South Dakotans Worse Than Average at Money Management

The Financial Industry Regulatory Authority has published results of its nationwide Financial Capability Study. KELO follows the order of the press release for South Dakota and puts the good news first: we South Dakotans are third best at "financial literacy." In this survey, "financial literacy" is determined by performance on a five-question financial quiz that you can take online to see how you score compared to your fellow South Dakotans. (Perfect 5 for me; South Dakota's average is 3.27; U.S. average is 2.99.)

In terms of what we actually do with our financial knowledge, South Dakotans are worse than national averages. 23% of South Dakotans spent more than they made... and that's not counting buyinh a house or car. 62% of us budget the way I play whist: living from paycheck to paycheck without much of a plan. 65% of us lack a three-month rainy day fund. 26% of South Dakotans have taken non-bank loans (e.g., predatory payday loans) in the past five years. 64% of us don't comparison-shop for credit cards (although on that score, does it really matter?).

It just goes to show that doing well on a quiz doesn't mean you'll do well in life.

Onward Christian Legislators... Against Usury!

On the off chance that our Republican state legislators get a little too excited about their supermajorities and go all theocratic on us, I hope they'll apply their Christian principles to South Dakota's usury industry.

Perhaps all of our legislators should join Father Timothy Logan Fountain in reading Bishop Paul Peter Jesep's Credit Card Usury and the Christian Failure to Stop It. In an excerpt chosen by Father Tim, the bishop notes that alongside the responsibility we consumers have to use our credit cards wisely, there lies an equal responsibility for credit card executives and bankers not to build business models on the exploitation and serfdomization of credit card users.

In a press release promoting his new book, Bishop Jesep adds a practical economic argument to his moral fight against usury: "Fair profit, not unjust gain from high interest rates, will spur economic recovery by putting money directly into the economy."

Are any of our Republican legislators willing to take up this challenge to Christian values?
--------------------------------
Bonus Ecclesiastica: Father Tim won't get me in the pews, but his post did get me to learn the difference between an autocephalous church and an autonomous church. Cool!

South Dakota Banks Making Big Money

All right, turkey's out of my system—let's get back to work!

While I was enjoying the grand American consumer bacchanalia in Lincoln, I read that Nebraska banks are having a great year. The FDIC says so far in 2010, Nebraska's banks have made $460 million in profit, their best three-quarter showing since 1993.

But they're pikers compared to South Dakota. The FDIC's State Banking Performance Summary says South Dakota's banks have made $7.97 billion in profit through three quarters. That's up 55% from the $5.14 billion profit posted at this point last year and up 6.5% from the September 2007 figure right before the economy went to heck.

Also worth noting: employment at South Dakota banks boomed by 50,000 full-time equivalents, a jump of nearly 28% from September 2009's 180,759 to the current 230,578.

Now hold on: jobs in the financial sector in South Dakota hardly number 30,000. Those FDIC-SBPS numbers cover all FDIC-insured institutions in South Dakota, and that apparently means FDIC counts al employees of those firms here and in other states. Look just at state-chartered institutions, and you find 4,347 full-time equivalents—well below the 5,086 FTEs at the beginning of the panic in September 2008, but up at least from last year's 3,855. Profits among the state-chartered institutions are up as well, at $123 million so far this year, up 26% from the same time in 2009.

---------------------
Looking nationally and historically, 149 U.S. banks have failed so far this year. That beats last year's total of 140. We also have a lot more "problem institutions"—FDIC is keeping an eye on 860 banks, compared to 702 "problem institutions" last year.

One more interesting note: following the savings and loan crisis and the early-1990s recession, FDIC had over 22,000 employees. Under the Bush Administration, FDIC's workforce was slashed to less than 5,000. Currently FDIC has 8,027 employees to insure our deposits and keep an eye on our banks.

$700 Billion TARP Price Tag Reduced to $50 Billion

When President Bush proposed the $700 billion bailout two years ago, I had misgivings. So I appreciate this reminder from Treasury Secretary Timothy Geithner that we're coming out a lot better than we might have. As the Troubled Assets Relief Program ends Sunday, projected losses in the worst-case scenario are $50 billion. With a couple lucky breaks, we might even make a small profit.

Senator Bob Bennett, who lost the Republican nomination in Utah because of conservative rage over TARP, thumbs his nose thus:

“For those who were screaming at me — and screaming was the operative word — ‘You’ve just saddled our children and grandchildren with $700 billion,’ I said, ‘No, I haven’t,” Mr. Bennett said in an interview.

“My career is over,” he added. “But I do hope that we can get the word out that TARP, number one, did save the world from a financial meltdown and, number two, did so in a manner that, I believe, won’t cost the taxpayer anything. And even if it did not all get paid back, it was still the thing to do” [Jackie Calmes, "TARP Bailout to Cost Less Than Once Anticipated," New York Times, 2010.09.30].

