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Annals of Personal Fiscal Responsibility

by Tom Bozzo

The McCains, poor little rich debtors:

Mr. McCain and his wife had at least $225,000 in credit card debt and… Mr. Obama and his wife had put more than $200,000 into college funds for their daughters.

The bulk of the McCains’ obligations stemmed from a pair of American Express credit cards that are held in Cindy McCain’s name. According to the disclosure reports, which present information on debts in a range rather than providing a precise figure, Mrs. McCain owed $100,000 to $250,000 on each card.

Another charge card, held by what was described as a “dependent child,” had also accumulated debts of $15,000 to $50,000. In addition, a credit card held jointly by the couple was carrying $10,000 to $15,000 in debt, the filing indicated, at a stiff 25.99 percent interest rate.

Via BoingBoing, where Cory Doctorow points to Jon Taplin making the point that it might just pay the McCains to pay off those balances. (See also Coberly from last week.)

My own thoughts are pulled in two directions (angle of incidence indeterminate).

For one, a family member’s experience trying to divorce a full-service brokerage revealed that the business model there depends on having clients who are too rich to be bothered by having a few percent of their wealth siphoned off annually. (Since some commenters don’t get the connection, remember McCain’s economic platform contends it would be bad for the economy if we increased the marginal rate of taxation on income the rich can evidently afford to waste. Not to mention that there have already been efforts to frame the race as between Straight-Talking Man of the People John McCain and U. Chicago Elitist Barack H. Obama.) Discussion point: Should we prefer having private firms soak the rich for profit over having the government soak the rich for public purposes?

For another, the report that the McCain’s are paying a penalty interest rate gives me some faith in soulless corporations. This goes to another family member’s experience billing Delaware’s Old Money for children’s clothes in the relatively distant past (meaning before credit-card lending surpassed chemical manufacturing as the state’s dominant industry). Those families graciously accepted the bills; it was just considered unseemly to expect them actually to pay the bills on any particular schedule. Presumably, we’d need to know more about the McCains’ pattern of delinquency to know whether 25.99% APR nevertheless reflects VIP treatment.

Update 6/17/08: Reader Jefff points to this Huffington Post article that points out that the interest rates on the main AmEx debts are 0%. The disclosure lists the maximum amount owed over the reporting period, so the logical conclusion is that Cindy McCain sometimes runs up Very Large Charges in the course of a month and pays them off. The Chase card with the 25.99% interest rate is a small head-scratcher; a couple grand in needlessly incurred interest may be chump change to the McCains, but tells me how much Cindy cares about the poor little people of the world, and any food bank anywhere would be glad to see the money. Her main debts appear to be associated with the Hensley & Co. Citation Excel.

While the details of the disclosure are complex (get it here), it is clear enough that the McCains or their financial advisors basically haven’t heard of low-cost mutual funds. (See thought #1, above.) In particular, while the children are loaded, they’re also making an elective contribution to the overhead at JPMC.

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What’s old is New Again

This NY Times piece is making a comparison to yesteryears when those mansions in Newport, RI were built. It starts with Sanford I. Weil of Citigroup and how he compares to Andrew Carnegie.

First, how does this period compare:

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics. (I have posted from their data in the past.) Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash.

Mr Weil view:

“I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax,” “I want to give away my money rather than have somebody take it away,”

We have Mr. Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared:

“The money is a byproduct of a passionate endeavor.”
“We have helped to create real social value in the U.S. economy,” he said. “We have invested money in countless companies over the years and they have helped countless people.” “The income distribution has to stand,” Mr. Griffin said, adding that by trying to alter it with a more progressive income tax, “you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”

Such positions are summed up with:

“Carnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves,” said David Nasaw, a historian at City University of New York. and the author of “Andrew Carnegie” (Penguin Press). “The creator of wealth in his view was the community, and individuals like himself were trustees of that wealth.”

Really? They are the Trustees?

Can it be anymore egocentric? Why yes they can:

Lew Frankfort, chairman and chief executive of Coach the manufacturer and retailer of trendy upscale handbags, who was among the nation’s highest paid chief executives last year, recaps the argument. “The professional class that developed in business in the ’50s and ’60s,” he said, “was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads.”

That changed with the arrival of “the technological age,” in Mr. Frankfort’s view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach’s marketing success. “To be successful,” Mr. Frankfort said, “you now needed vision, lateral thinking, courage and an ability to see things, not the way they were but how they might be.” (Like this was not needed in the past?)

Please note, Mr. Frankfort is not emphasizing the manufacturing, he is emphasizing the marketing.

What would be the “problematic circumstances” of being more progressive in the tax structure? Why do they not want to pay the help that they acknowledged got them where they are? Even in the good old days of Carnegie, paying the help was not considered a charitable thing to do.

I have posted that things have changed. We make money differently today. The article notes:

The Glass-Steagall Act of 1933 outlawed the mix, blaming conflicts of interest inherent in such a combination for helping to bring on the 1929 crash and the Depression. The pen displayed in Mr. Weill’s hallway is one of those Mr. Clinton used to revoke Glass-Steagall in 1999. He did so partly to accommodate the newly formed Citigroup, whose heft was necessary, Mr. Weill said, if the United States was to be a powerhouse in global financial markets.

The article does offer counter opinions to this self aggrandizement. I’ll leave it to you to read the rest except for this which I think sums up the counter opinion (in a more polite manor than I would have):

“I don’t see a relationship between the extremes of income now and the performance of the economy,” Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.

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