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Shortchanged: Life and Debt in the Fringe Economy by Howard Karger
big-box store, blue-collar work, corporate social responsibility, credit crunch, delayed gratification, financial deregulation, illegal immigration, labor-force participation, late fees, London Interbank Offered Rate, low skilled workers, microcredit, mortgage debt, New Journalism, New Urbanism, offshore financial centre, payday loans, predatory finance, race to the bottom, Silicon Valley, Telecommunications Act of 1996, telemarketer, underbanked, working poor
Called “universal default,” this practice started after a rash of bankruptcy filings in the mid-to-late 1990s and has since become the industry standard.51 A Consumer Action study found that 43% of CCIs raise cardholders’ rates if they have credit problems with other lenders, even if they have no late payments on the CCI’s card.15 Other banks, such as Bank of America and Fidelity National, may use a credit request as a reason to lower a cardholder’s credit limit.16 The Consumer Action study also found that 85% of the banks surveyed had penalty rates that are triggered by one or two late payments made within six months to a year (the industry calls this “re-pricing”). Penalty rates—which permanently replace lower interest rates—range from APRs of 12%–30%. Sixty-two percent of banks said they charge cardholders a late fee if payments are not received on or before the due date. Twenty-nine percent of CCIs had tiered late fees based on a cardholder’s balance. For example, Wells Fargo charges a $20 late fee on balances up to $100; $29 for balances up to $1,000; and $35 for $1,000 or more.17 Consequently, cardholders with smaller balances pay proportionally higher fees. In 2003 the most common late fee among major CCIs was $35. Some CCIs, like Bank of America and MBNA, have upped their late fee to $39 or more on balances over $1,000. From 1999 to 2003 late-payment fees rose 23%.18 Combined credit card fees cost cardholders about $15 billion in 2004.
Seduced by claims such as Chase’s “It [Platinum for Students] comes with a 5.99% introductory APR on purchases and balance transfers, no annual fee, and tons of other cool benefits, like…,” Josh overlooked the fact that cash advances carry a 20% APR, late fees can add up quickly, and it’s easy to reach the credit limit.55 After hitting his $2,000 credit card limit, Josh applied for another card. He maxed out the second credit card in six months. Facing $4,000 of credit card debt, Josh took a leave from college to work full time. He never returned. Although Josh was working full time, his credit card debt continued to soar. For a while, he played the credit card game and began shifting balances from one introductory card to another, never paying off any of them. Meanwhile, he bought a house and a new car, which only aggravated his debt. The credit card merry-go-round finally caught up with Josh as he sent in his payments later and later and began using cash advances for credit card payments. Josh’s late fees were mounting while his interest rate was rising sky-high, finally reaching nearly 30%.
CCIs should be prohibited from raising the interest rates of cardholders who have credit problems with other lenders.42 At a minimum, they should be required to notify cardholders of an impending rate hike based on their credit records. They should also be required to provide cardholders with an opportunity to explain changes in their credit scores. Finally, CCIs should be required to provide a five-day grace period before charging late fees. Because CCIs are often located in remote parts of the country, slow mail plus delays in recording payments can result in expensive penalties and late fees. Despite aggressive credit card marketing, large numbers of people fall through the cracks. Lacking even minimal credit, they are forced to resort to the pawnshops and payday lenders of the storefront loan industry. It is to this group that we will now turn. Table 4.1. Breakdown of the FICO categories. Payment history Payment information on accounts, such as credit cards, retail accounts, and mortgages Adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.)
I Will Teach You To Be Rich by Sethi, Ramit
Albert Einstein, asset allocation, buy low sell high, diversification, diversified portfolio, index fund, late fees, mortgage debt, mortgage tax deduction, prediction markets, random walk, risk tolerance, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Vanguard fund
Note: Don’t worry if you don’t always have enough money in your checking account to pay off the full amount you owe on your credit card. You’ll get an e-mail from your card company each month before the payment goes through so that you can adjust your payment as needed. * * * I just totally forgot the due date for my credit card. So not only did they charge me a late fee, but they charged me interest on that month’s and the previous months’ purchases. I called up the customer service line of my credit card and told them that I had been a good customer in the past, and asked if they could do anything for me with the fees. The representative removed the late fee and refunded $20 of the interest charge back to my account. They returned a total of $59 to me with one phone call. —ERIC HENRY, 25 * * * 2. Get all fees waived on your card. This is a great, easy way to optimize your credit cards because your credit card company will do all the work for you.
If you pay your bill on time, they’re actually a free short-term loan. They help you keep track of your spending much more easily than cash, and they let you download your transaction history for free. Most offer free warranty extensions on your purchases and free rental car insurance. But unfortunately, there’s more to them than that. Credit cards are also convenient enemies. Almost everyone has a bad story about late fees, unauthorized charges, or overspending. Not surprisingly, many pundits (and parents) have a knee-jerk reaction to credit cards: “Using credit cards is the worst financial decision you can make,” they shout. “Cut them all up!” What an easy battle cry for people who want simple solutions and don’t realize the benefits of multiple sources of credit. The truth about credit cards lies somewhere between these two extremes.
They might be thrilled after saving $10—and they can brag to everyone about all the special deals they get—but you’ll quietly save thousands by understanding the invisible importance of credit, paying your bills on time, and having a better credit score. Awful Consequences * * * If you miss even one payment on your credit card, here are four terrible, horrible, no good, very bad results you may face: 1. Your credit score can drop more than 100 points, which would add $240/month to an average thirty-year fixed-mortgage loan. 2. Your APR can go up to 30 percent. 3. You’ll be charged a late fee, usually around $35. 4. Your late payment can trigger rate increases on your other credit cards as well, even if you’ve never been late on them. (I find this fact amazing.) Don’t get too freaked out: You can recover from the hit to your credit score, usually within a few months. In fact, if you’re just a few days late with your payment, you may incur a fee, but it generally won’t be reported to the credit bureaus.
The Two-Income Trap: Why Middle-Class Parents Are Going Broke by Elizabeth Warren, Amelia Warren Tyagi
business climate, Columbine, declining real wages, equal pay for equal work, feminist movement, financial independence, labor-force participation, late fees, McMansion, mortgage debt, new economy, New Journalism, payday loans, school choice, school vouchers, telemarketer, urban sprawl, women in the workforce
Calder reports, “The 1930s were prosperous years for consumer credit agencies. They prospered not by lending to the unemployed and destitute, but by expanding services to people who were fortunate enough to hold on to their jobs” (p. 292). 59 Between 1996 and 2001, total late fee revenues generated to bank credit card issuers increased from $1.7 billion to $7.3 billion. “Late Fee Bug,” in Cardweb.com, May 17, 2002. Available at http://www.cardweb.com/cardtrak/news/2002/may/17a.html [1/28/2003]. The average credit card late fee increased from $11.60 in February 1994 to $30.04 in November 2002. “Late Fees Slow,” in Cardweb.com, December 11, 2002. Available at http://www.cardweb.com/cardtrak/news/2002/december/11a.html [1/28/2003]. 60 Revenues of the top 100 contingent collections agencies grew from $1.7 billion in 1995 to $4.2 billion in 2000.
Few families have substantial savings, so they usually run out of cash within a month or so. Soon the charges start mounting up for the basics of life—food, gasoline, and whatever else can go on “the card.” When there still isn’t enough to go around, the game of impossible choices begins. Pay the mortgage or keep the heat on? Cancel the car insurance or the health insurance? Meanwhile, interest and late fees have piled on, making everything more expensive. Ruth Ann and James got a small reprieve from family. James’s parents kicked in $4,000 and Ruth Ann’s brother lent them $1,500. But these temporary infusions of money were just that—they covered the minimum payments for a few months, but they didn’t begin to provide a way out of the hole. Before it was over, Ruth Ann had taken to parking the station wagon behind the elementary school and walking the six blocks home, figuring the bankers wouldn’t repossess her car if they couldn’t find it.
When the foreclosure notice arrived, she filed for bankruptcy and worked out a repayment plan with the mortgage lender. Gayle reflects, “I knew that I was at the lowest point in my life. . . . I went ahead and filed but it was done very, very reluctantly. I mean, I couldn’t keep asking people like my mom to bail me out again.” The relief provided by the bankruptcy courts was only partial. The monthly payments for her home actually increased when she filed. Gayle now had to pay off an additional $10,750 in late fees and past-due interest that her lender had tacked on—and that extra money had to be paid within three years, not over the thirty-year life of her mortgage. At the time we spoke with her, Gayle’s expenditures on property taxes, mortgage payments, and utilities claimed nearly three-quarters of her take-home pay.25 She couldn’t expect much help from child support, either. Brad still owed child support to his first wife, so he was due to pay Gayle only $350 a month, less than one-quarter of the family’s housing expenses.
The Mesh: Why the Future of Business Is Sharing by Lisa Gansky
Airbnb, Amazon Mechanical Turk, Amazon Web Services, banking crisis, barriers to entry, carbon footprint, cloud computing, credit crunch, crowdsourcing, diversification, Firefox, Google Earth, Internet of things, Kickstarter, late fees, Network effects, new economy, peer-to-peer lending, recommendation engine, RFID, Richard Florida, Richard Thaler, ride hailing / ride sharing, sharing economy, Silicon Valley, smart grid, social web, software as a service, TaskRabbit, the built environment, walkable city, yield management, young professional, Zipcar
Netflix used what I’d call a textbook Mesh strategy—if a Mesh textbook existed—to beat Blockbuster. First, Netflix paid close attention to Blockbuster’s vulnerabilities with its best customers. Netfix knew that Blockbuster’s Achilles’ heel was late fees. Blockbuster’s revenue model depended on the fees, but customers hated them. Late fees were irritating to pay, like parking tickets, and created anxiety around running the videos back before the noon deadline. Worse, its best customers were the most likely to be punished by the fees. Netflix realized that if it could create a profitable business model that didn’t require late fees, it’d win. The then-in-progress shift to the DVD format presented an opportunity. Netflix realized DVDs could be safely and inexpensively delivered by the post office. Its customers wouldn’t have to rush down to the rental store, hoping that a new release would still be available.
Its customers wouldn’t have to rush down to the rental store, hoping that a new release would still be available. They wouldn’t have to wait in line behind a guy arguing with his girlfriend, only to reach an underpaid clerk who’d clearly rather be somewhere else. And they wouldn’t have to pay a late fee, because there weren’t any late fees. Instead, Netflix introduced a subscription model that allowed customers to watch and return movies at their own pace. What clinched Netflix’s advantage, though, was that it functioned as an information business. By creating a Web-based share platform where people could buy a subscription and queue up their movie choices, Netflix executives knew they could really get to know the customers. Early on, Netflix began using a customer’s prior selections and ratings to suggest other videos that might be of interest.
The Web site encouraged customer feedback on improving the service, and continually introduced new tools to make it easier to find, rate, and order movies and TV shows. Rather than conducting expensive national advertising campaigns, Netflix created partnerships with nearly every brand of DVD player. Each new player included a card offering three free DVD rentals from Netflix. The card also made a promise: “No Late Fees.” Instead, Blockbuster paid a late fee. They were late in acknowledging customer resentments, and late in understanding the spreading power of social networks to shape brand perception. They created a share platform, but neglected other elements that make Mesh businesses so competitive. Netflix’s more robust and networked share platform gave it the power to collect and crunch consumer, usage, and product data to shape customized offers.
