Extreme Problems Call For Extreme Solutions

The most striking lead I've read recently--actually, ever--in an economics treatise. From a paper that examines the "principal-agent" problem in cases of political corruption:

Castrated slaves, called eunuchs, were employed by Sultans to guard their harems. This solution to a particularly distressing principal-agent problem is one instance of a general strategy that can be called choosing agents.

What the application of this is to politics I'm not sure. The paper seems to conclude (as others have ) that eliminating the temptation to use public office for personal gain is a particularly intractable problem. But the lead does make you wonder what might happen if, say, politicians were prohibited from appearing on television.

The Shoemaker's Children ...

I wrote a story about credit cards a few days ago, and in retrospect I feel like this might be one on which I buried the lead. I started with some general points about the credit card wars, but for those who are looking at the issue seriously, the real takeaway is about Advanta. Advanta seems to have been--judging from the sheer volume, as well as the consistency of the complaints about them--the clear leader in sleazy credit card rate hikes. It's now essentially defunct as a credit card issuer, and hurtling toward insolvency. The bottom line is that sudden rate hikes work just like a run on the bank: credit card customers whose payments suddenly jump stop paying their bills. Even with Advanta's 34.99% interest, the defaults pile up faster than the payments.

One of the reasons I feel like I have a pretty good sense of this is that my own financial affairs ain't what they could be (I was relieved to read Edmund Andrews' great story and find that among writers about business and economics I'm not alone--and also, frankly, that my financial problems don't hold a candle to his). I have a pretty good sense of how over-extended debtors are likely to act because I'm one of them, carrying several cards with high balances. I actually have more sympathy for the credit card issuers than you might expect. All but one of my card issuers tried to raise my rates. I accepted slightly higher rates on two cards, "opted out" on  three more (the ones with the highest balances) that wanted much more. I don't have an issue with banks raising rates on future purchases. I don't think a bank is obliged to lend me more money at the same interest forever. The opt out terms were reasonable. In fact, Citibank's were generous: I can not only pay off the old balance at the old interest, but can keep making purchases until they expire.

This works for me, and it also works for the card issuers. If, on the other hand, my rates had simply gone up with no notice ... well, it would have been just as bad for them as for me. Because the reality is that I can't afford to pay 25% on all my cards. If I could, then I would be paying them off right now. So in practice the alternative for Citi is keeping the 8% rate I have now, or "raising" the rate to 25% and very likely charging off the debt in six months. It would not only be unfair to me, but disastrous for the bank. I have the suspicion that the result of the latest round of rate hikes from card issuers that hit folks who didn't look at their statements or didn't bother to call and opt out could yield default rates much higher than they anticipate. If it wasn't for the last couple of years of banking history, I might have thought that the banks must know something I don't about predicting default rates. Now, though, I wouldn't count on that.

Asshole Of The Month Award

One of the great things about writing online is that there is instant response to stories from readers--both those who agree with a story, and, more often, those who don't. Many emails are angry, and I have no problem with that. I like discussing stories with folks who disagree with me. Often people who start out by insulting me turn out to be willing to engage on the issues. I find myself sympathetic to many of them: what they're often really asking for is more transparency, and they're right to do so.

But this post isn't about those readers. It's about the folks climb out of their miserable little caves to send repeated barrages of insults in an effort to prove ... well, God knows what. Every journalist gets emails from these people, whose vitriol tends to be slathered in proportion to the triviality of their points. This weekend I got a bunch of missives from one of these cave dwellers, a guy named Robert Howard who seems to write some sort of stock newsletter called Positive Patterns. Bob read my story about the involvement of the vice president's son, Hunter Biden, and brother, James Biden, with a hedge fund called Paradigm Global Advisors . The story was about a sleazy plan in which Paradigm would solicit investments from public employees' pension funds, and James Biden would get pension fees.

Bob Howard seemed to think that by, as he put it, "bending over backwards to give the Bidens the benefit of the doubt," I was auditioning for a job in the Obama administration. Well, there are a couple of reasons why the story makes an effort to give the Bidens the benefit of the doubt on some issues. One is that it's a complicated story: the plan to get public pension fund money wasn't actually put into action. Another is that a compelling investigative story is precisely one that gives its subject the benefit of the doubt. You don't convince readers by hammering them over the head and ignoring any objections.

None of this matters to Bob, and folks like him. And it certainly doesn't matter to him that if indeed I was auditioning for that Obama administration job, a much better strategy for me would be not to have done that story at all. Logic, however, doesn't really matter much to the Bobs of the world. What's matters is that you agree with every bit of their Looney Tunes worldview. The weirdest thing about Bob's emails is that his objections weren't to the points I made about Jim Biden's shady plans. It was just that, after digging through court records, I came up with a story that was just a little bit less prosecutorial in tone than the one that Bob imagines is out there. For this reason, I am "a good little soldier" who's "in the tank" for the current administration.

Eventually I gave up on Bob and told him the truth: that he seems to get his ideas from an off-price rack where they come cheapest (yes, I also told him he can go tip a cow and do whatever the hell he might want to do late at night with his Richard Nixon portrait). Bob tried to set me straight on this point, too: "I make plenty of money," Bob's next email clarified. Yes, Bob, but that thing about getting your ideas where they come cheap? It's a figure of speech. People don't really have to spend money to buy ideas. Though, heck, maybe Bob's found a way to do that. In that case, Bob's getting ripped off. But I'm afraid I can't really do anything about that.

There's one thing Bob mentioned, though, that really is worth noting. Bob wrote that he knows that "you writers always fantasize that their dissenters [sic] live in the basement with their moms." I'll skip the comments on Bob's writing style and just jump to the heart of this: No, Bob, we don't. We know that morons who like sending out insults to anyone who seems like an available target mostly don't live in their moms' basement. They have homes and cars and families and publish stock newletters just like other folks. They look just like anybody else. You really can't tell how creepy they are inside until they sit down at their computers and start spitting out bile.