When the Third Horseman of the Apocalypse Arrives, He’ll have an Economics Degree
On June 9, 1999, the Dallas Morning News ran a story on eighteen year-old college student Mitzi Pool, whose body was discovered hanging in her dorm room in apparent suicide with her checkbook and recent bills from 3 maxed-out credit card accounts spread out on the bed below. Only shortly before hanging herself, Mitzi had tearfully phoned her mother about losing her part-time job and expressed despair over ever being able to pay her bills. A year later, a 22 year-old University of Central Oklahoma student, Sean Moyer, would also commit suicide after amassing over $10,000 in credit card debt with about 12 different cards.
Currently, credit card companies aggressively market on college campuses. I don’t know about your school, but at BYU, at the beginning of each Fall semester, you’d see numerous booths from all the major credit cards hawking their wares right next to the booth for the Stargazing Club, the College Republicans, and the Outdoor Rec Club. Usually, the hook was a “free cell phone for signing up now!†Why anyone thinks that kids who often aren’t old enough to vote, serve in the military, or even drink alcohol are free game for a credit card is beyond me.
But the major lenders seem to think so. In fact, it’s commonly known among consumer protection circles (if not among the general public) that major credit card holders actually like clients who are poor credit risks and that the lion’s share of annual profits reported by Visa, Mastercard, and most major US banks comes from penalty fees that accompany defaulted payments or bounced checks.
Bad credit risks are, oddly enough, a wonderful source of revenue for major lenders and financial institutions. Which explains the current rage among lenders to solicit vulnerable kids for irresponsibly large amounts of credit.
Last Wednesday, the New York Times quoted Senator Dodd, the incoming Senate Banking Committee Chair to the effect that credit cards were increasingly little more than “pocket-sized predatory loans.†When one looks at the state of unsecured borrowing in America (and I’m not suggesting that secured lending is any better), it’s hard not to agree with him. Credit card lenders have turned downright predatory, and focus their efforts on the most vulnerable in our society. It’s all the worst sort of behavior that the Old Testament laws against usury were meant to prevent.
And yet…
You can already hear the response from the credit industry lobbyists the moment there is even a hint of regulatory legislation.
“You can’t implement these restrictions! They’re bad for the economy!â€
Ah yes. The old standby. And I have no doubt they are able to back it up with numbers and statistics sufficient to satisfy the ritual requirements of the false priests over at the Cato Institute. Prominent politicians of both parties will act earnestly concerned how requiring the folk at Visa to act like decent human beings will nosedive the stockmarket, tank the economy, lay-off thousands of workers, and – even worse – it will run contrary to the time-honored American tradition of government non-interference. The end of civilization as we know it no less!
Who knew that punishing wrongdoing and requiring people not to act like predatory spiders could be so … well… Satanic?
So spare your sermon preacher and tell those mangy do-gooders to shove off! I’ve got an economics degree!
The suicides are indeed tragic. But there’s something else going on here- we can’t pin death and destruction on easy credit and high interest rates alone. For example, the Grameen Bank, whose founder won this year’s Nobel Prize for Peace, charges 15-20% interest on its microcredit loans to poor women living in the worst conditions of poverty in the world. This interest rate is higher than the Visa and MasterCard, etc. charge. And, surprisingly, around 80-90% of Grameen’s loans are repaid on time.
So there’s obviously something else responsible for the deaths of these students rather than their credit card debt. But what do I know – I have a degree in Economics. Now, where is my horse? And could someone point me in the direction of the nearest Apocalypse?
Comment by ECS — November 24, 2006 @ 1:07 pm
Every college death is a tragedy, whether by choice in the face of money problems, as with these students; by choice in the face of grade problems; by fatal drinking binges or frat house fires (the two are not unrelated); or by just falling asleep at the wheel during a long drive home over the holidays.
I’m not sure economics is the right prescription. Suicide is in the domain of sociology, which examines a variety of social pathologies. I doubt that increased regulation of the credit card market is on their menu of reforms for the problem of teen and college suicide.
