Saturday, May 30, 2009
Friday, May 29, 2009
Of course, the biggest change is going to be the rationing of credit at the high-risk end of the spectrum. Since the legislation limits the degree to which installment credit providers can recoup losses and offset risk with fees and interest rate changes, many lower-income or poor credit-risk consumers will simply be denied this source of credit at any price.
To those who would argue that this 'protects' such low-end consumers, let me remind them that nobody put a gun to anyone's head and forced them to accept and use installment credit. Charge-offs by banks of balances on excessively-risky accounts were the banks fault. But the incurring of the debt, and related fees for delinquency, etc., were the responsibility of adult consumers.
As an aside, this would seem to be an odd governmental policy in the midst of a recession, since consumer spending will, as usual, be a major engine of growth at some point. With less credit, there'll be less spending sooner.
At the other end of the spectrum, lower-risk credit customers now may see the return of annual fees on bank cards, as well as the disappearance of the 'grace' period. In return for harsher regulation of riskier credit consumers, the issuers were given leeway to eliminate that free 30 days in which a card user may carry a balance that is paid off in full by the required statement date.
I discussed this with a colleague recently, comparing thoughts about how this will cause unintended, currently-unforeseen consequences, as legislation like this typically does.
For example, in the last few years, probably like many of my readers, I've agreed to let some vendors apply a monthly charge to my credit card. Services such as a fitness club, TiVo, an online service provider, and Netflix, to name a few, use this business model.
Consequently, I would have an average monthly balance of over $200, which is currently paid in full, since I'd just as gladly write checks for these recurring expenses. In a world with no grace period, and a 20% annual interest rate, these charges will result in roughly $40 of additional financial fees. Add a $50+ annual fee, times two cards, and I might be looking at an additional $150/year of installment credit-related fees, with no change in my own financial behavior.
Multiply my experience by a few million consumers, and there'll be impetus for change.
My colleague thinks that several of these monthly services will quickly move to an annual, check-paid discounted fee option. The larger vendors, such as the fitness club, will probably offer a private-label credit card on which to charge their own service, at no annual fee.
Either way, though, there will be inefficiencies. In the case of the discounted annual fee, the funding is simply being moved back to me, with a small interest rate paid, via discount, for me funding the vendor for an extra eleven months.
In the case of the fitness club and any other vendor large enough to offer a private credit card, there's the added time and expense of writing another monthly check, plus stamps, which are no longer trivial.
Having worked at Chase Manhattan Bank for many years, I've always been leery of allowing direct access to my DDA account by vendors. If there is any problem whatsoever, the bank employees have zero motivation to make sure it is resolved. Any resulting damage to my credit rating will be borne by me, not the bank, nor its employees, and I'll have to spend my time to clear that up.
Thus, the net effect of this new installment credit legislation is likely to be substantially less credit extended, at any price, and a much more inefficient use of, and payment for credit by those still possessing revolving charge cards.
Hardly economic progress, is it?
Thursday, May 28, 2009
According to the article,
"the company was prohibited by the Treasury from offering these investors a larger GM stake."
Curiously, the Treasury must have then mandated the UAW's 17.5% share, and the government's retention of the remainder, in conjunction with various Canadian government and union interests.
Once again, we see the heavy hand of federal coercion, once it gets its hands on private property. Treasury quite obviously played favorites, by giving the UAW, a key political ally of the president's party, a larger share of the resulting GM than that allotted to bondholders.
More to the point, the bondholders' failure to accept the proposal sends GM into bankruptcy court, which is where it could have been way back in the fall of 2008, or sooner, had obstinate, now-departed CEO Rick Wagoner faced up to reality a year or so ago.
In the meantime, GM has consumed north of $15B of taxpayer funding, all while careening toward Chapter 11.
In decision theory terms, this makes both Wagoner's reluctance to file Chapter 11 in 2007 or 2008, and the Bush administration's decision to provide a bridge loan in late 2008, mistakes.
Since GM will ultimately land in bankruptcy court, all of that time and money was, in effect, wasted. Other people's, i.e., taxpayers, money was used to propagate a dead, value-destroying enterprise.
This was never a wise idea. Surely checks could have been written to individual hourly workers for less than the total current outlay of money to GM, since the stated concern by then-President Bush was Depression-scale unemployment, should GM have gone bankrupt.
Instead, we have government coercion in and mismanagement of a private sector firm, using taxpayer money. It's the complete opposite of Schumpeterian dynamics, which is pretty much a requirement for releasing and recycling economic resources from failing businesses to new opportunities.
By continuing to prop up dead, poorly-managed firms like Chrysler and GM, our government is impeding the efficient workings of the capitalist, free market economy which has been the hallmark of US economic success for generations.
Wednesday, May 27, 2009
Marcus goes beyond the mainstream media focus on cases of social policy and focuses on potential changes due to Souter's tendencies to vote on the side of free enterprise. Marcus directly identifies this as an anti-labor stance, thus begging the obvious question.
Will the nominee to replace Souter respect the Constitution and our laws, or will s/he rule based on "empathy" and one's own personal life experiences?
To do the latter, Marcus argues, will be to damage our economic system severely. Especially the ability of small- and medium-sized companies to raise capital. If our courts, particularly the Supreme Court, are seen as anti-business, then investors will correctly revisit and revise their sense of risks associated with business investment.
Moving from a clear-cut tendency to apply the rule of law on the Supreme Court, to a preference to apply each and every Justice's personal life experiences as lenses through which to view the merits of plaintiffs and defendants, is to invite a completely capricious and inconsistent approach to the country's legal system.
Surely, this will be bad for everyone's economic health, as such an injection of uncertainty regarding the interpretation of our laws will inevitably lead to less investment due to the resulting implied risks. That will eventually lead to less employment and economic activity all around.
Hardly what most of our society would seem to want, nor attributes for which our country's economic system is known.
Tuesday, May 26, 2009
It doesn't take a genius to see that a company that mainly focuses on print technology in an increasingly virtual, online technology world is probably not going to become a consistently superior performer again. If it did, it would be a true exception.
As the price chart shows, Xerox hasn't had a sustained period of market outperformance in the period from 1978 to the present. This is a company whose 'go-go' years were the 1960s. That's 40 years ago.
When I think of Xerox, I think of the company that punted away truly promising technologies in its once-famed Palo Alto Research Center. You know, those ideas which Apple's Steve Jobs incorporated into his firm's breakthrough personal computers.
Why anyone would pay special attention to a changing of stewards of a once-dynamic, now merely-average, backwater technology firm, is unclear to me.