patrick.net

If I’m acting unethically in someone else’s eyes, well, too bad. I don’t need to prove their logic wrong — in fact I might be wrong. That still won’t change my course of action. Be I evil or good is irrelevant when it comes to doing right by my family.

Randy, do you want to start a cult with me? I think this line of thinking can be highly marketable. :)

Only if it involves 3d avatars and clunky streaming content client interfaces.

Let's mash that up over the long weekend in RoR, playa!

mosquitoes breeding in stagnant koi ponds...

skibum,

actually I looked at that $4.2M place, it was initially offered for $6M, on the market for over 18 months. It's in the Crappertino foothills bordering Saratoga hills backing into a natural reserve, the house itself is not spectacular, but to me the attraction is it has 10+ acres land with a commanding view, so from the land perspective, I think it is a much better deal than buying a new house on 1/4 acre land in Los Altos for $2.5M.

Only if it involves 3d avatars and clunky streaming content client interfaces.

That is the only way to start a cult in Web 2.0 times.

credit cards are a discretionary luxury item, not a necessity. they are sometimes handy, but once upon a time people used to pay for things with savings. if they were a necessity, the govt would hand out credit cards to the needy. they are a short term personal loan with very high interest that are very lucrative for the CC cards thank you very much, despite the existence of early payers. the CC companies have provided, sometimes, for interest-free periods of up to 55 days in their business model in order to get consumers in (then get them on the debt treadmill) and have factored it into their business model. paying off early is more than allowable in their system under their own deliberate intentional rules. if early payers were unwelcome, they would not create 55 days interest free in the model, they would charge interest from the time of purchase, end of story. and they would probably get fewer customers as a result.

further, there is far more earnest discussion over the evils of credit cards as a debt trap than there are over early payers, much like the evils of poker machines and gambling addiction. we're talking 14-18% interest rates here. household savings are at an all-time low right now, and indebtedness at an all-time high thanks to banks pushing higher and higher credit limits these days. more and more people are being sucked into the credit trap in both housing and consumer goods -- there are people showing up in dire straits for financial counselling and assistance buying mcmansions and plasma screen TVs, i kid you not.

it's ludicrous, for how many months should we pay interest on a balance to reach the moral and ethical stance of not being a 'freeloader' on a personal loan? why not just front-end load the payment instead then? it's not a social system, it's a banking product of convenience designed to make money for CC cos and the banks, in the 'must have it now' society.

show me an article written and published somewhere reputable which claims that early CC payers are somehow immoral (doing something totally legitimate) and i'll show you an off-the-rails idiot with no clue...

credit cards are a discretionary luxury item, not a necessity.

Anything not needed by a caveman is a luxury item.

Better yet, luxury is a necessity.

Btw, I am curious if anyone knows of the Quito Village in Saratoga? Is it going to be a Chinese mall development? The buyer of Quito Village, Peter Pau, is the same developer who did the Cupertino Village, the home of Ranch 99 and a whole array of Chinese retaurants. Looks like Saratoga is following suit of Cupertino. Peter is known to have a very good relationship with Chinese retailers.

http://sanjose.bizjournals.com/sanjose/stories/2007/07/16/daily24.html

Anything not needed by a caveman is a luxury item.

actually, yes. we can survive on very little. however, there is a minimum level of material wellbeing we need to participate effectively in a society. hence the vexed problem of what constitutes a definition of 'poverty'.

it's unlikely people lived in caves much, btw, the pattern seems to have been more of nomadism with retreats to sacred sites like caves for ritualistic purposes. it was certainly very far from universal in history, when you look at the sheltering habits of african, australian and other palaeolithic-type societies today. perhaps in the case of the last Ice Age in Europe about 10,000 years ago where it was just bloody freezing and you got insulation effects from blocking up cave-like structures, once you kicked out the hibernating bears...

So caves were not a necessity, but a luxury. Therefore it follows that kicking bears out of caves was not unethical either.

By the way, many not at all "off the rails" authors of scholarly work related to free rider problems:

http://en.wikipedia.org/wiki/Free_rider_problem

Summary, emphasis added:

In economics, collective bargaining, psychology and political science, free riders are actors who consume more than their fair share of a resource, or shoulder less than a fair share of the costs of its production. The free rider problem is the question of how to prevent free riding from taking place, or at least limit its negative effects.

Necessity is entirely irrelevant.

