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Really?

Credit card companies know there’s no free lunch, but they’re letting more customers get a taste as an enticement by gouging their existing card members.

The average credit card interest rate for people with fair credit has hit a shocking 21 percent, up more than 2 percent from only a year ago, according to industry group CardHub.

Credit card companies, which attract new customers with zero percent teaser rates and more rewards, have raised rates while their costs remain historically low, industry observers say.

Right, so you balance transfer to a "zero rate" offer, but you can't pay it off.  After the "zero" comes the hammer.  Then you miss a payment and now it's a penalty rate and oh, you can't balance transfer again because now your credit sucks.

Look folks, there is something like $850 billion out on these cards.  What's 21% of that -- each and every year?  That's how much you flush down the toilet so you can have the latest and greatest "pair of shooz."

Or a night on the town.

Or a sexy pair of panties.

Or whatever.

This is stupid.  Bone-crushing, outrageously stupid.

You are destroying yourself while the banksters are laughing their asses off all the way to their tony boardrooms.  They pay nothing for these funds -- they don't take deposits for them, they don't pay interest on the money, they literally create it out of thin air and then screw you on top of it.

Worse, the generation of that "credit" with no backing means that prices go up commensurately.  This in turn means you pay more and more for the same crap and then you pay 21% interest on top of paying more!

Folks, it's simple: If you don't have the cash you can't afford it.

Period.

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This is not complicated folks; we make it that way because we refuse to demand accountability.

Should retailers be obligated to tell shoppers every time their credit and debit card have been hacked?

Michaels Stores, the country’s biggest crafts chain is now saying card breaches took place over two separate eight-month-long stretches at its stores beginning as early as May of last year, including at its Aaron Brothers unit, and may have exposed as many as 2.6 million customer payment cards.

Retail analysts warn retail chains have a history of not telling customers about hacks because they initially think the breaches are small and not worth alarming customers. Just like banks that get hit daily by hackers and whose executives fear runs on deposits.

So what?

Here's reality: This should be actionable to the extent that card fraud occurs as a consequence, with the party that was breached and those who tried to charge or otherwise inconvenience you in the process fully liable for all costs and damages to you, including your time.

The simple fact of the matter is that if that was to take place, even once, this problem would go away real fast because the credit reporting bureaus would be forced (economically) to allow you to lock your credit for free (lest they get hammered with the full, sunk cost of cleaning up the mess when your credit is abused) and the first time a merchant leaked a million credit card numbers and got hammered for $500 each (a reasonably-conservative estimate of 50 hours of work to re-secure your credit and dispute all the bogus charges in time alone, say much less any bounced check fees or similar) that would be the end of that because $500 million off their top line would have a very material impact on their economic performance.

These security problems happen because it is extremely rare that the idiots responsible are held to account in any way, say much less fully held to account.  The latter never seems to happen at all.

The solution to this problem will not be found until we, the people, start demanding full accountability from the banks, merchants and credit bureaus in this regard.  Each of them has either taken or failed to take specific and reasonable actions that would either prevent these breaches in the first place or would stop them from being profitable, and that results in the imposition of cost on you, the victim.

That imposition of cost is not an accident -- rather, it is the result of negligence and as a consequence it should be recoverable by you, along with the fees and costs of pursuing it.

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If the government won't put a stop to it, maybe the lawyers will?

Providence claims the exchanges, the biggest brokerage firms and a group of high-speed trading firms allowed some traders to gain access to non-public data about investors’ trades. The scheme allegedly included electronic front-running, in which high-frequency traders learned of bids and offers, made transactions at better prices and then profited from the investors that made the original orders.

Providence named as defendants 14 brokerages, 16 securities exchanges and 12 high-speed traders.

“Public investors are entitled to be treated fairly and honestly by brokers and exchanges,” Providence said in its complaint. “In addition to destroying trust in the U.S. capital markets, the misconduct alleged herein has siphoned off billions of dollars from private and public pension funds and individual retirement accounts that millions of Americans depend on.”

Exactly.

Stock trading is inherently a negative-sum game.  That is, even if you and I both are of equal skill and have equal luck, and we trade with equal information and outcomes, we both lose.  We lose because there are costs.

It is not possible for this practice to have a net positive sum.  Therefore, if someone does win someone else must lose.  And if the person who wins does so because he has access to information others do not and that access meets the definition of "front running" that's illegal.

