This week let's award our inaugural Most Evil Man in America award to Anna Burger, since we're totally into equality of opportunity here and it would be wrong to disqualify anyone in advance from this prestigious award merely because of her gender. And thus we can comfortably anticipate the many weeks in which Nancy Pelosi will win this coveted award in future.
From today's Journal:
First, and most obviously, it totally disregards the fact that policy has consequences. American lawmaking has been rife with this particular intellectual fatuity for decades now, so this is hardly newly invented by Mrs Burger. But just in this single sentence, she has called for three policies which would have entirely predictable unintended consequences:
"allow bankruptcy judges to modify mortgage loan terms"
This is a favorite of the left these days, and finds much favor with probable future MEMA award winners such as Chris Dodd and the evil Barney Frank. It's much like the rest of their thinking on banking and mortgage policy in general, dating at least to the Community Reinvestment Act of 1977. The idea then was that these independent for-profit banks were behaving in a manner deemed unsalutary by certain aggrieved donkeys, in this case by a perceived discrimination in loan-making which disadvantaged individuals in certain neighborhoods. It may be unfortunate or insensitive to point out, but there are certain neighborhoods or zip codes with statistically high concentrations of poverty and/or unemployment, and were I a banker or a shareholder in a bank, I would most decidedly expect to make a less-than-fully-proportionate number of loans to such a neighborhood or zip code, merely in the interest of my own fiduciary responsibility of looking after other people's money. But, no matter how reasonable the logic or responsible the actors, the outcome is otherwise from the Congress' desires, so, lo!--a new law must be enacted which, if it does other than simply continue to permit bankers to act in reasonable and responsible ways with the money in their care, it must by definition encourage them to act unreasonably and irresponsibly, no?
Today the problem is not much different: the offending banks want to enforce their rights which were established in a voluntary contract between two free and willing parties by seizing the collateral they counted on when making the loan in the first place.
Let's pause for a moment and consider why mortgage loans are typically the lowest-rate borrowing vehicle available for individuals. In spite of the seemingly interminable wait to recover their principal, banks are willing to extend credit to buy a home for lower rates than they charge for a 4-year loan on a car, which after all is also a collateralized loan. This obviously is due to the quality of the collateral, both in its tendency not to depreciate like a car does (present housing market notwithstanding) and its tendency not to disappear should the repo man come looking for it. Once the Congress convinces banks that its private contracts will be forcibly rewritten should the Congress find it convenient for their purposes to do so, the quality of that collateral has been permanently downgraded. Today it might be a forced write-down in principal, tomorrow it might be an outright ban on foreclosure, but a bank with no confidence in the sanctity of its 30-year contract and security agreement will charge a higher interest rate to protect against its expected losses due to, ahem, the vicissitudes of public policy. Mortgage interest rates would be permanently skewed higher for any comparable set of economic conditions, and that sort of confidence-destroying would be hard to undo. If interest rates for car loans are 1-2% higher than for a mortgage, you would likely permanently add a similar amount to mortgages. On a $150,000 loan for 30 years, increasing the rate from 6% to 7% costs the borrower an extra $35,506 in interest over the life of the loan. That is the consequence of Mrs Burger's proposal: in order to protect those who recently made bad decisions in the mortgage market, the rest of us would have to pay for other people's mortgages not only directly via higher taxes, but also indirectly, via higher interest expense on our own future borrowings.
"establish a Credit Cardholder's Bill of Rights"
I assume she's still talking about a bill similar to the previous Congress' HR 5244, which she supported at the time. You can get into the details of this bill which never became law if you want, but suffice to say in short form: it's more of the same as the above. Banks' rights under the law are diminished, their right to change interest rates to existing customers if those customers' employment or credit situation makes them a worse credit risk are restricted, etc. I hate credit card companies as much or more than the next guy, but forbidding them from calibrating their prices for credit in response to changes in the default risks posed by their debtors is going to do one of two things: make them make fewer loans (or issue lower credit lines) in the first place, to a pool of only exceptionally-low-risk applicants; or charge everyone a higher rate out of the gate to compensate for the fact that they know they won't be able to adjust the rates of the one guy down the road who suddenly looks like a bad risk. Credit card companies are merciless and probably evil, granted, so to expect them to simply swallow the consequences on these proposed restrictions without passing on the cost to their customers in some way simply strains credulity. But no matter to Mrs Burger, as there oughta be a law 'gainst this unconscionable stuff.