The economy still needs work. We have an awful lot of restructuring to do. But we have to admit: TARP worked a lot better than a lot of us thought it would.

Katus for Treasurer: Keep State Money Local!

Tom Katus just gave me a reason to vote for him for state treasurer. The Democratic candidate says he wants to put more of the state's money in local banks and credit unions. Instead of propping up Wells Fargo and other national players with our taxpayer dollars, Katus wants to let local lenders like the Miner County Bank and East River Fderal Credit Union mind a bigger share of our money.

Wow! Katus must be on the same wavelength as Ariana Huffington and I about community banks. I just read about Katus's "bank local!" position in last night's MDL, but Katus has been offering this idea since early in his campaign (shows how much attention we pay to the treasurer's race). It makes sense. Just as we'd expect state government to hire South Dakota contractors whenever feasible to maximize the circulation of dollars in the local economy, we should expect the state to use its savings (assuming it has savings, when there's a huge deficit to plug and no federal stimulus coming to protect the Legislature from hard decisions next time around... but that's another issue) to support lending and investment in as many of our communities as possible.

Getting folks' attention when you're running for any statewide office below governor can be hard. Tom Katus's desire to shift more of the state treasury from Wall Street to Main Street deserves our attention.

Herseth Sandlin vs. Noem: Helping Farmers Get Loans

Part 3 of the Madville Times' South Dakota State Fair Congressional Debate analysis

Question #2 in Sunday's Congressional debate: What do you plan to do to help the current ag lending situation? Had I faced this question, I'd have been left hemming, hawing, and deferring to our Congresswoman just as B-Thom did. I'll see if I can get right what the ladies in the race had to say:

Stephanie Herseth Sandlin said she discussed this very issue with dairy producers on Saturday and called for changes in the Commodity Credit Corporation. She said farmers should be allowed to count silage in collateral value. The Congresswoman said we need to make sure Farmer Mac and cooperative lending institutions don't get caught in regulatory burdens that should properly be aimed at the Wall Street fatcats who swamped the economy. She said she worked with House colleagues to make sure this summer's Wall Street reform act carried such exemptions. Herseth Sandlin mentioned her work on expanding financing opportunities for young farmers and ranchers (I didn't catch mention of a specific bill; Herseth Sandlin did sponsor the Beginning Farmer and Rancher Opporunity Act of 2007, though that didn't make it out of committee).

Herseth Sandlin then branched a bit with some indirect solutions. She noted that she has supported renewable energy, ethanol, wind power, and community wind projects (hey! she said community wind! Whoo-hoo!). Expand those programs, and you expand the ability of farmers to diversify their portfolio, which in turn expands their potential for cash flow and ability to get loans from the bank.

Kristi Noem started her answer by recycling an earlier talking point about the need for permanent disaster relief. Noem said disaster payments need to come the year of the disaster, not later, so farmers can get the cash flow they need to get loans for the next planting cycle. She said we shouldn't limit producer abilities to look at forward contracts and get premiums for the product they produce.

Noem then turned to foreign trade. She said the House has had three opportunities to approve trade agreements with other countries but has failed to take action.* Noem said we must open up trade to get good markets for our crops, which boost cash flow, which make it easier to get financing. She then started to say something about the Wall Street reform bill, but her answer ran over the time limit.

Assessment: Both candidates offered some Rube-Goldberg economics. Help farmers make money in other ways, and they'll have more collateral to get more loans? I guess that makes sense, although I would speculate the questioner was thinking more about the complications the farmer faces with paperwork, interest rates, tax rules, etc., the aspects of the lending process that Congress can change directly. On that line, Herseth Sandlin provided more direct solutions. Advantage Herseth Sandlin on substance.

*In response to a later question on unemployment, Herseth Sandlin pointed out that Noem was blowing smoke on these trade agreements. Herseth Sandlin says the three agreements Noem references (apparently with South Korea, Colombia, and Panama) have not yet been transmitted by the President to the Congress, meaning Congress has never had a chance to vote on them. President Obama wants these deals done, but the agreements, negotiated by the Bush Administration in 2007, have been stalled by Democratic opposition in Congress.

Volcker Identifies Shattered Illusion of Deregulation

Quote of the weekend comes from Paul Volcker, chairman of President Obama's Economic Recovery Advisory Board and former Fed Chairman. Volcker discusses his regret that he didn't more vocally oppose the deregulation of the financial markets that got us into our current mess:

“You had an intellectual conviction that you did not need much regulation — that the market could take care of itself.... I’m happy that illusion has been shattered” [Paul Volcker, quoted in Louis Uchitelle, "Volcker Pushes for Reform, Regretting Past Silence," New York Times, 2010.07.09].

