Leave Us A Loan

“You should be ashamed of yourself,” the angry wife tells her husband.  “Your father bought our house, your mother bought our car, and your brother is keeping us from the poorhouse with a weekly stipend.”

“Well, I think you have what to be ashamed of too.”  

“Oh, really?  What’s that?”

“Your family hasn’t given us anything.”

This sort of difference in attitude between the givers and the takers, those who feel responsible and those who feel entitled, has defined the politics in this country for a long time now.  Notwithstanding that the line was originated by John F. Kennedy, it has become fair to say that the conservatives are the ones who ask what they can do for the country and the liberals are the ones who ask what the country can do for them.  Except there is one little problem.  The country itself has no money to give to the takers.  Unless, of course, it can first take it from the givers.

When heavy taxation went somewhat out of style after the Reagan Revolution, legislators found a new way to shift money from those who work double shifts to the shifty and the shiftless.  It was called unfunded mandates.  Instead of making companies pay more tax per se, they had to spend large sums on compliance with numerous regulations ranging from the merely onerous to the truly odious.  That money might not trickle down exactly to the poor, but at least profits would be pared and a new cadre of compliance consultants could cut themselves a piece of the pie.

The Gingrich Revolution targeted such mandates, and they have become more difficult to decree.  The other day we got a frightening glimpse of the new horizon in congressional disruption of capitalism.  Senator Carl Levin, an overweening egotist who calls himself a Senator from Michigan, is convening hearings about bank loan rates and credit card lending policies.  In the course of ostensibly policing the legality of banking operations, he is instructing lenders in what constitutes an acceptable basis to raise interest rates.  He is simply ruling by executive order, as it were, intimidating financial institutions into conforming to the guidelines that suit his peculiar slant on morality.

The most concrete example of this concerned the case of lenders who increase the credit card holder’s interest rate if his credit score goes down.  He badgered the executive from Discover to gain an admission that such was their practice.  The fellow was at first evasive, and when he finally said yes, Levin upbraided him testily in a soundbite that was broadcast everywhere: “Now why did it take me this long to get that answer?”  Levin demanded that Discover and others follow the model of Chase, which does not raise rates on a customer as long as his history with them has not been compromised.

Clearly, the very notion that government, even if it was properly legislated in the form of a bill, should dictate such considerations to a company in the marketplace is shocking.  It violates every principle of freedom.  A bank calculates rates based on risk.  If a person has never been late on a Discover payment, but is showing signs of fiscal irresponsibility with other obligations, it is a mathematically provable fact that Discover’s risk is increasing.  More risk incurred, more interest charged.  That is simple financial reality, and the ethics follow the facts: Discover has a right to try to balance the risk to its money.

What is more, economic principles dictate that Chase is not being one iota nicer or more considerate than Discover.  The underlying mathematical formulae of the price of risk cannot be changed, they can only be managed in different ways.  Discover chooses to recoup its risk by raising rates even if you have not burned them yet; Chase must recoup it some other way.  Raise the income requirements, reduce the balance limits, show less flexibility with late payments.  They have to tighten the conveyor belt somewhere along its track.  You cannot take a vacation from math in the name of altruism.
This is like that joke with the hungry man who comes to John’s Tie Factory for a handout.  “All I have for you is a tie,” says John.

“What good is a tie to me?  I’m starving.”

“In that case, go to my brother Phil’s restaurant a mile down the road.  He will feed you for sure.”

An hour later the man is back, hungrier than ever.  “Didn’t you go to Phil’s?” asks John.

“Yes, but he wouldn’t let me be seated without a tie.” 
Discover may demand a tie but at least they give the food.  Mr. Levin, stop chasing your whims and discover reality.