"protect consumers from corporations that bury mandatory arbitration clauses in fine print"
If you think the best first recourse is to sue every time you have a dispute, or can think only of those swell punitive damages you can receive to permit you to live like a king in Patagonia off the Herculean effort you undertook to speak truth to power, etc, then arbitration is likely not for you. But, though Mrs Burger is clearly not among them, some may think the shyster lawyers involved in litigating every little thing for millions of dollars in the expectation that they'll win at least a few and pocket 33% and live like kings in Patagonia from the Herculean effort of litigating this one case are a bigger problem in society than a company trying to avoid facing countless spurious lawsuits which eventually prove more costly to defend than to settle in spite of their innocence.
Let's be generous, in the absence of hard data, and call this one an honest difference of opinion with Mrs Burger. But if you prohibit this practice, what will happen?
Any company with one of these mandatory arbitration policies must believe that this will save them money--else, why do it? Maybe they think each case will cost 20% less if it's arbitrated, maybe they think the arbitrator will never find against them, etc, but clearly they only do it if they think this will reduce some expense somewhere--warranty expense, legal expense, whatever. If this expense-reduction tool is legislated away, every CEO or board of directors who anticipates an increase in, eg., warranty expense from this can either keep their prices the same and eat the increased warranty cost, hurting their shareholders and also their workers as they now have less profit to reinvest into the company--or they can just jack up prices for everyone so that one guy who's gung-ho to have his day in court can do so.
There's a collective theme to all these items. In addition to the unintended consequence, which never seems to accidentally be a benefit, the theme here is that prices are increased for everyone so a select handful of stakeholders--home speculators, credit card spendthrifts, guys who like to sue--can have their cake and eat it too. Once you push enough handpicked constituencies through that graft mill, goods and services get pretty expensive for everyone.
Which brings me to another problem with Mrs Burger. She's advocating card check, which is designed so as to facilitate a more easy unionizing process for any particular shop. There can be no disputing its intent, which is to produce more unionized workers in this country. If this succeeds, consider for a moment how much your 99-cent box of paperclips will cost if it's made in a union plant with generous retirement benefits in California instead of in the Korean plant where it currently is. The same goes for everything else you buy. Do you think your $4.99 sub at Subway will be made any quicker or more cheaply by a union workforce with strict work rules? No: it's all a ploy to force us to band together and buy someone else a union lifestyle since none of us would want to pay for that ourselves. It's extortion, no different in substance from what the credit card banks do.
That Mrs Burger also commits the grande liberal faux-pas of also attempting to restrict the free speech of her opponents by asking the government to quash their lobbying efforts merely adds predictable insult to injury. No reasonable reading of the intent or spirit of freedom of speech permits Mrs Burger's calls for her opposition to be silenced to make any sense. Why do all these liberal types always want to silence their critics, rather than simply out-debating them? Why is it otherwise than cynical to disregard the secrecy of balloting just because secret ballots seem so often to go against your preferred outcome?
So, for all these sins that we've noticed and likely others that we have not, Mrs Burger wins the coveted Most Evil Man in America award for the week of 3/9/2009. Now someone should just design an appropriate trophy and post it in the comments section.
From today's Journal:
There's at least two things wrong with this which make this such a fine example of the type of thinking it takes to win our award.
The Union Cudgel
Big Labor gets nasty on 'card check.'
Big Labor's drive to eliminate secret ballots for union elections has united American business in opposition, so labor chiefs are putting on the brass knuckles: The new strategy is to threaten companies with government retaliation if they don't stop lobbying against turning U.S. labor markets into Europe.
