By Edward Harrison
This is the third in a series of posts about ideas for financial reform generated by the “Make Markets Be Markets” conference I attended yesterday in New York City on 3 Mar 2010. You can download all of the written presentations here.
A century ago, anyone with a bathtub and some chemicals could mix and sell drugs — and claim fantastic cures. These “innovators” raked in profits by skillfully marketing lousy products because customers were poorly equipped to tell the difference between effective and ineffective treatments. In the decades following, the Food and Drug Administration developed some basic rules about safety and disclosure, and everything changed. Companies had greater incentives to invest in research and to develop safer, more effective drugs. Eliminating bad remedies made room for creating good ones.
Nearly every product sold in America today has passed basic safety regulations well in advance of being put on store shelves. A focused and adaptable regulatory structure for drugs, food, cars, appliances and other physical products has created a vibrant market in which cutting edge innovations are aimed toward attracting new consumers. By contrast, credit products are regulated by a bloated, ineffective concoction of federal and state laws that have failed to adapt to changing markets. Costs have risen, and innovation has produced incomprehensible terms and sharp practices that have left families at the mercy of those who write the contracts.
-Elizabeth Warren, 3 Mar 2010
After Elizabeth Warren had her chance to speak, the thought on my mind was ‘complexity is the handmaiden of deception.’ That wasn’t the only point of her presentation on consumer protection, but that was the takeaway for me. Her point was simply that contracts are the bedrock of the U.S. legal system in promoting law and order. The purpose of contracts is to support the ‘invisible hand’ by allowing both sides of the contract to walk away happy.
This purpose is thwarted when contracts are designed to promote an information asymmetry which enshrines into law the advantage of one party over the other. The expert understands but the layman does not – and the expert uses this fact to insert terms favorable to him and his associates to the layman’s disadvantage. Ultimately, the system breaks down because of widespread distrust. Opaque and asymmetric contracts diminish from the free market and undermine the invisible hand.
Warren started out by detailing the rise in complexity of credit card agreements. She showed a Bank of America agreement circa 1980. It was one-page in large print and plain English with no hidden language buried within. Today, including riders, a Bank of America credit card agreement is 30 pages of dense legalese with all manner of disclaimers and hidden surprises. She says:
Study after study shows that credit products are deliberately designed to obscure the real costs and to trick consumers. The average credit-card contract is dizzying—and 30 pages long, up from a page and a half in the early 1980s. Lenders advertise a single interest rate on the front of their direct-mail envelopes while burying costly details deep in the contract.
Creditors try to explain away their long contracts with the claim that they need to protect themselves from litigation. This ignores the fact that creditors have found many other effective ways to insulate themselves from liability. Arbitration clauses, for example, may look benign to the customer, but their point is often to permit the lender to escape the reach of class-action lawsuits. The result is that the lenders can break and, if the amounts at stake are small, few customers would ever sue. Legal protection is only a small part of the proliferating verbiage.
This is deception, pure and simple. And you will notice the close relationship between deception and fraud in the definition below.
Etymology: Middle English decepcioun, from Anglo-French deception, from Late Latindeception-, deceptio, from Latin decipere to deceive
Date: 15th century
1 a : the act of deceiving b : the fact or condition of being deceived
2 : something that deceives : trick <a clever deception>
— de·cep·tion·al \-shə-nəl\ adjective
synonyms deception, fraud, double-dealing, subterfuge, trickery mean the acts or practices of one who deliberately deceives. deception may or may not imply blameworthiness, since it may suggest cheating or merely tactical resource <magicians are masters of deception>. fraud always implies guilt and often criminality in act or practice <indicted for fraud>. double-dealing suggests treachery or at least action contrary to a professed attitude <a go-between suspected of double-dealing>.subterfuge suggests the adoption of a stratagem or the telling of a lie in order to escape guilt or to gain an end <obtained the papers by subterfuge>. trickery implies ingenious acts intended to dupe or cheat <resorted to trickery to gain their ends>.
The Credit CARD Act of 2009 was passed in part to crack down on this type of deception. But it is clear that the deception is still ongoing, even in credit cards (see here and here). The reason for the deception is clear: money. Banks increasingly rely on fees as a profit center, in part because of the rise of securitization.