Comment by Dave — November 24, 2006 @ 3:03 pm
The problem is not the credit card companies, nor “the false priests over at the Cato Institute,” but in the many individuals in our society who have not been taught (or were taught, but never learned) any self-restraint and delayed gratification.
Where there is demand, supply will rise to meet it. In this case, there is a strong demand in U.S. culture for easy credit. Your prescription is to cut off the supply — a practice that continually fails whenever any government tries it (think of the massively wasteful and failed “War on Drugs”).
The only effective, permanent solution lies not in governments controlling suppliers, but in individuals converting to the gospel of Jesus Christ and its related principles of preparedness, consecration, self-sufficiency, and living beneath one’s means.
Comment by Mike Parker — November 24, 2006 @ 4:17 pm
Oh Seth, brilliant! I can’t tell you how crazy it makes me, the justifying of evil with free markets.
Comment by fMhLisa — November 24, 2006 @ 5:57 pm
Dave and ECS,
My point in the annectdotes was simply to put a human face on the problem. I think it is valuable to have a few humanizing annectdates on any discussion. That’s all the stories were meant for.
Besides, even if we dismiss these two college students, the story of financially ruined fellows jumping off bridges is age-old and quite well established. It’s hardly a unique story. On the flip side, surely you aren’t trying to suggest that predatory lending isn’t a problem and that it doesn’t indeed have a human cost?
My main point is that bad behavior is bad behavior. Exploitation is exploitation. And that doesn’t change simply because the macro-equation “all balances out” in the end.
Do we want a Zion society or not?
Comment by Seth R. — November 24, 2006 @ 6:08 pm
ECS,
It said horseman. MAN.
This may be one instance where the “inherent sexism” in the Bible is actually pulling in your favor. =)
Comment by Seth R. — November 24, 2006 @ 6:14 pm
Oh Seth, brilliant! I can’t tell you how crazy it makes me, the justifying of evil with free markets.
So, we should be limiting freedom in order to accomplish the greater good?
Wait — wasn’t that Satan’s plan?
Comment by Mike Parker — November 24, 2006 @ 6:52 pm
Exploitation is exploitation.
Shame on those credit card companies for forcing those young people — at gunpoint! — to obtain their credit cards and then buy stuff with them. Reminds me of the antebellum South.
On a more serious note, whatever happened to personal responsibility? Creating a budget, living within one’s means, being frugal, etc.? I hear that sort of thing taught by Church leaders all the time; I don’t hear anything about the problems of “exploitation” and “predatory lending.” The former is a gospel principle; the latter is a political philosophy. Which one should we be pursuing?
Comment by Mike Parker — November 24, 2006 @ 6:58 pm
While I agree with you in principle, I’m not sure businesses that make most of their money by preying on the weaknesses of the stupid and unwise are exactly excusable. That is while I may not have the sympathy for a smoker getting lung cancer that I do for some woman getting breast cancer through no fault of her own, neither do I exactly hold up the tobacco companies as ethical businesses.
Comment by Clark Goble — November 24, 2006 @ 7:45 pm
I don’t disagree with your facts. Financial illiteracy in the US is widespread and profound.
I think the difference is that I just have a touch more sympathy for the stupid and the exploited. And I would never make the argument that -
“Jimmy was stupid enough to let Fred cheat him out of his baseball card collection, therefore what Fred did was OK.”
Basic playground ethics here.
Comment by Seth R. — November 24, 2006 @ 7:53 pm
Heh, BYU has never been consistent on responsibilities kids these days can handle. On the one hand, the church sends out these same kids to save men’s souls, yet apparently these same kids can’t decide for themselves if they can have a beard! Yet these very same kids can apparently decide for themselves how much debt they can incur while in college.
Comment by Dan — November 24, 2006 @ 9:53 pm
I seem to remember hearing that the reason young folks are good for credit card companies is that their parents are likely to bail them out.