Further Section 9 of the Securities Exchange Act of 1934 provides that:

It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange—
(1) For the purpose of creating a false or misleading appearance of active trading in any security other than a government security, or a false or misleading appearance with respect to the market for any such security,
(A) to effect any transaction in such security which involves no change in the beneficial ownership thereof, or
(B) to enter an order or orders for the purchase of such security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or
(C) to enter any order or orders for the sale of any such security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties.
(2) To effect, alone or with 1 or more other persons, a series of transactions in any security registered on a national securities exchange, any security not so registered, or in connection with any security-based swap or security-based swap agreement with respect to such security creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.

So about those "flickering quotes"..... can someone explain to me how issuing those are not a direct violation of clause (2)?

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For roughly seven years I've written on economics, social issues and the markets.  In several areas of the economy and markets have I put forward what I believe would be an improvement in what we have now, whether it be in the area of health care, education, monetary theory and practice or energy.

Leverage, for example, featured all of these areas of the economy in quite-significant detail.  But in the time since its publication, along with the time before that I and a few others have spent writing on these matters, little has changed and in fact one can easily argue that economic matters have gotten much worse for the average American.

Why?

I want to advance a "unifying theory" if you will that underlies all of these ills.  I've talked about it a bit in the last year but I believe we must bring it front-and-center in our economic debates both among our associates and in the political sphere.

It is simply this: We must stop and reverse the financialization of all areas of our economy.

What am I speaking of in this regard?  The increasing acceptance by us in being sold a payment instead of a price.

You may not have noticed it but virtually everything nowdays is sold this way.  And unlike the various perverse games that are played in Washington DC to screw you in one form or another this one is completely under your control; no President, Senator or Representative can force you, at gunpoint, to acquiesce.

Consider the common situation with cell phones that I wrote about in Leverage: You walk into a cell phone store to get a new phone and are told it's "ninety-nine dollar!"  No, that's not the price.  The price is in fact $99 down and about $40 a month imputed for two years; that $600 phone in fact costs about $1,059!  The rest was extracted from you because you allowed yourself to be sold a payment ($100 a month for cell service) instead of a price.

If you bought a price instead you would have paid $500 for the phone and then $50 (or less!) for the service.  Indeed, you can do that now -- it's called Straight Talk over at your local WalMart.  There is no subsidy on the phone and the price is $45 per month for unlimited talk, text and 2Gb of data -- about half of what Verizon or AT&T want for the same thing.  Oh, did I mention that you're actually running on their networks anyway?  Yeah, that too.

So by refusing to allow the cell phone store to financialize your service and phone you pocket about $25/month when all is said and done.  That's $300 a year with which you can buy an (inexpensive) vacation or just a few nights at your local bar.  $25/month doesn't sound like much but for many people it's about half of their monthly water bill, and that's nothing to sneeze at -- especially if you're tight on money.

Let's look at another example: College educations.  You're sold a payment when you start playing the loan game.  "Yes, you awesome and unique high school senior snowflake (and you fine parents of said snowflake!) all you need to do is sign right here and when you finish your education, of course at the top of the class with straight As, you'll land a great job earning $65,000 a year and will pay a mere $500 a month to cover this grand educational experience, complete with a fabulous student center, indoor pool, tennis courts and, of course, sushi every night."

Uh huh.  What they forgot to tell you is that in order to do this you will have borrowed $45,000, or over $10,000 a year.  Your parents will have raided their retirement funds for another $50,000 -- money that, over that same ten years, will be the difference between them eating cat food down the road and being reasonably comfortable.  Your so-called "education" in fact will cost approximately $100,000, or six times what it cost just 30 years ago, dramatically outstripping inflation.

The real bad news is that this "affordability" presumes you succeed, and even if you do you're still in trouble.  Why?  Because $65,000 a year is a gross income of $5,417 per month.  The problem is that most lenders will not allow your total debt service to exceed 36% of your gross income and even that is unsafe.  That 36% means that all debt service must not be more than $1,950 monthly -- that's housing, car payment and the student loan.  Your student loan will chew up better than one quarter of that right up front and if you have a $500 car payment on top of it you're now down to under $1,000 a month for all mandatory housing spending including principal, interest, property taxes and hazard insurance.

How much house does that buy?  Let's look -- at 5% interest and a 30 year fixed loan assuming your hazard insurance is under $500 a year (achievable in most parts of the country) you can finance $177,705 worth of house.

That looks doable in many parts of the country, until you realize something else -- the places where you can land that $65,000 a year job have no chance of having hazard insurance and property taxes both payable with that $500.  Indeed it is not uncommon for the property tax on that $170,000 house to be $3-4,000 a year in metro areas that support your $65,000 salary!

Now run the numbers starting with your same $5,400 in gross income, allowing $1,950 for all debts and subtracting off $750 for the student loan and property tax on the house, plus another $500 for the car payment.  You now have $700 a month with which to buy the house, and by the way that only buys a $130,000 house.

