The Market Ticker
Commentary on The Capital Markets- Category [Consumer]


Credit card companies know there’s no free lunch, but they’re letting more customers get a taste as an enticement by gouging their existing card members.

The average credit card interest rate for people with fair credit has hit a shocking 21 percent, up more than 2 percent from only a year ago, according to industry group CardHub.

Credit card companies, which attract new customers with zero percent teaser rates and more rewards, have raised rates while their costs remain historically low, industry observers say.

Right, so you balance transfer to a "zero rate" offer, but you can't pay it off.  After the "zero" comes the hammer.  Then you miss a payment and now it's a penalty rate and oh, you can't balance transfer again because now your credit sucks.

Look folks, there is something like $850 billion out on these cards.  What's 21% of that -- each and every year?  That's how much you flush down the toilet so you can have the latest and greatest "pair of shooz."

Or a night on the town.

Or a sexy pair of panties.

Or whatever.

This is stupid.  Bone-crushing, outrageously stupid.

You are destroying yourself while the banksters are laughing their asses off all the way to their tony boardrooms.  They pay nothing for these funds -- they don't take deposits for them, they don't pay interest on the money, they literally create it out of thin air and then screw you on top of it.

Worse, the generation of that "credit" with no backing means that prices go up commensurately.  This in turn means you pay more and more for the same crap and then you pay 21% interest on top of paying more!

Folks, it's simple: If you don't have the cash you can't afford it.


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This is not complicated folks; we make it that way because we refuse to demand accountability.

Should retailers be obligated to tell shoppers every time their credit and debit card have been hacked?

Michaels Stores, the country’s biggest crafts chain is now saying card breaches took place over two separate eight-month-long stretches at its stores beginning as early as May of last year, including at its Aaron Brothers unit, and may have exposed as many as 2.6 million customer payment cards.

Retail analysts warn retail chains have a history of not telling customers about hacks because they initially think the breaches are small and not worth alarming customers. Just like banks that get hit daily by hackers and whose executives fear runs on deposits.

So what?

Here's reality: This should be actionable to the extent that card fraud occurs as a consequence, with the party that was breached and those who tried to charge or otherwise inconvenience you in the process fully liable for all costs and damages to you, including your time.

The simple fact of the matter is that if that was to take place, even once, this problem would go away real fast because the credit reporting bureaus would be forced (economically) to allow you to lock your credit for free (lest they get hammered with the full, sunk cost of cleaning up the mess when your credit is abused) and the first time a merchant leaked a million credit card numbers and got hammered for $500 each (a reasonably-conservative estimate of 50 hours of work to re-secure your credit and dispute all the bogus charges in time alone, say much less any bounced check fees or similar) that would be the end of that because $500 million off their top line would have a very material impact on their economic performance.

These security problems happen because it is extremely rare that the idiots responsible are held to account in any way, say much less fully held to account.  The latter never seems to happen at all.

The solution to this problem will not be found until we, the people, start demanding full accountability from the banks, merchants and credit bureaus in this regard.  Each of them has either taken or failed to take specific and reasonable actions that would either prevent these breaches in the first place or would stop them from being profitable, and that results in the imposition of cost on you, the victim.

That imposition of cost is not an accident -- rather, it is the result of negligence and as a consequence it should be recoverable by you, along with the fees and costs of pursuing it.

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2014-04-18 11:05 by Karl Denninger
in Consumer , 445 references

This sort of thing makes my blood boil, and not for the reasons you may think:

If you think cars are getting too expensive, you may be right. A new report shows that the average price of a new vehicle is out of reach for people in medium-income households in all but one of the 25 largest metro areas in the U.S.

The report by shows that Washington, D.C. is the only American metropolitan area in which a family earning the city's median income can afford the average price of a new vehicle, which was $32,086 in 2013, according to Kelley Blue Book. That price equates to a monthly payment of $633, assuming the buyers put 20 percent down, financed for 48 months and principal, interest and insurance did not exceed ten percent of the household's gross income.

$32,000 for an average new vehicle is utterly nuts.

Flat-out, stark raving nuts.

First off, virtually nobody puts 20% down on cars any more; almost everyone I have heard from or about is buying them with 100% financing -- which is stupid all on its own, because if you don't take GAP insurance and wreck it you're totally screwed.  If you do take GAP insurance then you're paying for yet another service and your monthly cost goes up even higher.

Second, there is this claim that the car should be "no more" than 10% of household gross income.  What are you smoking over there?  We are talking about two-income households, right?  So now we're also talking about two cars, right, or is the second person walking to work?  20% of household gross tied up in vehicle payments and insurance?  

Are you stark raving mad?

To put some percentages on this that actually matter my "reasonably safe" financial leverage limit for most people stands at 28% maximum for all fixed housing-related expenses, which means principal, interest, hazard insurance, any mandatory association or coop fees and property tax (or rent + tenant insurance.)  The maximum safe leverage limit for all fixed obligations (including housing and transportation) is 36%.  That means that you can afford one vehicle that has a carrying cost of 8% of your gross assuming no other debt of any sort, such as credit cards or student loans, if you are up against the 28% maximum on housing expenses.  By the way note that taking on that 8% obligation means you are locked into not taking any more debt until either your income rises or you pay off the note -- it is not just a "qualify and then do what you want" ratio.

But this, by the way, this is not what you'll be sold at any dealer.  If you actually run to my limits (36% maximum gross income obligation against housing and transportation) you will find that your household is pretty damn tight on money.  Not desperately so, but moderately.  That means you won't be buying fancy vacations nor will you end the month with a bunch of extra cash allowing you to go out on shopping sprees and spend it.  Instead you will be coming to the end of the month juggling a few things -- that night in the bar will burn your last disposable $50 but you'll still manage to hit the match on your 401k at work -- barely.