We wrote on February 13 about the letter from the labor consortium Change to Win to the Financial Services Roundtable, demanding that banks receiving Troubled Asset Relief Program money keep quiet about union "card check." To its credit, the banking lobby hasn't backed down. Now Big Labor is escalating, demanding in a February 23 letter to Secretary Timothy Geithner that Treasury muzzle the companies if they won't muzzle themselves.
"Firms receiving significant TARP assistance continue to lobby against the interests of hard working taxpayers," says the letter from Change to Win Chair Anna Burger. "For example, these firms continue to oppose legislation that would allow bankruptcy judges to modify mortgage loan terms, establish a Credit Cardholder's Bill of Rights and protect consumers from corporations that bury mandatory arbitration clauses in fine print."
First, and most obviously, it totally disregards the fact that policy has consequences. American lawmaking has been rife with this particular intellectual fatuity for decades now, so this is hardly newly invented by Mrs Burger. But just in this single sentence, she has called for three policies which would have entirely predictable unintended consequences:
"allow bankruptcy judges to modify mortgage loan terms"
This is a favorite of the left these days, and finds much favor with probable future MEMA award winners such as Chris Dodd and the evil Barney Frank. It's much like the rest of their thinking on banking and mortgage policy in general, dating at least to the Community Reinvestment Act of 1977. The idea then was that these independent for-profit banks were behaving in a manner deemed unsalutary by certain aggrieved donkeys, in this case by a perceived discrimination in loan-making which disadvantaged individuals in certain neighborhoods. It may be unfortunate or insensitive to point out, but there are certain neighborhoods or zip codes with statistically high concentrations of poverty and/or unemployment, and were I a banker or a shareholder in a bank, I would most decidedly expect to make a less-than-fully-proportionate number of loans to such a neighborhood or zip code, merely in the interest of my own fiduciary responsibility of looking after other people's money. But, no matter how reasonable the logic or responsible the actors, the outcome is otherwise from the Congress' desires, so, lo!--a new law must be enacted which, if it does other than simply continue to permit bankers to act in reasonable and responsible ways with the money in their care, it must by definition encourage them to act unreasonably and irresponsibly, no?
Today the problem is not much different: the offending banks want to enforce their rights which were established in a voluntary contract between two free and willing parties by seizing the collateral they counted on when making the loan in the first place.
Let's pause for a moment and consider why mortgage loans are typically the lowest-rate borrowing vehicle available for individuals. In spite of the seemingly interminable wait to recover their principal, banks are willing to extend credit to buy a home for lower rates than they charge for a 4-year loan on a car, which after all is also a collateralized loan. This obviously is due to the quality of the collateral, both in its tendency not to depreciate like a car does (present housing market notwithstanding) and its tendency not to disappear should the repo man come looking for it. Once the Congress convinces banks that its private contracts will be forcibly rewritten should the Congress find it convenient for their purposes to do so, the quality of that collateral has been permanently downgraded. Today it might be a forced write-down in principal, tomorrow it might be an outright ban on foreclosure, but a bank with no confidence in the sanctity of its 30-year contract and security agreement will charge a higher interest rate to protect against its expected losses due to, ahem, the vicissitudes of public policy. Mortgage interest rates would be permanently skewed higher for any comparable set of economic conditions, and that sort of confidence-destroying would be hard to undo. If interest rates for car loans are 1-2% higher than for a mortgage, you would likely permanently add a similar amount to mortgages. On a $150,000 loan for 30 years, increasing the rate from 6% to 7% costs the borrower an extra $35,506 in interest over the life of the loan. That is the consequence of Mrs Burger's proposal: in order to protect those who recently made bad decisions in the mortgage market, the rest of us would have to pay for other people's mortgages not only directly via higher taxes, but also indirectly, via higher interest expense on our own future borrowings.
