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December 14, 2004
Ownership Society
Unfortunately, for a lot of Americans the only thing they own is massive IOU's in the form of credit card debt or over-extended secured loans -- cheap adjustable rate mortgages they can barely afford or overpriced car loans, student loans, whatever. This is one of the reasons Bush's ownership society promises ring so hollow. Everybody should own a house!
Well, maybe, but everyone doesn't pay their credit card bills on time and if you think millions of people getting a $29 late fee is unpleasant imagine millions of people getting kicked out of their homes. It isn't pleasant and if the ownership society had some way of preventing this it would be more like a socialist society or more likely a society where people with good credit are forced to purchase foreclosure insurance to subsidize those with bad credit and also to funnel more money into insurance and bank coffers.
This is just one way the ownership society rings hollow. Another way is social security reform -- covered extensively by other bloggers. Democrats are supposed to be for something, not just against everything that Bush puts out. OK, fine, but there clearly isn't a short or long term problem with social security. The only real "problem" that the system could conceivably by guilty of having according to Bush is that it is not wealth creating. Your heirs can inherit a private pension but not social security. That may be a problem, but a private pension probably won't send you a check every month if you live to 100 years old or if you become disabled tomorrow at the age of 35. So obviously there are some tradeoffs with the current system, it's mostly ok.
Democrats should stand for something though, so how about a responsibility society. This kind of builds on some of the themes of John Edwards winning campaign manifesto (real solutions for America) that unfortunately did not win John Edwards the nomination (he de-emphasized it and elevated his biography after the wonky Iowa and NH primaries concluded). Edwards didn't win and Kerry didn't really adopt his platform, but the ideas and themes in those late December 2003 (ah nostalgia) stump speeches do point to a promising future for Democrats.
I'd propose that as part of a responsibilty society Democrats offer a fair deal to the lower and middle class: You do your part and we'll make sure that corporations and government do their's. A good place to start would be to add a regulation to loan statements that require some sort of amortization schedule that shows how long it will take to pay it off. I'm not sure exactly what the details should be, but here is a proposal. Say that someone has a credit card that is maxed out and their credit limit is $2000, their interest rate is 23% and their minimum payment is the greater of $15 or 3% of the outstanding balance.
Democrats should propose that their statements have an extra disclaimer on it that says:
Balance: $2000. Interest rate: 23%
| If you Pay | Paid Off In | Total paid | Total Interest | Actual interest rate |
| Minimum ($60) | 15 years | $4,958 | $2,958 | 148% |
| Twice Minimum ($120) | 6 years | $2,875 | $875 | 44% |
| $100/Month | 2.5 years | $2,548 | $547 | 27% |
Start off showing what paying the minimum gets you and what paying double that gets you. I picked a flat $100/month arbitrarily, perhaps this number could be pegged to the balance. A goal of paying 5% of your starting balance on a high interest card is a good one. Remember that people are overwhelmed by math. Make the percentages mean something -- the card issuer could pick 3 things charged that month and show how much you'll actually pay for them under each scenario.
George Bush aims to use government to cynically promote an "ownership society" that will just enrich the corporate allies of the GOP. The Democratic Party doesn't need to be owned by any corporation but by the middle class. Use government to ensure that the private sector, the public sector and individuals are each playing by the rules and engaged in a mutual relationship that is beneficial for each and where no one institution is taking advantage of either of the others. The great thing about federalism is that state Democratic parties could start pursuing this on a state by state level immediately. If a few states are able to adopt reforms like these the industry is likely to implement it nationwide so as not to have to run duplicate systems based on state. Probably needs a better name than responsibility society though.
Posted by Chris at December 14, 2004 05:28 AM
Comments
I guess I don't understand. You say:
"Well, maybe, but everyone doesn't pay their credit card bills on time..."
And then you propose that "government" should do something to make sure that people don't get late charges?
I would propose that the "responsibility society" force people to take responsibility for their actions rather than find some way to "fix it".
I have no problems with putting more and more disclaimers on credit card slips but it won't change anything. No one reads their credit card contract anyway. Perhaps a better suggestion is education.
Finally, we know who really owns the Democratic Party. MoveOn.org. They said so.