But, the complexity and reliance on fees is not just about credit cards. Felix Salmon pointed out an interesting case today where a bank asked for and received authorization to post account debits largest-to-smallest, which allows them to collect overdraft fees for more transactions. Felix says:
On another post, RogerNegotiator finds an astonishing OCC letter, authorizing a bank’s request to adopt largest-to-smallest check posting, thereby maximizing overdraft revenue. (If you have $100 in your account, and put a $1 candy bar on your debit card, followed by a $15 t-shirt, both transactions will end up generating a $34 overdraft fee if a $90 check comes in later in the day: the bank will end up making over $100 in fees that day alone.)
The key section in the letter is the last one, entitled “The Bank’s Consideration of the Section 7.4002(b) Factors”. That section lays out four reasons to adopt the practice, and concludes that “the Bank’s process for deciding the order of check posting is consistent with the safety and soundness considerations set forth in section 7.4002(b) and that the Bank may therefore post checks in the order it desires”.
What are those four reasons for ripping off consumers so blatantly? The very first one is “projections showing that revenue is likely to increase as a result of adopting a high-to-low order of check posting”. That’s considered a reason to adopt the practice, in the eyes of the OCC.
As for the rest of the reasons, they’re mostly ridiculous on their face. I love this one, for instance:
The Bank concludes that it needs to adopt the high-to-low order of posting so that customers who frequently write checks against insufficient funds do not do business with the Bank primarily because the Bank’s fee for checks presented against insufficient funds is lower than its competitors’.
Essentially, the bank is saying that its competitors have high overdraft fees, and that it doesn’t want to compete against its competitors, so it needs high overdraft fees too.
And then there’s this beaut:
The Bank states its belief that a high-to-low order of posting is consistent with the majority of its customers’ preferences. The Bank surmises that the intended order, which will result in a customer’s largest bills being paid first, will have the consequence of the customer’s most important bills (such as mortgage payments) being paid first. The Bank thus concludes that a high-to-low order is aligned with the majority of its customers’ priorities and preferences.
This is accepted at face value by the OCC, instead of simply being laughed at. Of course, no one bothered to ask the customers, because they knew full well that customers would never say that they preferred this way of doing things. But so long as the bank simply says that customers prefer it, no problem.
This is predatory behavior, but it has been sanctioned by regulators.
Warren mentioned these overdraft fees specifically when she discussed complexity in financial contracts. The average overdraft in America is $17, while the average overdraft fee is $34. Don’t like it? It’s all there in the fine print – take personal responsibility!
She also mentioned the kickbacks hidden in car loan contracts that used car dealers often receive ($1000-$3800 per contract) for steering consumers to a particular lender.
As for mortgages, the same goals of opacity were in effect. A recent post on Baseline Scenario tells us:
First, lenders made loans that virtually invited default. Thus, Countrywide’s manual approved the making of loans that left consumers as little as $550 a month to live on, or $1,000 for a family of four. And lenders qualified borrowers for loans based on a temporary low teaser rate even though they knew that borrowers would not be able to make the higher payments required when the teaser rate expired. Of course, when loans became unaffordable, lenders could anticipate that borrowers would refinance, triggering a new round of fees for lenders-but they gave too little attention to the possibility that the loans could not be refinanced. Consumer protection laws failed to prevent this disaster-in-the-making.
Second, the Federal Reserve’s disclosure rules made it impossible for adjustable rate mortgage borrowers-and 80% of the subprime loans were adjustable–to understand the risks they faced. Since the eighties, the Fed has mandated that the disclosures for such loans state figures for monthly payments that are simply wrong. That may have led consumers to believe their loans would be more affordable than they were. One of us recently presided over a survey of mortgage brokers that revealed that many borrowers spent little time reviewing those disclosures and never changed what they did because of them-something that ironically makes sense when the disclosures are misleading.
Again, the borrower is told to take personal responsibility. But, of course, had regulators cracked down on these deceptive practices, the loans could not have been made. Warren’s desire is for a “cop on the beat” to enforce the rules and regulations that our laws have enshrined, rather than relying on personal responsibility and industry self-regulation, even in matters of fraud, as Alan Greenspan wanted to do.