Bonus conservative teasing: Uchitelle mentions that the financial reform bill is 2400 pages. Why haven't I heard the same outrage from the tea "party" over this hefty legislation that we heard last year when the town-hall shouters would indict the health insurance reform bill as obviously bad by mere dint of its comparable page count? Where are the misspelled-placard-waving patriots warning that Uncle Sam is trying to come between you and your banker? I guess financial reform is too good of an idea for the teabaggers to counterprogram with lies about death panels or some similar oversimplified propaganda.

Rich More Likely to Walk Away from Mortgages

Ah, the rich. Paragons of capitalist virtue. Models of personal responsibility.

And mortgage deadbeats:

[The New York] Times analyzed data from CoreLogic. That's a firm that analyzes real estate trends. The data shows that more than one in seven homeowners with loans over a million dollars has missed at least three payments in a row. They're seriously delinquent. Only about one in 12 homeowners who owe less than a million dollars is seriously delinquent. That's basically the rest of us [Stacy Vanek-Smith, "Rich More Likely to Walk Away from Homes," Marketplace Morning Report, 2010.07.09].

See the NYT article Vanek-Smith cites for these valuable quotes:

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

...the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes [David Streitfeld, "Biggest Defaulters on Mortgages Are the Rich," New York Times, 2010.07.08].

And I'm supposed to trust the rich with more tax breaks? I don't think so....

President Obama Expanding Rights, Fixing Economy, Investing Wisely

With your breakfast, a side order of news on why President Obama is making your life better:

1. The new health insurance reform law creates a patient's bill of rights that increases your liberty when you go to the doctor. Taking effect this fall, those rights include the right to keep your health insurance when you get sick, choose your own doctor, and get emergency care without insurance companies restricting payment to only their chosen network of facilities. Of course, South Dakota's GOP House candidate, Kristi Noem, wants to take those rights away from you.
   
2. The Troubled Asset Relief Program is a moneymaker. So far, we're $10 billion in the black, with the 61 banks that have fully repaid our Depression-stopping loans giving us a 10% return on investment (10%—and how's your portfolio doing?). One big reason banks have hustled so hard to pay back our loans: executive salary caps! The sooner the banks pay their loans, the sooner their executives can get back to making millions more than the $500K cap we imposed as a condition of taxpayer largesse. I guess socialism can be an effective motivator.
3. President Obama also appears to be helming an economic recovery... or so says Warren Buffett, a fellow not known for economic wishful thinking. Buffett disputes Nobel-winning economist Paul Krugman's contention that we are slipping into a Third Depression. Buffett says the stimulus was the right thing to do, has worked, and will keep working, producing a better economy over the next few years. He does agree that we need to check the debt as the crisis passes and confidence rises, but he also thinks making cuts on the backs of the unemployed is a bad idea.

In other words, keep on truckin', Mr. President!

Wells Fargo Boots Subprime Mortgages, 3800 Workers

These aren't the layoffs Governor Rounds promised us. Wells Fargo is laying off 3800 employees nationwide, including maybe 15–21 South Dakotans at three consumer finance stores in Sioux Falls, Rapid City, and Aberdeen.

The reason is not the 2009 Credit Card Reform Act that Governor Rounds and our Congressional delegation insisted would kill thousands of South Dakota jobs. Wells Fargo ascribes the layoffs in part to the yet-to-be-created Consumer Finance Protection Agency, which will target subprime mortgages. Wells Fargo is getting out of subprime (or, in their subtly shifty language, non-prime) mortgages.

But the big driver of these layoffs is good old merger capitalism:

The San Francisco-based bank said it no longer needed the locations because it now has 6,600 bank branches and 2,200 mortgage offices nationwide after buying Charlotte's Wachovia Corp. in 2008. It said less than 2 percent of its real estate loans were originated through Wells Fargo Financial stores in the first quarter of 2010 [Rick Rothacker and Christina Rexrode, "Wells Fargo Cutting 3,800 Consumer Finance Jobs," Charlotte Observer, 2010.07.07].

It appears Wells Fargo is just seeking efficiency through scale, not suffocating under job-killing government regulation. And to the extent these job cuts are a pre-emptive move to avoid impending regulation of subprime mortgages, shouldn't we actually be glad that fewer people will be making a living on the toxic financial products that got us into this recession?

Take Back America from Big Banks with Financial Reform

I hear a lot of people cry about the need to "Take back America!" I keep wondering, from whom?

Maybe from the army of corporate lobbyists fighting to prevent financial reform:

Throughout the financial reform debate, the finance industry has waged an unprecedented assault on the democratic process, spending an estimated $1.4 million per day to influence Congress and hiring 70 members of Congress and 940 former federal employees to lobby on their behalf.

...The lobbying spree is taxpayer-funded—it follows $160 billion in bailouts from Congress and trillions in cheap loans from the Federal Reserve. And as their influence has come to be viewed as increasingly toxic in Washington, the banks have shifted segments of their political activity to a “shadow lobby” that includes such front groups as the U.S. Chamber of Commerce [Kevin Connor, Institute for America's Future, "Big Bank Takeover," OurFuture.org, 2010.05.11].

