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Aristotle on Friendship January 19, 2015

Posted by cybertao in Philosophy.
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This is a Powerpoint presentation I did last year about Aristotle on Friendship.  It was part of a series of lectures called Socrates for Seniors(TM).  As you may know, Aristotle includes 2 chapters on friendship in his “Nicomachean Ethics,” which is about 20% of the book.  Although both Aristotle’s father and son were called Nicomachus it’s unlikely that he named the book after either one since he never intended it to be a book at all.  Rather, it was more like lecture notes perhaps put together in book form by his son after Aristotle died.



Civil War Photography September 13, 2014

Posted by cybertao in Politics.
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On 9/11 I gave a lecture on Civil War Photography and it makes me wonder how different the impact of 9/11 would have been if we didn’t have photos and videos. There were wars photographed before the Civil War, but not to such an extent, and not for the popular press. But the impact was not immediate. Even after all the pictures of the dead at Antietam (the bloodiest day in American history) editors still preferred pictures romanticizing war like this one of George Custer.


I’m not sure, but I think he was a Captain, not General at that time. He was a Captain at Gettysburg. At the bottom it says “Photographed by Brady” but that could mean Brady took the photo or, more likely, one of his employees took the photo or he purchased it for his collection. In any case, it was impossible, at that time, to print photos in newspapers or to take a photo of a moving horse so Brady probably contributed a photo of Custer’s head and the Harper’s artists created an engraving. All “photos” in newspapers at that time were engravings based on photos. The first real photo didn’t appear in a newspaper until March 4, 1880.

Nietzsche and Wagner on American Bandstand September 13, 2014

Posted by cybertao in Philosophy.
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I’m so old I can remember when Nietzsche and Wagner were on American Bandstand. When I was a kid we watched every afternoon after school. Even my mother watched. There was a segment where the dancers would rate a new record. They never listened to the lyrics, but said, “I’ll give it an 80, it’s got a good beat, I can dance to it.” One time they played a record by Wagner. One of the dancers was Nietzsche. He said: “Even the young German Kaiser could not march to Wagner’s Imperial March; what my foot demands in the first place from music is that ecstasy which lies in good walking, stepping and dancing. I give it a 50, I wouldn’t buy it.”

Ability-to-Repay and other CFPB Rules January 11, 2013

Posted by cybertao in Banking, Finance, Law, Money.
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On January 10, 2013 the Obama administration, through the Consumer Financial Protection Bureau, released 1331 pages of new final regulations of mortgage loans.  Well, that is technically an exaggeration since it includes the preambles, explanations and interpretations. None of these regulations are unexpected since they are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) and proposed versions had already been published for comment.  The three final rules will soon be published in the Federal Register and can be found at:

12 CFR part 1026 Ability-to-Repay and Qualified Mortgage Standard under the Truth-in-Lending Act (Reg. Z)

12 CFR part 1024 and 1026 High Cost Mortgage and Homeownership Counseling Amendments to the Truth-in-Lending Act (Reg. Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (Reg. X)

12 CFR part 1026 Escrow Requirement under the Truth-in-Lending Act (Reg. Z)

Here is a brief summary of the new final regulations.

ABILITY-TO-REPAY (effective January 10, 2014)

Perhaps the most important new mortgage rule, and the one that may lead to the most litigation, is that all lenders must reasonably ensure that the borrower has the ability to repay the loan based on the circumstances at the time the loan is made.  Thus, there is not only a quantitative increase in the number of regulations that must be followed by mortgage lenders, there is a fundamental change in that lenders will have at least a quasi-fiduciary duty to borrowers.  Since lenders will need to see tax-returns, W-2 forms etc. to make this determination it means there can be no more of the loans often referred to in the industry as “liar loans,” “no-doc loans” or “stated income loans,” which have been considered one of the causes of the mortgage crisis.  This requirement had already been in place since 2009 for “high-cost mortgage loans” as defined in Reg. Z.  The Dodd-Frank Act and the new regulations expand the requirement to essentially all mortgage loans.

If the loan is a “Qualified Loan” it is presumed that the borrower has the necessary ability-to-repay.  However this presumption is a conclusive “safe-harbor” for the lender only with prime loans.  With subprime loans the consumer may be able to rebut this presumption in which case the lender may be liable for a Truth-in-Lending violation.  The regulation goes into much detail (the .pdf version is 804 pages) on how the creditor is to determine whether the loan is a Qualified Loan and under what circumstances the presumption obtained by being a Qualified Loan can be overcome.