The problem, of course, is bureaucracy. Below is a picture of the present regulatory infrastructure for consumer protection.
There are multiple regulators trying to accomplish a lot of different tasks. Warren’s suggestion is that we need to streamline this, eliminating all the duplication and regulatory overlap, combining all of these mandates in one agency, the Consumer Financial Protection Agency.
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From your title I had assumed that your post would be about Climate Modelling. Though in a deep sense, perhaps it is.
I thought it was about bloggers’ writing styles.
I always prefer simple sentences, in haiku as much as possible.
If you can’t say it
in seventeen syllables
then do not say it!
…or about health care reform.
I am currently up to my elbows in the FDA world, and it is an exageration to say that regulation has inspired innovation. The FDA is badly outgunned by big pharma, and regulation is used more as a moat to protect the entrenched. Much of the regulation is badly obsolete, and venture capital is far more concerned with regulatory unpredictability than market potential. Our health care system should not be the model for financial system.
Fair enough. But, is that because of the regulatory capture or the regulations themselves?
I would argue that regulations alone are necessary but not sufficient in protecting consumers from deception and fraud.
The point is not to emulate the FDA but to recognize the need for financial consumer protection.
I will confess I struggle with FDA regulation, as we historically have experienced how easy it is to sell poison as medicine. Many discussions about regulation center around whether regulation is needed or not, when in fact what we need is good regulation, which is hard to accomplish. I like the people I work with at the FDA, and do not think there is regulatory capture that is a significant part of the problem. The most obvious problem is that the regulatory framework is helplessly obsolete, and the regulators are largely shadow boxing. The system is broken on the industry side as well. Business decisions optimize to a broken regulatory environment rather than patient needs. Low cost remedies do not get to market, and there is a culture of incrementalism rather than entrepeneurism. The quickest path to reducing medical costs is treatment innovation, which happens in some fields, but is remarkably slow given the size of the market.
There simply is a high cost to a rigid beaurocratic regulatory regime, that is arguably needed in many cases. The financial markets need to be brought down to size, but I would prefer jailing a few sociopaths who broke the existing rules to creating another pool of quicksand.
Informational asymmetry is the purpose of most commercial complexity. It has been used systematically by corporations to arbitrage human nature: to exploit that delta between our instinctive preferences and the statistical reality of our economic self interest which is often counterintuitive.
Simple not simpler is also important. We accept people as experts because they wrote a thesis even though it might be horribly flawed, but they could defend their thesis for the review.
Look at Lincoln, the Gettysburg Address in under 3 1/2 spoken minutes manages to sum up the ideal American values, recount American history, explain soon-to-be 600,000 dead, the abolition of slavery, and where we need to go as a country without trivializing anything. Everyone can read the document and understand. There is no need for more.
Another great example is the Rabbi Hillel. I’m going to screw this up, but he is purported to have said, “the sum of the law is love God and love they neighbor as thy own self, the rest is just explanation,” and of course, the 7th Commandment, “be true to thine own self and to thine own self be true.
This quote:
“Second, the Federal Reserve’s disclosure rules made it impossible for adjustable rate mortgage borrowers-and 80% of the subprime loans were adjustable–to understand the risks they faced.”
That’s just flat out, wrong.
The following comes directly from the MultiState Adj Rate Rider that was used on the “predatory” closings. I’ve excerpted the part that specifically deals with the interest rate and monthly payment changes:
A. INTEREST RATE AND MONTHLY PAYMENT CHANGES
The Note provides for an initial interest rate of 5.0%. The Note provides for changes in the interest
rate and the monthly payments as follows:
1. INTEREST RATE AND MONTHLY PAYMENT CHANGES
(A) Change Dates
The interest rate I will pay may change on the first day of April, 2010, and on that day every 12th month thereafter. Each date on which my interest rate could change is called a “Change Date.”
(B) The Index
Beginning with the first Change Date, my interest rate will be based on an Index. The “Index” is the
weekly average yield on United States Treasury securities adjusted to a constant maturity of one year, as made
available by the Federal Reserve Board. The most recent Index figure available as of the date 45 days before
each Change Date is called the “Current Index.”
