______________BP______________ __________Too Big to Fire__________

Government to BP Oil:  “You’re fired!”

It won’t happen.


Let’s play back the tape and see what the recurring theme is:

Investment and Mortgage Banking – Too Big To Fail

Health Care System – Too Big to Fix

American Automobile Industry – Interconnected Industries Too Big to Let Die 

       and, most recently:

Big Oil Blowup –  BP Oil Technology Too Complicated for Federal Takeover – Hence, BP Too Big to Fire

It is not a curious matter that none of the above occurrences represent government that is too big.  Rather, they represent corporate bungling on a scale so immense that government ended up being the controlled and not controlling one.  The very nature of larger and larger corporate size through loosely regulated market consolidation has, with greater frequency, backed the Federal government into a corner.   The government in case after case has essentially been forced  to reactively capitulate to corporate fumbling, incompetence, and other sorts of mishaps;  because to not do so would cause even more harm to its other constituencies.

A corporation’s successful development in America is a race to be the first (or second) to the top.   To be the first (or second) is usually the formula to be the biggest.  Entrepreneurial discovery,  innovation, and product development is a race to the patent office, then to the venture capitalists and banks; and, finally, a race to go public.  If a company can be the first to go public, it can be the first to generate the massive funds to scale up and get its name and product out there first.  This is immensely important because it  provides the means to dominate the market by acquiring its smaller, but potentially dangerous, competitors.  It’s not that competitors products wouldn’t prove to be better, it’s usually that the competitors are smothered by the avalanche when beaten to the punch.  The losing competitors are usually left the scraps of only being able to eat around the edges of the big, new pie.  The slow, chiseling background sounds of competitors are  just a reminder to the winner that it needs to continue its voraciousness to dominate.

An inevitable result is that most industries mature into a couple or maybe a few dominant players.  These dominant players, in effect, end up by virtue of their early success in controlling large parts of societal infrastructure.  The reliance upon this infrastructure is usually so great and so widespread that even minor disruptions, glitches, or upheavals of the dominant players are immediately and widely felt. 

Recall a while back when Twitter had a very brief technical mishap that disrupted its service.  Half of the United States seemed to go aflutter or atwitter over this.  Think of brownouts or temporary power outages by utility companies, cellphone system mishaps, or internet service provider interruptions.  These are relatively small inconveniences that cause palpable public panic attacks.  When e coli or salmonella outbreaks threaten, it causes systemic fear.  Bad milk, tomatoes, apples, lettuce, spinach, or beef cause havoc throughout society because of the reality that big corporations control so much of the food sourcing.   If Tyson Food has gas, the chicken industry burps in disharmony. 

When the scale of problem becomes a notch or so higher on the calamity scale, all hell can (and does) break loose.  I think that it’s time for the United States to take a necessary and healthy step forward and begin to regulate the extent to which a company can gain market share.  We have seen more than enough of the steroidal corporations that dominate to the point of societal damage.  The benefits to society of the economies of scale have a ferocious proportional step-brother – the massive disasters that occur when the incompetent or greedy side of scale reveals itself.  These corporate catastrophes not only paralyze society; they render government virtually impotent.

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Published in: on May 28, 2010 at 6:38 pm  Comments (3)  

__ The Senate Financial Overhaul Bill __ For Consumers, It’s a FinReg Flop!


On April 19 I wrote an article critical of an amendment proposed by Senate Durbin to the Senates’s FinReg bill which would have capped the interest rate ceiling on consumer loans at 36%. Senator Durbin said that he tried to pick an interest rate high enough that even the biggest banks could not object.  Guess what?  They objected.    

