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I Will Gladly Pay You Tuesday For A Hamburger Today

Recently, I caught a bit of news followed by a certain commercial -- and something clicked in my head.

Last week, news came out that the infamous "Cash For Clunkers" program is the gift that keeps on giving. Remember that? Turn in your old gas-guzzler, get a more fuel-efficient one, and the government picks up a bit of the price. Then the government takes the trade-in and has it junked.

Well, among its effects is that there is now a shortage of used cars in the US. The price of used cars -- the vehicle of choice for the economically challenged -- has jumped an average 10% since the program.

That reminded me of the actual details of the program. At the time, the Obama administration touted the surge in new car sales as a great victory. Then they fell silent in the months after, when new car sales plummeted.

The "Cash For Clunkers" program didn't really increase the number of car sales. It just pulled a bunch of them forward, enticing people who were planning for a new vehicle to jump ahead a little and take the opportunity. Actual sales over the whole year didn't change much.

That was similar to what happened in the housing market this year. The Obama administration had an $8,000 tax credit for closing on a new house set to expire first on April 30, then June 30, then extended to September 30. (Closing date; actual contracts had to be signed earlier.) Housing prices tanked in May, and many say it was to compensate for the surge in sales just before that first deadline was extended. Once again, the program -- or, more precisely, its expiration -- had not increased overall sales, but had "pulled forward" sales to take advantage of an expiring government incentive.

Bad enough, right? It gets worse. This is the commercial that came on shortly after the used car market news:


I haven't looked too carefully into this business model, but from what I've seen this is how it works:

Five years ago, Kevin won a million dollars in the lottery. He's getting $50,000 a year for 20 years. But, like many lottery winners, he's blowing it. He's way in the hole, and he can't hold out until the next check. So he calls the company. They tell him "You've still got $750,000 coming over the next 15 years. Sell us that, and we'll give you a check for $600,000 right now. (I'm just guessing on the 20% number, but it "feels" right.)

That's precisely the same model as what happened in the used car and housing markets this year. We borrowed from the future, and now we're paying the price for that loan.

And here's the final connection:

Just like those evil payday loans.

Remember those? Living paycheck to paycheck? They'll give you a loan, almost no questions asked, usually no collateral beyond a post-dated check. But it's due on your next payday, with a 20% flat interest rate. They're denounced by a lot of people as "predatory" and "exploiting the working poor" and downright evil. Here in New Hampshire, they were outlawed a few years ago, and they're banned in 14 other states.

But that is the exact same model these structured-settlement businesses are using, and the exact same model the Obama administration used with the housing tax credit and the "Cash For Clunkers" program.

Of course, there is a huge difference between the private sector doing something and the government doing it. The private sector is doing it for profit; the government is doing it in a misguided effort to help us.

And an even huger difference: in the private sector, you have the choice of whether or not to participate. When it's the government, we all get to pay for it whether we like it or not.

I'm going to make two bold predictions. First, in the very near future some liberals will start making noises at outlawing these "structured settlement" buyout deals, using the same lingo they used to go after the payday loans -- "predatory," "preying on those in distress," and the like.

Second, the very same people will cook up another scheme to try to give the economy another short-term boost that will end up costing us all far more in the long run.

Heck, I'll go one step farther on the second one. They'll do it so that we get the benefits just before election day.

And we won't start feeling the hook until the beginning of next year.

Update: In the comments, KeithK notes that the two private endeavors I mentioned do serve a benefit, and he's right -- a point I intended to make myself. In both cases, both parties to the deal know exactly what they're doing going in, and know exactly what the outcome will be. It is becoming more and more obvious that the same cannot be said about the Obama administration.

Update 2: Bold tag fixed. Sorry...


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Comments (11)

Actually the payday loans p... (Below threshold)
KeithK:

Actually the payday loans people and the structured settlement are trying to help the borrowers too. They're providing a financial service and charging a fee for it. Nothing wrong with that.

(Yes, some portion of payday loan providers may be predatory. But that's no different than the mortgage industry, for instance. The existence of predatory agents doesn't necessarily make the activity immoral.

Is this Ace of Spades, with... (Below threshold)
DSkinner:

Is this Ace of Spades, with the unclosed HTML tag?

DSkinner, he hit the wrong ... (Below threshold)

DSkinner, he hit the wrong key -- ? instead of >.

