Photo Credit: Rural Warrior Photography || Ah, the decrepitude of rural life, where excess space is virtually free.

I want to write a few brief notes on things I have seen recently. So here goes:

1) Please don’t loosen bank liquidity standards. The repo markets will function fine with a larger Fed balance sheet supporting it. We don’t need to add to the risk of the next financial crisis by letting the banks run with too little liquidity to support the risks being taken, as was true back in 2008.

This was one of the few good things to come out of Dodd-Frank. Crises are ten times worse when the banking system seizes up. Far better that banks have a lower return on equity, than that we have another crisis like 2008.

2) America?s Middle Class Is Addicted to a New Kind of Credit according to Bloomberg. I bailed a friend out of one of these agreements. He had no savings (his fault — he was spendthrift), and had a auto repair of $750. SO he borrowed using one of these online agreements where the lender was an obscure Californian Indian tribe.

The interest rate was over 800%/year! I asked him if he read the agreement, and he said no. I asked if he realized that the loan would be profitable to the lender after three payments, but he would still be paying 33 more payments. He shrugged.

Now, contra the Bloomberg article, I doubt that loans like this are all that common, or we would be hearing more screaming than we are now. I can’t find the article, but there was one guy pushing these loans trying to hide behind the sovereign immunity of another Indian tribe, and he lost the case.

3) Calling Tony Isola. AIG is getting investigated for pushing salesmen to sell higher cost retirement products to educational (I’m guessing 403(b)) DC plans.

Having worked in an insurance pension division in the 1990s, I know that this can be done. Group annuities have a lot more pricing flexibility than other financial products. Our effort at ethics was that we insisted on disclosure of compensation, unless the client was happy with no disclosure.

It wasn’t perfect, but we were doing more than most of our competitors.

4) Americans Aren’t Using Their Homes as Piggy Banks Anymore says Bloomberg. Well, good. We learned something out of the crisis. Borrowing against the equity of your home is not free, and could leave you in a hard place if the economy has a recession.

That’s all for now. I may do another post like this answering the questions of readers.