Evicted: Poverty and Profit in the American City by Matthew Desmond
affirmative action, Cass Sunstein, crack epidemic, Credit Default Swap, deindustrialization, desegregation, dumpster diving, ending welfare as we know it, ghettoisation, glass ceiling, housing crisis, informal economy, Jane Jacobs, late fees, New Urbanism, payday loans, price discrimination, profit motive, rent control, statistical model, superstar cities, The Chicago School, The Death and Life of Great American Cities, thinkpad, upwardly mobile, working poor, young professional
Court Statistics Project, National Civil and Criminal Caseloads and Civil/Criminal Court Caseloads: Total Caseloads (Williamsburg, VA: National Center for State Courts, 2010). 3. One Milwaukee landlord who owned roughly 100 units in low-income neighborhoods told me he gave approximately 30 percent of his tenants five-day eviction notices each month. A $50 late fee accompanied each notice. He estimated that 90 percent of those cases were settled via stipulation; the remaining 10 percent were evicted. This meant that he collected roughly $1,350 in late fees each month from tenants he did not evict. That amounted to over $16,000 a year in late fees alone. 4. Milwaukee Eviction Court Study, 2011. In addition to surveying tenants, interviewers took eviction court attendance every weekday (save one) between January 17 and February 26, 2011. During this six-week period, in 945 out of 1,328 cases, tenants did not appear in court, with most receiving an eviction judgment.
“Should I do a short-term or long-term lease?” “First, do a lease. Please. Put it in writing. Between sixty and seventy percent of rental agreements in this state are verbal.” A man in a camouflage hat raised his hand with a question about evictions: “Do you have to leave them there for three months or some foolish thing?” “No. Nothing protects you from not paying the rent.” “Is there a maximum charge for a late fee?” The room laughed nervously, and Karen frowned at the question. “Can you go in any of the common areas, the hallways, the open basement, without any notice?” Karen paused for effect. She smiled at the woman who had asked the question. She was a black woman, probably in her fifties, who had sat in the front row and taken notes throughout the day. “What is the answer?” Karen asked the room.
One, a white man in a leather jacket who had been in the local paper a few months back for racking up hundreds of property violations, was joking with his young female assistant when a tenant approached. The tenant was a black woman, likely in her fifties. Her shoulders were uplifted under her worn overcoat. She reached into her purse and handed the landlord $700 in cash. “I’m hoping—” she began. The landlord cut her off. “Don’t hope. Write the check.” “I can get you another six hundred in two weeks.” The landlord asked her to sign a stipulation, which included a $55 late fee. She reached for his pen.3 Toward the front of the room, in a reserved space with tables and plenty of empty chairs, sat lawyers in pinstripe suits and power ties. They had been hired by landlords. Some sat with manila folders stacked in front of them, reading the paper or filling in the crossword. Others joked with the bailiff, who periodically broke conversation to tell a tenant to remove his hat or lower her voice.
3D printing, Airbnb, carbon footprint, Clayton Christensen, clean water, fear of failure, Google X / Alphabet X, Isaac Newton, Jeff Bezos, jimmy wales, Kickstarter, late fees, Lean Startup, Mark Zuckerberg, minimum viable product, new economy, Paul Graham, Peter Thiel, Ray Kurzweil, self-driving car, sharing economy, side project, Silicon Valley, Silicon Valley startup, Stephen Hawking, Steve Jobs, Steven Levy, Thomas L Friedman, Toyota Production System, Watson beat the top human players on Jeopardy!, Y Combinator, Zipcar
Hastings had been lax in returning some movies rented from a Blockbuster video store, and by the time he got around to it, the late charges were exorbitant. A frustrated Hastings wondered, Why should I have to pay these fees? (He has admitted that another question on his mind at the time was How am I going explain this charge to my wife?) Surely, others have been similarly outraged by late fees. But Hastings decided to do something about it, which led to a subsequent question: What if a video-rental business were run like a health club? He then set about figuring out how to design a video-rental model that had a monthly membership, like a health club, with no late fees. (Years later, Hastings would question whether Netflix could and should expand its model: Why are we only renting the films and shows? What if we made them, too?) Through the years, companies from Polaroid (Why do we have to wait for the picture?) to Pixar (Can animation be cuddly?
How might we prepare during peacetime to offer help in times of war? What if this change represents an opportunity for us? How might we make the most of the situation? Why are we falling behind competitors? Who is to blame? What business are we in now—and is there still a job for me? Now that we know what we now know, what’s possible now? Why should I have to pay these late fees?, (the question behind Netflix) How am I going to explain these late fees to my spouse? What if a video rental business were run like a health club? Why do we have to wait for the picture? (the question that led to Polaroid) Can animation be cuddly? With all that’s changing in the world and in our customers’ lives, what business are we really in? I established myself over the years—so why should I have to start over? How is my field/industry changing?
But when the problem was thrust upon him, he asked a proactive Why question (instead of just passively wondering, Why did this have to happen to me?). Then he kept asking more Why questions as he explored the nature and the dimensions of the problem. Innovative questioners, when faced with situations that are less than ideal, inquire as to why, trying to figure out what’s lacking. Oftentimes, these questions arise out of mundane, everyday situations, such as that “late fees” problem encountered by Reed Hastings before he founded Netflix. Similarly, Pandora Internet Radio founder Tim Westergren, a former band musician, observing all the talented-yet-struggling musicians he knew, wondered why it was so difficult for them to connect with the audience they deserved. Airbnb cofounder Joe Gebbia, along with roommate Brian Chesky, wanted to know why people coming to his town at certain times of the year had so much trouble getting hotel accommodations.
Scarcity: The True Cost of Not Having Enough by Sendhil Mullainathan
American Society of Civil Engineers: Report Card, Andrei Shleifer, Cass Sunstein, clean water, computer vision, delayed gratification, double entry bookkeeping, Exxon Valdez, fault tolerance, happiness index / gross national happiness, impulse control, indoor plumbing, inventory management, knowledge worker, late fees, linear programming, mental accounting, microcredit, p-value, payday loans, purchasing power parity, randomized controlled trial, Report Card for America’s Infrastructure, Richard Thaler, Saturday Night Live, Walter Mischel, Yogi Berra
That person or institution, like the assistant, will bring it into your tunnel no matter how tunneled you are. Savings, on the other hand, has no dedicated assistants to care for it, and—absent a behaviorally informed intervention like ours—will end up outside the tunnel most of the time. Of course, insights about tunneling can also be used to exploit. You might set high late fees and then not remind people of the impending charges. Many of these effects, from reminders to the impact of late fees, will disproportionately affect the poor, since they are the ones who are tunneling—and suffering the consequences—the most. Reminders, of course, are not limited to money. A busy person will too readily neglect the gym, which is important but never urgent. Signing up for a personal trainer reduces this problem. Now the trainer’s calls bring fitness back into the tunnel.
Sometimes at dinner he would put in less than his fair share because he was short. His friends understood, but it didn’t feel good. And there was no end in sight. He had bought a Blu-ray player on credit, with no payments for the first six months. That was five months ago. How would he pay this extra bill next month? Already, more and more money went to paying off old debts. The bounced check had a hefty overdraft charge. The late bills meant late fees. His finances were a mess. He was in the deep end of the debt pool and barely staying afloat. Shawn, like many people in his situation, got financial advice from many sources, all of it pretty similar: Don’t sink any deeper. Stop borrowing. Cut your spending to the minimum. Some expenses may be tough to cut, but you’ll have to learn how. Pay off your old debts as quickly as possible. Eventually, with no new debts, your payments will become manageable.
The busy person is likely to commit an even bigger planning error; after all, he is likely still needing to attend to his last project and is more distracted and overwhelmed—a surefire way to misplan. With compromised bandwidth, we are more likely to give in to our impulses, more likely to cave in to temptations. With little slack, we have less room to fail. With compromised bandwidth, we are more likely to fail. This allows a look at the conditions of scarcity through a new lens. Late fees are a penalty for misplanning or forgetting, yet they create an even more hostile environment for those living with scarcity. Readily available junk food may cause obesity in the poor and the busy, who are, in turn, more exposed and less attentive; it is less of a threat for the rich and the relaxed. The hard-to-read disclosures on low-cost mortgage forms will be particularly misunderstood (and carry bigger consequences) for those living with financial scarcity.
The Internet Is a Playground by David Thorne
uploadyourscreen.com A website where users take a screenshot of their computer screen and upload it so that when they are looking at porn and the boss walks past they can type in the link and go to it instead. picturesofpegs.com This website would contain pictures of pegs, allowing the users to have access to pictures of pegs whenever they need them. amihavingaheartattack.com A website for people having a heart attack. Dear Blockbuster member, we want our DVDs back I find it annoying to pay late fees on movies, and I am too lazy to return them on time, which leaves me simply complaining about it. I used to know a guy named Matthew who would sell me copies of the latest movies for five dollars each, but they were all recorded by someone in a cinema with what appeared to be a low-resolution webcam, and epilepsy. Several times during each movie the person would shift positions, or have people walk past in front, and one time filmed the chair in front of him for at least twenty minutes.
Recently, I was tricked into watching The Notebook, which was about geese. Lots of geese. It also had something to do with an old lady who conveniently lost her memory, so she could not remember being a whore throughout the entire film. I don’t recall a lot of it, because I was too busy being cross about watching it. In a utopian future society she would have been hunted down and killed at thirty. In regard to the late fees, I understand the amount is based on what you lose by not being able to rent the movies out. You probably had people lined up around the block waiting to rent Logan’s Run. For eighty-two dollars, though, I could have purchased six copies of it from DVD Warehouse or, as I have heard he is a bit strapped for cash, had Kevin Costner visit my house in person and re-enact key scenes from Waterworld in the bathroom.
For eighty-two dollars, though, I could have purchased six copies of it from DVD Warehouse or, as I have heard he is a bit strapped for cash, had Kevin Costner visit my house in person and re-enact key scenes from Waterworld in the bathroom. Regards, David From: Megan Roberts Date: Thursday 12 November 2009 3:16 p.m. To: David Thorne Subject: Re: Re: Re: Re: Re: Re: Re: Re: Re: DVDs Hi David. Restocking fees are: 002190382 Journey to the Center of the Earth $9.30 003103119 Logans Run $7.90 008629103 Harold and Kumar Escape from Guantanamo Bay $6.30 000721082 Waterworld $5.70 Total: $29.20—I have deleted your late fees and noted on the computer that the amount owed is for the replacement movies not fees. Kind regards, Megan From: David Thorne Date: Thursday 12 November 2009 7:42 p.m. To: Megan Roberts Subject: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: DVDs Dear Megan, Those prices seem reasonable. I do not want Logan’s Run but will pick up the other three when I come in next. Regards, David From: Megan Roberts Date: Friday 13 November 2009 12:51 p.m.
Lynda confirms what most cheapskates say is one of the most important good money habits you can have: direct deposit of incoming funds and automatic bill pay for the bills you pay every month, like mortgage/rent, utilities, insurance, loan payments, etc. Most employers offer direct deposit of paychecks, and automatic bill pay can be arranged with most vendors and banks. Not only is it a free service and saves time (not to mention postage stamps and gas), but it guarantees that you’ll always pay your bills on time and avoid late fees and penalties. Savings: Variable, but with late fees on credit cards and other consumer loans averaging about $30, avoid four of those bad boys a year and you’ll save $120. Poor People (Often) Have Poor Habits Okay, before you get your knickers in a twist about the insensitivity of the above statement, let me say that of course I recognize that many poor people in the United States and around the world are truly victims of circumstances beyond their control.