Posted by: davenfl ![[TypeKey Profile Page]](http://www.chrisishardcore.com//nav-commenters.gif)
at December 16, 2004 11:00 AM
Davenfl, I wish you were as obsessive about actually reading what I have to say as you are about giving me a hard time.
No where did I propose that the "government" should do something to make sure that people don't get late charges.
I merely said that so many people can't handle their credit card payments (and get late fees) that it is comical that George Bush wants to make it easier for them to purchase homes. If you can't pay your credit card bills on time, you get a late fee, if you don't pay your mortgage, you lose your house. What I said is not that hard to understand. I think people should pay late fees if they don't pay their bills on time -- I don't think you should give those same people easy access to more credit to purchase a house.
You should stop projecting your own opinions onto me about what you think the Democratic Party or I think about policy or anything else.
You can set up one straw man after another in comments, but it isn't making anyone's lives better. You say that I propose the "government" doing something about credit card late fees / high balances. I said nothing of the sort. Then you say as an alternative there should be more education. Sounds like a great idea.
Maybe putting a disclaimer in plain English on credit card bills that EDUCATES people as to how much money their credit card interest and late fees are actually costing them more or less satisfies your loose definition of a solution for this problem.
Surely you would think it is unfair of me to associate you with all the bad things that various Republicans or conservative interest groups say or do. I think you can ask other commenters about this and they would tell you that I've been very fair to individual opinion to the right and the left of me (I hate the sin, not the sinners guilty by association :). But if you've got nothing constructive to add to the debates on this site, why bother?
Posted by: chris at December 20, 2004 05:42 PM
You give an example of paying off your credit card in 6 years at 120 dollars a month.
But then you say that you can pay it off in 2.5 years at 100 dollars a month.
How does paying less money pay off the credit card sooner?
Posted by: KEVIN at December 24, 2004 10:20 PM
Kevin, sorry, I should have been more clear.
In the scenario I presented above, the minimum payment is 3% or $15, whichever is higher. At the beginning of the scenario that takes 6 years to pay off, the minimum payment is $120 -- 3% of $2000 times two.
The next month, the minimum payment is recalculated, probably going down to $57. Now twice the minimum payment would only be $114. The month after that it would go down again -- $108 or something like that. After 4 or 5 months, the minimum payment would be less than $50 and double the minimum payment would be less than $100.
At this point, it will take significantly longer to pay off your balance than if you'd just stuck with $100. The same thing with the minimum payment -- if you start paying $60/month and stick with it your balance will be paid off a lot quicker than if you just pay the minimum when the minimum is recalculated every month.
So that's what I meant. If you always do $100/month, you'll pay it off a lot quicker than if you're just paying 6% a month. After 5 months, 6% is going to be significantly less than $100.
Posted by: chris at December 25, 2004 02:29 AM
Basically, I am trying to illustrate the minimum payment trap. Instead of paying a minimum based on the outstanding balance each month, people should be encouraged to figure out what a minimum amount is that fits into their budget and just pay that.
If I'm a credit card company, I want as much of your monthly payment as possible to be eaten up by interest -- hence a minimum payment that is recalculated each month to be a little bit larger than the interest charge.
That's why I put "If you Pay Minimum" and "If you Pay Twice Minimum" and "If you pay $100/Month". The first two were dynamic amounts and the last one was a fixed amount. Of course, anyone that writes a law like this would have to make sure the language is clear.
Here's something interesting -- if you start paying the minimum (in this case $60) and then you stick with paying a flat $60 instead of whatever the new minimum is your card will be paid off in about 4.5 years (better than 15 years!) You'll also only pay about $1,200 in interest instead of $2,958.
In the scenario I presented in the post, when you pay the minimum balance a full 63.9% of your payment each month is eaten up by interest charges. If you keep paying the minimum then you're always losing 63.9% of your payment right off the bat. Paying a flat $60 cuts that percentage in half in 3 years. As the balance starts shrinking more and more of your payment goes to principal and not to maintain interest. Even when you pay double the minimum payment each month you're still losing 32% to interest for the life of the loan.
Again, thanks for pointing out the confusion. This type of language needs to be fine-tuned to work.
Posted by: chris at December 25, 2004 02:48 AM
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