If the Index is no longer available, the Note Holder will choose a new index which is based upon
comparable information. The Note Holder will give me notice of this choice.
(C) Calculation of Changes
Before each Change Date, the Note Holder will calculate my new interest rate by adding
TWO and Three-Fourths percentage points (2.75%) to the Current Index. The Note Holder will then
round the result of this addition to the nearest one-eighth of one percentage point (0.125%). Subject to the
limits stated in Section 4(D) below, this rounded amount will be my new interest rate until the next Change
Date.
The Note Holder will then determine the amount of the monthly payment that would be sufficient to
repay the unpaid principal that I am expected to owe at the Change Date in full on the maturity date at my new
interest rate in substantially equal payments. The result of this calculation will be the new amount of my
monthly payment.
(D) Limits on Interest Rate Changes
The interest rate I am required to pay at the first Change Date will not be greater than
6% or less than 4%. Thereafter, my interest rate will never be increased or
decreased on any single Change Date by more than one percentage point (1.0%) from the rate of interest I have
been paying for the preceding 12 months. My interest rate will never be greater than 10%.
(E) Effective Date of Changes
My new interest rate will become effective on each Change Date. I will pay the amount of my new
monthly payment beginning on the first monthly payment date after the Change Date until the amount of my
monthly payment changes again.
https://www.efanniemae.com/sf/formsdocs/documents/ridersaddenda/pdf/3108.pdf
The subprime disclosures were no different.
Sure, reading that would require a little more effort than texting in one’s vote for American Idol, but come on, it’s your mortgage for crying out loud.
[The loans that were truly impenetrable were the Option Arms from WAMU, etc. Those really were Mortgages of Mass Destruction.]
A complex rebuttal supports the other’s point in this instance.
Perhaps that seems clear to a mortgage loan officer. Most others would need an explanation. That explanation would come from their realtor who most likely told the buyer: “Don’t worry, you’ll never have to pay the higher monthly payment. Home prices always go up. You can refinance into a better loan or move up to a bigger house.” The deception didn’t exist only on a piece of paper.
To be fair, that verbiage is for mortgages that eventually would be sold to Fannie. Subprime wasn’t being bought by the GSEs until late in the game. So contracts and disclosures for subprime originations could be more “complex”. Then, of course, there were all of the non-bank originators selling directly into securitizations which may have had their own “complexity” to them.
Ideally there would be a set of numbers presented that would show the worst case scenario to the borrow. The payment at 6% to start, the payment the following year at 7% and so on until the beginning of the fifth year where it hits 10% – that would be the maximum payment of P/I they would face for the next 25 years in the worst case scenario. Presented with that borrowers would be able to decide whether that is the kind of payment they would be willing to take on.
The deceptive part of the process with interest rates is that most people don’t understand compound interest and have no idea what the true APR is for that loan will be. Showing them in terms of the payment amount at each reset to the max in the worst case scenario is more meaningful because people do understand dollar amounts.
How about including the part that covers calculation of the APR? Other than a loan officer, who would know which fees and costs are considered interest and which are not?
And guess what, those fees and costs are where brokers make most of their money – and most borrowers never fully recognize them because they get rolled into the loan instead of being out of pocket. But they are never included in the advertised interest rate.
Hmmmm. Complexity. Profit.
Truth-in-Lending and RESPA require disclosure of fees and costs as well as the difference between the stated rate of interest and the APR. Granted these disclosures are stuck in loan documentation packages that are thick with other required disclosures. Does everyone read them and understand them? Probably not. And even if they did read and understand them, how many thought that they would be able to easily refinance when the reset occurred or that the reset would probably not be that bad. There is a lot that banks and mortgage brokers can do to make documents clearer but consumers need to accept some responsibility for informing themselves and making prudent decisions.
I agree that complexity is an issue. But, I am more focused on complexity in government and large-scale enterprise than I am in small businesses. If someone wants to take risks doing complex deals with his or her own money, then have at it with my blessing. But banks and the government should not be permitted the same latitude. When I see the Federal Reserve Bank involving themselves with complex derivative deals with huge banks, then something is wrong. Likewise, the government should refrain from taking on more than it can handle in its affairs. Big picture, I agree with you about complexity as a problem for our country. Thanks for the opportunity to comment.