With Netflix, you pay a flat monthly fee (our plan costs $16.99 a month), and you select from over 100,000 DVD titles on their website. The DVDs you request are mailed to you and usually arrive in a single day—amazing service. You can keep them as long as you like (no late fees), and rent as many as you want in a month, just so long as you don’t have more than three checked out at any one time. To return them, they give you a nifty, postage-paid return envelope that you just drop in the mail. Savings: Compared with conventional DVD rental stores, if you rent three movies a week you’ll probably save more than $500 a year by joining Netflix—and that doesn’t include the cost of late fees, membership fees, and the gas you’ll burn up with most rental stores. On the Road with the Cheapskate Next Door It would be a mistake to assume that all cheapskates are homebodies, cloistered in their humble abodes for fear that if they venture out into the world it would cause their Spending Anxiety Disorder to flare up.
The Best Business Writing 2013 by Dean Starkman
Asperger Syndrome, bank run, Basel III, call centre, clean water, cloud computing, collateralized debt obligation, Columbine, computer vision, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Erik Brynjolfsson, eurozone crisis, Exxon Valdez, factory automation, full employment, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, income inequality, jimmy wales, job automation, late fees, London Whale, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, price stability, Ray Kurzweil, Silicon Valley, Skype, sovereign wealth fund, stakhanovite, Steve Jobs, Stuxnet, the payments system, too big to fail, Vanguard fund, wage slave, Y2K
But if Ramos was more than ten days late with a payment, it generated a late charge of 10 percent of the overdue payment—in her case, about $220. That amount would then be due on top of what she owed. Experts say these terms were especially punitive even for subprime loans, which typically gave borrowers more time and penalized them less for being late. While Ramos no longer has records showing how much she paid in late fees, an August 2008 breakdown by Wilshire of unpaid charges on her account shows outstanding late fees of $770 and a returned-check charge of $50—an extra $820 on top of its base of $1,300. If Ramos or other troubled homeowners could somehow scrape together the money to pay such fees, great. But the true genius of the business model is that it didn’t matter whether borrowers could pay the fees. If a homeowner went bust and the house was sold through foreclosure, no problem.
The hilly plot overlooks the ocean, and on a nice day—and most days there are nice—you can understand why Ramos would say, “I don’t know if I’d want to go back to the house at this point.” The family has even been joined by a cousin of Ramos’s, a retired federal employee who lives there with her husband, because what’s left of her retirement wasn’t enough to live comfortably elsewhere. Four months after Ramos left Florida, Wilshire’s attorneys again sought to foreclose on the home. Together with the various foreclosure and late fees, the interest that had been accruing since Ramos made her last payment in early 2008 added up to a debt of $314,000—about $52,000 more than the original loan. While the home had been appraised at $403,000 in late 2006 when the loan was made, it was worth nowhere near that when it was put up for auction in December 2009. As a result, Wilshire chose instead to take possession of the home and sell it later.
So, we were treated like criminals every time we talked to someone at the servicer. You were, after all, the servicer’s client. I was not. Our home has been worth $60,000 since 2008. We put down $30,000, completed $10,000 in upgrades in the first year and paid $40,000 in payments in the first two years before the modification mess occurred. Our total investment: $80,000. The house is worth $60,000 and we now owe more than we financed due to late fees, attorney’s fees, and mortgage payments. We have been forced into bankruptcy because there is no other option at this point. Sure, one of the many servicers that have managed our loan has offered us a modification, but we would have to sign our rights to bankruptcy away, pay their attorney’s fees, and accept many other conditions that our attorneys have advised us to not agree to. We take responsibility for not educating ourselves more before we entered into the very serious contract of mortgaging a home.
Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller
Andrei Shleifer, asset-backed security, Bernie Madoff, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, en.wikipedia.org, endowment effect, equity premium, financial intermediation, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, late fees, loss aversion, Menlo Park, mental accounting, Milgram experiment, moral hazard, new economy, payday loans, Ponzi scheme, profit motive, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, wage slave
That $150 billion is more than onethird of what we pay in the aggregate for mortgage interest on our homes32; it is more than one-sixth of what we spend for our home food consumption; and more than one-third of what we spend for motor vehicles and parts.33 Let’s take a second cut at the cost of credit cards. How is this cost divided among different types of payment? We have estimates of three components of costs. A rough division of these payments is that about one-half consists of interest paid on overdue accounts; about one-third is for the interchange fees; and another one-sixth is for miscellaneous penalties, especially including late fees.34 RIP-OFFS Akerlof.indb 69 69 6/19/15 10:24 AM An enterprising blogger, Sean Harper, a former student of Freako nomics’s Steven Levitt, has given us a third cut. He calculated the interchange fees that a merchant would pay if you handed her your Citicorp Visa Rewards Card.35 For a $1.50 pack of gum purchased at a convenience store, the fee was 40 cents; for a $30 tank of gas, $1.15; for a $100 grocery purchase, $2.05.
It begins with the fees charged to the merchants, 70 Akerlof.indb 70 CHAPTER FOUR 6/19/15 10:24 AM whose payments are large. They buy their magic pills, but at only one-third of the total cost. Next come the consumers, blithely purchasing their groceries, footwear, and whatever else, with the credit card extracting high rates of interest from those with overoptimistic expectations regarding how they will pay the bill when it comes. And then insult is added to injury with the late fees and the nuisance fees. At each and every stage, the competitive drive for profits plays on our weaknesses. RIP-OFFS Akerlof.indb 71 71 6/19/15 10:24 AM five Phishing in Politics A ll of us have an experience—with a past girlfriend or boyfriend, perhaps—where we can look back with the wisdom of a few more years, and can now articulate clearly what we sensed only vaguely at the time. One of us (George) had such an experience in the last week of October 2004.
We get a figure of “$48 billion a year” for interchange fees from John Tozzi, “Merchants Seek Lower Credit Card Interchange Fees,” Businessweek Archives, October 6, 2009, accessed May 2, 2015, http://www.bloomberg.com/bw/stories/2009-10-06/merchants -seek-lower-credit-card-interchange-fees. These three numbers add up to $171 billion, which is in the ballpark, relative to the aggregate estimate for 2009 of $167 billion for that year from Robin Sidel, “Credit Card Issuers Are Charging Higher.” Viewing the late fees and the interchange fees as roughly constant, but the interest fees as variable, we get our characterization of the division (of the 2012 $150 billion of revenues). 35. http://truecostofcredit.com/400926. This website has now closed. Harper later started a consulting firm (subsequently taken over) that advised merchants on how to minimize their exchange fees. From the high charges he documents, it would appear that this is quite a useful service.
The Start-Up of You by Reid Hoffman
Airbnb, Andy Kessler, Black Swan, business intelligence, Cal Newport, Clayton Christensen, David Brooks, Donald Trump, en.wikipedia.org, fear of failure, follow your passion, future of work, game design, Jeff Bezos, job automation, late fees, Mark Zuckerberg, Menlo Park, out of africa, Paul Graham, Peter Thiel, recommendation engine, Richard Bolles, risk tolerance, rolodex, shareholder value, side project, Silicon Valley, Silicon Valley startup, social web, Steve Jobs, Steve Wozniak, Tony Hsieh, transaction costs
It’s about keeping Detroit from happening to you and making the Silicon Valley way work for you. THE PATH TO THE FUTURE In 1997 Reed Hastings, a software entrepreneur living in the hills of Silicon Valley, was faced with a problem. He had rented Apollo 13 from a video store, returned it days late, and was dealt a late fee so nasty that he was too embarrassed to tell his wife what had happened. His entrepreneurial instinct kicked in: What if you could rent a movie and never face the risk of a late fee? So he began researching the industry and learned that the new DVD technology was light and cheap to ship.14 He realized that the shift toward e-commerce, in concert with the DVD revolution, could be a huge opportunity. So that year he launched a business that combined e-commerce with old-fashioned postal mail: customers would select their movie on a website, receive a DVD of the movie in the mail, and then mail it back whenever they were finished.
American Society of Civil Engineers: Report Card, Bernie Madoff, Bernie Sanders, call centre, carried interest, citizen journalism, clean water, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, extreme commuting, Exxon Valdez, full employment, greed is good, housing crisis, immigration reform, invisible hand, knowledge economy, laissez-faire capitalism, late fees, market bubble, market fundamentalism, Martin Wolf, medical bankruptcy, microcredit, new economy, New Journalism, offshore financial centre, Ponzi scheme, Report Card for America’s Infrastructure, Richard Florida, Ronald Reagan, Rosa Parks, single-payer health, smart grid, The Wealth of Nations by Adam Smith, too big to fail, transcontinental railway, trickle-down economics, winner-take-all economy, working poor, Works Progress Administration
“In 1980, the typical credit card contract was a page and a half long,” Elizabeth Warren says.118 “Today, the typical credit card contract is about thirty-one pages long. The other twenty-nine and a half pages are the tricks and traps. I teach contract law at Harvard Law School,” she continues, “and I can’t understand my credit card contract. It’s just not designed to be read.” As a result, for years the credit card companies have been fattening their bottom lines with an ever-widening array of fees: late fees, cash-advance fees, balance-transfer fees, over-the-limit fees. Fees now account for 39 percent of card issuers’ revenue.119 In fact, last year, lenders collected more than $20 billion in penalties and fees.120 And even with the passage of the new credit card regulations that took effect in early 2010, banks are coming up with sneaky new ways to soak customers, including (if you can believe it) an “inactivity fee” for not using their card!
According to the new law, the credit card issuer needs to give a forty-five-day notification before it raises interest rates.64 But you must stop using the card if you refuse to accept the new rate. And the banks, of course, know the havoc it would create in most peoples’ lives to have to regularly close down their credit cards and seek new ones. However soul sapping it may be, you have to read all the stuff that comes from your credit card company—including the small print about service fees on top of late fees on top of “inactivity” fees. If you can, set up automatic bill pay so you don’t miss a payment. Because fees account for 39 percent of credit card issuers’ revenue, the banks will keep dreaming up new ways to trick us that are not covered, or even contemplated, by existing laws.65 And the new law doesn’t prevent banks from gouging their credit card customers with sky-high interest rates.66 Senator Bernie Sanders, whose attempts at capping credit card interest rates have been voted down by his colleagues, says, “When banks are charging thirty percent interest rates, they are not making credit available.67 They are engaged in loan sharking”—also known as usury.
What's Mine Is Yours: How Collaborative Consumption Is Changing the Way We Live by Rachel Botsman, Roo Rogers
Airbnb, barriers to entry, Bernie Madoff, bike sharing scheme, Buckminster Fuller, carbon footprint, Cass Sunstein, collaborative consumption, collaborative economy, Community Supported Agriculture, credit crunch, crowdsourcing, dematerialisation, disintermediation, en.wikipedia.org, experimental economics, George Akerlof, global village, Hugh Fearnley-Whittingstall, information retrieval, iterative process, Kevin Kelly, Kickstarter, late fees, Mark Zuckerberg, market design, Menlo Park, Network effects, new economy, new new economy, out of africa, Parkinson's law, peer-to-peer lending, Ponzi scheme, pre–internet, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Simon Kuznets, Skype, slashdot, smart grid, South of Market, San Francisco, Stewart Brand, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thorstein Veblen, Torches of Freedom, transaction costs, traveling salesman, ultimatum game, Victor Gruen, web of trust, women in the workforce, Zipcar
Successful entrepreneurs Marc Randolph, Reed Hastings, and Mitch Lowe founded Netflix in 1999, after Randolph and Hastings had made a fortune by inventing a debugging software tool called Pure Software. Hastings first got the idea for Netflix after going to Blockbuster one day and discovering that his family had been six weeks late in returning Apollo 13. The overdue cassette cost him $40 in late fees. It was later, on his way to the gym, that he had his eureka moment when he realized his fitness club had a much better business model. “You could pay $30 or $40 a month and work out as little or as much as you wanted.” He reasoned that there had to be a similar way “to make money renting movies without gouging customers on late fees.”10 Hastings, who is now in his late forties and lives with his wife and two kids in Santa Cruz, likes movies but admits he is no movie buff. He is tall and slim and with his neatly trimmed salt-and-pepper goatee looks a bit like a younger version of another film industry pioneer, George Lucas.