HIGH COST LOANS (effective January 10, 2014)

“High-cost mortgage loans” are often called “Section 32 loans” because they are regulated by Section 32 of Regulation Z, which implements the Truth-in-Lending Act.  The Dodd-Frank Act expands the definition of, and restrictions on, such loans.

Definition – A loan secured by a consumer’s dwelling is a “high-cost mortgage loan” if:

1)      on a first mortgage, the APR is more than 6.5 percentage points higher than the prime rate, and on a second or other subordinate mortgage, the APR is more than 8.5 percentage points over prime, or

2)      the total points and fees other than bona fide third-party charges, exceeds 5% of the loan, or

3)      the contract includes a prepayment penalty of more than 2% of the prepaid amount if the loan is prepaid in the first 36 months or any penalty after the first 36 months.

If the loan is considered a “high-cost mortgage loan,” then these restrictions apply:

Balloon Payments – Previously, if the term of the loan is less than 5 years then the loan must fully amortize with the regular payments, that is, no balloon payments are permitted.  If the term is 5 years or more, there are no restrictions.  With the new regulations, balloon payments are generally banned.

Late Fees – Late fees may not exceed 4% of the amount past due.  Loan modification fees are banned.

Pre-payment fees – Prohibited.

Financing points – Prohibited.

Counseling – Before making a “high-cost mortgage loan” the creditor must obtain confirmation from a federally certified or approved homeownership counselor that the borrower has received counseling on the advisability of taking out the loan.

HOMEOWNERSHIP COUNSELING (effective January 10, 2014)

In addition to the confirmation of counseling required for “high-cost mortgage loan,” lenders must also obtain confirmation of counseling when any mortgage loan is made that includes the possibility of negative amortization.   Lenders must provide a list of certified counselors to consumers before ANY mortgage loan is made (other than reverse mortgages and loans secured by timeshares) but do not have to confirm that the consumer actually met with any counselor.

ESCROW (effective June 1, 2013)

“High-cost mortgage loans” – Currently, lenders must maintain escrow accounts on “high-cost mortgage loans” for one year.  The new regulation expands this to five years.

Small creditors – A creditor with assets of less than $2 billion dollars, who made no more than 500 first mortgages in the preceding year and who operates predominately in a rural or underserved area need not establish escrow accounts for loans intended to be kept in its own portfolio.

Master policy – Escrow for insurance is not required if the consumer’s property is covered by a master insurance policy.

The Consumer Financial Protection Bureau November 19, 2010

Posted by cybertao in Banking, Credit Cards, Finance, Law.
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Having dozens of federal agencies responsible for various aspects of consumer financial protection may not have caused the financial crisis, but it doesn’t make either consumers or lenders happy.  The Dodd-Frank Wall Street and Consumer Protection Act authorized the creation of a single agency to be responsible for all, or almost all, consumer financial protection, the Consumer Financial Protection Bureau.  It’s the thought that counts, right?  Well, it may be a good idea to consolidate responsibility into one agency, but to use another cliche, the proof is in the pudding. President Obama appointed Harvard law professor Elizabeth Warren to set up the agency, which makes sense since she advised him on its creation.  Certainly she is busy organizing it and setting policy for the new agency, but it won’t become fully functional until July 21, 2011 when the other agencies transfer their power to the Bureau.

For an overview of the Bureau and its responsibilities see my article at Lawserver.com.

Overview of the Dodd-Frank Wall Street Reform and Consumer Protection Act October 14, 2010

Posted by cybertao in Banking, Credit Cards, Finance, Law.
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The first in a series of articles on the Financial Reform Bill is now available on Lawserver.  The first installment is an overview of the most important provisions, with an emphasis on their importance for consumer protection.  Future articles will discuss the Bureau of Consumer Financial Protection, the new mortgage rules, the “Volcker Rule,” and other topics of this massive law.

Answering the Census. March 30, 2010

Posted by cybertao in Constitution, Law.
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People on Facebook and elsewhere have been asking: “Does the Constitution require me to answer the questions on the census?”  Some have said the only Constitutional question, and therefore the only question we have to answer, is the number of people living at the address.   The truth is, we are required to answer the questions on the census and on the more detailed Community Survey that the Census Bureau is empowered to undertake.

