patrick.net

I'd like to point out that I wasn't the one who proposed the credit card example. Headset was remembering an article he had read once. My conclusion is that I can draw no moral conclusion about a person based solely on the information that they do (or do not) pay off their credit card bills on time. Hence I can have no particular moral indignation towards someone who carries a balance.

Now whether or not I think that is a fiscally sensible thing to do... IMO carrying a balance tends more towards foolish than wise. But it is not immoral.

The credit card example is very analogous in that it proves that the distinction between "financially moral" and "financially exploitative" is arbitrary. DS says credit cards do not constitute a social system. Given that these devices are the primary force behind 2/3 of the US GDP, I'd say they are as much a contributor to the "social system" as housing. There are a couple of other issues:

* credit card companies cannot discriminate broadly, so in a practical sense they cannot exclude monthly pay-off users; similarly they cannot charge an annual fee only to low/no balance users or a different fee to those users. This was tried a few years ago and reversed in a big class action suit.

* low/no balance users provide less contribution to marginal revenues.

* merchants pay transaction fees irrespective of whether the buyer was a low/no balance user or a high contribution user.

* Credit card companies require $X in marginal revenues or they will exit the business.

Therefore: credit card companies shift the burden of contribution towards their minimum marginal revenues to balance-carrying users. These users also correlate strongly with lower education, lower incomes and lower total wealth. Further, since merchants must pay incremental transaction fees for users who are not contributing to the cost structure of the system, they pass this cost through in terms of price inflation. And price inflation affects consumers proportionally according to the same above correlation, worsening the real burden paid by the non-free-riders.

This is meant to highlight the problem with making broad moral judgments about things financial or economic. Someone said it well above: financially moral is whatever *I'm* doing, and financially irresponsible is whatever *you're* doing.

FWIW, I'm seeing the bailout vs. no bailout issue as a major election issue for me. I have not been in love with the choices of the Republican administration of the last several years, so my knee jerk reaction would have been to vote Dem in the next election order to clean house a bit. However, the Democratic Congress has been so indecisive and pathetic that I'm not sure I want more of that, and most of the Democratic candidates would like to raise my taxes so that people who can't keep track of their finances can keep a house they can't afford at the expense of everyone else, but most especially at the expense of all the young families who can't afford to buy a first home in this market. Being a big fan of personal responsibility, I just can't stomach that.

Sigh. None of the choices are looking *good* here.

Credit cards constitute a private sales tax of 2-4% on each and every transaction you do every day,

I am baffled that one can even think that this obvious forced-upon-us margin-skimming scheme can be used as a backdrop for a discussion of financial morality. I'm even more baffled that one can even think that it is "immoral" or "freeloading" not to "do ones duty" and pay interest and financial charges on top of the 2-4% transaction fee that the company already collects.

Next someone is going to tell me that it is immoral to try and break he realtwhore 6% monopoly as well.

"Buyers don't pay transaction fees, merchants do".
(add big load of sarcasm here).

The credit card example is very analogous in that it proves that the distinction between “financially moral” and “financially exploitative” is arbitrary.

The Market is amoral. It is futile to assign ethical value to economics. It is everyone's responsibility to maximize his own gains. That's pretty much it.

I reject the other arguments that ‘it’s a democracy, so the rich have disproportionate influence’ when a representative democracy is more or less defined as ‘one person, one vote’, forgetting the existence of lobbies, donations and various other distortions of democracy for the moment.

This is the crux of the issue for me --thanks, DS. And since we're also debating philosophical abstractions vs. real-world pragmatics, let's also consider what ideals our republic was supposedly founded upon:

1. "We the people" (not we the rich and privileged) and "consent of the governed".
2. Explicit rejection of feudalism, monarchy and class-based government.
3. "All men are created equal" = equality of opportunity (not outcomes), which can roughly be defined as "meritocracy".
4. "in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare" = acknowledges there might be some collective social goals worth striving towards (universal literacy, education, public safety, general prosperity, ending hunger, poverty, etc.)

I'd say that "let the rich buy their way out of anything they want" violates both the spirit and the letter of those founding principles. And, for the record, I don't believe 'legal' equates with 'moral' 100% of the time. Not only do the rich and powerful have more options to evade consequences for actual bona fide crimes they have committed, but they also have a much greater-than-average say in what specific laws get passed. Look at your typical K-Street lobbyist. Whom does s/he represent? Working class people, or billionaires and multinationals?

Either philosophically or pragmatically, the extreme laissez-faire mentality breaks down for me.

HARM, HARM, HARM, How naive and idealistic of you!

I think my idea, shareholders of the cities, holds more promise.

One Dollar of Tax Paid = One Vote

I’m even more baffled that one can even think that it is “immoral” or “freeloading” not to “do ones duty” and pay interest and financial charges on top of the 2-4% transaction fee that the company already collects.

I'm baffled that anyone would be baffled by this. Since credit card companies are not allowed to freely choose which customers they accept our society has already determined that there is more at stake here than simple "libertarian" personal responsibility.