Discardia: More Life, Less Stuff by Dinah Sanders
Atul Gawande, big-box store, carbon footprint, clean water, clockwatching, cognitive bias, collaborative consumption, credit crunch, endowment effect, Firefox, game design, Inbox Zero, income per capita, index card, indoor plumbing, Internet Archive, Kevin Kelly, late fees, Marshall McLuhan, McMansion, Merlin Mann, side project, Silicon Valley, Stewart Brand
Set up memory safety nets Have someone else remember something for you. Enjoy the beauty of those three magic words: “automatic minimum payment.” Talk with the companies behind all your monthly bills and see if there's a way to have the minimum payment automatically charged to your bank account or credit card. The key word here is “minimum.” You should pay more if you can to avoid interest charges, but always pay the least possible amount to avoid late fees. Then, while you have them on the phone, see if you can get your bills by email. This keeps paper from landing in your house and gives you the earliest possible warning if a bill amount is in error. Plan ahead and make checklists or kits to ensure repeatedly that you have what you need when and where you need it. When you travel, for example, think ahead and bring the stuff you wind up kicking yourself for forgetting.
If the backlog awaiting your attention isn’t pressuring you, that’s excellent; however, when it does, try some of these ideas: Consider canceling your Netflix subscription and not using TiVo's recommendation feature. For many, what matters most about their Netflix account is the queue—a someday-maybe list of movies to watch—so just keep the list if you’re not keeping up with incoming films. Take that subscription money (or saved late fees if you’ve been renting from a traditional video store or library) and put 80% of it into savings. Invest the rest in really good chocolate. I bet you'll take care of that tonight! Use CatalogChoice.org Slow that cascade of advertising dripping from your mailbox. Contemplate canceling or reducing magazine and newspaper subscriptions—at least abandon any feeling of obligation that you have to read the whole thing.
Simple Rules: How to Thrive in a Complex World by Donald Sull, Kathleen M. Eisenhardt
Affordable Care Act / Obamacare, Airbnb, asset allocation, Atul Gawande, barriers to entry, Basel III, Berlin Wall, carbon footprint, Checklist Manifesto, complexity theory, Craig Reynolds: boids flock, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, en.wikipedia.org, European colonialism, Exxon Valdez, facts on the ground, Fall of the Berlin Wall, haute cuisine, invention of the printing press, Isaac Newton, Kickstarter, late fees, Lean Startup, Louis Pasteur, Lyft, Moneyball by Michael Lewis explains big data, Nate Silver, Network effects, obamacare, Paul Graham, performance metric, price anchoring, RAND corporation, risk/return, Saturday Night Live, sharing economy, Silicon Valley, Startup school, statistical model, Steve Jobs, TaskRabbit, The Signal and the Noise by Nate Silver, transportation-network company, two-sided market, Wall-E, web application, Y Combinator, Zipcar
In 1997 Reed Hastings was annoyed by a $40 late fee on his rental of the video Apollo 13 from Blockbuster. As an already successful entrepreneur, he recognized a golden opportunity to create better customer service than that delivered by video rental stores by exploiting the emergence of DVDs and the rise of the Internet. He launched Netflix as a service that let consumers order DVD movie rentals online and receive them at home by mail. Hastings initially conceptualized Netflix as the online version of the offline giant, Blockbuster. This early analogy helped to shape the template of simple rules that guided how Netflix structured its activities, such as rental decisions: to charge $4 per rental, for example, and set a return deadline with late fees. Since analogies are holistic solutions, they do well in complex situations, providing a ready-made framework for a new endeavor.
The Working Poor: Invisible in America by David K. Shipler
Bonfire of the Vanities, call centre, David Brooks, full employment, illegal immigration, late fees, low skilled workers, payday loans, profit motive, Silicon Valley, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, union organizing, Upton Sinclair, War on Poverty, working poor
The real price was reflected in those bills with the snowballing balances. Since her credit rating was not exactly AAA, she was being charged up to 23.999 percent interest. What’s more, while she was faithfully paying the finance charge and minimum almost every month, she did not always get her salary in time to meet the deadline; as a result, she gradually realized, the card companies were adding late fees to her principal, then charging the exorbitant interest on that ever-growing principal. Long after she stopped using the cards, the balance continued to rise. This has become a chronic problem across the country as lenders search credit records for minor delinquencies to label them “subprime.” If you’re in that category you get charged higher fees and interest, but you may not know it, because few states require lenders to reveal the score that determines a consumer’s credit rating, even when the borrower sees his credit report.
She could not afford to put her own two children in the day-care center where she worked. Christie was a hefty woman who laughed more readily than her predicament should have allowed. She suffered from stress and high blood pressure. She had no bank account because she could not keep enough money long enough. Try as she might to shop carefully, she always fell behind on her bills and was peppered with late fees. Her low income entitled her to food stamps and a rental subsidy, but whenever she got a little pay raise, government agencies reduced the benefits, and she felt punished for working. She was trapped on the treadmill of welfare reform, running her life according to the rules of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The title left no doubt about what Congress and the White House saw as poverty’s cause and solution.
The same day, she put $5 worth of gas in her car, and the next day spent $6 of her own money to take the day-care kids to the zoo. The eighth was payday, and her entire $330 check disappeared in a flash. First, there was what she called a $3 “tax” to cash her check, just one of several such fees for money orders and the like—a penalty for having no checking account. Immediately, $172 went for rent, including a $10 late fee, which she was always charged because she never had enough to pay by the first of the month. Then, because it was October and she had started to plan for Christmas, she paid $31.47 at a store for presents she had put on layaway, another $10 for gasoline, $40 to buy shoes for her two kids, $5 for a pair of corduroy pants at a secondhand shop, another $5 for a shirt, $10 for bell-bottom pants, and $47 biweekly for car insurance.
asset-backed security, bank run, barriers to entry, Bretton Woods, card file, central bank independence, computer age, corporate governance, credit crunch, declining real wages, deindustrialization, diversified portfolio, financial independence, financial innovation, Gini coefficient, Home mortgage interest deduction, housing crisis, income inequality, invisible hand, late fees, London Interbank Offered Rate, market fundamentalism, means of production, mortgage debt, mortgage tax deduction, p-value, pattern recognition, profit maximization, profit motive, risk/return, Ronald Reagan, Silicon Valley, statistical model, technology bubble, the built environment, transaction costs, union organizing, white flight, women in the workforce, working poor
Unfortunately for credit card companies, fees, unlike interest rates, were still regulated by individual states, until 1996 that is. In 1996, a Supreme Court decision, Smiley v. Citibank, extended 274 CHAPTER SEVEN the Marquette decision to allow banks to charge late fees if the card was issued in a state that allowed such fees.250 Barbara Smiley, a California homemaker, had two credit cards through Citibank, in South Dakota.251 In 1992, she brought a class action lawsuit against Citibank on behalf of California borrowers charged $15 late fees, which she saw as illegal under California law. The Court upheld the position of the Comptroller of the Currency, that fees were simply another form of interest. While this might seem like a broad interpretation of the word “interest,” such reasoning unpinned all the usury laws of the twentieth century, which had treated fees as a surreptitious form of interest that drove up the real cost of borrowing.
Mark Borowsky, “The $10 Billion Question,” CCM (March 1995), 34. 243. Ibid. 244. “A Desire to Shed Bad Debt Drives Portfolio Sales,” Credit Card News, February 1, 1997. 245. Ibid. 246. Anonymous, “Risk-based repricing draws flak,” CCM (January 1996), 13. 247. “A Desire to Shed.” 248. “Fraying Credit Quality Leaves Investors Hanging,” Credit Card News, July 1, 1996. 249. Ibid. 250. Linda Green, “Late Fees Upheld For Credit Cards,” New York Times, June 4, 1996, A1.; Barbara Smiley, Petitioner V. Citibank (South Dakota), N.A., 517 U.S. 735. 251. Paul Barrett, “Legal Beat: Justices’ Ruling on credit cards favors banks,” Wall Street Journal, June 4, 1996, B1; The Smiley decision followed on the heels of several state-level decisions like Tikkanen v. Citibank, Greenwood Trust Co. v. Commonwealth of Massachusetts, Hill v.
The fortune at the bottom of the pyramid by C. K. Prahalad
barriers to entry, business process, call centre, cashless society, clean water, collective bargaining, corporate social responsibility, deskilling, disintermediation, farmers can use mobile phones to check market prices, financial intermediation, Hernando de Soto, hiring and firing, income inequality, late fees, Mahatma Gandhi, market fragmentation, microcredit, new economy, profit motive, purchasing power parity, rent-seeking, shareholder value, The Fortune at the Bottom of the Pyramid, time value of money, transaction costs, working poor
The huge rate of success can be attributed to three important factors: group commitment, social capital, and the penalty fee structure. When a group of three socios walks into a cell and completes an application, the only commitment they are expected to make is the regular payment of 360 pesos per week per group on time. If for any reason one of the team members doesn’t turn in his or her payment portion on time, the group as a whole will pay a late fee of an additional 50 percent (60 pesos) per late socio. Not only is there a late-fee penalty, but the delivery for the entire group is delayed by one week as well. This also is recorded as a black mark, and the group members will have problems later if they decide to apply for a new credit. If one of the members defaults for some reason, news simply spreads by word of mouth and he or she is more or less ostracized from the whole process.
Your Money: The Missing Manual by J.D. Roth
Airbnb, asset allocation, bank run, buy low sell high, car-free, Community Supported Agriculture, delayed gratification, diversification, diversified portfolio, estate planning, Firefox, fixed income, full employment, Home mortgage interest deduction, index card, index fund, late fees, mortgage tax deduction, Own Your Own Home, passive investing, Paul Graham, random walk, Richard Bolles, risk tolerance, Robert Shiller, Robert Shiller, speech recognition, traveling salesman, Vanguard fund, web application, Zipcar
"The others are just cards I keep open for credit score reasons or for special cases." (Flip to Your Credit Score for info on credit scores.) Wang says the key to profiting from credit cards is to pay your balance every month. He's been using credit cards for 11 years and has never paid a finance charge. He's never paid a late fee, either, though he's come close. "There have been times my payments were a couple days late, but every time I've been able to call and have them remove the late fee and the finance charges. Everything's been fine." For more on savvy use of credit cards, pick up a copy of How You Can Profit from Credit Cards (FT Press, 2008) by Curtis Arnold. Disputing Charges Mistakes happen. Once in a while, a restaurant will charge you twice for the same meal or an online bookstore will bill you for somebody else's purchase.