How many of those are in that major metro area and aren't crack houses?  Uh, yeah.

Now you know why you are sold a payment on that education instead of a price; it allows the glib-talking salesman (commonly called a High School counselor or admissions "adviser") to not bother telling you about all the math you ought to do before agreeing to these terms.  It also evades a discussion about what happens to those numbers and your economic life if you don't finish in four years but instead take five (adding 25% to the cost) or worse, you leave without finishing at all but still have the debt.

Without financializing the cost and preventing you from declaring bankruptcy and walking away you would never accept this and no lender in his right mind would give you the money either.

Now let's look at cars.  The other day I wrote about the utter insanity of the average new car costing $32,000.  How did that happen?  Simple -- you're sold a payment instead of a price.  If you walk into a car dealer and tell them you can "afford" $300 a month they will do everything in their power to find a vehicle they can sell you that will "cost" $300 a month.  However, the way they get there won't matter to you because you just told them how much you'll spend monthly, without regard to how much the vehicle actually costs!

By going down this road you virtually assure yourself of getting screwed out of thousands of dollars and what's worse is that you drive the demand curve for those higher prices northward which hurts everyone else irrespective of whether they came into the dealership intending to do the same thing or not.

Of course houses are the worst offenders in this regard.  That's how we wound up with the housing bubble -- financialization.  And it's how we'll get screwed again and again until we stop it, because as soon as you allow this sort of manipulation to take place in something as essential as housing (or transportation) you are going to get reamed by it no matter whether you participate or not

No, you don't "win" by participating while others "lose."  You all lose because you overpay.

Let me expound on that a bit.  When we allow financialization to take place the means by which you overpay seems complex or even ethereal but it really isn't.  The banksters and other people in the transaction have a huge database of outcomes to look at for statistical purposes.  That is, they know what the odds are of your defaulting on a given loan and since they have millions of examples they have an enormous amount of information in this regard.  You, on the other hand, have none of that information and what's worse is that even if you did it wouldn't help you much because you don't know where you fall on the curve.

It is human nature to believe in our own exceptionalism.  However the fact is that experiences on an individual basis tend to fall on a statistical bell curve; some bad, the median being the most-likely, and some good.  The goal of financialization is to allocate almost all of the benefit from a given basket of transactions across that bell curve to everyone except you.

Sit down and think about this folks.  You buy a car to get to work, the grocery store and similar.  That is, to transport you and your effects from place "A" to place "B" and back again.  That has utility value to your life and if you analyze it sufficiently you can actually put a financial number on that value in dollars, with the alternative being either public transportation or the use of human muscle power (by either walking or riding a bicycle.)  That utility value varies widely; for someone who lives in a big city with a good public transportation system it may actually be negative when all costs such as city stickers and parking are taken into account, but for most of us there is positive utility value present.

Financialization is all about analyzing that value across the entire base of cars sold and then allocating all except a tiny little bit of that value to the people selling both the cars and the money.  

Note that without financialization the car dealer has much less information about the value to you of a given vehicle sale, and he has less capability to capture that value to you.  If you have wondered why a dealer in a big city often prices cars lower than a rural dealer you might think it's mostly about the number of cars sold.  Not entirely so -- it's also about utility; the person in the country can't realistically choose to walk or ride the bus!

But when you financialize the car transaction now the entire nation gets averaged on that bell curve and the amount extracted from you and transferred to them goes up.  Not only do they have vastly more data to integrate and thus the supplier's information becomes more-superior but in addition there is another party involved in the transaction -- the lender -- and he insists on getting paid for his work as well.  

Left to its own devices this will ratchet prices higher until all but the last dollar of utility value is extracted from you on average and winds up in the dealer's, the manufacturer's and the bank's pocket.  Anyone who is left of the peak of the bell will see negative value in the transaction, while those who see positive value will see much less of it.  This is simply due to information asymmetry but the blame is yours because you allowed it to happen.

The same thing has occurred with education.  Why can't you spin pizzas on weekends and in the summer and pay your way through college without any loans at all?  You could do that 30 years ago -- it wasn't particularly difficult either.  You had to work full-time in the summer and perhaps do the first two years at a community college, but it penciled out -- even if you didn't live at home.  Today that's impossible; you'd have to work 120 hour weeks in the summer and 40+ during the school year, and you probably still can't hit the numbers without borrowing.  

