Devil’s Advocate

This post was originally written by Kevin Rogers of NCSJP and Action NC.  It was originally posted on


It appears this morning that Congress finally found their collective sanity and averted the financial calamity they themselves created.

Truly, this is democracy at its finest.

While the political pundits analyze the political winners and losers to this debt-ceiling debacle, one thing is clear: they won, and we lost. This should not be surprising.

But more than that, I couldn’t help thinking that perhaps the Tea Party folks were onto something here – would it really have been so bad if we didn’t raise the debt ceiling? More to the point, who would a government default hurt more – the rich or the poor?

Let’s break it down:

If the government defaults, there isn’t enough money to pay all the bills – someone gets an IOU. And while I would rather get an IOU from Uncle Sam than my Uncle Al, I probably won’t be able to use an IOU to pay my rent, buy groceries, or pay for bus fare, which is exactly what many would have to do if Social Security payments weren’t made on-time. Or so the argument goes.

Just to play Devil’s Advocate for a moment, what if, instead of paying our bond creditors first, we paid domestic obligations first (like Social Security and Medicaid) and gave bondholders an IOU for the dividend? I know I’m going out on a limb here, but isn’t an a Treasury Bond essentially a government IOU anyway? Will these investors really run for the hills because they have to wait an extra week or two for their payments? Yes, China and others could reduce their long-term investment in T-bills, but where the heck else would they be guaranteed a safer investment – even with our maxed-out government credit card?

I know it is more complicated than that, and there are many possible (though I would argue improbable) long-term negative consequences of a default, including a credit downgrade (by the same folks who told us junk mortgages were AAA, so why anyone listens to them anymore is yet another baffling question) and increased costs for consumer borrowing.  But are those costs really worse than the long-term cuts to entitlement programs such as Medicaid and Social Security that are possible under this deal?

For your average low-income worker or retiree, I would argue not. These folks already pay adisproportionally high amount to access credit, when it’s even available, so it is doubtful that higher rates would really have much effect on them since, in many cases, they are already paying the highest APR allowed by law. Low income Americans are also far less likely to have significant retirement investments that would be negatively impacted by a down-turn in the stock market, and are therefore, ironically, far better protected from short-term swings in financial market conditions.

Don’t get me wrong – I’m glad Congress was able to come to an agreement that averted a default, because I think we would have paid our creditors before our citizens, and that would have been a double loss for people at the bottom of this financial food-chain. But I can’t help but wonder “what if.”

Rob Emanuel, former Chief of Staff to President Obama and current Chicago mayor, was famously quoted as saying “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before.” Indeed, what if we changed this crisis into an opportunity to actually value our most important responsibilities, rather than cheapening them, and in the process redefine what it means to honor obligations, rather than merely satisfy them.

Leave it to Congress to waste an opportunity.


Finance companies finally have their day

Today in the House Banking Committee the finance companies finally had their day.  House Bill 810 was thrown on the calendar yesterday at the last moment for a committee vote.  I think that it was planned this way.  The bill sponsors and the committee chair did not want the Military to be in the room and did it this way to make that happen.

The vote was pretty much along party lines with the a 15-6 vote for a favorable report out of committee.  The one Democrat who strayed was a bill sponsor.  I have to say that I am disappointed in Rep. Kelly Alexander, Jr.  This was an opportunity to stand up to industry and continue NC along the path of being a great state for consumer protections and being against predatory lending.

I was confused by his logic to support the bill.  When he spoke today, he kept going to the point about these loans being a way for people to access credit and that we should not be taking away that option.  Somewhere along the way the industry has confused him on the point of this bill.  In no way were opponents of this bill saying to banish these loans.  This bill wasn’t even about that.  The point of this bill was to increase fees and change the bracket structure for interest rates.  Increasing the levels that interest rates applied to and raising fees is simply away to make more money off the customers you already serve.

Rep. Alexander never once addressed that in any of his statements.  I am not sure where he made the connection between his logic and the point of the bill.  I don’t want to call the man incompetent, so I will just say he is confused.  What made me the most angry about his statements were his comments about the poor.  He rightly mentioned how the poor are the people most affected by this bill.  However, he was wrong in saying that the poor were not represented in the room.  There were countless advocacy groups in the room all who are opposed to the bill.  He made a statement about the poor not being organized and not having a voice.  The last time he checked there wasn’t an organization representing the poor.  I guess he forgot about groups like the NC Justice Center, Community Reinvestment Association of NC, Center for Responsible Lending, NC Housing Coalition, Action NC and other groups that were in the room.

He clearly doesn’t pay attention to what happens in his own district (Mecklenburg County) if seriously thinks the poor do not have a voice. Or maybe he thinks these loan companies are the voice of the poor since they service them.  Regardless, I found his statements about the poor and support of this bill troubling.  I hope that the people in his district make him realize more than ever that the poor have a voice.

I do think in all this that the advocates made a calculated mistake.  I don’t think that so much emphasis should have been put on the military opposition.  While that was important, I believe it would have been more effective with the voices of all the other groups against it.  However, even with that being the case, I cannot understand how a bill opposed by every consumer advocacy group, military, AG’s office and the Department of Justice could make it out of committee.  The only groups supporting this bill are those who are set to increase their profit margins on the most vulnerable people in the state.

My final thought on the issue deals with consumer protections. Some of the supporters of the bill spoke about this being a step in the right direction for consumer protections in this industry.  There was a small provision in the bill that makes it illegal to push customers to a new loan before they have paid off their current loan by 50%.  I think that is a good measure.  It slows the process of these companies who like to up sale and refinance their customers into bigger loans.  Seriously though, how can you combine that with a rate and fee hike and still call it consumer protections?  Since when does raising rates and fees equate to consumer protections?  Aren’t consumer protections supposed to protect consumers from predatory practices like that?

Hopefully, people come to their senses when the bill hits the floor and stop this bill in its tracks.