The point of this argument, from my perspective, was to draw out the futility and arbitrariness of making relative moral judgments about personal financial or economic decisions.

yes. i note the wiki free rider article doesn't make reference to the CC enigma as a case in point. i don't question the notion of 'free riding' per se. (is that one of brand's 'straw men'?)

btw, pubs here put on free coffee machines in the incredibly lucrative poker machine areas. i don't gamble on poker machines, i have no idea why, it's so compelling, but sometimes i take the free coffee into the dining area for a laugh. no staffer has ever told me not to. ethically, is that freeloading off the pub or teaching them a lesson? discuss, with reference to kohlberg's 6 stage of development of ethical reasoning. ;)

Anything not needed by a caveman is a luxury item.

I find this offensive.

Necessity is entirely irrelevant.

Very true.

Necessity belongs to Modal Logic, not Economics.

ethical reasoning

Is it even possible to reason ethics?

very funny, HARM. that appears to be homo neanderthalis, not cro-magnon man aka homo sapiens sapiens

The point of this argument, from my perspective, was to draw out the futility and arbitrariness of making relative moral judgments about personal financial or economic decisions.

Arbitrary or not, I'm sure you'll agree that some basic moral judgments must be made and applied by law* or you eventually end up with chaos and/or kleptocracy. And specifically what kind of judgments/laws we make says something important about who we are and what we collectively value.

*(and ideally, the law applies to everyone, irrespective of social caste)

Is it ok to sell heroin to minors? Y/N
Is it ok to sell WMDs to unhinged religious fanatics? Y/N
Is it ok to sell neg-am NINJAs to unemployed 24-year-old sociopaths? Y/N

Ok, that last one is little more ambiguous, but you get the general idea.

@DS,

I don't know if you get the same TV commercials in Oz, but that's one of the GEICO cavemen.

Except that the transaction fees go to the transaction network provider, and the issuing bank is left with annual fees and interest + penalties.

Then why the heck do the banks direct-mail market me so aggressively? I've had credit cards since the 1970's and have never paid any interest. If they lose money on me, why don't they just stop sending me enticing offers to cards? I was a BofA customer since forever, and dropped their Visa card, which at the time had an $18 annual fee, for compeditors' cards. BofA knew all the details of my history...I had paid no interest on their old card for over a decade....but they kept sending me adverts in the mail until I took them up on their offer. Did they think I would become less frugal with age?

* * * *

I have a dumb question for the gang. This has been driving me nuts. There's a lot of talk about FB's getting a 1099 after a short-sale and owing the IRS big bucks. This confuses me.

Say FB bought a house for $400K, and had to short sell it for $300K. The lender gives him a 1099 for $100 capital gains. BUT the FB can document a $100 capital LOSS on the sale of his house, so why isn't this a wash as far as the FB is concerned? It's actually fair, otherwise the FB would have a non-offset capital loss to play with in his future taxes.

HARM

But of course. And so long as I'm in charge of setting the minimum ethical code, I'd include a prohibition on anything referred to (oxymoronically) as "American Cheese".

Sir Randall,

I hereby appoint you my Deputy Minister of Economic Morality and Fiscal Responsibility.

BUT the FB can document a $100 capital LOSS on the sale of his house, so why isn’t this a wash as far as the FB is concerned?

I don't think you can claim that capital loss, at least not personally. If you're running a real estate investment business, and your business owns the home, then you might be able to get away with it.

As to the "why" banks still market ccards to you, there are a number of explanations:

* They are unorganized. You'd be surprised at how such sausage is made.

* They are regulated. Once upon a time, they couldn't use your historical data freely; departments were firewalled off from one another.

* They have calculated that enough "free riders" can be converted and/or make occasional mistakes and suffer penalties. How many out there who pay in full like me haven't at least once paid a day or two late due to simple disorganization or forgetfulness? If you cycle huge amounts of $ per month, like many pay-in-fullers, then you get slammed with penalties in that one month which goes a long way towards covering your free-ride.

Dennis,

I've heard in banking parlance that you and I would be referred to as "Dead Beats" by never paying interest on the credit cards.

Paul

Customers who do not pay in full the amount owed on their monthly statement (the "balance") by the due date (that is, at the end of the "grace period") and are not in a promotional period owe interest ("finance charges") are known in the industry as "revolvers." Those who pay in full (pay the entire balance) are known in the industry as "transactors," "convenience users," or "deadbeats." Those that shift usage of their credit cards or transfer balances frequently are known in the industry as "rate surfers", "rate tarts" or "gamers."