Warren’s 30 pages for credit card contracts is beginning to sound as trite as the Republicans’ 2000 pages for Health Care Reform. Are those 30 pages of letter sized paper or 30 pages in a small pamphlet?
The OCC letter cited in the commentary is dated in May, 2001, after Bush, the Regulatory Emasculator, had taken office. What guaranty is there that when the next anti-regulatory President is elected (which the populist backlash almost certainly will cause) that President won’t deliver notice that all of the regulatory agencies must stand down?
I don’t think that the banks in general are trying to deceive consumers with lengthy credit card contracts. Consumers need only understand that if they don’t pay their credit cards in full every month, they will have to pay an exorbitant rate of interest. And if they default, they will have to pay even more and that default could trigger other problems with other lenders or on other loans. Maybe the credit card pamphlet should put a warning in 12 inch bold letters like on cigarette packages: Warning: The use of credit cards without paying the balance in full on time every month may be hazardous to your financial health.”
Banks should be effectively regulated in the consumer area because of unequal bargaining power and asymmetrical information but consumers should have some obligation to inform themselves about prudent use of credit cards. Improvident use of credit cards is not a right. And banks need to cut back on issuing credit cards to anyone and everyone.
Fees in banking are not an evil in themselves. They are a means of diversification of income. Of course, the amount and type of fees can be abused. Perhaps placing strict controls n the amount and types of fees charged for credit card transactions is a good idea. Of course, that kind of limitation might result in a tightening of standards as to who gets credit and how much credit is available. But maybe that too is a good idea.
I like that the chart of consumer protection regulators itself seems arranged to maximize complexity, to show as many crossed lines as possible, rather than try to illuminate responsibility. Edward Tuftes would have a field day with that!
I thought the very same thing when I looked at it more than a moment. And the case for too much overlap could still have been made with a more realistic model. Oh well, think of it as comedy; Jon Stewart does charting.
By extraordinary coincidence I’ve been reading some Tufte this week, and saw the chart in question yesterday. Naturally I set about testing the validity of possible critiques.
My conclusion so far is that, after one clears up a bit of arguable chart junk, e.g. the agency shields, the football boxes around the laws, and maybe even the arrow heads, (that dashed line down the middle indicates a page break that appears in the pdf) one still is left with a bipartite graph as a natural representation. The source of the complexity is that 6 of the 8 agencies have multiple responsibilities defined under the 13 laws, or to put it conversely, 9 of the 13 laws authorize regulatory actions to multiple agencies.
Perhaps Tufte would disagree with me, but I think that this density is part of what is to be illustrated. Even if one separated the two relations into two graphs, lines must cross –and one could argue that if the point is to illustrate regulatory prolixity, then maybe the complete rule-writing and enforcement pictures should be presented together, so that the reader has to come to terms with the whole thing at once.
The hypertrophy of credit card contracts is only one aspect of the complexification of finance. As important is the growing complexity of financial products such as derivatives. This complexity derives from the use of increasingly sophisticated mathematics.
Increasing complexity has also been a feature of the development of modern science and technology. I don’t think many people will deny that these have yielded beneficial products.
One has to wonder why the development of modern finance, also based on scientific or at least mathematical methods, has not achieved such a positive outcome.
Money isn’t some great mystery of the universe such as a quasar or a newly discovered virus. It is a simple man made concept that should require no additional training beyond basic accounting. Science and complex mathematics haven’t aided the development of finance because they aren’t necessary to its proper functioning any more than Latin was necessary to practice Christianity in the middle ages. The modern technocrat financier may speak what sounds like the language of science and mathematics but this is just meant to intimidate the lay person and imbue the practitioner with a sense on infallibility and importance, very much like the clergy at the time of Martin Luther. Overly complex financial products are always sinister in purpose, but see my other post below for an elaboration on that point,
There’s no free lunch in the world of finance. You want to make money in business? Sell the public a product they want at a nice price point where you can make money. You want to make money in the loan business? Make a loan to a good credit risk, recoup your principle plus interest. That’s it. There’s no magical formula waiting to be discovered that will allow you to make a 1000% return, at least not without doing something unethical or illegal. Just like there’s no pill to make you smarter, younger, richer, more attractive etc.
