Sunday, April 05, 2009

Bleeding us dry

“Annuit cœptis”? Not when it comes to usurious interest rates.

Although it is difficult to keep up with (or make sense of) our current financial morass, every so often a beacon of light can illuminate the crux of the issue. For me, that was the recent Harper’s Magazine piece, “Infinite Debt,” by Thomas Geoghegan. His premise is very simple: the whole mess was caused by unregulated interest rates.

As he notes, the profit potential this change generated drew all investment away from manufacturing and into the financial “services” industry, and the money just poured in, from all over the world, because everyone wanted in on a good thing. There was more money than anyone knew what to do with, and thus, the exotic paper was issued, betting on bets that bet on other bets, snowballing to more than $600 trillion in “investments”--a bubble to beat all bubbles, based on nothing but air, and really, a Ponzi scheme to beat all Ponzi schemes (although Geoghegan does not define it so).

It is only the unregulated interest rates that led investors to demand high year-after-year returns on their deposits, and the only place to find those returns was in the banking industry, so manufacturing (and the jobs and towns it sustains) was bled dry. This accounts for the declining real income of wage-earners, who then turned to credit in order to cover living expenses, and who were also subjected to the high interest rates charged by banks (in spite of the lowest Federal Reserve interest rates in history).

I recently let a small balance remain on a credit card for a couple months, as the card has its minimum payment made automatically and I hadn’t gotten around to paying it off, and the interest rate was not horrendous (13.24%). With an excellent credit rating and almost no debt, I recently received a fine-print letter from the bank (Chase) telling me that the interest rate would rise in a month, “in response to market conditions and to maintain profitability on your account.” Boom! I immediately sent payment in full, plus a slight overage, to force them to issue a credit statement monthly for the next six months. No more “profitability” for you!

It’s pretty obvious that the banks are killing us. They are sapping every dime from regular people (in the form of credit card interest and lost wages and rip-off mortgage schemes), and they are draining the lifeblood from all other industries, and now they’re draining the people’s treasury as well. “Too big to fail”? How about “too big to live”? Banks and the entire financial “services” industry are not being operated in the interest of the people, and it is time for the regulators to address that fact.

Usury is not only a sin, but it is the ruination of any economy where it is allowed to reign.

The only defense the average person has is to do the hard work to eliminate all use of credit from their lives, except for a reasonable mortgage, and if they can’t get a reasonable mortgage, to forego the purchase of a home. To do otherwise is to enslave yourself, to cast yourself into a debtor’s prison of your own making (thanks to the collusion of the banks and the government).

We also need to demand that our representatives re-regulate the banks, but this is a far tougher matter, given their conflicts of interest (lobbyists and campaign contributions) and their general ignorance of the intricacies of the financial industry. A good start would be a cap on consumer interest rates, but it should not stop there. Re-regulation also needs to be applied to the creative rip-off schemes dreamed up by Wall Streeters, and it needs to be made clear that the U.S. Treasury does not exist for the purpose of bailing out losing bettors.

Will any of this happen in my lifetime? Probably not, in the absence of a complete finanacial melt-down, something I dearly hope does not come to pass. For the rest of us, the regular folks who work for our livings, our only response to current events can be to just say no: no more credit-based purchasing, no more feeding the banks, no more get-rich-quick investments. Get out (and stay out) of debt as best you can. The banks are your enemy! For myself, I would rather live in my car than give the banks another dime.


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