Affordable Care Act / Obamacare, algorithmic trading, Amazon Mechanical Turk, asset-backed security, Atul Gawande, bank run, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, bonus culture, Brian Krebs, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chelsea Manning, cloud computing, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, Debian, don't be evil, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, Filter Bubble, financial innovation, Flash crash, full employment, Goldman Sachs: Vampire Squid, Google Earth, Hernando de Soto, High speed trading, hiring and firing, housing crisis, informal economy, information retrieval, interest rate swap, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, Julian Assange, Kevin Kelly, knowledge worker, Kodak vs Instagram, kremlinology, late fees, London Interbank Offered Rate, London Whale, Mark Zuckerberg, mobile money, moral hazard, new economy, Nicholas Carr, offshore financial centre, PageRank, pattern recognition, precariat, profit maximization, profit motive, quantitative easing, race to the bottom, recommendation engine, regulatory arbitrage, risk-adjusted returns, search engine result page, shareholder value, Silicon Valley, Snapchat, Spread Networks laid a new fibre optics cable between New York and Chicago, statistical arbitrage, statistical model, Steven Levy, the scientific method, too big to fail, transaction costs, two-sided market, universal basic income, Upton Sinclair, value at risk, WikiLeaks
But if they are using black box techniques to risk other people’s money with no personal exposure, their self-characterization as fearless captains of industry is scarcely credible. Such huge takes create inflated expectations throughout the economy the way inflated grade-curves do in schools; how can health reformers ask surgeons to accept lower salaries when their friends in fi nance are so 200 THE BLACK BOX SOCIETY much richer? The bankers’ bounty fuels a derangement of value and deteriorating values. Banks charge plenty for their vital ser vices. Consider that late fee on your credit card; even before you incurred it, the bank had already taken a cut of every purchase you made. Consider the mysterious charges eating away at your 401(k), and the transaction costs whenever your broker buys or sells. Fee churning contributes hugely to the livelihoods of finance professionals. But how much value do those professionals really create in the process? Not much, it would appear.
Elaborate rules govern transactions ranging from home sales to stock trading. Programs follow steps in mathematicized procedures, and use complex pattern recognition techniques to analyze massive data sets. Scott Patterson, The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It (New York: Crown Business, 2011), 251. 5. Few people fully grasp the impact of credit scoring. You may think that the late fee for paying a credit card bill is merely $35 or so. But if it reduces your credit score, the price could be far steeper. For instance, consider someone who took out a $500,000, thirty-year fi xed-rate mortgage in 2010 with a credit score of about 765. At some point, he might accidentally miss a payment on a credit card, and his score might drop to, say, 690. Neither of these is a bad score, but at that time, those with scores above 760 could expect a 4.52 percent rate (resulting in $2,539 monthly mortgage payments), while those scoring below 700 would probably end up with a 4.91 percent rate, at $2,657 per month.
Ready Player One by Ernest Cline
“I’m here because you have failed to make the last three payments on your IOI Visa card, which has an outstanding balance in excess of twenty thousand dollars. Our records also show that you are currently unemployed and have therefore been classified as impecunious. Under current federal law, you are now eligible for mandatory indenturement. You will remain indentured until you have paid your debt to our company in full, along with all applicable interest, processing and late fees, and any other charges or penalties that you incur henceforth.” Wilson motioned toward the dropcops. “These gentlemen are here to assist me in apprehending you and escorting you to your new place of employment. We request that you open your door and grant us access to your residence. Please be aware that we are authorized to seize any personal belongings you have inside. The sale value of these items will, of course, be deducted from your outstanding credit balance.”
My remaining income (if there was any) would be applied to my outstanding debt to the company. Once my debt was paid in full, I would be released from indenturement. At that time, based on my job performance, it was possible I would be offered a permanent position with IOI. This was a complete joke, of course. Indents were never able to pay off their debt and earn their release. Once they got finished slapping you with pay deductions, late fees, and interest penalties, you wound up owing them more each month, instead of less. Once you made the mistake of getting yourself indentured, you would probably remain indentured for life. A lot of people didn’t seem to mind this, though. They thought of it as job security. It also meant they weren’t going to starve or freeze to death in the street. My “Indenturement Contract” appeared in a window on my display.
Interlibrary Loan Practices Handbook by Cherie L. Weible, Karen L. Janke
For libraries that use manual systems it may be important to note this number in association with any other information that the library retains about the request. overdue fees, damaged materials, and replacements Although most patrons who borrow materials respect and follow the rules and policies for borrowing, there will inevitably be items that are returned past the due date. Each borrowing library must formulate its position on overdue materials and decide whether a late fee should be charged to patrons for overdue interlibrary loan items. Some libraries take the position that fees are difficult to collect and manage. Other libraries find that having an overdue fee cuts down on those patrons who are lackadaisical about returning material in a timely manner. Another approach is to avoid overdue fines and to block the borrowing library’s patron after the material has become overdue.
Why Nudge?: The Politics of Libertarian Paternalism by Cass R. Sunstein
Affordable Care Act / Obamacare, Andrei Shleifer, availability heuristic, Cass Sunstein, choice architecture, clean water, Daniel Kahneman / Amos Tversky, Edward Glaeser, endowment effect, energy security, framing effect, invisible hand, late fees, libertarian paternalism, loss aversion, nudge unit, randomized controlled trial, Richard Thaler
So too if, for example, people are ignoring certain product attributes because those attributes are shrouded. If those attributes would matter to people who attended to them, then efforts to promote disclosure do not question people’s ends. Consider, for example, the multiple disclosure requirements in the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act, which are designed to ensure that cardholders are not surprised by late fees and overuse fees. Small nudges, informing people of the costs of such fees in advance, have contributed to annual savings, as a result of the CARD Act, of more than $20 billion.12 Of course, it may be hard to determine whether people are in fact ignoring shrouded attributes, or whether they simply do not much care about them. But so far, at least, there is no problem of ends paternalism, and so long as only disclosure is involved, there might not be paternalism at all.
Design Is a Job by Mike Monteiro
If you do, you’ve lost all your leverage and it might as well be net 30. We don’t walk into a kickoff meeting without a commencement check. The only exception is when we’re working with a large company or organization (read: schools and state) where trying to meet that requirement puts an undue burden on the client. In those situations we wait until the payment has been processed. And we don’t do that very often. Feel free to tack on a late fee for late payment. Make sure it’s high enough that you won’t be upset if a company takes you up on it, and have it grow incrementally over a period of time. Dealing with Late Payments Ninety percent of dealing with late payments is figuring out how to avoid late payments. So if you picked up the book and skipped right to this section because you’ve got an urgent problem, just hold on a sec.
big-box store, clean water, follow your passion, if you build it, they will come, index card, informal economy, Kevin Kelly, Kickstarter, knowledge economy, late fees, price anchoring, Ralph Waldo Emerson, side project, Silicon Valley, Skype, Steve Jobs, Tony Hsieh, web application
†Patrick and Rich use a good cop-bad cop routine in handling their business, which relates well to their differences: Patrick was in the Peace Corps and Rich was in the Marine Corps. Patrick has kids and lives on the East Coast; Rich is childless and lives on the West Coast. ‡I was a customer of Copley Trash Services, and one week I neglected to pay my dues. A polite note was placed on my door: “Did you forget something?” I shamefully paid up and included an extra 50 cents in late fees. BECOME AS BIG AS YOU WANT TO BE (AND NO BIGGER). “Nothing will work unless you do.” —MAYA ANGELOU Among the people we’ve met in our story thus far, a few are active risk takers, charging ahead to storm the castle, career or finances be damned if they fail. But far more common are those who carefully take the time to build a business step by step. It’s a myth that all those who choose to go it alone are Type A motorcycle riders, betting it all on the success or failure of one project.
Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, Mark Zuckerberg, McMansion, mortgage debt, mortgage tax deduction, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative ﬁnance, railway mania, randomized controlled trial, Richard Feynman, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application
But things have gotten worse in recent years. That is partly because there are more people in financial difficulty and partly because of the stigma associated with serving the subprime segment of the market. But it is also because of the harsher regulatory climate for financial institutions. In the United States the 2009 Credit Card Accountability, Responsibility, and Disclosure (Credit CARD) Act reduced interest-rate increases and late fees on credit cards. The Consumer Financial Protection Bureau is looking at overdraft fees and the prepaid-cards market. The Durbin Amendment—passed as part of the Dodd-Frank Act in July 2010—capped interchange fees, the commission that merchants pay, on debit cards. Add in persistently low interest rates, which have eaten into banks’ net interest margins, and Oliver Wyman, a consultancy, has estimated that US banks lose money on 37 percent of consumer accounts.
Affordable Care Act / Obamacare, Bernie Madoff, big data - Walmart - Pop Tarts, call centre, carried interest, cloud computing, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Emanuel Derman, housing crisis, illegal immigration, Internet of things, late fees, medical bankruptcy, Moneyball by Michael Lewis explains big data, new economy, obamacare, Occupy movement, offshore financial centre, payday loans, peer-to-peer lending, Peter Thiel, Ponzi scheme, prediction markets, price discrimination, quantitative hedge fund, Ralph Nader, RAND corporation, recommendation engine, Sharpe ratio, statistical model, Tim Cook: Apple, too big to fail, Unsafe at Any Speed, Upton Sinclair, Watson beat the top human players on Jeopardy!, working poor
Some online dating services, for example, match people on the basis of credit scores. One of them, CreditScoreDating, proclaims that “good credit scores are sexy.” We can debate the wisdom of linking financial behavior to love. But at least the customers of CreditScoreDating know what they’re getting into and why. It’s up to them. But if you’re looking for a job, there’s an excellent chance that a missed credit card payment or late fees on student loans could be working against you. According to a survey by the Society for Human Resource Management, nearly half of America’s employers screen potential hires by looking at their credit reports. Some of them check the credit status of current employees as well, especially when they’re up for a promotion. Before companies carry out these checks, they must first ask for permission.
Airbnb, airport security, Al Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, centralized clearinghouse, clean water, conceptual framework, constrained optimization, continuous double auction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, helicopter parent, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uranium enrichment, Vickrey auction, winner-take-all economy
The Fresno test seemed to be going well enough that Williams and his team expanded the program, using a similar approach in San Francisco, Sacramento, and Los Angeles. By October of 1959, the bank had mailed more than two million cards throughout California, and more than twenty thousand merchants had accepted the new BankAmericard. The bank, meanwhile, made its money by sitting in between those two sides of the market, charging its customers interest and late fees and taking a piece of every transaction from the merchants. For a while, the newly launched card appeared to be a great success, but there was a fatal flaw in the design of Williams’s platform. We’ve kind of given it away already: today, to get a credit card you need to apply for one, and before you actually get your card and line of credit, the issuer takes a look at your credit score, salary, and other predictors of whether you’ll ever pay off your balance.
Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler, Cass R. Sunstein
Al Roth, Albert Einstein, asset allocation, availability heuristic, call centre, Cass Sunstein, choice architecture, continuous integration, Daniel Kahneman / Amos Tversky, desegregation, diversification, diversified portfolio, endowment effect, equity premium, feminist movement, framing effect, full employment, George Akerlof, index fund, invisible hand, late fees, libertarian paternalism, loss aversion, Mahatma Gandhi, Mason jar, medical malpractice, medical residency, mental accounting, meta analysis, meta-analysis, Milgram experiment, pension reform, presumed consent, profit maximization, rent-seeking, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Saturday Night Live, school choice, school vouchers, transaction costs, Vanguard fund, Zipcar
On your recap statement you would be told how much you paid for the privilege of using your card on your vacation to Mexico. Because interest on credit cards is not deductible, there is no particular reason for users to check how much they paid in interest last year on all their credit cards, and fees are likely to be buried and ignored altogether. Imagine the wakeup call for a credit card user who is told that over the past year he paid $2,153 in interest, $247 in late fees, and $57 in currency transaction fees. Some other nudges could help as well. For example, credit cards always mention the minimum payment you can make when you receive your monthly bill. This can serve as an anchor, and as a nudge that this minimum payment is an appropriate amount.* Of course, because the minimum payments are tiny relative to the total bill, paying this amount just maximizes the interest payments over time.
