Saturday, August 18, 2012

Ordinary Injustices

Thoughts on a leisurely weekend commute

Recently, as I've been going about my normal daily routine I've been paying more attention to the mechanisms of ordinary commerce.

Take that gallon of gas you're inevitably going to buy if you live in a State like I do with poor public transit.  Conventional wisdom says that the law of supply and demand shall always reign supreme but that isn't necessarily the case.

Pay attention to the financial news and you'll see a correlation between the nervous commodities traders and the yo-yo of gas prices.  Since everyone's afraid of the stock market, commodities are the newest darling of the financial markets. 

That means traders will react to any piece of information that threatens their profit margins.  If the leader of a middle eastern regime has a fit of flatulence it's cause enough to raise the price of a barrel of oil $5. 
You can bet before the business day is over the gas station owner will be out changing his signs to reflect the sudden threat to supply. 

Except there is no threat...

Remember that the fuel in your local gas station is already in the ground and all but paid for.  The price has very little to do with supply or demand.  Rather it has to do with oil companies investing in slick marketing instead of their own infrastructure.   And why not? It's easy money to do less and charge more, especially if you can get away with it.

Lest we forget all those oil speculators who never actually buy anything, they place a bet hoping for the big win.  Thing is, they can only win if you lose and it's in big oil's interest that they do.  After all, it's not ExxonMobil, Chevron or Shell's fault prices are high, it's just "the market"
Considering that speculation can be up to 40% of the cost of a barrel of oil and as much as $1 of the price of a gallon of gas there's good reason to be angry. 

The next time a politician gets on stage and defends record oil company profits with a gallon of gas at $4/gallon or more I'd really like someone to siphon all the gas out of his limousine.  If CNN covered that I might actually call them a news network again...

Oh but friends I'm not stopping there, no sir (or ma'am)
Like many of you I've had to rely on credit more than I want to.  With prices inching ever higher, wages stagnant and the value of a dollar worth 1/2 of what it was just 10 years ago it's often the only way to fill the void. 

And just like your friendly neighborhood gas station they know a profit opportunity when they see it.  There was a time in this county when excessive interest rates were called usury.  Usury is defined as:
an unconscionable or exorbitant rate or amount of interest; specifically: interest in excess of a legal rate charged to a borrower for the use of money

These days the credit card companies and the banks that back them get away with pretty much any interest rate they want.  They did get their hands slapped a few years back when congress passed the Credit Card Accountability, Responsibility and Disclosure Act.

The effect was putting the brakes on surprise interest rate charges, raising your rates if you're late on a completely unrelated account (Universal Default),  yo-yoing fees and predatory practices against new customers.

That hasn't stopped the 29 % or more interest charged, however.  Congress stopped short of defining what constituted usury which means you pay whatever they want.  Yes, you could go find a better rate with another company but the days of 0% credit cards are over.  Expect no better than 11%.  which is almost amusing when you look at most state legislation (the only place usury is defined) can range from 8% to 45%.  So technically your capital 1 card at 34% is breaking the law in most states.  Good luck taking them to court though...

Something's very wrong when monthly interest fees added to your balance are more than your minimum payment. 

Speaking of Interest the other dirty little secret of credit has to do with getting an education.  Most of us aren't fortunate enough to have a rich uncle or all the money we need to take advantage of higher education.  Scholarships and grants are nice but you can't count on them especially if you go to a private college. 
Such is the case for many in the working world who aren't able to upend their lives to attend a regular public college or university.  Many private colleges try to address the problem by scheduling classes outside of a normal work schedule.  They can offer the same financial aid as a public university and often have private lending available when traditional sources aren't enough. 

Look out for those private sources though.  If usury is alive and well anywhere in the financial world it's in education finance. 

There's a wonderful opportunity in education funding for banks and other lenders to make ridiculous profits with virtually no risk. 

The opportunity comes from government secured education loans like the Stafford.  Lenders who participate in the program lend money at lower rates than private loans not unlike government backed housing loans. 
Understand this, to the lenders of these education loans there is NO RISK.  If the student defaults on the loan the lender is repaid leaving the government to collect on the debt. 

With a sour economy these loans are often the only option to pay for an education.  Worse, with increasing tuition costs student indebtedness can become overwhelming even with low interest rates.  That's where the options of deferment and forbearance come in.   With these options a borrower can buy time (literally) when they are unable to pay their monthly payment but don't want to default on their loans. 

The catch?

It's called capitalized interest.  Capitalized interest is the practice of taking the interest that would normally be paid during deferment and adding it to the principle balance of the loan.  In some cases it can swell the principal balance to 15 to 20% of the original amount borrowed. 

In effect, you pay the interest twice on the same money with this option.  Once for the original payment and again for the interest on the payments you defer when  it's added to the principal payment.  Combine this with loan consolidation which is often used to bring payments to a reasonable level. (Mine were almost $1000/mo. without it) and you have an inescapable money machine that only a winning lottery ticket could fix.

Again, any politician that stands up on a podium and blames the borrower for this legalized graft should be strung up by his toenails. 

We're told education is the road to success but soon find that road a financial minefield.  There should never be a profit motive in education outside of personal growth but we all know that's just an idealistic pipe dream.

So it seems we can't even drive to work or get an education without being subject to someone else's profit motive.  So imagine the depths of depravity when someone tries to convince you a luxury rises to the same level of a necessity.

Ah the price of convenience.  That gallon of milk or pack of cigarettes may always be available but you'll pay more because of it.  So it is with our modern toys. 

After all, who could live without being in constant contact with friends and loved ones or without the Internet at your fingertips wherever you go.  It's all so very... convenient, isn't it.

When does a convenience become a necessity?  When your work requires it? Maybe when you can't always be in the same room with those you care about?

Sometimes I think I'm a bit of a troglodyte and I've been called as much.  I'd like to think that I'm eminently practical.  I could care less how many processors your phone has or how great it takes pictures all I care about is if it rings.

Seems your choices to avoid the hysteria are ever dwindling.  Phones that don't have all those gee-whiz features are called amusingly enough, feature phones.   If you reject the Smartphone revolution these are your only option.  Mobile carriers would try to convince you that all these extras are critical to your survival at any cost. 

Of course that's a viewpoint subject to interpretation.  Along the way with clever marketing and peer pressure the public has been led to believe that paying hundreds of dollars a month for mobile phone service is no longer a luxury but a necessity. 

Carriers will always claim infrastructure costs, taxation and overhead to justify their rates but in the end it's really just about reaping the benefits of a good con.

Look at even the most basic of Smartphone plans and you see mandatory service charges even if you don't use the service.  Even if you don't surf the Internet or send a single text message you'll find yourself paying for the privilege anyway.

So it seems that even the most frugal among us can't escape the fleecing.  Even if we shun the Smartphone,  remain uneducated or never carry a credit card we can't escape being taken advantage of.   It's woven into the culture and reinforced with peer pressure and social marketing telling us all is as it should be and right.

It's not right, however, it never has been but as our lives get ever more comfortable we willingly suffer because we've accepted the programming to our own detriment.  Still so long as we have the trappings of our gilded cage built with institutionalized extortion no one will complain.