Thought provoking post Ed …
But the handmaiden of deception is not complexity, it is perception. Perception is the handmaiden of deception.
Complexity, in any form as an externalization of human organisms (whether it be contracts, snake oil, a book, a gun, a car, language, song, etc.), is a tool of dominance created to get needs met and used to cannibalize other organisms, human and not. We are all cannibals and must cannibalize (verb transitive here) other organisms, human and not human, to survive. Our individual success is determined by what deceptive tools of dominance we have available to us (some have and control far more than others), and how effective our powers of perception are.
The ‘rule of law’ is a formal contract of alliances of trust that regulate the cannibalization process within the society. It reflects a belief that a simple fairness credo of; ‘do unto others as you would have them do unto you’ — regardless of the perceptive abilities and tools of dominance that individual citizens in the society covered by the ‘rule of law’ possess — is best for the society as a whole. The ‘rule of law’ recognizes that some of us are more perceptive than others, and that some of us have and control more tools of dominance, but that an alliance of fairness that reflects the philosophy of ‘do unto others as you would have them do unto you’, is what best maintains order and moves us all forward as a society.
When that ‘rule of law’ is usurped through purchase and corruption of it by the few ruling elite, as it has been here in scamerica (over generations now), societal trust breaks down and chaos results. That is what we are witnessing today. The failure of the societal alliances spelled out in the now scam ‘rule of law’ (and contracts that emanate from it) have broken down.
What few seem to recognize is that the chaos is intentional, global in nature, and it has willfully been created by the ruling elite who no longer see value in maintaining the alliances with those less perceptive than they are and who have fewer tools of dominance than they do. The past societal focus of the ruling elite, exploiting and controlling foreign societies, has now, in the present, turned its focus on deviously exploiting and controlling domestic populations as well. Most scamericans, with their perception still in the old paradigm, and purposely being set one upon the other in an intentionally created perpetual conflict, fail to see the reality.
It is not about complexity so much as it is about intentionally broken alliances due to changing perceptions and greater controls of tools of dominance by the ruling elite at the top.
Deception is the strongest political force on the planet.
The FDA is regulating drugs about as good as the SEC regulates credit default swaps. Satins are the biggest hoax!,Except for extreme high risk patient. Viox (which was pulled off the market) killed more people then all of the American’s that died in Vietnam. The US and New Zealand are the only countries that allow direct TV –brainwashing. That being said, the idea that health is in the form of a pill is constantly pushed in our face. Sure there are many that are helped with the use of modern pharma but many more abuses. Can’t wait to see how well we regulate the gaming of the financial arena.
We were warned for many, many decades that this was coming, and nobody did shit about it. And still people do nothing.
Great title. Really a first rate aphorism.
I find the title “Make Markets be markets” fascinating. If a market must be made to function properly, people have to have a good, clear idea of how that should be, those people most likely being economists and politicians. They will discuss. And discuss. They will have advisers from the financial sector. They will owe their most generous donators favours. I don’t see how anything other than obfuscating complexity can emerge from an attempt to make markets be markets.
In a dog eat dog world in which a fool is born every minute, pulling the wool over the punter’s eyes is a virtually guaranteed way of separating that fool from his or her money. Always has been, always will be. The assumption of scarcity which underpins all trade and economics necessitates a survival of the fittest mentality. Corruption will always be a big part of this, as will poverty and war etc. The thing that needs to change is the assumption of scarcity, which would require a purposeful change of direction globally never before undertaken. Only by pursuing abundance as part of a unified attempt to transcend the price system will a fair and efficient distribution of goods and services be possible.
Fringe stuff I know, but I really don’t see any other way.
Good post.
The same title and basic argument could apply to derivatives or any overly complex financial product.
Unnecessary complexity in finance can only serve two purposes; one, to create information asymmetries which allow the party designing/selling a product to exploit the less knowledgeable party buying the product or two, skirt existing regulation or hide economic wrongdoing/malfeasance. So following this line of reasoning any financial product which is overly complex must be sinister in purpose and therefore should not be allowed. Simple right?