Comment by Jared* — November 24, 2006 @ 10:21 pm
Seth,
One point you are making is that it is unethical for credit card companies to prey on young people. That seems like a fine point, I agree. I am not sure anyone disagrees with that.
Another thing you suggesting is that advertising credit cards to college students is predatory. That one is debatable. There is some truth to it, but it is not the whole story by any means. To the extent that they are targeting college students specifically because they know college students are, as a demographic, more likely to act irresponsibly and pay a lot of interest, it could be considered predatory. But it seems obvious that another reason they are on campus is that lots of college students will be getting their first credit card anyway, and being accessible and offering an incentive gets them to choose your credit card instead of someone else’s. Unless you are going to argue that credit cards are inherently evil or that college students should not be allowed to get a credit card, you must be careful about criticising good customer service.
A third thing you are suggesting is that the solution to the problem is government regulation. This is where I part ways with you. I don’t have the slightest bit of confidence that more regulation will help to solve the problem you’ve described.
Comment by Jacob — November 25, 2006 @ 1:12 pm
We certainly need to save people from making stupid choices. We are smarter than they are and we know what is best for them. Eighteen year olds can vote but they certainly are not smart enough to make responsible decisions about credit and spending and heaven forbid that they should ever face any consequences for poor decision making.
By the way, does this blog have any philosophical or other connections to Mormon thought?
Comment by al_miller — November 25, 2006 @ 1:25 pm
Come on al,
What more do you want? Tenuous biblical references, vague ethical mandates, all pontificated by a practicing Mormon! This post has it all!
Jacob,
For a start, it can be easily argued that a 33% interest rate (the usual rate after you miss a payment) is per se unethical business practice and ought to be federally capped.
Comment by Seth R. — November 25, 2006 @ 10:42 pm
No seriously Seth. 18 year olds are too young for credit and too young for consequences. You thought I was being snarky but I am not. We need to be much more severe about means testing for credit. Consumer credit is one of the great evils of our time. The brethren speak about it all the time. I tend to think that they want individuals to make better decisions for themselves but they just don’t seem to be able to see that most people cannot and will not make good decisions especially if self-restraint is involved..
Smarter people need to take control here.
Comment by al_miller — November 25, 2006 @ 11:30 pm
Yes, but don’t you agree that government intervention can be a good thing when it comes to protecting it’s citizens?
Heck, we should throw out all those regulations against pornography, quit trying to regulate gay marriage and to heck with the Patriot act. On top of that, quit imposing all those pesky laws against underage drinking and smoking. All of those things are “limiting freedom in order to accomplish the greater good” aren’t they?
Comment by ian Cook — November 26, 2006 @ 1:42 pm
I also think there is a fairly good argument to be made that state funded schools (as opposed to private schools) should be required to ban direct lender advertisement and promotionals on-campus.
Comment by Seth R. — November 26, 2006 @ 3:20 pm
Our country needs a benign kind of slavery. Let’s face it. We
Comment by al_miller — November 26, 2006 @ 4:05 pm
Our country needs a benign kind of slavery. It is plain to see that we have to kinds of adults. People that cannot fend for themselves and those who can. Those who can should have a measure of control over those who cannot.
We should control their access to tobacco and alchohol, credit and fatty foods. We should ensure that they have health care (of a basic sort) and food and housing. We need to make sure that abortion is easily available to the slave class and encourage them to use it.
The adults that are capable should be able to do anything they want. They should have control over the less capable and should be able to control their votes.
Let me go out on a limb here. We should allow some form of corporal punishment to keep the slave class in line. A mild beating here or there would be useful and not that harmful.
Believe me that I am not racist. I have no preconception that any single race would dominate the slave class. West Virginia which is almost all white would be almost all slave.
I am serious and expect serious and thoughtful responses. You all at least agree that there is a kernel of something valid in this idea no matter how obnoxious it seems on the surface.