Read the full PDF report here (and thanks to an eager reader for starting my morning off on a depressing note!).

Here's your chance, Teabaggers, to prove you are more than an anti-Obama, anti-Democrat front group for the status quo of corporate power. Show you can pay attention to the man behind the corporate curtain. Call your Congressmen, Republicans and Democrats, and tell them to do your bidding, not the banks'. Tell them to support real derivatives reform, and real financial reform.

If Uncle Sam Doesn't Pay for the Bailout, Is It Still a Bailout?

Derivatives reform is one thing (a good thing!). More bailouts for big banks is another (a bad thing). Dr. Mankiw directs my attention (and possibly yours) to Philip Swagel's criticism of the Dodd financial reform bill in the American Enterprise Institute's journal (should I really be reading this tuff?):

The debate over financial regulation is now focused squarely on the ability of the government to take over a failing financial institution such as a bank holding company or hedge fund—so-called non-bank resolution authority. This is the linchpin of reform because allowing the government to intervene in a crisis will affect investors’ risk-taking behavior from the start—for better or worse. A resolution regime that provides certainty against bailouts will reduce the riskiness of markets and thus help avoid a future crisis, while a reform that enshrines the possibility of bailouts will foster risky behavior and unwittingly make future bailouts more likely....

...A particularly misleading claim from the administration is that the bill is not a bailout because any losses would be recouped through taxes on banks after the fact. The intervention itself is the essence of the bailout, not whether there are losses to the government. Imagine if the Troubled Asset Relief Program was to end up with a profit—not just recouping the money put into firms over the past two years but actually making a return for taxpayers. No one would suggest that the TARP is then somehow not a bailout. Recouping funds after the fact might be a good way to protect taxpayers, but it is preposterous to claim that this makes the Dodd bill anything other than a bailout. The ability of the government to put money into a failing firm and make payments to counterparties at its discretion is what makes the Dodd proposal a permanent bailout authority, not the issue of who pays after the fact [Philip Swagel, "Yes, It's a Bailout," The American, 2010.04.24].

Swagel recommends a resolution regime that focuses more on bankruptcy. And there's enough of a free-marketeer in me to wonder if he might be right. If the big problem behind our economic collapse was unchecked risky behavior, doesn't it make sense to give the risk-takers (who will always be with us, just like the poor) fewer ways to dodge the consequences of their risky behavior?

p.s.: But the financial reform bill will reduce the deficit!

No More "Too Big to Fail": Cap Bank Assets at $100 Billion

Troy Jones, Bill Fleming, and I are working on building some consensus toward serious, effective financial reform. The Senate Ag Committee, community banks, and I maintain that regulating derivatives is a key part of that reform. And if, as finance professional Jones contends, derivatives are too complicated for most people to understand, that strikes me as all the more reason we should restore some stiff regulations on them.

But just like our Republican and Democratic counterparts in the Senate, Troy and I may be a lot closer to agreement on financial reform. Jones wants to break up the megabanks so no one is "too big to fail." I'm all about that idea. So is Robert Reich, who lists these three big things the pending financial reform bill really really needs to do:

1. Require that trading of all derivatives be done on open exchanges where parties have to disclose what they’re buying and selling and have enough capital to pay up if their bets go wrong. The exception in the current bill for so-called “unique” derivatives opens up a loophole big enough for bankers to drive their Ferrari’s through.

2. Resurrect the Glass-Steagall Act in its entirety so commercial banks are separated from investment banks. The current bill doesn’t go nearly far enough. Commercial banks should take deposits and lend money. Investment banks should be limited to the casino we call the stock market, helping companies issue new issues and making bets. Nothing good comes of mixing the two. We learned this after the Great Crash of 1929, and then forgot it in 1999 when Congress allowed financial supermarkets to do both.

3. Cap the size of big banks at $100 billion in assets. The current bill doesn’t limit the size of banks at all. It creates a process for winding down the operations of any bank that gets into trouble. But if several big banks are threatened, as they were when the housing bubble burst, their failure would pose a risk to the whole financial system, and Congress and the Fed would surely have to bail them out. The only way to ensure no bank is too big to fail is to make sure no bank is too big, period. Nobody has been able to show any scale efficiencies over $100 billion in assets, so that should be the limit [Robert Reich, "A Short Citizen's Guide to Reforming Wall Street," blog, 2010.04.20].

Now if we can get Congress to listen to a bipartisan coalition of Troy Jones and Robert Reich, we've got a winner of a bill!

-------------
Read more!