Senator Durbin did not get his way with his 36% interest rate cap.  What the American public got instead was a kick below the consumer belt by Senate Republicans.    According to Reuters, the Senate  gave a 35 -60 thumbs-down vote on the Senator Sheldon Winehouse amendment, that could have put the brakes on predatory consumer loan lending.  What the Senate did for consumers was to let the large national banks, which do most of the credit card business in the United States, continue to be allowed to charge basically any rate anywhere that they wanted.  Their rate limitations, to the extent that there will be any, will largely be determined by the laws of corporate friendly Delaware and South Dakota which, essentially, have no interest rate limitations for consumer loans.  States will not be allowed to set their own interest rate caps within their states on lending done by national banks.

I haven’t looked at the analysis of the Senate vote, but I think I can safely stick my neck out and say that the 60 votes were overwhelmingly Republican ones.  If they want to vote their conscience for special big banking interests, then so be it.  But voting against an issue that gives the states more regulatory rights doesn’t quite jibe with the Republican Party line – that is, unless it is convenient to do so.  The Winehouse vote just confirms that the Republicans use state’s rights’ issues only when it is politically expedient (Bush-Gore comes quickly to mind).  I guess that there isn’t a constitutionally based principle in their bodies when it goes against their Wall Street buddy-banks.  It’s sickening. 

 Unless the House of Representatives does something drastic in the reconciliation process (don’t get your hopes up), the die is cast.  Of course, that means that we can look forward to endless TV commercials; mail solicitations will start rolling again; and people will continue to get fleeced.  But according to 60 Senators, that’s OK.  In fact, not was it only OK, they pressed the button that will make it happen.

I wouldn’t count on increased disclosure on credit card statements to do much of anything to alter the consumer loan landscape.  You don’t have to put in capital letters on the front of someone’s credit card statement that they will likely get in financial trouble.  They already know it.


Senator Levin: Boy, that Timberwolf was one shitty deal.              

Senate Permanent Subcommittee on Investigations (2010)

Caractacus Pott: And after that, Vulgaria became a free country.

                                                Chitty Chitty Bang Bang (1968)

I have a weakness for watching special televised hearings conducted by the United States Senate.   I don’t know exactly why.  Maybe it’s because the choreography is so predictable regardless of the dancers.  Maybe it’s because I like feeling in the thick of the great debates in American politics while  just sitting in my robe eating donuts.  Maybe it’s because I truly believe that these shows are the ne plus ultra of caricatured theatrical debate.  Or, maybe, it’s because I continue to have hope that America can work out its problems right in front of my eyes. 

Other than the news media, I don’t really know how many other people share my interest.  After watching a good Senate hearing session, I am usually fired up enough to want to discuss it with somebody – really anybody.  I usually discover, however, that most people I know either didn’t have the time to watch or just plain didn’t care to watch.   Most of my follow-up Socratic dialogues, therefore, are simply my own loud rejoinders directed to the TV commentators.  

The Goldman Sachs hearing was, to my mind, one of the best hearings of all time.  It was delivered in three episodes, all of which occurred in one day (I understand that there is a lot of other work being conducted in the Senate).   For whatever reason, the Senate wanted to get this over in a hurry – a slash, burn, and get out of there sort of thing.  I believe that they had a good reason for this – namely, that the longer they questioned their witnesses, the more that they would show how little they knew about Wall Street and its machinations.  They judged that just about perfect.

One of my favorite portions of the debate was a segment of questioning by Senator McCain.  He went into a dramatic trance, slowed the meter of his voice down to where it just put you on the edge of your chair . . . waiting.   It turned out to be a wait in vain.  While he had some pointed questions that were building suspense about a particular deal, he didn’t have any idea what it was about when the Goldman witness interrupted his line of attack.  McCain, suddenly realizing that he was on the verge of confirming that this line was just a brainless monologue,  awkwardly stopped and yielded back to the Chairman.  It was a pitiful performance from him, but we’ve seen it for years.  Remember when he stopped his presidential campaign just before a scheduled debate to buzz into Washington in the midst of the financial meltdown to intervene in the crisis.  When he arrived at the table, he just sat there like the lightest of the lightweights – without so much as a clue about what was happening and what needed to be done.   