Comment by al_miller — November 26, 2006 @ 4:16 pm
al_miller,
You truly are the modern-day Jonathan Swift, and as such, you are more than deserving of the credit (oops!) you would grant yourself.
Comment by Peter — November 26, 2006 @ 6:17 pm
al,
I’ll have to get back to you. Right now the wife’s making a pie.
Catholic babies. Yum.
Comment by Seth R. — November 26, 2006 @ 7:28 pm
Bingo.
Comment by Ann — November 26, 2006 @ 7:34 pm
I am a big proponent of free market economies and see that slavery is the inevitable consequence of such an economy. Slavery is everywhere in the Bible and there is no condemnation of it there that I can see. (However, slavery based on race is detestable.)
In my opinion, adults who cannot care for themselves would have to sell themselves into an indenture. They would give up voting rights to the owner of their indenture and would surrender some property rights and would submit to rules on other personal choices, (how much TV they watched, where they traveled, what they ate etc.) They would agree at the outset of the indenture that they would submit to some corporal discipline if they violated terms of the indenture and that if they fled their indenture they would be returned. Incorrigibles who could not live in indentures would be forced into work camps segregated by sex.
Over time they could earn their way out of an indenture. Children born during the indenture would be guaraneteed a basic public education and would be free of the indenture when they were 16.
Indentured servants would be protected by the state from sexual exploitation and would have some basic rights to a safe working environment, food, clothing and shelter. By and large the owner would be protected from lawsuits by the servant. (An agency such as the SPCA could investigate claims of egregious abuse. But like a dog cannot sue its owner an indentured slave would not generally be able to sue its owner. ) ) If the indenture contract was abriogated the contract could be transferred based on claims of the indentured servant to another owner.
Don’t you think that this would answer some of the problems that we have today? In particular it would create a way out for people who cannot handle credit, cannot control their weight (requiring expensive public expenditure), will not wear helmets when riding a bicycle etc. Your thoughts please.
Comment by al_miller — November 27, 2006 @ 4:55 pm
I think that would be a step back for society.
Comment by Ian Cook — November 28, 2006 @ 1:30 pm
So let me tell you what I really think. We are already slaves. The Democrats have never given up on the concept and never will. The fought for slavery, they ought for Jim Crow and the fought for a welfare state. Every impulse towards the state taking care of us has originated in the Democratic Party. It disgusts me when Republicans carry ideological water for Democrats.
Seth asks us to support more slavery. People just can’t make wise decisions about credit.. whine whine whine.
Life is tough folks and just because you’re smarter than most everyone else you don’t get to impose your good intentions on everyone and everything. There will be failures, suicides, disappointment, fat people, people who fall off of bicycles and every other misfortune you can imagine. The only ones you can help are the ones you choose to help personally and directly. Don’t take your guilt out on everyone else at the polling station. If you really feel all that bad about it quit blogging and go do something to help someone.
Comment by al_miller — November 28, 2006 @ 8:36 pm
Yeah, I got your point the first time al. And FYI, I’m a bankruptcy attorney. I deal with these people all the time.
You haven’t really raised any points that Ian Cook’s response in #17 didn’t already respond to adequately. If you’ve got anything new, I’m all ears.
Comment by Seth R. — November 28, 2006 @ 9:46 pm
I suppose using your logic a Doctor would be justified in coming here and suggesting that we needed to legislate against sickness.
I am glad you are in a position to help folks and make some money.
Comment by al_miller — November 28, 2006 @ 10:03 pm
Come the bird flu, if it ever arrives, and I think you’ll see a lot of legislation against illness. Same principle.
Comment by Clark Goble — November 29, 2006 @ 1:28 am
I demand my freedom to get sick and die on the cold doorstep of an uncaring society! Meddling do-gooders!
Comment by Seth R. — November 29, 2006 @ 5:20 pm
Consider it granted
Comment by al_miller — November 30, 2006 @ 3:52 pm