• Mr. Jones forwards this NYT article noting growing support among Dems and the GOP for breaking up banks. It also notes that, since the 2008 credit collapse, our policies have made the banks that are too big to fail even bigger. The six biggest banks—Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley—now have assets equal to 63% of the U.S. GDP, compared to 17% back in 1995.
• Jones also forwards this fruitful series of NYT essays from some folks with serious econ chops on what's missing from the financial reform bill.
• Robert Reich also notes that Senator Dodd's bill does go the wrong direction, giving big banks even more advantages over small banks. Let's fix that! Remember: community banks are the best place for your business!
  

Derivatives Reform: You Want This!

With health insurance reform now in the win column, Congress and the President are turning to financial reform. There will be a lot of moving parts to this legislation—you just can't govern the world's biggest economy on slogans and one-page bills. Among the essential moving parts: derivatives reform.

President Obama is vowing to veto any financial reform legislation that does not include regulation on deriviatives. His chief economic advisor, Christina Romer, backs him up:

What is needed is a new set of rules of the road for our financial system, greater accountability for Wall Street, and increased protections for consumers. Those rules include a comprehensive regulatory framework where capital and liquidity requirements control excessive risk-taking and where regulators consider risks to the system as a whole and not just to individual institutions. They involve putting complicated financial products such as derivatives onto exchanges and into clearinghouses so that risks are known and values are clear [Christina D. Romer, "Back to a Better Normal: Unemployment and Growth in the Wake of the Great Recession," address to the Woodrow Wilson School of Public and International Affairs, Princeton University, 2010.04.17].

Now before my conservative friends buy into the Senate Republicans' political line that regulation is bad, consider why derivatives matter. The collapse of credit default swaps, one flavor of derivatives, forced us to bail out AIG to the tune of $180 billion. That was arguably a greater intrusion on the free market than any specific regulation.

Five banks, including our friends at Citicorp, constitute "a kind of cartel that controls all the trading and information" on derivatives. That's not a free market when a handful of players with vested interests monopolize information.

Regulation of derivatives doesn't put anyone out of business. It simply puts this particular financial "product" on the same footing as stocks, which are traded quite happily and successfully on open, regulated exchanges. Regulation hasn't killed the stock market; it has made the market healthier and safer. Regulation would do the same for derivatives. Secretary Geithner explains:

Transparency will lower costs for users of derivatives, such as industrial or agriculture companies, allowing them to more effectively manage their risk. It will enable regulators to more effectively monitor risks of all significant derivatives players and financial institutions, and prevent fraud, manipulation and abuse. And by bringing standardized derivatives into central clearing houses and trading facilities, the Senate bill would reduce the risk that the derivatives market will again threaten the entire financial system [Secretary of the Treasury Timothy Geithner, "How to Prevent America's Next Financial Crisis," Washington Post, 2010.04.13].

Regulating derivatives shifts risk back to where it belongs in the market: on informed investors who can cover their bets.

If you don't like bailouts, if you don't like recessions, if you don't like losing your job because Wall Street fat cats crashed the global economy, then you do like derivatives regulation and the full financial reform package working through Congress.

-------------------------
To understand derivatives, try this explanation from Prof. Michael Greenberger. The professor notes that when AIG went bust, it had over 20 divisions. On September 16, 2008, AIG's regulated divisions were humming along nicely with $20 billion in reserves. AIG's one derivatives subdivision was not regulated, held no reserves, issued insurance policies worth double the company's value, and sunk the company.

Feds Cut Subsidies for Banks on Student Loans: What's Not to Love?

My neighbor and 9/12 Project advocate Linda McIntyre is certain that the student loan reform passed as part of health care reform (I know—sausage) is just more awful nationalization of the free market. (Interestingly, she also said it had "no chance of passing"... but wouldn't have attaching such a bill to health care reform have made it harder to pass health care reform? I'm confused on strategy there.) Good local Republican Rod Goeman also characterizes student loan reform as another expansion of the inherently inefficient federal government. Adam Feser and Tony Amert do a fine job of explaining the alternate viewpoint (a.k.a., the truth).

Further support for the argument the student loan reform is one of the most obvious good things about this week's legislation comes from McClatchy's David Lightman:

Students and their families should find the student loan process simpler, and lower-income students should find more financial help, under the sweeping changes tucked into the health-care legislation that Congress passed this week.

The measure, aimed at taking banks and other private lenders out of the lucrative federal subsidized student-loan market, also would lessen the burden for some graduates as they pay back their loans.

Currently, certain students with low incomes and large loan balances don't have to pay more than 15 percent of their incomes each month on the loans. The new law will lower that to 10 percent [David Lightman, "Student loans should be simpler under new law," McClatchy via Yahoo News, 2010.03.26].

Exactly as Tony stated, students still have total choice to seek private student loans; banks offering such loans simply won't get federal subsidies. As Senator Tom Harkin explains, why should we support contuinuing "a subsidy to the big banks in this country?... We take that money and give it to students in Pell grants."

