Big Short "Market Genius" - We're Heading Toward Another Crisis

Starting young / Source: _Dinkel_, CC BY 2.0 

New York magazine recently posted an interesting interview with Michael Burry, the "market genius" depicted in The Big Short.  For folks concerned about the current state of our economy, it's a quick read and well worth it.

I don't agree with some of Burry's comments, but it's all worth considering.  What I *do* share is a concern that we in industrialized nations cannot seem to get away from our drive to produce "economic growth" at any price.  This usually results in the accumulation of obscene amounts of debt - in the public AND private sectors - until the whole system becomes completely unsustainable.  The related belief that large profits are the birthright of everyone with "enough smarts" to identify and exploit economic opportunities results in the bidding up of residential properties sales and/or rental prices until prices are beyond reach of the vast majority even WITH the aid of consumer debt (at which point, the bubble pops), downward pressure on wages and benefits paid to workers (and eroding wages/hours) coupled with increased workloads ...

Arbitration Clauses Everywhere - Where Are Better Options For Consumer Justice?

 Lady Justice at Alexandria, VA Federal Courthouse / Dan4th Nicholas, CC BY 2.0

The New York Times had an excellent piece yesterday about some of the problems with mandatory arbitration clauses.  For example, the agreement for your credit card probably requires you to take any dispute you have about the credit card company's actions to a "neutral" arbitrator and forecloses you from going to court.  So even if the credit card company illegally loads a bunch of fees onto your bill, you can't take them to court.

Three thoughts inspired by the piece:

1. Consumer contracts and corporate employment contracts have grown increasingly chock full of mandatory arbitration clauses for more than 10 years.  This isn't a new phenomenon, but it's still deserving of coverage.

2. The following is largely speculation based on my own experience representing consumers [and tenants] in court.  I'm not sure whether there have been any studies of actual court data to examine these questions.

Even in cases not barred by arbitration clauses, lower-level county courts (where consumer defense cases are usually tried) also tend to have pro-business bias.

This occurs in part because:

a) The laws they're applying tend to have a pro-business bias - even in "liberal meccas" like Washington state.

b) More lower court judges than not seem to assume that large corporations (including credit card companies) have fleets of high-priced (and thus super-genius) attorneys who help them make sure everything they do is at least *barely* legal.  They don't - more than a few of them engaged in pretty egregious limit-lowering and fee-loading behavior when the economy tanked, in some cases resulting in effective interest rates (APRs) in excess of 100%.  This was clearly in violation of federal law.  But because regulations implementing those statutes didn't specifically prohibit the behavior at the time, banks pushed the envelope to maximize their profit during a massive recession.

c) I suspect some of it also comes from class bias, as well.  A lot of Americans - especially in the professional class, which judges certainly are - have a tendency to assume that in any face-off, the person of higher socio-economic status is necessarily more trust-worthy than the other side.  Most folks probably don't think about it concretely, in those specific terms.  It's more of a subconscious response.

3. From an economic standpoint, class action suits seem an incredibly inefficient way to police bad corporate behavior. Bringing and maintaining such a suit is an extraordinarily expensive and labor-intensive proposition.  The result - the vast majority of the penalty extracted from the corporate offender (I say extracted because it seems most cases with a scintilla of merit settle) ends up going to attorneys' fees and other litigation costs, not to the consumers who were injured by the misdeeds.

And on the other hand, we do see a fair number of class actions against pharmaceutical and medical device companies that seem to be based on unrealistic expectations of perfect, fail-safe treatment for serious medical conditions, often premised on the notion that although a given risk was disclosed in the producer's literature, it wasn't made obvious enough.  At least, that's the impression I get from the numerous ads on TV urging people to call law firm X if they ever used medication Y or device Z.

If the point of our legal system is to make injured people whole again, class actions generally do a poor job of it.

But much the same can be said of DOJ and State AG cases - those government agencies also have to be reimbursed for costs and labor expended prosecuting violations of consumer law.  Does a $300 settlement share check repair the harm to a consumer's credit (and life) that occurred when Bank of America illegally foreclosed on their home?  NO, it doesn't.  But that's what folks are getting.

I don't have a better answer than those options, though.  If anyone has ideas, please share them below in the Comments section.

Professor Limbaugh Fail: Rush Don't Know Glass-Steagall

Screenshot from Limbaugh's site.

I don't want to shock anyone, but the self-declared "Mayor of Realville" apparently really doesn't know what he's talking about.

The day after the first Democratic presidential debate, Rush Limbaugh informed his audience that “Mr. Snerdley” had spent the morning hassling him for his ignorance about the Glass-Steagall Act:

Screen shot from Limbaugh archives

Not sure how “Professor” Limbaugh missed the six or so mentions of Glass-Steagall, and moderator Anderson Cooper’s good quick-and-dirty description to bring viewers up to speed, and all of the talking head discussion about it immediately after the debate.  But whatever. 