The attention-getting highlights though were provided by the Chairman of the Subcommittee, Carl Levin.  Senate decorum suffered considerably when he repeatedly uttered the “sh” word – over and over again.   I think it was entirely proper for him to use the word once, when he quoted the Goldman email the first time.  But to repeat the word again and again?  I am not sure if there has been a definitive count of the “sh” word that he used in the hearings, but some have said it was 13 times.  I’ve also read 30 to 50.  I listened to most of the hearing and would guess that the count is closer to 13, but it could have been 50.  It was way too many times more than once.

There was another word that was repeated ad nauseum during the hearing.  This one did not come from the Senatorial side but, instead, from the Goldman people.  The word “risk” was used by Goldman so often that it got to the point where I though some smart Senator might call them on it.  Over and over again Goldman interjected the word.  They used it euphemistically in every conceivable way.  None of their clients ever lost money – they just assumed too much risk.  Goldman never made any money – they just reduced the risk of their negative positions.  As a market maker, Goldman matched the risk that one client wanted to assume with the risk of another.  And if one client’s risk could not be matched with another client, then Goldman themselves assumed the risk – that is, until they decided to offload the risk and “get closer to home.”  You got the feeling from Goldman that it was a caretaker of  risk for the world, simply caught as an arbitrageur in the midst of an extremely volatile and risky situation.  One of Goldman’s main witnesses was, in fact, their head of their risk management department.  Wow, did the Senate Committee person responsible for that witness selection get suckered in advance by Goldman’s risk rhetoric, or what? 

All and all, Goldman used the word “risk” hundreds of times.  How could anyone not notice this?  Not one of the Senators did.  They were too wrapped up in the scripts prepared by their staffs.  There was not a thoughtful questioner in the entire bunch of Committee members.  If any of them would have just listened carefully to something other than their own babble, they just might have been able to penetrate the digression and repetitive shield that Goldman had erected.  But, not a chance.  The hearing turned out to be a marathon – but a marathon that was unnecessarily run in circles.

Now – don’t you wish you would have watched?

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Mr. Perfect "36"

 “By a ‘silly’ theory I mean one which may be held at the time when one is talking or writing professionally, but which only an inmate of a lunatic asylum would think of carrying into daily life….It must not be supposed that the men who maintain these theories and beliefs are ‘silly’ people. Only very acute and learned men could have thought of anything so odd or defended anything so preposterous against the continual protests of common sense.”       C.D. Broad

I woke up fresh today, grabbed the early morning newspaper, started sipping my orange juice and nibbling my lightly buttered toast, when I was startled, not by a knock on the door, but by a story about Senator Richard Durbin’s news conference yesterday.  The article  in the Senator’s hometown newspaper, The State Journal Register in Springfield, Illinois, stunned me.  In it, 


 Senator Durbin said that he has introduced language into an amendment on a financial reform bill that would put a ceiling on interest rates.  He is quoted as saying, “I tried to take a number I considered to be so high that even the biggest banks couldn’t argue with it.  I said we couldn’t have an interest rate over 36 percent. . . . I think we ought to have an absolute limit.” 

Please tell me that I’m dreaming. 

After I caught my breath, I sat down to think about interest rates a bit.  That’s not a fun thing to do on an early Monday morning.  For starters, any discussion of interest rates leads directly into the abyss of laws covering the subject.  And, of course, laws covering interest rates can be complicated state or federal ones, depending.  Suffice it to say that I am not a lawyer and immediately disclaim anything here that might be construed as legal advice.  I neither offer nor suggest any legal advice, and recommend that you consult with a licensed attorney if you need or want such services. 