In the same article, fellow liberal Pedro de la Torre of the Center for American Progress says, "We've known for decades that subsidies are unnecessary and expensive, and special interest lobbying has kept these provisions on the books."

Even if good conservatives like Linda and Rod question giving grants to students or anyone else, they can certainly support bucking special interests and eliminating unnecessary and expensive federal subsidies to big corporations... can't they?

-----------------------------
Update 12:19 CDT: But now over half the universities in the country to switch over their financial aid computer systems by July 1. Disaster waiting to happen, right?

Some aid administrators whose schools have converted said the transition was painless. It involved, they said, computer system adjustments and making sure that student borrowers submit a new promissory note.

"The process is very simple," Walter O'Neill, assistant vice president for financial aid at Roosevelt University in Chicago, said Thursday. "I can't even come up with an example of a hiccup."

Anthony Erwin, senior director for university financial aid and scholarships at Northeastern University in Boston, said that he had encountered "overly burdensome" rules and regulations in some past contacts with the federal government but that the university's move to direct lending in 2008 went off without a hitch -- "an absolutely different experience" [Nick Anderson, "Colleges scramble to adjust as student loan overhaul nears passage," Washington Post, 2010.03.26].

Additionally, Matthew Blake calls student loan reform, in theory, "unassailable."

Congress Hits Double, Passes Student Loan Reform Too!

The health care reforms passed by the House last night is not not NOT a government takeover of health care. Not even close. If it were, I'd really be partying.

But for those of you who need a real socialism fix, Understanding Government reminds us that last night's historic vote did include one honest-to-goodness nationalization of an industry. We got student loan reform! Instead of subsidizing banks to provide federal student loans, Uncle Sam will now kick out the middle man and handle students loans directly. Savings: $61 billion... $36 billion of which goes to expand Pell Grants. Not as big a boost as I was hoping for when SHS voted against this good legislation last fall, but still good news for students and taxpayers alike.

I guess it's not really nationalization to take back a government service that was outsourced to produce an artificial risk-free market. But why quibble: if you wanted socialism to gripe about, student loan reform is as good as you're going to get this week. Go ahead, Republicans: gripe about yet another great piece of Democratic deficit-cutting.

Legislative Notes: House Says Yes to Usury, Maybe to Education, No to Guns at Work

How's the Legislature doing?

Not so good in the eyes of the Lord... or at least of a faithful servant. Father Timothy Fountain Logan unloads Proverbs 28:8 on the Senate Commerce Committee and our usury-addicted state for once again declining to rein in predatory payday lenders. Whither South Dakota values....

Not so bad on education. Yesterday the House unanimously tabled HB 1050, the Governor's proposal to change the school funding formula and give our schools zero increase in state aid in FY 2011. I learned from Gary Ellenbolt on SDPB yesterday that, in our Legislature, tabling is actually a harsher sentence than deferral to the 41st day. Deferral at least allows supporters to speak their piece; tabling does not allow debate. After six days of kicking the can, the House evidently realized the Governor's proposal was so bad it didn't even warrant discussion. Ouch.

Of course, they still have to come up with a plan of their own. If they need to save money, perhaps they should look at shortening high school to two years (Yes! shout thousands of bored sophomores).

O.K. on Second Amendment sensibility. Half of the House plus one realized they didn't have to worry about their NRA ratings over public safety yesterday with the defeat of HB 1169. Rep. Lederman spoke of the right to keep a gun in your locked car. Rep. Engels won the day with his sensible argument that some employers—like hazardous chemical manufacturers, schools, mental health facilities—may have a countervailing right to keep guns a safe distance away. This bill was another lawsuit waiting to happen, as its application to public employers would have violated the federal gun-free zones around schools. District 8's reps split, with Fargen voting aye and Lange voting nay.

Improving, slowly but surely, on bicycles. They couldn't pass SB 70, but most of the drivers I deal with already have figured out they ought to leave three feet when they pass me on my bicycle (assuming they can pass me—zoom!). But the legislators are learning: check out the featured audio of Senator Mike Vehle on MinusCar! Senator Vehle pointed out that South Dakota state law entitles bicycles to the full lane and that SB 70 would actually have reduced the safety buffer for cyclists.

And whither the Blog Control Acts? House State Affairs has yet to set a hearing date for HB 1277 and 1278. According to the legislative calendar, these bills have to pass the full House by the end of business Tuesday to stay alive. Rep. Hamiel, you didn't forget these bills on your desk again, did you? I call one rule-suspension per bill!

Republicans Vote to Keep South Dakota Income Tax

Here's another legislative note to turn the conventional wisdom upside down: On Thursday, six South Dakota Democrats voted to eliminate South Dakota's income tax. Eight Republicans voted to keep imposing that tax on our banks and financial corporations.

The Republicans tell us that an income tax would kill business in South Dakota. My neighbor Gerald Lange offers them an opportunity to kill our state's income tax. Those same Republicans forget the slogans they use to get elected and vote to keep the income tax.

