Caveat Emptor

“Caveat emptor” is a Latin phrase meaning “Buyer beware.” It is a principle that every consumer should adhere to for their own benefit and protection. It is a concept at the core of how micro-economics quantifies consumption decisions made by people.

The need for buyers to beware is as old as the Devil’s temptation of Eve and then Adam and it has been a sad part of human nature ever since.. There have always been snake-oil salesmen and conmen who would sell you the cure for whatever ails you, the Brooklyn Bridge, or some land in Florida that turns out to be a swamp. Nowadays, it is the email you get from a Secretary of the Treasury of some banana republic who just happens to have $12 million dollars he would like to share with you if only you would provide your bank account numbers and other personal information.

We are all taught to be skeptical consumers. Phrases like “Too good to be true,” or “There is no such thing as a free lunch” are burned into our psyches. We all have a deep seated mistrust of salesmen, and as wary consumers, we do our research on products before we buy them. Well, at least, I thought this was all true.

It turns out we are not very smart consumers, so we need the government to step in and protect us poor unwitting souls. Enter the Food and Drug Administration, the Consumer Products Safety Commission, and the Federal Deposit Insurance Corporation to protect us from ourselves. Not that these agencies don’t serve a valuable role, but when does government protection slip over the line into the realm of a nanny state that treats us all like babies and severely limits our consumer choices.

Recently, our Congressman, Tom Perriello, touted the final implementation of the Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD) and his roll in drafting the legislation. First of all, you have to love the acronym—Credit CARD. Unfortunately, that is often the most thought that goes into legislation written these days.

While the nation is still reeling from the effects of the Great Recession, much of the blame for our economic woes are now being laid at the feet of the banking industry. “We bailed out the fat-cat banks and now they are not loaning money, thus the economy is not growing,” we hear some say. Never mind the fact that it was federal government mortgage policies that required banks to loosen the credit requirements for home loans and that is what led to the sub-prime mortgage defaults that started the Great Recession. There can be no doubt that bankers share the responsibility for coming up with products like “liar loans” and Wall Street packaged up these bad loans and sold security interest in them to consumers thirsting for a higher rate of return. Everyone can share a little blame for the collapse, but the federal policy was the root of the problem.

But, how do we reconcile the desire to have banks loan more money on the one hand with more restrictive regulation of the banking industry on the other hand. And is more readily available credit really good for the economy? Should the American consumers borrow our way out of the recession like the federal government tried and failed to do with the stimulus bill? Was it all the fault of credit card companies that consumer credit card debt in America went from $69 billion in 1986 to $1.8 trillion in 2006?

It is irrefutable that some credit card companies charged interest rates that were too high and they lived off consumers who spent money liberally, but paid it back with the Minimum Payment. Some of those credit card companies created their own delinquency problems by adding excessive late charges and penalties on to balances that caused the borrower to spiral into default. But, it is not as though somebody held a gun to the consumer’s head and made them buy that flat-screen television and all the other luxury items that put them in debt up to their eyeballs.

I worked at a bank back in the 1980’s when credit companies had liberal credit policies and were mailing pre-approved credit cards to college students. But, it did not take a new law to correct the problem. It was the market system that led to a correction. Credit card losses and bankruptcies are bad for business and the appropriate response of credit card companies was to tighten credit requirements and not be so liberal in their issuance of credit cards. Obviously, memories are short term and the credit card companies thought the economy would just continue to grow us out of our excess spending habits and now the chicken has come home to roost once again. But, instead of allowing a market correction to take place, Washington has come to the rescue with a new set of onerous regulations that will increase the cost of credit cards.

But since credit card standards are tightening up again, guess who will be paying for the new credit card regulatory compliance? That’s right, those of us who did not rack up tens of thousands of dollars in debt, those of us who pay our bills on time, those of us who exercised fiscal responsibility in our personal finances, we will be the ones paying for this new regulation. Many of you diligently guard your credit rating. You take responsibility and pay back what you borrow from others, including the banks. And because of your responsible actions and because you practice the principle of buyer beware, you most likely had a credit card with a low interest rate and no annual fee. You most likely use your credit out of convenience only and pay the balance in full each month. Good for you if you do.

But, now, we are inundated with television and radio ads that advise us all that we have a right to make the credit card companies charge off up to one half of our credit card debt. However, that “right” only applies to those who owe more than $10,000 and to those who are delinquent on their payments. It is an upside down and crazy world that rewards bad behavior by punishing those who acted responsibly. “Buyer beware” has become “What me worry?” And “There is no such thing as a free lunch” has been embellished with “unless you eat at fine restaurants and stiff the credit company when they send you the bill.” Perhaps we should move from “Caveat emptor” to “Electoris emptor.” November is coming.

Main Street USA

There is a lot of talk about Main Street USA these days. President Obama says he wants to help Main Street USA through his efforts to recover the American economy and Main Streets all across the USA are challenged like never before.

