money that can be used to help offset the harm caused by the thing being taxed...helping to negate the initial wrongdoing. If Philadelphia put the revenue towards city beautification, cleanup projects, and creating green jobs, it may be better than a ban, which would eliminate consumer choice. I'd rather have the option of bringing my own bag or paying 25 cents for one as opposed to being forced to bring my own bag. A tax is no WORSE than a ban from an individual consumer's perspective...unless a store under a ban would switch to free paper bags and under the tax will just charge for the bags...and now I'll get into the real problem I have with the tax:

It's extremely regressive. Poor people will end up paying a higher percentage of their income, and generally be more shafted, for several reasons. One, they'll be less well prepared for the switch, as they don't read my blog (and other factors). Two, avoiding the charge is an expense and hassle more easily managed by wealthier people: buying good reusable bags would be a substantial one-time expense, and it's a lot easier to use such bags once acquired if you have a car and don't have to take a bus (they'll be bulkier, and must be carried both ways). Third, and most importantly, it's a flat fee tax, that is, everyone pays the same. It won't rise or fall with income or even the value of the items purchased, making it more regressive than even a sales tax, which at least goes down as you buy cheaper stuff. This tax is proportional to the amount of stuff bought, and when it comes to groceries, poor people buy cheaper, but they still need to eat the same amount of food as anyone else. If passed, this may be one of the most necessarily regressive taxes in history. (I say "necessarily regressive" because there are more regressive taxes that target products preferred by poor people, like the cigarette tax actually. But poor people at least have a choice not to smoke; they don't have a choice not to buy groceries, making it necessary to choose between paying the charge or paying to avoid it.)

(OK, now that I've made some good points, I'll go back to being wishy-washy.) The only thing I can think of to mitigate the regressive problem is to require that any place offering plastic bags also offer paper ones, which won't be subject to a city-mandated charge. It's not a perfect solution, and I generally hate the idea of government micromanaging business like that. The whole thing doesn't sit right with me...that said, it is a step in the right direction environmentally speaking and people will adapt to it. On a macro-level, though, I think a national gasoline tax would be a lot better than widespread plastic bag bans or taxes, and I do love my Wawa bags.

Now I want a Wawa sandwich. Who's surprised?

I wish this song could play for me every morning when I get into work...

My New Blog's Shoutout

So this new blogging project with which I may or may not be involved is running a bracket competition to determine the most badass TV character. This competition, primarily conceived and executed by the most badass roommate I've ever had the pleasure of living with, just got a shoutout in a blog on USA Today (7th from the bottom in the post called "Early buzz: Shins, Krasinski, Wanderlust and more").

I'd also like to endorse the Doctor from Dr. Who as the most badass TV character. As a fourth seed, this Time Lord wiped out two whole species, including his own, to save the entire universe. If that's not stone-cold badass, I don't know what is. Further examples of the Doctor's badassery as the competition continues.

While I'm on my Death Star kick, this awesome jack-o-lantern comes courtesy of Lilly.