Has Calculus changed in the last 30 years?  Has chemistry?  Has pretty-much anything else?  No.  What has changed is that the financialization has allowed colleges and lenders to collude in analyzing the outcome data and then ratcheting up the price so that only those on the right side of the bell curve get any financial benefit at all from attending; those on the left get hosed and those on the right get a fraction of the benefit they should.  

The college, however, along with the car manufacturer and dealer, don't care because their goal is to maximize their profits and so long as half plus one of the people participating get some benefit there will be those they can sell their scheme to.

The Real Estate business is likewise polluted with this crap for the same reason.  Whether you will benefit in the long run doesn't matter any more.  All that matters is whether there is a marginal amount of economic benefit that can be siphoned off and whether those on the right side of the curve will keep a single dollar.  So long as they do and you keep playing the game continues and prices are ratcheted up with nearly all of the benefit going to someone else.

Here's the point though folks -- we can stop it.

You, I, everyone else.

We stop it by refusing financialization.

Stop.

Buying.

Things.

On.

Credit.

Period.

Especially things like cars and educations along with consumer consumables like cellphones.  In other words, reduce to the maximum extent the ability of others to use their superior information and aggregation of data against you.

And before you pipe up and say "But if I do that I'm screwing myself!" consider that for most of us our desires and influence extend beyond our own person.  Most of us have or want to have children during our lives.  By participating in this scheme whether we win or lose personally we are screwing our kids because the economic impact of this scheme falls worst on those who follow us.

I will argue that while there are sociopaths among us, and many of them, most of the population doesn't want to financially screw their own children for their personal aggrandizement.  The problem is that most people don't understand how signing that FAFSA, buying a $35,000 car on an 8 year payment schedule, going along with Obamacare or playing the "real estate" game hoses their kids -- and grandkids.

But it does; if you doubt it find and defend a competing explanation for why it is that in the 1970s and early 80s you could spin pizzas and work in the summer to go to college, paying the entire nut to do so, and yet today the cost has risen at six times that of the minimum wage making that course of action impossible.

That is, in the 1970s and early 80s anyone who could pass the classes and had the desire to go to school sufficient to work in the summer and on weekends could do so without taking on debt.  That meant that whether you came out ahead (e.g. you finished and got that good job) or not you were not financially ruined by attending; the worst case was that you failed and lost your investment you had previously earned spinning the pizzas.

Today we impoverish a large percentage of those who attempt to attend college -- on purpose.  It's our (we being those who have tolerated this crap for the last 30 years) fault and if we don't educate the younger people in this country and demand it stop it will continue to be our fault.

You can no longer claim ignorance folks.

Now the question is whether you will continue to willingly participate.

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Today is Easter Vigil; for Christians of all stripes it has meaning in the theological calendar as the day between Christ's death on the cross and his resurrection.  For everyone else it's just a normal Saturday.

Usually what you see from me are missives related to economics or the political landscape around the world.  This is a bit different -- it's about commodities, one in particular.

That commodity is time.

Time is the one commodity you cannot buy more of, no matter how hard you work or how much money you have.  It is a commodity that you begin life with an unknown amount in your possession, and like the sand in an hourglass it slowly slips away.  Unfortunately the top of your hourglass is covered in black paint; only the last small bit of the glass before the pinch-point is transparent.  You must therefore divine exactly how much sand you began with and your alleged knowledge is usually predicated on nothing more than personal hubris.

Most people will believe they have a great deal of sand remaining in their teens, twenties, thirties and beyond.  Many of them will be right.  But with each passing decade a larger percentage of the population discovers that their optimism was misplaced as they see the top of their personal pile descend into the clear area of the hourglass, realizing that their time is about to run out.

When I was a young man, like most young men, I believed I was Superman in some form or fashion.  I could not die, absent undertaking some bold and spectacularly-stupid stunt.  This of course was a false belief but most boys and young men share it to some degree or another.  Death was abstract and while I had relatives that met the reaper during those years I was simply unprepared to deal with it -- so I didn't.

As the years have passed more people that I know have had their sand run out; several long before, in my view, it should have.  But my view doesn't matter as I wasn't in charge of filling those hourglasses originally.  That right belongs to the man upstairs, and despite anyone being able to ask "Why?" it is only through a rather extreme showing of arrogance that I, or anyone else, could claim the right to an answer.

Today marks a time of the year in which renewal is promised; the renewal of spring, in which longer and warmer days brings the renewal of agriculture, without which we would fall into famine and many would perish. The world around us blooms in color, promising fruits and growth in the months ahead.  

But for those of us already here today and tomorrow should bring reflection and perhaps self-examination as to whether the time we spend irrevocably, and which we cannot recover and repurpose, should be put toward something better suited to the nature of that which we are expending.

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