If you go the limits "recommended" by the "finance guys" you will instead be eating Mac-N-Cheese on a fairly regular basis or you will start doing really bad, destructive things -- like carrying a credit card balance from month to month, having zero in cash reserves and, when the inevitable bad thing happens that requires you to spend a few hundred dollars without prior warning or planning you will be screwed.

I am not surprised though.  What did surprise me, as I recently shopped for a new car (and ultimately bought one as I wrote about here a few weeks ago) was how utterly outrageous vehicle prices had gotten over the last few years in comparison to what you actually got for your money.

Why, one might ask?

That's pretty simple -- the financialization of vehicles has advanced to the point that we no longer do "traditional" car loans from a bank or credit union, or paying cash, as our primary means of purchase. This has taken what should have been a dramatic and continuing technology improvement process that reduces price and led to everyone along the way, from manufacturers to banks to dealers scalping all of the value add from that process for themselves, increasing prices so that all but the last ten cents of that value goes to them and only a tiny bit comes to you.

This is exactly what has happened in both education and health care -- and what happened in housing as well.

This pattern is self-destructive for the economy as a whole but it will not stop until something breaks the financialization model -- and there is no indication we're going to see that from the car industry or the finance industry any time soon.

Can you fight back against it?  Yes and no.  Unfortunately this same trend causes used prices to rise too, so there is only some defense available by buying a quality used vehicle instead of a new one.  But what you can do is stop playing "I need a Lexus" and start showing the car dealers the back of your head on a regular basis.

I don't think that's going to happen, however, which makes this a problem that we're going to have to deal with for some time to come -- right up until it blows up in all of our faces in aggregate, just as college loans and medical spending are destined to.

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In the coming months, the environmentally minded can go to Mosaic’s site and invest in portfolio of 20-year loans made to homeowners. (Each individual loan will be scrubbed of identifying information.) Mosaic is offering the loans through a partnership with solar installer RGS Energy.

The interest rate is 4.99 percent as long as homeowners pay down the loan with a 30 percent federal tax credit they’ll receive for installing a solar system. If they keep the tax credit, the rate jumps to 10 percent after 18 months.

“We think a solar loan if structured right can open up the market and make solar more affordable and accessible for more homeowners,” Mosaic co-founder Billy Parish told The Atlantic.

Ah, I see.

So if you spend the money and do not take the tax credit personally the interest rate is 5%, which is still quite high for a secured credit facility (secured by you getting tossed on your ass from your house!) in a world of zero rates and a 10 year that trades at 2.6%.

If, on the other hand, you don't do that and finance the entire amount the interest rate looks like a damned credit card.

Now let's look at the total payments.  Let's assume your "system" costs $20,000.  Note that the "tax credit" (1) may not be able to be carried forward after 2016 and (2) has to be used to pay down the principal.  So let's assume you don't cap out on the tax credit (and thus lose it) and do pay it down (and thus your effective financed amount is $14,000); the total payments would be $22,062.50.  This is probably why it looks attractive; over the 20 years you are only "paying" an effective $2,000 for the financing -- because you stole the rest of the principal from everyone else.

Now let's assume you can't manage to meet your tax bill while doing that.  Then you're ****ed as the system now costs $45,938.22.

That's assuming you don't default, by the way.

If you do you lose your house.

Explodo-loans, irrespective of how they're wrapped and presented to people, ought to be against the law.

H/t: Dmj, who alerted me to this one.

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Oh, look at the spin....

CHARLOTTE, N.C. — The North Carolina Attorney General's Office is now joining other states investigating a massive data breach at a credit reporting agency that has put 200 million Social Security numbers at risk.

State justice officials told Channel 9 they are concerned about how many residents could fall victim to identity theft because of the breach uncovered at Experian.

Investigators said sometime before March 2012, a Vietnamese man named Hieu Minh Ngo used a false identity to purchase Social Security numbers with a database called Court Ventures, and then sold that information on the international black market.


See, there was no "breach" at all. This guy didn't allegedly break into a computer and steal the data. The accused (who has since been arrested, incidentally, after he was lured to US soil where he could be tagged) bought the data.

Yes, he did misrepresent who he was.  But the real question that is not being asked here is why is this data collected and exposed in the first place?

There's no need for it to be in places where it can be collected in this instance.

We have this general problem in that despite the fact that the original Social Security cards (including the one I first got when I applied for it as I started working as a youth) had emblazoned on the front "not for identification" it has indeed become exactly that -- a de-facto government-mandated ID.

This in turn means that it has value standing alone, instead of being what it was intended to be up front, which was simply a means of identifying your tax payments into the Social Security system.

The problem isn't that this guy allegedly got access to the data.  It is that it is collected and correlated in the first place despite being allegedly improper to do so in the first instance.

The fix for this problem is to stop that crap -- to halt the "credit bureau" abuse of this sort of data originally.  Then there is no single piece of information that can be taken and used in this fashion.

The real risk is not so much theft as it is exactly what happened here.  See, this wasn't theft -- the guy who got the data bought and paid for it, exactly as do thousands of businesses every year.

The real question is this: If we're going to prosecute this guy, and we clearly are, why aren't we also prosecuting all of the aggregation, sale and purchase of the data as a whole, when the data itself, in this case Social Security numbers, was originally tagged as "not for identification"?

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