"establish a Credit Cardholder's Bill of Rights"
I assume she's still talking about a bill similar to the previous Congress' HR 5244, which she supported at the time. You can get into the details of this bill which never became law if you want, but suffice to say in short form: it's more of the same as the above. Banks' rights under the law are diminished, their right to change interest rates to existing customers if those customers' employment or credit situation makes them a worse credit risk are restricted, etc. I hate credit card companies as much or more than the next guy, but forbidding them from calibrating their prices for credit in response to changes in the default risks posed by their debtors is going to do one of two things: make them make fewer loans (or issue lower credit lines) in the first place, to a pool of only exceptionally-low-risk applicants; or charge everyone a higher rate out of the gate to compensate for the fact that they know they won't be able to adjust the rates of the one guy down the road who suddenly looks like a bad risk. Credit card companies are merciless and probably evil, granted, so to expect them to simply swallow the consequences on these proposed restrictions without passing on the cost to their customers in some way simply strains credulity. But no matter to Mrs Burger, as there oughta be a law 'gainst this unconscionable stuff.
"protect consumers from corporations that bury mandatory arbitration clauses in fine print"
If you think the best first recourse is to sue every time you have a dispute, or can think only of those swell punitive damages you can receive to permit you to live like a king in Patagonia off the Herculean effort you undertook to speak truth to power, etc, then arbitration is likely not for you. But, though Mrs Burger is clearly not among them, some may think the shyster lawyers involved in litigating every little thing for millions of dollars in the expectation that they'll win at least a few and pocket 33% and live like kings in Patagonia from the Herculean effort of litigating this one case are a bigger problem in society than a company trying to avoid facing countless spurious lawsuits which eventually prove more costly to defend than to settle in spite of their innocence.
Let's be generous, in the absence of hard data, and call this one an honest difference of opinion with Mrs Burger. But if you prohibit this practice, what will happen?
Any company with one of these mandatory arbitration policies must believe that this will save them money--else, why do it? Maybe they think each case will cost 20% less if it's arbitrated, maybe they think the arbitrator will never find against them, etc, but clearly they only do it if they think this will reduce some expense somewhere--warranty expense, legal expense, whatever. If this expense-reduction tool is legislated away, every CEO or board of directors who anticipates an increase in, eg., warranty expense from this can either keep their prices the same and eat the increased warranty cost, hurting their shareholders and also their workers as they now have less profit to reinvest into the company--or they can just jack up prices for everyone so that one guy who's gung-ho to have his day in court can do so.
There's a collective theme to all these items. In addition to the unintended consequence, which never seems to accidentally be a benefit, the theme here is that prices are increased for everyone so a select handful of stakeholders--home speculators, credit card spendthrifts, guys who like to sue--can have their cake and eat it too. Once you push enough handpicked constituencies through that graft mill, goods and services get pretty expensive for everyone.
Which brings me to another problem with Mrs Burger. She's advocating card check, which is designed so as to facilitate a more easy unionizing process for any particular shop. There can be no disputing its intent, which is to produce more unionized workers in this country. If this succeeds, consider for a moment how much your 99-cent box of paperclips will cost if it's made in a union plant with generous retirement benefits in California instead of in the Korean plant where it currently is. The same goes for everything else you buy. Do you think your $4.99 sub at Subway will be made any quicker or more cheaply by a union workforce with strict work rules? No: it's all a ploy to force us to band together and buy someone else a union lifestyle since none of us would want to pay for that ourselves. It's extortion, no different in substance from what the credit card banks do.
That Mrs Burger also commits the grande liberal faux-pas of also attempting to restrict the free speech of her opponents by asking the government to quash their lobbying efforts merely adds predictable insult to injury. No reasonable reading of the intent or spirit of freedom of speech permits Mrs Burger's calls for her opposition to be silenced to make any sense. Why do all these liberal types always want to silence their critics, rather than simply out-debating them? Why is it otherwise than cynical to disregard the secrecy of balloting just because secret ballots seem so often to go against your preferred outcome?
So, for all these sins that we've noticed and likely others that we have not, Mrs Burger wins the coveted Most Evil Man in America award for the week of 3/9/2009. Now someone should just design an appropriate trophy and post it in the comments section.
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