The worst part of cash for ... (Below threshold)
Sharon:

The worst part of cash for clunkers and the home buyers credit is that the money went to people who were planning to buy anyways and took advantage of the free money that came from those of us who are trying to cut expenditures. So, because I can't afford a new car or a new house, I am subsidizing the people still earning enough to buy these things. In the housing market, it effectively raised the purchase price by the $8000 so that equity in effect disappears after the sale is complete and prices become competitive again. People still don't have jobs,still can't afford to go out to dinner,buy cars,appliances...whatever can be put off is being put off in hopes that incomes will again be middle class. As a real estate agent in the 4th year of this, I have very little hope to ever earn a middle class income again.

Sharon: move over to RE ma... (Below threshold)
epador:

Sharon: move over to RE management from sales and you'll see business income increasing.

Dumb Down the masses with the liquors of pop media, "liberal education," easy credit and unpopped financial bubbles and they'll buy whatever you're selling. Once the Ponzi scheme fails, the suckers have no clue how they got there or how to get out, so they'll stick to what's familiar and the political parasites can continue to suck the carcass dry.

Any delusions that the majority of the population will figure out they've been had before its too late are contrary to history. C'mon, give me one example where the society rebounded from such an epic fail. Just one, historians. Please!


Actually the Wentworth comm... (Below threshold)
WildWillie:

Actually the Wentworth commecial jingle is effective. When I hear it I can't get it out of my mind. I know it is a bit off topic, but just wanted to share that.

People at times need money now and do not have the line of credit to fall back on to get them to the next check. If they enter into this responsively, I have no problem but the key is responsively. ww

At least Madoff admitted he... (Below threshold)
GarandFan:

At least Madoff admitted he was a thief. Barry, Nancy and Harry are still running their Ponzi schemes.

Willie, that's why I put up... (Below threshold)

Willie, that's why I put up the video. It's a damned earworm. And such great voices... I find myself wondering if they dubbed them over, or used real opera singers.

And I think you mean "responsibly..."

J.

"..the government is doing ... (Below threshold)
Les Nessman:

"..the government is doing it in a misguided effort to help us."

Are they? Are they really trying to help us?

If they were trying to not help, but to gain more control over our lives, what would they do differently?

Eventually, after so many 'misguided' efforts, you may have to conclude that they are doing it on purpose.

Funny you should mention th... (Below threshold)
wtfo:

Funny you should mention the payday loan thing...

The Feds, as of the passage of Finreg, are moving into the payday loan business.

No, I'm not kidding.

The core principle of the I... (Below threshold)
boqueronman:

The core principle of the Imperial Federal Government's welfare state model of governance is "concentrated benefits" and "dispersed costs."

In the regulatory sphere, this means usually that a company or an industry receives "most favored" treatment, which enables them to operate with either less competition or to inflate their prices and income (if not both). The expected result is greater campaign contributions for incumbents. The costs are paid for by a combination of the less "favored" companies and industries, and, of course, the consuming public. But the total cost is so widely distributed the affected public can't see the abuse.

In the "tax and spend" sphere, this means usually means direct or indirect financial assistance to actual or potential voting constituencies. In the case of the cash4clunkers and housing tax credit/HAMP, this means the imprudent borrower who got in over their heads, as against the careful spender and saver. The benefit sought by the politicians is mostly support in the voting both. The costs, of course, are paid for by the millions of taxpayers who can't feel the impact because, for each of them, the stone is just too small.

The current situation is actually so bad that most important sectors of the economy now operate as, at the very least, GSEs if not implicitly nationalized industries. These include banks, real estate, insurance, pharmaceuticals, health care and now the automobile industry. In addition, more than 50% of the federal budget consists of transfer payments from "losers" to "winners." Don't blame Obama for all this; he is only carrying out the endgame. The industries were already under the control (or had gained control of, if there is any difference) the arms of government which had been set up to "regulate" them, e.g. the Fed, FDIC, FDA, Fannie/Freddie, state insurance boards, etc. The entitlement scam is already baked into the cake.

Is what the public is finally discovering through the ham handedness of the Congressional Dems and Obama the inevitable outcome the 200+ year devolution within a "majority rules" system of democracy handed to us by the Founders is now becoming visible? If we are to have a positive fundamental societal - political and economic - structural transformation to remove these abuses sometime within the next decade we need to ask and find an answer to this question. If we don't, all the pain and suffering headed our way will be for nought.




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