Why isn’t this a posting about the impact that marketing has on making Markets.
Madison Avenue creates Markets out of very little sometimes and with questionable long term social benefit and their biggest moral failure is the way in which the psycho-manipulators work with industries to hide the effects of products (tobacco, Toyota is a timely example) or services like the current financial squid sucking the life blood out of the world for the rich.
This is the sort of deception that needs to be exposed on the way to making our social systems simpler.
Would that be from H. Seldon or “The Mule?” :D
To the opening remarks of your piece, how about a little McCain pain.
“Nearly every product sold in America today has passed basic safety regulations well in advance of being put on store shelves. A focused and adaptable regulatory structure for drugs, food, cars, appliances and other physical products has created a vibrant market in which cutting edge innovations are aimed toward attracting new consumers”
Senator John McCain has proposed the Dietary Supplement Safety Act, S. 3002
http://tucsoncitizen.com/medicare/tag/john-mccain-and-healthcare/
I think McCain wants to bring a little more Government control over the people and a big part of that Private “vibrant market”
Complexity is the handmaiden? Now you are getting simple minded. At some point, complexity gives way to no longer presenting information, but data in a disorganized manner, due to quantity or quality distorting the recognizable into a form of noise. The process of mystifying the public is done in the case of the credit card contracts by a quantity of incomprehensible English as opposed to plain English. Out of use phrases, run on sentences, modifying clauses, multiple references to preceding concepts, agreements etc.
People are worn down by length and incomprehensible usage. The language is turned away from clarity as an instrument of communication into an uncomfortable experience to be avoided.
The simple big lie, repeated often, is at work here more than anything complex. The shear inundation of credit card mail solicitations, in the billions annually and the repeated claims to transfer the balance at a low rate, with no fee. The repeated offer to insure the reinforcement of you self identity as a credit worthy individual, validated by a higher and higher credit limit, with a lower fee and rewards, flight miles, features that absolve you from bad decision making, insuring the charge back of purchases to vendors you do not like, and the safety, of knowing that unlike cash dropped on the highway and lost forever, credit cards can be shutdown and fraud and loss avoided. The obligating contract is just glanced over, because the features are prominent and the one sided nature of the contract only apparent much later, especially when you are over extended, and not a moment before. Of course the only way you know you are overextended is from a painful contraction of credit resulting in austerity spending: none.
It isn’t only financial agreements that have become mind numbingly complex. I recently had occasion to compare a right of way agreement that my family made with the local electric company in the late ’60s with a right of way agreement the same electric company recently wanted me to sign. The one from the ’60s was three sentences. The recent one was five single spaced pages of impenetrable legal gobbledygook, of which I could discern only that all freedom of action would be theirs, all responsibilities mine. I declined to sign and all work on the project stopped (it was coincident with the financial crisis). The people I was dealing with were quite honest and forthright, but the company was a prisoner of their lawyers, who hadn’t thought through the consequences of asking people to sign agreements they can’t possibly understand.
Our culture has moved from a handshake and lets move ahead attitude to one that allows legal boobytraps to stifle growth. Can a lack of clear writing and clear thinking really bring down civilization? We’ll see.
“As important is the growing complexity of financial products such as derivatives. This complexity derives from the use of increasingly sophisticated mathematics.
Increasing complexity has also been a feature of the development of modern science and technology. I don’t think many people will deny that these have yielded beneficial products.
One has to wonder why the development of modern finance, also based on scientific or at least mathematical methods, has not achieved such a positive outcome.”
There really is no mystery here just an understanding of science and technology and financial mathematics.
Both use ‘complex’ mathematics. However one (science and technology) also takes into account the complexity of the world it is supposed to operate in. Financial models simplify and simplify until they are wrong. (See the case of LTCM if you are unsure about this).
When technology simplifies (i.e. engineering say for example in what cases an accelerator or brake would be applied under all circumstances on a Toyota) bad things happen.
When financial masters of the universe simplify good thing happen to their bonuses and bad things happen for everyone else.
So by extension we should give Toyota engineers and management ten and hundred million dollar bonuses. After all their profits are up and very few people were hurt or killed.