Otherwise credit card companies would simply be allowed to exclude or charge other fees to "free riders". Then your baffledness would be founded. But so long as we regulate credit card companies to be non-discriminatory in pricing and selection, it is possible for some participants to shift their burden to others.

Whether that is "fair" or not is in the eye of the beholder, even if you're the beholder.

I have a sexier name in mind: Market Democracy :)

One Dollar of Tax Paid = One Vote

Sounds good but then you've created a direct-path by which those who control tax policy can engineer elections. With deferred taxes alone I can imagine a dozen ways to concoct a system that guarantees single-party rule.

Randy, there is no perfect solution. ;)

A better way: just get the government out of as many unrelated businesses as possible. This way, the appearance of democracy will be intact and The Market can still operate freely.

With deferred taxes alone I can imagine a dozen ways to concoct a system that guarantees single-party rule.

I see wealth as reflection of power. Throughout history, wealth tends to consolidate, despite minor occasional disruptions like revolutions.

Power too tends to consolidate. Eventually, single-party rule will return, at least in effect.

Are there real differences between the two parties in the US?

Randy :

I agree with you that since we monitor/regulate credit card companies, and they don't have the choice of canceling cards (or charging a fee) for those who pay it off every month - there is a shifting of burden.

But they can charge annual fees to cover these expenses. Some cards do. Many used to and competition forced them to reduce/eliminate the fees.

Also they definitely need at least some customers to pay a lot more than minimum. Else they will have a cash flow problem. So although people like me don't give them a boost in profit, we help them with the cash flow so that they can earn the profit from people who carry a balance. It's arguments like these that create the problem with the analogy.

Nevertheless, I am convinced that the behavior of people who made bad loans and who are now begging for a bail-out are immoral. It may be legal to behave this way, it may be an expected way to behave this way for most. That hardly makes it moral.

Are there real differences between the two parties in the US?

Yes. They each have different cartoon animals as mascots.

Red’s Eats in Maine
Funny you should mention them as we just passed by there last week. I have returned from my hiatus; what did I miss? A bank run, nice... Thankfully, I withdrew some pocket cash before leaving as it would have been quite disconcerting to have my Wells Fargo account "locked down" while on vacation.

On the real estate front, still a lot of for sale signs in the area where I was staying. The property next to my inlaws place is still for sale (on the market for at least two years). I would say the the market probably peaked in their locale around 1-2 years ago. The house was inherited (I think) 2+ years ago, and I'm sure the daughter saw (and is still seeing) the property as a gold mine (after all, we can't just give it away). One has to wonder after how many years does the maintenance and various other carrying costs finally get to you (give it another five years of stagnant to falling prices). And, of course, it goes without saying, this place is special: it's an island, so they're not making any more land (pay no mind to the collapse of the the vacation/second home market). Anecdotally, it seems that ferry traffic may be down for this time of year... of course, this just means that folks went home early (not that there actually may be fewer people visiting :-) )

I only forced one person to listen to my REIC rant as I explained the "securitization food chain" and how everybody involved had an interest in keeping it going... Didn't have the heart to pull out the CS ARM reset chart.

SF seemed to take a nice hit (pdf alert) with the June Case Shiller Index numbers (6-7% annualized). My favorite city to watch, though, is Miami. They rose the highest, had the most staying power.... and of course, are falling hard (down 1.7% month-to-month). Will be interesting to watch Boston as they are being pegged as the canary in the coal mine -- now being monitored to see if they bird is able to breathe again. Oh, and Stumptown continues to show relative strength as their numbers are still positive...

O.K, we can argue about, is it ethical, legal, moral but what stands out most in my mind... is it embarrassing?! Should Bill Gross (who btw was dancing on equity traders graves barely 3 short years ago) should feel humiliated by his own comments? My guess? Yes.

SO... just b/c something *isn't* unethical, illegal or immoral certainly doesn't mean it can't be as embarrassing as f@ck! :)

So DinOR,

What you mean is that instead of writing to "The Ethicist" guy in the NY Times about these guys, we should be writing to Miss Manners?

EBGuy,

Glad you had a nice vacation! So, where you there primarily to look for vacation property? No, wait don't tell me! Let me guess, HELL NO!

Thanks for bringing to light the absolute collapse in the vaction home market. With the bank run, credit crunch and all I was afraid that would get lost in the shuffle? What I find interesting is the similarities in the ME market (and it's proximity to Boston) and what that might tell us about the future of the Bend, OR market?

And yes, the Stumptown market is "alive and well"!

I'd say they're more like communists, than socialists; but they're actually worse than that. Communists are those less fortunate that take from the wealthy; these guys are the exact opposite. Since there isn't a term worse than communists; I will make one up: scumbags! or scumbagism!

EBGuy,

Did you stop at Red's Eats? Man, I still dream about their lobstah rolls.

Why did my comment go into moderation?

PermaRenter said: Squatters are already moving into empty homes. “If you know what you’re doing, you can get six months in a place with a kick-ass view,” said Los Angeles police officer Chris Ragsdale.