The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg
3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, invisible hand, Isaac Newton, Kenneth Rogoff, late fees, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, post-oil, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, working poor
Then, when the housing market crashed and banks began millions of foreclosure proceedings, they created the assignments after the fact, using “robo-signers” to submit legal documents to the courts (in one such case the signer had been dead for over five years) and falsified notarizations. In thousands of documented cases foreclosures were conducted even though the borrower was not notified in advance, or the borrower was told by the bank to withhold payments in order to qualify for a mortgage modification but then declared in default by the bank, or the bank added thousands of dollars of “late fees” to the borrower’s account, forcing the borrower into default. In a landmark ruling in January 2011, the Massachusetts Supreme Court held that two banks foreclosed wrongly on two homeowners using suspect paperwork. Attorneys General in 50 states are investigating banks’ foreclosure processes. Many observers are questioning whether the banks actually technically own hundreds of billions of dollars’ worth of securitized mortgage assets on their balance sheets.
Automate This: How Algorithms Came to Rule Our World by Christopher Steiner
23andMe, Ada Lovelace, airport security, Al Roth, algorithmic trading, backtesting, big-box store, Black-Scholes formula, call centre, cloud computing, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, Donald Trump, Douglas Hofstadter, dumpster diving, Flash crash, Gödel, Escher, Bach, High speed trading, Howard Rheingold, index fund, Isaac Newton, John Maynard Keynes: technological unemployment, knowledge economy, late fees, Mark Zuckerberg, market bubble, medical residency, Narrative Science, PageRank, pattern recognition, Paul Graham, prediction markets, quantitative hedge fund, Renaissance Technologies, ride hailing / ride sharing, risk tolerance, Sergey Aleynikov, side project, Silicon Valley, Skype, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, transaction costs, upwardly mobile, Watson beat the top human players on Jeopardy!, Y Combinator
Also luckily for me, Northwestern gives alumni full access to its stacks and resources, affording me a vast and quiet workshop that was open early, late, and at all hours in between. When putting together the chapter on the history of algorithms, I found myself seeking old texts, often out of print and hard to find. Again, Northwestern had all of these materials, and I was able to browse them at will. The librarians there even waived some hefty late fees I had accrued on several books. Thank you. I started this book and wrote much of it as a staff writer at Forbes magazine. By the time I finished, however, I had left Forbes to form a startup, Aisle50, which offers grocery discounts to consumers. It was quite a change for me but also one that I embraced. There have been many helping hands along the way, some of the most formidable ones coming from our investors and advisers at Y Combinator, Paul Graham and Jessica Livingston.
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson, James Kwak
Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bernie Madoff, Bonfire of the Vanities, bonus culture, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Gordon Gekko, greed is good, Home mortgage interest deduction, Hyman Minsky, income per capita, interest rate derivative, interest rate swap, Kenneth Rogoff, laissez-faire capitalism, late fees, Long Term Capital Management, market bubble, market fundamentalism, Martin Wolf, moral hazard, mortgage tax deduction, Ponzi scheme, price stability, profit maximization, race to the bottom, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, sovereign wealth fund, The Myth of the Rational Market, too big to fail, transaction costs, value at risk, yield curve
The key questions for any financial innovation are whether it increases financial intermediation and whether that is a good thing. Much recent “innovation” in credit cards, for example, has simply made the pricing of credit more complex. Card issuers have lowered the “headline” price that they advertise to consumers while increasing the hidden prices that consumers are less aware of, such as late fees and penalty rates. These tactics have increased the profits of credit card issuers, but have not increased financial intermediation—except insofar as they helped consumers underestimate the cost of credit and therefore borrow excessive amounts of money.56 Innovation that increases the availability of credit can also be harmful. The stated-income mortgage, where loan originators explicitly did not verify borrowers’ incomes, made it easier for some people to borrow more money to buy houses, but also served as an invitation to fraud (by both borrowers and mortgage brokers) and left many borrowers unable to repay their mortgages.
The Bogleheads' Guide to Investing by Taylor Larimore, Michael Leboeuf, Mel Lindauer
asset allocation, buy low sell high, corporate governance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, endowment effect, estate planning, financial independence, financial innovation, high net worth, index fund, late fees, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, market bubble, mental accounting, passive investing, random walk, risk tolerance, risk/return, Sharpe ratio, statistical model, transaction costs, Vanguard fund, yield curve
Thanks to credit reporting services, they can check to see if you are paying your other outstanding debts on time. Be late with a payment on your mortgage, another credit card, or any other debt, and they reserve the right to raise your interest rate to any level that they choose. You have no say in the matter, and there is no federal limit on the interest rate a credit card company can charge. Similarly, there is no federal limit on how much credit card companies can charge you for late fees. By agreeing to their terms, you risk placing your financial future in the hands of companies with the power to become legalized loan sharks. Do you realize that over the course of a lifetime, your total income will likely be in the millions of dollars? Well, the banks and credit card companies sure do, and they want a piece of it. Every high-interest debt you don't pay off is siphoning off dollars from your potential net worth and shifting it to the net worth of lending companies.
The Democracy Project: A History, a Crisis, a Movement by David Graeber
Bretton Woods, British Empire, corporate personhood, David Graeber, deindustrialization, dumpster diving, East Village, feminist movement, financial innovation, George Gilder, Lao Tzu, late fees, Occupy movement, payday loans, planetary scale, Plutocrats, plutocrats, Ralph Nader, reserve currency, Ronald Reagan, seigniorage, too big to fail, trickle-down economics, unpaid internship, We are the 99%, working poor
Huge proportions of ordinary people’s incomes end up going to feed this predatory system through hidden fees and, especially, penalties. I remember I once allowed a Macy’s clerk to talk me into acquiring a Macy’s charge card, in order to buy a 120 pair of Ray-Ban sunglasses. I sent in a check to pay the charge before leaving the country for an extended trip, but apparently miscalculated by some 2.75 when figuring the tax; when I returned a few months later, I discovered I had accrued something like 500 in late fees. We’re not in the habit of calculating such numbers because they are, even more than debts, seen as the wages of sin: you only pay them because you did something wrong (in my case, miscalculate a math sum and neglect to have the bills forwarded to my overseas address). In fact, the entire system is now geared toward ensuring we make such mistakes, since the entire system of corporate profits depends on them.
Remix: Making Art and Commerce Thrive in the Hybrid Economy by Lawrence Lessig
Amazon Web Services, Andrew Keen, Benjamin Mako Hill, Berlin Wall, Bernie Sanders, Brewster Kahle, Cass Sunstein, collaborative editing, disintermediation, don't be evil, Erik Brynjolfsson, Internet Archive, invisible hand, Jeff Bezos, jimmy wales, Kevin Kelly, late fees, Netflix Prize, Network effects, new economy, optical character recognition, PageRank, recommendation engine, revision control, Richard Stallman, Ronald Coase, Saturday Night Live, SETI@home, sharing economy, Silicon Valley, Skype, slashdot, Steve Jobs, The Nature of the Firm, thinkpad, transaction costs, VA Linux
Customers paid Netflix a flat monthly fee; in exchange, they could rent DVDs of favorite films; those DVDs were sent through the mail, with simple return envelopes included; the monthly subscription entitled the customer to hold a fixed number of DVDs. Thus, if you had a three-DVD subscription, you paid about $17 a month. You ordered three movies that you wanted to see, and Netflix sent them. You could hold on to these movies for as long as you wanted (hence, no late fees). And when you returned one, the next on your queue was sent. The only inconvenience of this system was that you had to plan ahead a bit. The great advantage was that if you planned a bit in advance, the films would be waiting at home whenever you wanted to watch them. Netflix has radically changed the video rental market. The best evidence of its effect is that in 2004, Blockbuster changed its business model to mirror Netflix’s to better compete.7 Wal-Mart’s service was taken over by Netflix in 2005.8 Hastings’s model thus became the industry standard. 80706 i-xxiv 001-328 r4nk.indd 124 8/12/08 1:55:15 AM T W O EC O NO MIE S: C O MMERC I A L A ND SH A RING 125 A m a zon Perhaps the first dramatically successful example of Internet commerce began as a simple bookstore.
4chan, barriers to entry, Berlin Wall, big-box store, cloud computing, collaborative economy, crowdsourcing, game design, Internet Archive, invention of movable type, inventory management, iterative process, Jason Scott: textfiles.com, job automation, late fees, mental accounting, packet switching, pattern recognition, pirate software, Ronald Reagan, security theater, sharing economy, side project, Silicon Valley, software patent, Steve Jobs, zero day
And not just Spider-Man; Gangs of New York, Bend It Like Beckham, Toy Story 2, The Ring, Drumline . . . any first-run mainstream movie from the past five years. And if you wanted something more obscure—say, some art house flick that wasn’t in his immediate inventory—he could usually fill your request overnight. The value proposition for his customers was irresistible. Business flourished as Glover undercut the legitimate competition on price and product selection, offering outright ownership with no late fees. He reached a cartel-like agreement with Dockery to serve separate market segments, and by early 2002 Glover was selling 200 to 300 DVDs a week, frequently grossing over a thousand bucks in cash. He bought a second PC and another burner just to keep up with demand. Although he knew what he was doing was illegal, Glover felt he had insulated himself from suspicion. All transactions were hand to hand, no records were kept, and he never deposited his earnings in the bank.
The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich by Timothy Ferriss
Albert Einstein, Amazon Mechanical Turk, call centre, clean water, Donald Trump, en.wikipedia.org, Firefox, follow your passion, game design, global village, Iridium satellite, knowledge worker, late fees, Maui Hawaii, oil shock, paper trading, Parkinson's law, passive income, pre–internet, Ralph Waldo Emerson, remote working, Richard Feynman, risk tolerance, Ronald Reagan, side project, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, wage slave, William of Occam
Offer to point them to another provider if they aren’t able to adopt the new policies. 7. Do not work more to fix overwhelmingness—prioritize. If you don’t prioritize, everything seems urgent and important. If you define the single most important task for each day, almost nothing seems urgent or important. Oftentimes, it’s just a matter of letting little bad things happen (return a phone call late and apologize, pay a small late fee, lose an unreasonable customer, etc.) to get the big important things done. The answer to overwhelmingness is not spinning more plates—or doing more—it’s defining the few things that can really fundamentally change your business and life. 8. Do not carry a cell phone or Crackberry 24/7. Take at least one day off of digital leashes per week. Turn them off or, better still, leave them in the garage or in the car.
Fearsome Particles by Trevor Cole
Because it was cleaner, somehow, despite the dust. Because it was free of all the tensions and issues I took for granted at home. Things like the way Mom and Dad edged around each other all the time as if there was something they wanted to say but couldn’t quite bring themselves to say it. Things like the worried way they smiled, as if whatever happiness they felt was loaner happiness that was already piling up late fees. Things like – this was a big one – nervous expectation. I mean, you can take that in small doses. But at my house on Breere Crescent, the walls practically ran with it. Here’s one example: yogurt. Mom, whenever she was working on a house, always woke up really early. And every morning, before she left, she’d set out breakfast items for me to eat – a fruit, a grain, and always a dairy in the fridge, which was usually yogurt.