The struggles faced by Main Street USA are not new. Main Street businesses feel like they are under siege and the attacks come from many fronts. Certainly, federal issues such as tax policies, free trade agreements, minimum wage, banking regulations, health care, energy policies have had their impact; some would say mostly negative. But, there are also a host of free market changes that have impacted Main Street USA from Wal Mart and the big-box revolution to suburbia and the proliferation of shopping malls and strip centers. A less loyal set of consumers coupled with a high degree of mobility as well as the phenomenal growth in internet trade have also contributed to Main Street woes. Add to all that what the pundits now call the Great Recession and it is not hard to see why Main Street USA is suffering.

On the other hand, there are a number of things that bode well for Main Street USA. Entrepreneurship is still alive and well, although some would say many new policies coming out of Washington, DC, these days are driving entrepreneurs out of the marketplace. Nonetheless, high unemployment rates always cause a number of people to pursue that business dream they have always had. And, while high vacancy rates on Main Streets don’t do much for business right now, they do represent opportunity and more affordable places to locate new businesses.

Fortunately for Main Street USA, Americans are a nostalgic lot and they are longing for the hometown feel that takes them back to a more idyllic time. We love our history and nothing conveys that like a thriving historic downtown area. The United States has a robust federal policy to preserve our history in the National Historic Preservation Act. In the United States, we use the free market system to preserve history by granting very generous tax credits to real estate owners who preserve and redevelop historic commercial properties to rigorous historic standards. Called “adaptive reuse,” downtowns across the USA are seeing historic buildings converted to indoor shopping malls, micro-breweries, restaurants, retail outlets, office space, and even apartment complexes.

In conjunction with historic preservation, there is a national Main Street Program that seeks to facilitate the preservation and re-invigoration of historic downtown areas across the country. In addition to physical improvements to store fronts and thematic preservation of history, the Main Street Program gives downtown associations and chambers of commerce the tools to create a thriving retail atmosphere. Store hours are adjusted to meet the needs of today’s two-income families, pedestrian friendly streetscapes enhance the visitor experience, events make downtown more than a shopping destination, return policies are changed to match the big-box competition, the business mix has changed so as to not compete directly with the chain-discount stores, and excellence in personal service and product expertise helps downtown compete with the internet.

What makes Main Street USA work is not a federal stimulus program, not another pork-barrel project brought to you by your local Congressperson, and not more government interference in the free enterprise economy. No, what makes Main Street USA work is less government, streamlined regulations, lower taxes, especially the capital gains tax rate. And, Main Street needs a National Historic Preservation program that recognizes the requirements of today’s developers and new businesses and more cooperation that allows historic preservation to be profitable. Most of all, what Main Street USA needs is government at all levels to see that what is good for business is good for all, that government/private-sector cooperation is what causes the economic tide to come in and float all the ships, big and small, a little higher.

Farmville, Virginia, is a text book example of how Main Street USA and the United States economy will grow strong once again. It will not be through government programs, but by Americans pulling ourselves up by the boot straps. There has been a lot of talk in Farmville in recent months about the high vacancy rates, declining condition of the store fronts, and lack of downtown visitors.

At first the discussion seemed to focus on the Town of Farmville and their parking meter policies. This local issue is a lot like a microcosm of our national economy. While it is true that the parking policies are not the cause of downtown Farmville’s woes, the parking meters are not helping the historic area recover. At the national level, while President Obama did not cause the Great Recession, his proposed policies such as nationalized health care, carbon emissions cap and trade, and higher taxes on the Americans who invest in Main Street USA have severely impaired the ability of America to pull itself out of this economic slump.

In Farmville, the Town Council immediately took to heart the notion that their parking policies may be hurting the historic downtown, but they were not willing to shoulder the whole burden. They wisely engaged the downtown business owners, the chamber of commerce, the two local college communities, and other interested parties. The Town Council appointed two council members to be part of a newly formed, non-governmental committee to address the revitalization of downtown. At a recent inaugural meeting of the new downtown group, ideas were thrown out faster than lightning bolts in a late summer thunderstorm. The excitement was contagious and the enthusiasm to undertake a thorough and comprehensive assessment of all of the possible actions has caused some long-time downtown observers to conclude that this effort will be successful.

In my varied career as a bank loan officer, a congressional staffer, and the director of a chamber of commerce, I have seen time and time again what can happen when a vibrant, highly motivated, unfettered-by-government group can do if the rest of us just step back and get out of the way.

For much of my life, I had a plaque that my mother gave me that read, “Lead, Follow, or Get Out of the Way!” I actually resented that plaque for years because I thought my mother was trying to push me to lead; something I was not ready for or inclined to do at the time. Then it hit me like an epiphany. There are three elements to good leadership—being a good leader, being a good follower, and knowing when to get out of the way. Government, at all levels, can learn a lot and do more good for the country if they would sometimes just get out of the way.