Now all we need is for Congress to create a new Department of Economic Morality and build a Taliban-style Basij (morality police). They will patrol the streets and Tazer any subprime broker attempting to hawk NINJAs to clueless borrowers. Bond & hedge fund managers attempting to pass off Alt-A toxic waste as "safe" will be shot on site.

Just kidding (sort of...).

I put that credit card article paraphrase in as an example of the absurd. I do not think anyone really believes that paying off credit cards every month is immoral.

The original article was most likely written by a credit card industry shill who was attempting:

1. to increase business by convincing people to spend a little extra and maybe leave a balance

2. make the people who habitially leave a balance take pride in thinking of themselves as the backbone of economic prosperity, rather than as undisiplned bags of appetite who can't manage to spent less than they earn

I still don't quite understand the logic in merchants & CC companies viewing people who pay off each month as 'free riders'.

Whenever you pay by CC, you save the retail merchant time/labor in having to physically store & deposit cash or verify & process a check. Time is money, and convenience benefits both parties --customer & merchant.

Whenever you pay by CC, you generate fees for the CC company. So regardless of whether or not you pay in full each month, you are *still* a profit center for them. Not as much profit as the revolving debtor, but still not a 100% "free rider".

I admit using credit card "transactors" as a straw man argument of sorts. But I think I made a reasonable case that since 1/3 of all credit users pay in full, yet the other 2/3 are those who can least afford to pay the burden for those (us) moral elitists. If we're really so concerned about being ethical we would all stop using credit cards completely and/or insist upon the elimination of credit cards entirely.

At best we're arbitraging the system; at worst we're free riding on the backs of the poor, ignorant, stupid, uneducated, and financially existential.

I still don’t quite understand the logic in merchants & CC companies viewing people who pay off each month as ‘free riders’.

I don't care what they think. If they don't like me paying off my balance every month they can charge me a fee.

I am not bothered by labels.

HARM

Whenever you pay by CC, you generate fees for the CC company.

The CC Company != The Bank issuing the CCard.

Visa is a transaction processing network. They get your 2.x% fee, paid by the merchant, price partially passed on to you.

Wachovia is the issuing bank. They survive off of member fees, late charges, penalties, and of course fat interest.

Note Wahcovia is a bank with other operations, so ostensibly they benefit by having use of the working capital, by being able to cross sell their other services, and by trying to use their CC offerings as a way to poach customers away from other banks.

At best we’re arbitraging the system; at worst we’re free riding on the backs of the poor, ignorant, stupid, uneducated, and financially existential.

Either case, I feel good enough to have sushi. :)

Headset,

I agree with you completely. I wasn't aiming at the messenger, sorry if you had to duck.

Randy,

Every time I go to the store and pay cash *I* *pay* the credit card industry out of my own pocket in the form of the higher prices that merchants charge in order to cover the 2-4% credit card private tax that they have effectively been imposed upon me. In practice I have no choice other than to pay the tax. I think that is plenty to pay for a service that I am not using.

Now, for me to avoid to pay still more interest and penalties on top of the transaction tax, makes me a "free rider" ? One who "does not shoulder my fair share of the cost of production", of a product that I don't even want to use, for the most part.

I don't think so.

PS: I don't mind paying $0,25 to use the ATM card at a gas station. That's fair and square.

And now I, and other freeloaders, are also moral elitists :-). That feels good :-).

Seriously, Randy, thanks for acknowledging that the argument was a bit of a strawman
(note how I avoided using the loaded word "adm*tt*ng" :-))

If one freely incures a debt for a home, car, or other consideration, then refuses to pay that debt, than that person is a welsher. A moral issue.

The fact that the law provides various renegging tools does not change the welsher's moral stance. The welsher is acting within the law, but not morally. Harm's payment is full (a difficult task, involving personal sacrifice, as are most real moral issues) puts him morally ahead of the "clever" character who buys a home with the intent of abamdoning the loan.

I also think there is a problem with any rent seeking activity, regardless of ones political or economic influence. Also, since it is a given that people will act in their own best interest, using that fact that seems strange license to brush off morality concerning such issues.

"At best we’re arbitraging the system; at worst we’re free riding on the backs of the poor, ignorant, stupid, uneducated, and financially existential."

Gee, that sounds like you are talking about state lotteries.