Bank of England Head Makes a Conservative, Economic Case for Action on Climate Change

Bank of England Governor Mark Carney has warned that firms and regulators can no longer avoid addressing global climate change / Photo: James Oxley, CC BY-ND 2.0

A few weeks ago, Bank of England Governor Mark Carney, who also chairs the Financial Stability Board, gave a speech at Lloyd's of London regarding the economic impacts and challenges of global climate change.  Given his audience, he also paid particular attention to how climate change has impacted the insurance industry, and will continue to do so.

Despite plenty of disagreement on the particulars he advocates, Carney made a compelling case for corporations and financial firms to stop fighting the acknowledgement of climate change and start modifying practices NOW in order to smooth the transition, reduce the ultimate cost of combating climate change and adapting to it, and avoid not just ecological catastrophe, but economic catastrophe, as well.

How Small Annual Payments Made a Huge Difference for Kids' Development

Greater economic stability helps families, and children, thrive / Photo: Mike Keran, CC BY 2.0

A study newly released by the National Bureau for Economic Research has HUGE implications for US social policy.  And it's all thanks to an accidental natural experiment. 

Four years into a ten-year study of 1,430 rural kids' mental health in North Carolina, the Eastern Band of Cherokees built a casino.  A quarter of the children being studied were affiliated with the tribe, which decided to distribute at least some casino profits as annual per capita payments.  The tribe paid out about $4,000 per person per year, or $16,000/yr for a family with four enrolled tribal members.  The per capitas boosted the families' incomes by just under 20% on average.

The impact on these children's mental health and their development of pro-social personality traits was substantial.  The stabilizing effect of the payments helped reduce family discord, promoted marital cohesion, and resulted in reduced alcohol abuse rates among parents receiving the boost in income, all of which made positive, lasting impacts on the kids.  And the children who'd been struggling the most benefited the most.

Sanders' Antidote To Shallow Campaign Coverage

Screen Shot of Sanders Economic Inequality Video

Tired of shallow campaign coverage?  Want to hear more about issues that actually impact most of our lives on a day to day basis?  Well, here you go:

I'm not a Bernie Sanders supporter.  [I actually lean toward Hillary.]  But this video was extremely well done and focuses viewers' attention on REAL issues that impact REAL Americans on a day to day basis, rather than all of the silly stuff dominating campaign coverage. 

This is an extremely compelling, engaging presentation of modern American economic realities.  I'm not with Sanders on doubling the federal minimum wage (although it does need a boost.)  But all of the other points made here are solid.

If you're still not sure why life feels like more of a struggle than it was 10, 20, or even 40 years ago, the info shared here helps bring that to light.  Take 8 minutes and give this video a watch and a listen. 

And if you, too, are concerned about the issues discussed here - even if you're not a Bernie supporter - help share the video on Facebook, your blog, Twitter, and any other social media.  Help make the case to all Presidential candidates and the press that a majority of American voters - left, right, and center - are tired of political, legal, and economic systems that have been rigged to benefit a very, very small share of our population, at the expense of the other 90-some% of us.  

Federal and state taxes paid by the profoundly affluent have been slashed again, and again, and again since the 1960s, each time with the promise that this would unleash growth in US GDP that would mean improved quality of life for ALL of us.  While the average American has experienced improved quality of life is some arenas, those improvements have almost exclusively been due to technological change, cheaper goods due to globalized trade (which hasn't been without a downside), economies of scale, and public infrastructure investment - all factors that had little to no connection to any of these tax cuts.

Slashing taxes on the wealthiest in America has never "unleashed growth" in the way that's been promised.  Data point after data point indicate that US policy promoting GDP growth as the primary concern of economic policy has had no discernible benefits for 90-some% of Americans.  To the contrary, our incomes and wealth after inflation is accounted for have SHRUNK. 

We need to say ENOUGH.  And if you tend to vote Republican and YOU care about these issues, we REALLY need you to help spread the word.  Because you guys have a much better shot at getting GOP candidates to stop pandering to major corporations, banks and financial services firms with their economic policy proposals.

Good Intentions Gone Wrong - Low-Income Housing Edition

Demolition of Chicago's Cabrini Green public housing / Senor Codo CC BY-SA 2.0

The Atlantic posted a story today about a documentary that commenced in 2007 and aims to examine what's happened to poor folks in Atlanta, particularly former housing project residents, in the wake of all of the city's public housing units being torn down over the last 20 years. 

The story's conclusion makes a powerful point:
"The phrase 'The Atlanta Way' was used throughout the 20th century to describe the processes of compromise between black and white elites, a negotiation strategy that prevented both total chaos and real progress for the city during the civil rights era. Williams heard this phrase over and over again from displaced residents, and he's come to think of the process of demolition and revitalization as one defined by this top-down strategy. 'It's the idea of the gentry, the landowning class, or the higher ups making decisions which affect the lower ends,' he says. 'That's what's happening in Atlanta.'"

No doubt.  That's what's happening all over the country, probably since its founding (but with less racial diversity among "the elite" in most places.)  The move away from public housing "projects" and toward subsidizing private development, in particular, is a story of well-meaning elites making serious policy reforms with little to no real understanding (or perhaps care) for how those policies will actually impact the population they're ostensibly trying to help.