I am surprised this doesn't happen a lot more. My impecunious college roommate stayed in a luxury guesthouse in the B.V.I. many years ago. The twist was that the owner of the estate (a european movie star) had no idea. The main house was off limits, but there was a guest house and campsites on the private beach that the housekeeper was renting out to make some money on the sly.

I vaguely remember an old Rock Hudson + Gina Lollobrigida movie with this kind of theme too.

SP

@skibum,

LOL! Earlier today CNBC was having a "panel of experts" trying to sort out just what a HF is? Herb Greenberg made some good points but I'll make this simple for people. If you ran a fund (any fund) and were *not* AIMR Compliant (meaning there was NO audit of your performance and net asset value) you ran a HF!

That makes things nice and simple, no doesn't it? If BG can't have his assets "marked to market" then he ran a HF too! This is why he is so focused on damage control for real estate values. Now that he's upside down in his positions he wants someone to save his bacon? That's whiney AND rude!

The DOW is down 280 pts!

Sorry about comments held in moderation. I really do not understand the algorithm. It' s not just keywords. I have now approved every comment that was not spam.

Please write me directly at p@patrick.net if you get a comment held, and I'll release it. Unless you're a spammer, in which case you should go abuse yourself.

Patrick

Ah, we might get the DOW under under 13,000 again! That is wonderful news, since everyone who has dollars is seeing them get worth more shares by the minute.

Patrick

Did you stop at Red’s Eats? Man, I still dream about their lobstah rolls.
Much to my shame (given the number of times I've been to Maine), I've never (gasp!) even had a lobstah roll. I must admit, since it is past my lunch time, my mouth is watering (oh, and I did go the the RoadFood website). Most of the time when we are passing Red's I am comatose in the back seat after taking a redeye (which allows you to catch a ferry after landing, since you "lose" a day flying) -- doubly so now that we are traveling with kids. Red's is also ground zero for the dreaded Wiscasset traffic jam (which wasn't all that bad this year -- coincidence?)
Our "food pilgrimage" (more like tradition) is a stop at Moody's Diner.

Man, I still dream about their lobstah rolls.

Where can I find good lobstah roll in the Bay Area? :(

EBGuy,

Yeah, I think the Wicasset traffic jam is in large part the fault of Red's! Don't know if you've been to these places, but some other places up there worth trying (pretty geographically diverse):

- Maine Diner (I think it's in or near Wells)
- Duck Fat in Portland
- Hurricaine's in Ogunquit

Peter P,
Have you tried Woodhouse Fish Co. in the Castro? Not bad, considering.

Rumors of Crapertino's demise have been greatly exaggerated. June's numbers, unfortunately, were a statistical anomaly. Hopefully, August will give us some "downward" inertia.

Have you tried Woodhouse Fish Co. in the Castro? Not bad, considering.

Castro St in Mountain View or San Francisco?

Rumors of Crapertino’s demise have been greatly exaggerated.

It can definitely rise again from its ashes. It can become another Dubai if it will simply franchise Monta Vista.

SP,

I was wrong, the graveyard is located off Big Basin / Highway 9, a bit off the downtown. Therefore, that is a pocket where you see almost no Asian buyers at all.

Peter P,

Castro in SF:

http://www.woodhousefish.com/

Rumors of Crapertino’s demise have been greatly exaggerated. June’s numbers, unfortunately, were a statistical anomaly. Hopefully, August will give us some “downward” inertia.

Looking at those stats, I have 3 things to say:

- It goes to show you how volatile the data is when the "n" is so small
- Who the fu(k buys a $4.2M place in Crapatino?
- Crapatino, welcome back to the Bay Area. You are officially on probation. Any more price declines, and "see ya!"

Castro in SF

Thanks!

StuckInBA,

Also they definitely need at least some customers to pay a lot more than minimum. Else they will have a cash flow problem. So although people like me don’t give them a boost in profit, we help them with the cash flow so that they can earn the profit from people who carry a balance. It’s arguments like these that create the problem with the analogy.

Except that the transaction fees go to the transaction network provider, and the issuing bank is left with annual fees and interest + penalties. Since they cannot charge different annual fees based upon your average balance (in most states & cases), they are forced to have low or no fees because of competition, as you point out. But you are missing the fact that they cannot recover their margins in annual fees by and large.

Also, your low/no average balance is a net flow problem for them, not a benefit. Their working capital is tuned to receivables and collections. It's only because these banks earn such tremendous margins on interest and penalties that they can carry the free-riders along without much trouble. We should see proof of this in the coming months as many issuing banks have problems collecting bad credit, and end up writing off as much as 1/3 so I heard last. At this point many of the banks will try to do things to eliminate the free rider problem, yet again, in order to preserve margins.

Details aside, I am a bit puzzled by the insatiable need people have to always think of their own actions and judgments as righteous. I may be odd, but I really could care less if my paying off my balance in full every month on a credit card is "greedy", "moral", or "anti-social". I am happy with the choices I make to maximize the security, wealth and happiness of my own family and community as best I can. I really care squat if it's moral or not. 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.