I guess Republicans don't really believe income tax is bad for business, even in the midst of a recession. Remember: the financial sector employs nearly 30,000 people in South Dakota. The finance and insurance sector (we hit insurers with a special premium and annuity tax, too) are South Dakota's leading industry, cranking out 19% of our GDP.

Read that again: South Dakota's leading industry pays a state income tax.

The 8–6 House Taxation Committee vote killed HB 1123. For the record: the following Republicans—Republicans!—voted to keep the income tax:

1. Brock Greenfield (R-6/Clark)
   
2. Kent Juhnke (R-21/Vivian)
   
3. Mark Kirkeby (R-35/Rapid City)
   
4. Dan Lederman (R-16/Dakota Dunes)
   
5. Kristi Noem (R-6 Castlewood)
   
6. Ryan Olson (R-24/Onida)
   
7. Lance Russell (R-30/Hot Springs)
   
8. Roger Solum (R-5/Watertown)
   

And the Democrats voting to eliminate the income tax:

1. Dennis Feickert (D-3/Aberdeen)
   
2. Peggy Gibson (D-22/Huron)
   
3. Bernie Hunhoff (D-18/Yankton)
   
4. Patrick Kirschman (D-15/Sioux Falls)
5. Gerald Lange (D-8/Madison)
   
6. Bill Thompson (D-13-Sioux Falls)

Use the links above to contact your favorite representatives and let them know what you think of their vote on repealing South Dakota's income tax.

Full-Reserve Banking? My Cousin Must Be Kidding...

My wing-nut Glenn-Beck lovin' cousin Aaron Heidelberger (not not not to be confused with my level-headed, Luther-lovin' wife Erin Heidelberger) responds to my post on Arianna Huffington's George Bailey campaign to support community banking with the following madness: He argues we need to abolish the Fed and require full-reserve banking. I reprint the Facebook conversation below, because it's a splendid example of the disaster that would ensue if you let the Tea Party run the country.
--------------------------

Aaron HeidelbergerDec 31, 2009

Hey we can agree on something! I think everyone should support there local banks. However your a failing to address the fact that all banks are based on the fraudulant practice of fractional reserve banking. George Baily would have never had a problem at his banks if the banks were useing an honest system of 100% reserve banking.
--------------------------

Cory Allen HeidelbergerJan 1

Everyone, please note the main point: even a radical liberal and a radical conservative agree that you should take your money out of the big TARP banks and put it into your local community bank.

[The rest of this discussion is likely to go nowhere.]

So suppose you, I, and a thousand neighbors start a local full-reserve bank. We each put $5000 in savings. That's five million dollars of capital... which does nothing. We can't make loans, because we have to keep every penny on hand in case we all decide to withdraw our money at the same time. Isn't a full-reserve bank just a piggy bank?

Full-reserve banking is almost non-existent. Is that because...

(a) the market represents the collective and historical judgment of millions that full-reserve banking is a sub-optimal economic solution;
(b) the market is stupid and fails to produce useful services and goods; or
(c) the Federal Reserve has orchestrated a vast conspiracy to prevent everyone but you from recognizing an effective banking solution?
--------------------------

William BealJan 1

Make that 2 radical conservatives =|;)

--------------------------

Cory Allen HeidelbergerJan 1

(Nice hat, William!)

--------------------------

Aaron HeidelbergerJan 2

So, Cory are you saying its OK for a private bank to create money? Maybe we should get together and create the Heidelberger bank and start printing our own money. But who would except Heidelberger notes? Well we can just lobby congress and make al law that requires all taxes and debts be paid with Heidelberger notes. Hmmm...do you think we could print enough to pay off my house, I think so.

--------------------------

Cory Allen HeidelbergerJan 2

No, Aaron, I'm asking how a full-reserve bank is any different from my piggy bank, where money just sits. If you're advocating a complete ban on loans, just say so. Otherwise, describe a practical financial lending model.

--------------------------

Aaron HeidelbergerJan 2

So No its not OK for private bank to create money? Because thats what the Federal reserve does. And the total amount that they create is no longer reported (M3) also the majority of there operation is NOT audited. www.auditthefed.com

How secure is your piggy bank? If a tornado rips through the town and you lose your house where did you piggy bank go? Banks have giant secure vaults and guards (sometimes). Plus Banks can still make make loans under 100% reserve banking, BUT the bank would have to loan out there own money not other peoples money. If people are putting ther ... See Moremoney in a bank what do they want it to do? they want it to "just sit" otherwise they would be putting their money in an investment like stocks, bonds or what ever.