Now, back to just after my morning orange juice.  On the face of it, I think it fair to say that, in the United States, interest rates can vary from ZERO to, say, (um, Senator Durbin) 36%.  If you toss into the interest rate computations the rates of the pay-day loan outfits, pawn shops, and the title loan gang, you most assuredly have situations where the APY is higher than 36%.   Whatever the Senator’s legislative intent, to offer interest rate ceiling legislation to which no bank would object is, to put it mildly, surely usurping the voices of his constituents.  I mean, who in the world can conceive such a thing other than someone almost incomprehensibly out-of touch.  To me, his premise is just staggering. 

What if one begins the discussion of interest rates with the premise of “fairness” and not the premise that “no bank can to object to a ceiling of 36%”?  How then does the dialogue proceed if reasonable people of all ilk can begin with an attempt to decide what a fair interest rate might mean?  Might that be the place to start a discussion?  Surely that is a better alternative than what the Senate Majority Whip has pulled from his hollow hat? 

So, what is fair?  I doubt that there is an answer to that.  Maybe “fair” is a just place to start a discussion.  Or maybe, it’s just a concept to keep in the background when discussing rate ceilings because, after all, aren’t loan arrangements entered into voluntarily?  Well, of course, they are; but that spirit of volunteerism can lead to bad places. 

When I was a much younger man, I picked up a copy of a personal financial management sort of book.  I do not recall the author.  I seriously doubt that it was a best-seller.  I recall it being a patronizing thing – warning one away from the financial dangers-that-be out there in the cruel world.  At the time, I imagined that this book was written by a very boring person with a very boring life – a classic nerd, if you will.  However, there was one bit of advice he gave which jumped off the page and seemed directly aimed at me.  He wrote, “Don’t ever buy a consumable item with anything other than cash.  That way, you’ll never end up paying for something long after it has been used.”   That made perfect sense to me.   Maybe you, too? 

Don’t we all wish that we all followed that advice?  Well, no.  Life wouldn’t have been nearly as much fun – or dreadful, at times.  Let’s just move on here and admit that we are a consumer-driven society in a consumer-driven world and what makes the wheels of innovation and progress go round is the ability for the consumer to borrow.  Take away credit, the wheels come off, the cart crashes, and we all are trapped under a big immoveable object with total loss of all mass and momentum.  The United States has about 2.5 trillion in outstanding consumer debt.  Consider, too, that Americans charge over 2 trillion dollars per year on the over 180,000,000 million credit cards out there.  Whew! that’s a lot of plastic.  Take that away and I don’t think anyone knows what would happen other than total economic collapse. 

So, we’re all stuck with credit.  Consumers are stuck with the lenders.  The lenders are stuck with the legislators.  And the legislators are stuck with the consumers.   That is, the legislators are supposed to be stuck with the consumers.  Unfortunately, Senator Durbin, it looks like we’re stuck with you instead of the other way around.  Maybe something is amiss here. 

Let’s discuss real interest rate ceilings for a bit.  As a citizen of Illinois, if I were to loan money to a friend or a neighbor, or some other entity, I would be subject to my state’s usury laws.  According to information provided at http://www.usurylaw.com/state/ the interest rate ceiling that I would be permitted to charge is 9%.   If I were to charge more than that, I would be violating the State law.  Further, if I engaged in practices in which I had established a pattern of charging more than twice my State’s limit of 9%, in other words 18%, I might be subject to Federal RICO statutes, and that might very well be a felony.  In street vernacular, I would be considered a loan shark if I charged more than 18% to my neighbor or friend. 

Ah, but Senator Durbin wants a Federal law for financial institutions, apparently of all types, to be subject to an interest rate ceiling of double what would be a Federal felony in his own state for a person or other entity regulated by his own State’s usury laws.  I read that the Illinois usury laws also are applicable to amounts owed in civil judgments.  But the Senator wants to legislate by Federal law an interest rate ceiling for financial institutions that is 4 times the amount permitted by his own state for civil judgments.  Apples and oranges, the Senator might say.  I say not. 

I have my own hollow hat and my idea on what is a fair interest rate ceiling.  I think the big banks might not like my number, and might want to argue with it. 

My number is 12% APY 

What do you think? 

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