The Impulse Society: America in the Age of Instant Gratification by Paul Roberts
2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, accounting loophole / creative accounting, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, asset allocation, business process, Cass Sunstein, centre right, choice architecture, collateralized debt obligation, collective bargaining, corporate governance, corporate social responsibility, crony capitalism, David Brooks, delayed gratification, double helix, factory automation, financial deregulation, financial innovation, full employment, game design, greed is good, If something cannot go on forever, it will stop, impulse control, income inequality, inflation targeting, invisible hand, job automation, Joseph Schumpeter, knowledge worker, late fees, Long Term Capital Management, loss aversion, low skilled workers, new economy, Nicholas Carr, obamacare, Occupy movement, oil shale / tar sands, performance metric, postindustrial economy, profit maximization, Report Card for America’s Infrastructure, reshoring, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, shareholder value, Silicon Valley, speech recognition, Steve Jobs, technoutopianism, the built environment, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, Walter Mischel, winner-take-all economy
And while such a strategy might have been remotely logical in the days of stingy credit, when it was a safe bet that a lender had actually scrutinized our ability to repay a debt, that logic vanished with the rise of a banking model geared for high volumes and quick returns. By 1990s, bankers were carefully targeting consumers with the worst credit histories, since these people could be counted on to generate steady streams of late fees. What’s more, they were exploiting every one of our neurological glitches—raising credit limits and reducing minimum payments, for example, because these were shown to give consumers a false sense of wealth. For the financial sector, our faulty wiring would now be a critical source of profit. As Elizabeth Warren, then a Harvard law professor, noted in a scathing 1989 report, bank card companies “were willing to give out the fourth, sixth, or seventh bank card and to approve charges after debtors already showed short-term debt so large that they could not possibly pay the interest, much less the principal.”
I, Partridge: We Need to Talk About Alan by Steve Coogan
In the end there weren’t that many left for friends and family, but I figured Denise and Fernando wouldn’t mind sharing one, on the basis that they were siblings. And on the basis that we were now divorced, I decided my wife Carol could buy her own. Or, worst-case scenario, rent it from the library. (As I wouldn’t be receiving a new royalty every time a copy was taken out, I suggested to Norwich City Council that I get a cut of any late fees instead. They didn’t go for it.) One thing that did thrill me, though, and I knew it would thrill the reviewers, was that I had managed to stretch it to over 300 pages. It had a real meatiness to it. I banged it down on the kitchen table so I could enjoy its undeniable thud factor. ‘Thud,’ it went. ‘Thud,’ I repeated, like a parrot trained to accurately mimic the noise of books.207 Yet my happiness was to be short-lived.
The Sellout: A Novel by Paul Beatty
affirmative action, cognitive dissonance, conceptual framework, desegregation, El Camino Real, haute couture, illegal immigration, Lao Tzu, late fees, p-value, publish or perish, rolodex, Ronald Reagan, Rosa Parks, telemarketer, theory of mind, War on Poverty, white flight
How it wasn’t the Keynesian lapdogs so beloved by the banks and the media who predicted the most recent financial meltdown but the behavioral economists who knew that the market isn’t swayed by interest rates and fluctuations in GDP, rather by greed, fear, and fiscal illusion. The discussion grew animated. Their mouths stuffed with pastries, their lips flaked with coconut shavings, the Dum Dum Donuts patrons decried low-interest checking and the nerve of the goddamn cable company to charge late fees for not promptly paying ahead of time in July for services not rendered until August. One woman, her jowls filled to near bursting with macaroons, asked my father, “How much the Chinos make?” “Well, Asian men earn more than any other demographic.” “Even the faggots?” shouted the assistant manager. “You sure Asians make more than the faggots? ’Cause I hear faggots be making cash hand over fist.”
air freight, Al Roth, Bernie Madoff, Burning Man, butterfly effect, Cass Sunstein, collateralized debt obligation, computer vision, corporate governance, credit crunch, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, endowment effect, financial innovation, fudge factor, Gordon Gekko, greed is good, housing crisis, invisible hand, lake wobegon effect, late fees, loss aversion, market bubble, Murray Gell-Mann, payday loans, placebo effect, price anchoring, Richard Thaler, second-price auction, Silicon Valley, Skype, The Wealth of Nations by Adam Smith, Upton Sinclair
But here’s what I find strange: although companies have poured billions of dollars into marketing and advertising to create social relationships—or at least an impression of social relationships—they don’t seem to understand the nature of a social relationship, and in particular its risks. For example, what happens when a customer’s check bounces? If the relationship is based on market norms, the bank charges a fee, and the customer shakes it off. Business is business. While the fee is annoying, it’s nonetheless acceptable. In a social relationship, however, a hefty late fee—rather than a friendly call from the manager or an automatic fee waiver—is not only a relationship-killer; it’s a stab in the back. Consumers will take personal offense. They’ll leave the bank angry and spend hours complaining to their friends about this awful bank. After all, this was a relationship framed as a social exchange. No matter how many cookies, slogans, and tokens of friendship a bank provides, one violation of the social exchange means that the consumer is back to the market exchange.
Amazon Mechanical Turk, Andrew Keen, centre right, citizen journalism, collaborative editing, computer age, computer vision, corporate governance, crowdsourcing, David Brooks, disintermediation, Frederick Winslow Taylor, Howard Rheingold, invention of movable type, invention of the steam engine, invention of the telephone, Jaron Lanier, Jeff Bezos, jimmy wales, Kevin Kelly, knowledge worker, late fees, Mark Zuckerberg, Marshall McLuhan, means of production, meta analysis, meta-analysis, Network effects, new economy, Nicholas Carr, PageRank, pets.com, Results Only Work Environment, Saturday Night Live, search engine result page, semantic web, Silicon Valley, slashdot, social graph, social web, software as a service, speech recognition, Steve Jobs, Stewart Brand, technology bubble, Ted Nelson, The Wisdom of Crowds, Thorstein Veblen, web application
In a crowded marketplace, a company’s integrity becomes an important point of difference. Net Geners don’t like to be misled or hit with costly surprises, whether measured in money, time, quality, or function. Seventy-seven percent agreed with the statement “If a company makes untrue promises in their advertising, I’ll tell my friends not to buy their products.”17 They get angry when they feel they were wronged: “Blockbuster says no late fees. It is all a lie!” said one fifteen-year-old boy. “After a week you have to pay $1.25 and then you have to buy the movie after two weeks. They trick you!” Although Net Geners are quick to condemn, they are also quick to forgive if they see signs that the company is truly sorry for an error. Seventy-one percent said they would continue to do business with a company if it corrected a mistake honestly and quickly.18 Integrity, to the Net Gener, primarily means telling the truth and living up to your commitments.
Frugal Innovation: How to Do Better With Less by Jaideep Prabhu Navi Radjou
3D printing, additive manufacturing, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, barriers to entry, Baxter: Rethink Robotics, Bretton Woods, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, cloud computing, collaborative consumption, collaborative economy, connected car, corporate social responsibility, crowdsourcing, Elon Musk, financial innovation, global supply chain, income inequality, industrial robot, Internet of things, job satisfaction, Khan Academy, Kickstarter, late fees, Lean Startup, low cost carrier, M-Pesa, Mahatma Gandhi, megacity, minimum viable product, more computing power than Apollo, new economy, payday loans, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, precision agriculture, race to the bottom, reshoring, ride hailing / ride sharing, risk tolerance, Ronald Coase, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, software as a service, Steve Jobs, supply-chain management, TaskRabbit, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, transaction costs, unbanked and underbanked, underbanked, women in the workforce, X Prize, yield management, Zipcar
For instance, the Khan Academy, founded by Sal Khan, offers free maths and science courseware as bite-sized videos via YouTube, creating panic among academic publishers who charge a fortune for textbooks. Or take Plastyc, a start-up that claims to put the “power of a bank in your cell phone” by providing affordable 24-hour access to FDIC-insured virtual bank accounts that can be accessed from any internet-enabled computer or mobile device. These accounts are tied to prepaid Visa cards; consumers cannot go overdrawn and they incur no late fees. Plastyc’s low-fee, no-frills, online banking services are appealing to the nearly 70 million underbanked, or unbanked, Americans who cannot afford to pay large bank fees. And in the sharing economy, firms such as Airbnb (sharing homes), RelayRides (sharing cars) and ParkatmyHouse (sharing parking spaces) are taking advantage of the internet and social media to enable ordinary people to monetise their idle household assets.
The Best of 2600: A Hacker Odyssey by Emmanuel Goldstein
affirmative action, Apple II, call centre, don't be evil, Firefox, game design, Hacker Ethic, hiring and firing, information retrieval, late fees, license plate recognition, optical character recognition, packet switching, pirate software, place-making, profit motive, QWERTY keyboard, RFID, Robert Hanssen: Double agent, rolodex, Ronald Reagan, Silicon Valley, Skype, spectrum auction, statistical model, Steve Jobs, Steve Wozniak, Steven Levy, Telecommunications Act of 1996, telemarketer, Y2K
In this section you’ll see how the mind of a hacker works in everyday situations. Whether it’s a department store, a grocery store, a video store, or a hotel, you can rest assured that whoever is in charge knows less about how their systems work than a typical 2600 reader who walks in off the street. We always tread a fine line on this kind of subject matter. It’s one thing to understand how to exploit a late-fee system that allows you to never return videos, or how to find an easy way into a major retailer that stores its customers’ credit card info online, or how to use a store terminal to access secret stuff behind the corporate firewall. But it’s another thing entirely to use this knowledge for personal gain or to screw anyone over. There are many who can’t see the difference. After all, why would we even print the information in the first place if we weren’t giving our tacit endorsement of following through with the actual act?
If not, then they could be headed for a world of trouble. Shouts: Stankdawg, for getting me going on this whole project, dual for his constant support, the crews of DDP, Hackermind, and Radio Freek America, and most importantly, Sarah and Ashley. Outsmarting Blockbuster (Autumn, 2002) By Maniac_Dan I used to work at Blockbuster, so I am very familiar with their policies and practices involving late fees. I’m not going to discuss how stupid the policies are, and I’m sure that there are people who would argue with me no matter what I say, but if there comes a time when your car breaks down and the guy behind the counter just won’t believe you and you get charged $25 for 15 minutes, then you can use this method to have your fee removed. They try to make you pay your fees whenever they can, and the stores get a daily report of all fees outstanding on any and all accounts worldwide.
The outstanding fees can be paid at any Blockbuster though (for your convenience in giving Viacom more money) but herein lies the weakness in the system: If your account is disabled due to a fee at another store, then the store you are trying to rent at has to call the store where you have a fee. The store with the fee on record must delete the fee and verify that a fee has been added to the account at the store you are trying to rent at. All customer accounts are stored locally, and the only information that is passed between stores is outstanding late fees. You have fees at one store (store #1 from now on) and you need to call that store and pretend to be from another store (store #2) and make the employees at store #1 remove the fees from your account, thinking you’re paying at store #2. Now to do this you need a store number from store #2 and your own account number, which can be found on your receipts or membership card. Store #2 must be far enough from store #1 so that the employees don’t know each other.