--------------------------

Cory Allen HeidelbergerJan 4

No, I'm not taking a position on your little "make their own money" talking point. Save it for the Ron Paul meeting. I'm asking where banks get the money to lend if they can't lend the money customers invest in savings. Under your scheme, it seems community banks that loan out of the combined wealth of a lot of small investors disappear. The only banks left are those with a handful of super-rich guys who float every loan out of their personal wealth (yikes). Where does the average guy get a loan? I still don't see the practical way in which full-reserve banks don't bring the economy to a screeching halt.

If the only purpose of a bank is to keep my money safe, that also spells the end of interest on savings accounts. The bank pays me interest for the privilege of lending my money out. Take away that option, and the bank will have to charge me for the privilege of babysitting my money in its vault.

And what vaults? Are you advocating we get rid of electronic funds transfers as well? Does the bank have to have 100% reserves in cash or gold? When's the last time your paycheck was anything more than a slip of paper, or a stream of electrons?

--------------------------

Aaron HeidelbergerJan 4

How much interest do you make on a savings account at a bank? Hardly anything, for sure will not keep pace with inflation.

This video will explain everything. Have fun!

http://video.google.com/videoplay?docid=-515319560256183936&ei=PJBCS_OhFY-OqAL6m93ECg&q=money+masters+&hl=en&view=3#

--------------------------

Aaron HeidelbergerJan 4

"I still don't see the practical way in which full-reserve banks don't bring the economy to a screeching halt." ---The Monetary Reform Act. This would pay off the national debt, end the Federal reserves monoply on money, and allow the government to pay for the stuff it needs with out paying interest to a private bank.

The banks purpose IS to keep a persons money safe, prior to the Federal reserve act in 1913 the US dollar gained in value. http://www.westegg.com/inflation/ Play around with that inflation calculator using 1913 as a pivot point what kind of money would you rather have money that gains purchaseing power or loses it? Tough one I know.

The problem with the current system the banks are control of the money supply. Why do you think we have had these bank failures, they basically loaned out too much money on things they shouldn't have. Why because the fed set interest rates so low that banks and people did not want their money sitting in banks savings account where they were making nothing on iterest instead they bought houses and anything else createing a bubble. NOW if we hand sound money, with a set rate of growth in the money supply it would end these boom bust cycles caused by the fed/banks and easy money.

In 1964 a box a corn flakes cost 25 cents. Same box of corn flakes now is over $3, in 1964 a quarter was made of 90% silver, a pre1965 quarter is worth about $3.11 about the same price you can buy box a corn flakes for now. So in 40+ years the value of that quarter has not changed.

In the 70's under Carter the money supply increased by 12% that caused higher prices in everything.
Eventually interest rates had to climb to 20% in order to suck back the ecess money supply and stop inflation. In the last few years our money supply has increased by 120% yes 120%. Talk about bringing an economy to a screeching halt, what do think rates will have to go to suck that back in? 50% 80%?

We have a system based on fraud.
www.AuditTheFed.com
http://www.endfinancialfraud.org/

--------------------------

Cory's response this morning:

So, just to be clear, you want a massive government intervention in the way banks do business to force the market to operate according to your principles. Hm....

I'm all for sensible lending and more saving. But in this case, the socialist in the room accepts the wisdom of centuries of free market actors: partial-reserve banking achieves certain practical, useful economic ends that full-reserve banking cannot.

I welcome further discussion here. But if you're going to advocate this system, you must explain one simple thing: where does a full-reserve bank get the money to make loans?

Support Community Banks: George Bailey Lives!

Some teabaggers find Ayn Rand's John Galt a compelling literary figure. I say skip his dreary monologues and turn to Frank Capra's George Bailey for guidance on real, practical action to make America better.

Inspired by It's a Wonderful Life (the movie really is a cultural touchstone), Arianna Huffington picks up an idea I've pushed previously: she and her associates are urging people to move their money into community banks.

Huffington is sick of the Too-Big-to-Fail Wall Street fat cats getting bailouts while Uncle Sam leaves the George Baileys of Main Street to sink or swim on their own. She's not asking for a bailout: she's asking us to pull our money from Citi and Chase and do our banking with our neighbors:

The idea is simple: If enough people who have money in one of the big four banks move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system so it becomes again the productive, stable engine for growth it's meant to be. It's neither Left nor Right -- it's populism at its best. Consider it a withdrawal tax on the big banks for the negative service they provide by consistently ignoring the public interest. It's time for Americans to move their money out of these reckless behemoths. And you don't have to worry, there is zero risk: deposit insurance is just as good at small banks -- and unlike the big banks they don't provide the toxic dividend of derivatives trading in a heads-they-win, tails-we-lose fashion [Arianna Huffington and Rob Johnson, "Move Your Money: A New Year's Resolution," Huffington Post, 2009.12.29].

As I like to say, be a yokel: bank local! Unfortunately, I'm not sure Madison has a real local bank left. Does Fishback Financial count? What about the credit unions?

Keep your money as local as possible. Learn more at MoveYourMoney.info on how you can take your money back from Potter and support your town's George Bailey.