Code Complete (Developer Best Practices) by Steve McConnell
Ada Lovelace, Albert Einstein, Buckminster Fuller, call centre, choice architecture, continuous integration, data acquisition, database schema, fault tolerance, Grace Hopper, haute cuisine, if you see hoof prints, think horses—not zebras, index card, inventory management, iterative process, late fees, loose coupling, Menlo Park, place-making, premature optimization, revision control, slashdot, sorting algorithm, statistical model, Tacoma Narrows Bridge, the scientific method, Thomas Kuhn: the structure of scientific revolutions, Turing machine, web application
Here's an example of code that uses bad variable names: Java Example of Poor Variable Names x = x - xx; xxx = fido + SalesTax( fido ); x = x + LateFee( x1, x ) + xxx; x = x + Interest( x1, x ); What's happening in this piece of code? What do x1, xx, and xxx mean? What does fido mean? Suppose someone told you that the code computed a total customer bill based on an outstanding balance and a new set of purchases. Which variable would you use to print the customer's bill for just the new set of purchases? Here's a version of the same code that makes these questions easier to answer: Java Example of Good Variable Names balance = balance - lastPayment; monthlyTotal = newPurchases + SalesTax( newPurchases ); balance = balance + LateFee( customerID, balance ) + monthlyTotal; balance = balance + Interest( customerID, balance ); In view of the contrast between these two pieces of code, a good variable name is readable, memorable, and appropriate.
Microtrends: The Small Forces Behind Tomorrow's Big Changes by Mark Penn, E. Kinney Zalesne
affirmative action, Albert Einstein, Ayatollah Khomeini, Berlin Wall, big-box store, call centre, corporate governance, David Brooks, Donald Trump, extreme commuting, Exxon Valdez, feminist movement, glass ceiling, Gordon Gekko, haute couture, illegal immigration, immigration reform, index card, Isaac Newton, job satisfaction, labor-force participation, late fees, life extension, low skilled workers, mobile money, new economy, RAND corporation, Renaissance Technologies, Ronald Reagan, Rosa Parks, stem cell, Stephen Hawking, Steve Jobs, Superbowl ad, the payments system, Thomas L Friedman, upwardly mobile, uranium enrichment, urban renewal, War on Poverty, women in the workforce, Y2K
The reason most often given for the recent surge in bankruptcy is the rise of easy credit. In 1970, only 51 percent of families had ever used credit cards; now, over 80 percent have. And you don’t even have to have good credit to get one—in the 1990s, the rate of subprime lending (to people with troubled credit) grew even faster than the credit industry overall. Lenders complain about deadbeats, but the truth is they make more off interest and late fees from struggling customers than they lose from the complete defaulters. And with easier credit comes easier overextension. Another commonly cited reason is America’s abysmal savings rate. In 2005, we saved at a negative rate—for the first time since the Great Depression. ’Nuf said. Finally, many experts say bankruptcy is up because its stigma is down. As new laws make filing easier (which they did until 2005), and more and more people file, more people know someone for whom it all worked out just fine.
The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone
3D printing, airport security, AltaVista, Amazon Mechanical Turk, Amazon Web Services, bank run, Bernie Madoff, big-box store, Black Swan, book scanning, Brewster Kahle, call centre, centre right, Clayton Christensen, cloud computing, collapse of Lehman Brothers, crowdsourcing, cuban missile crisis, Danny Hillis, Douglas Hofstadter, Elon Musk, facts on the ground, game design, housing crisis, invention of movable type, inventory management, James Dyson, Jeff Bezos, Kevin Kelly, Kodak vs Instagram, late fees, loose coupling, low skilled workers, Maui Hawaii, Menlo Park, Network effects, new economy, optical character recognition, pets.com, Ponzi scheme, quantitative hedge fund, recommendation engine, Renaissance Technologies, RFID, Rodney Brooks, search inside the book, shareholder value, Silicon Valley, Silicon Valley startup, six sigma, skunkworks, Skype, statistical arbitrage, Steve Ballmer, Steve Jobs, Steven Levy, Stewart Brand, Thomas L Friedman, Tony Hsieh, Whole Earth Catalog, why are manhole covers round?
At the time, Amazon was making a little extra money by inserting paper advertisements into its delivery boxes, and Bezos himself received a package that contained a flyer for the DVD-rental firm. He brought the flyer into a meeting and said irritably of the managers running the advertising program, “Is it easy for them to ruin the company or do they have to work at it?” Bezos was clearly nervous about Netflix’s gathering momentum. With its recognizable red envelopes and late-fee-slaying DVD-by-mail program, it was forging a bond with customers and a strong brand in movies, a key media category. Bezos’s lieutenants met with CEO Reed Hastings several times during Netflix’s formative years but they always reported back that Hastings was “painfully uninterested” in selling, according to one Amazon business-development exec. Hastings himself says that Amazon was never truly serious about an acquisition of Netflix because “the basic operating rhythms” of the DVD-rental space, which required multiple small fulfillment centers to send discs out and then receive them back, were so different from Amazon’s core retail business.
Business Lessons From a Radical Industrialist by Ray C. Anderson
Albert Einstein, banking crisis, carbon footprint, centralized clearinghouse, clean water, cleantech, corporate social responsibility, Credit Default Swap, dematerialisation, distributed generation, energy security, Exxon Valdez, fear of failure, Gordon Gekko, greed is good, Indoor air pollution, intermodal, invisible hand, late fees, Mahatma Gandhi, market bubble, music of the spheres, Negawatt, new economy, oil shale / tar sands, oil shock, peak oil, renewable energy credits, shareholder value, Silicon Valley, six sigma, supply-chain management, urban renewal, Y2K
Here’s an example: I read the other day about a woman who went to the mall for some “retail therapy” and used her credit card to buy a pair of shoes. They cost about forty dollars—a bargain. But at the end of the month, after paying her mortgage, her health insurance, her food, gasoline, and utilities, she didn’t have enough to go around. A few months later, her credit card company notified her that those forty-dollar shoes, with all the late fees and penalties added in, were now going to cost her twelve hundred dollars. And by the way, her interest rate was now sky-high, too. Whether it’s buying cheap shoes or burning cheap coal, what seems like a bargain in the short term can get awfully pricey in a hurry. The bill will come due, and it must be paid. Some might even call the way we insist on gauging our economic health by how much stuff we consume (and throw away) a kind of temporary insanity—“temporary” because, while reading this book, you have seen (as I have) that consumerism is absolutely unsustainable.
Misbehaving: The Making of Behavioral Economics by Richard H. Thaler
Albert Einstein, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, More Guns, Less Crime, mortgage debt, Nash equilibrium, Nate Silver, New Journalism, nudge unit, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Walter Mischel
., 330–33 constrained optimization, 5–6, 8, 27, 43, 161, 207, 365 “Consumer Choice: A Theory of Economists’ Behavior” (Thaler), 35 consumers, optimization problem faced by, 5–6, 8, 27, 43, 161, 207, 365 consumer sovereignty, 268–69 consumer surplus, 59 consumption function, 94–98, 106, 309 “Contrarian Investment, Extrapolation, and Risk” (Lakonishok, Shleifer and Vishny), 228 cooperation, 143–47 conditional, 146, 182, 335n Prisoner’s Dilemma and, 143–44, 145, 301–5, 302 Copernican revolution, 169 Cornell University, 42, 43, 115, 140–43, 153–55, 157 Costco, 63, 71–72 Council of Economic Advisors, 352 coupons, 62, 63, 67–68, 120 credit cards, 18, 74, 76–77 late fees for, 360 crime, 265 Daily Mail, 135 Daily Show, The, 352 Dallas Cowboys, 281 data: financial, 208 collection and recording of, 355–56 Dawes, Robyn, 146 Deal or No Deal, 296–301, 297, 303 path dependence on, 298–300 deals, 61–62 De Bondt, Werner, 216–18, 221, 222–24, 226n, 233, 278 debt, 78 default investment portfolio, 316 default option, 313–16, 327 default saving rate, 312, 316, 319, 357 delayed gratification, 100–102 De Long, Brad, 240 Demos, 330 Denmark, 320, 357–58 descriptive, 25, 30, 45, 89 Design of Everyday Things, The (Norman), 326 Diamond, Doug, 273, 276 Diamond, Peter, 323 Dictator Game, 140–41, 142, 160, 182, 301 diets, 342 diminishing marginal utility, 106 of wealth, 28, 30 diminishing sensitivity, 30–34 discount, surcharge vs., 18 discounts, returns and, 242–43 discounted utility model, 89–94, 99, 110, 362 discretion, 106 Ditka, Mike, 279, 280 dividends, 164–67, 365 present value of, 231–33, 231, 237 Dodd, David, 219 doers, planners vs., 104–9 Donoghue, John, 265n “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?”
Who Stole the American Dream? by Hedrick Smith
Affordable Care Act / Obamacare, airline deregulation, anti-communist, asset allocation, banking crisis, Bonfire of the Vanities, British Empire, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, desegregation, Double Irish / Dutch Sandwich, family office, full employment, global supply chain, Gordon Gekko, guest worker program, hiring and firing, housing crisis, Howard Zinn, income inequality, index fund, informal economy, invisible hand, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, laissez-faire capitalism, late fees, Long Term Capital Management, low cost carrier, manufacturing employment, market fundamentalism, Maui Hawaii, mortgage debt, new economy, Occupy movement, Own Your Own Home, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Steve Jobs, The Chicago School, The Spirit Level, too big to fail, transaction costs, transcontinental railway, union organizing, Unsafe at Any Speed, Vanguard fund, We are the 99%, women in the workforce, working poor, Y2K
“In a strange way, the banks were charging [these] borrowers higher interest rates in order to give the wealthy people a break … because the people who have money were paying in full, and they were getting the break at the expense of the people who couldn’t pay in full.” “More than 75 percent of credit card profits come from people who make those low, minimum monthly payments,” Elizabeth Warren and Amelia Warren Tyagi reported in The Two-Income Trap, “and who makes minimum monthly payments at 26 percent interest? Who pays late fees, overbalance charges, and cash advance premiums? Families that can barely make ends meet, households precariously balanced between financial survival and complete collapse. These are the families that are singled out by the lending industry, barraged with special offers, personalized advertisements, and home phone calls, all with one objective in mind: get them to borrow more money.” Preapproved Credit—$350,000 per Family Once the lid was off interest rates because of congressional deregulation, the banks had a field day.
The Irrational Bundle by Dan Ariely
accounting loophole / creative accounting, air freight, Albert Einstein, banking crisis, Bernie Madoff, Black Swan, Broken windows theory, Burning Man, business process, cashless society, Cass Sunstein, clean water, cognitive dissonance, computer vision, corporate governance, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, endowment effect, Exxon Valdez, first-price auction, Frederick Winslow Taylor, fudge factor, George Akerlof, Gordon Gekko, greed is good, happiness index / gross national happiness, Jean Tirole, job satisfaction, knowledge economy, knowledge worker, lake wobegon effect, late fees, loss aversion, Murray Gell-Mann, new economy, Peter Singer: altruism, placebo effect, price anchoring, Richard Feynman, Richard Feynman, Richard Thaler, Saturday Night Live, Schrödinger's Cat, second-price auction, shareholder value, Silicon Valley, Skype, software as a service, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, ultimatum game, Upton Sinclair, Walter Mischel, young professional
But here’s what I find strange: although companies have poured billions of dollars into marketing and advertising to create social relationships—or at least an impression of social relationships—they don’t seem to understand the nature of a social relationship, and in particular its risks. For example, what happens when a customer’s check bounces? If the relationship is based on market norms, the bank charges a fee, and the customer shakes it off. Business is business. While the fee is annoying, it’s nonetheless acceptable. In a social relationship, however, a hefty late fee—rather than a friendly call from the manager or an automatic fee waiver—is not only a relationship-killer; it’s a stab in the back. Consumers will take personal offense. They’ll leave the bank angry and spend hours complaining to their friends about this awful bank. After all, this was a relationship framed as a social exchange. No matter how many cookies, slogans, and tokens of friendship a bank provides, one violation of the social exchange means that the consumer is back to the market exchange.