First of all, the Constitution establishes the limits of the federal government.  It does not require you to do anything.   Second, we are governed by more than just the Constitution.  There are laws.  Just because the Constitution does not mention a question on the census does not necessarily mean you don’t have to answer it.  Assuming the question is authorized by the Census Act (U.S.C. title 13) then you have to answer it.  Unless and until the statute is found to be unconstitutional by the Supreme Court, then it is the law.

As far as the census goes, there are really two important questions: (1) how is the enumeration, the count, to be determined, and (2) what, if any, data can be collected besides the enumeration?  The first issue, how to do the count, is the really important one because that determines how many Representatives each state has, how many members of the electoral college each state has, and how individual states draw their political boundaries (see Wisconsin v. City of New York et al. 517 U.S. 1, 1996), not to mention those government handouts that the commercials keep reminding us to get our share of.

The first question has been addressed by the Supreme Court a number of times.  The second question has not.

Here is what Article 1, Section 2 of the Constitution says:

Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers, counting the whole number of persons in each State (as amended by the Fourteenth Amendment).  The actual enumeration shall be made within three years after the first meeting of the Congress of the United States, and within every subsequent term of ten years, in such manner as they shall by law direct. (emphasis added)

That there is an enumeration at all is an important change in the status quo.  In England, Parliament did not conduct any reapportionment during the 1700’s “despite tumultuous demographic changes wrought by the industrial revolution.  Over the centuries, Parliament had never once authorized a comprehensive enumeration.” (America’s Constitution: A Biography, Akhil Amar, p. 84, Random House, 2005.)

The first question is, essentially, how accurate does the enumeration have to be?  Some say the words “actual enumeration” mean a count must be conducted, while others focus on the words “in such manner as they shall by law direct” and argue that an estimate is permitted as long as the methodology is established by legislation.  In our time, proponents of using estimates have generally been Democrats who were concerned about minorities being under-represented in an actual count.

There are some early indications that an actual count was what was intended.  For example, in Federalist No. 36, Hamilton, arguing for the power to tax, writes: “An actual census or enumeration of the people must furnish the rule, a circumstance which effectually shuts the door to partiality or oppression.”  In our century,  what Hamilton feared may have come about as we shall see below.

The Census Bureau, which is part of the Commerce Department, wanted to use statistical sampling in the 2000 Census to address what it referred to as a chronic undercounting of minorities, children and renters.  The House of Representatives filed suit to prevent the use of statistical sampling, which is allowed by the Census Act, except for the determination of representation.  13 U.S.C. §195.  The Court agreed with the House, with the result that statistical sampling can be used for the general demographic data that the Census Bureau is authorized to collect, but it cannot be used for apportionment.

Then in 2002, the liberals prevailed when the Court held in Utah v. Evans, Sec. of Commerce, 536 U.S. 452, that the Census Bureau could use a method called “hot-deck-imputation” to determine apportionment.  This method infers that an address for which an actual count could not be made has the same demographics as its closest neighbor of the same type (single-family or apartment).  Utah sued because the result would be that Utah would lose a Representative, while North Carolina would gain one.  The Court found that this imputation was not statistical sampling and, therefore, was not prohibited.  Leaving out the convoluted technical arguments, this means that apportionment can be changed on something less than an actual count.

In a dissenting opinion, Justice Thomas wrote:

Well familiar with methods of estimation, the Framers chose to make an ‘actual Enumeration’ part of the constitutional structure.  Today, the Court undermines their decision, leaving the basis of our representative government vulnerable to political manipulation.

The second major question is whether the Census Bureau can ask questions that go beyond merely counting the number of people.  Madison seemed to envision more than just a count.  He purportedly said the census should be performed: “so as to embrace some other objects besides the bare enumeration of the inhabitants” to enable Congress to “adapt the public measures to the particular standards of the community.” Quoted in “Values in Design”, by Timothy Weber, NYU Dept. of Culture & Communication.

I saw a book once that advocated as a defense to foreclosure arguing that since you got your loan in dollars you didn’t get anything in value because only silver has Constitutional value as legal tender.  That is silly and a good way to lose your house.   The Legal Tender Cases clearly established the right of the federal government to issue paper money.  Article 1, Section 8, Clause 5 of the Constitution gives the federal government exclusive power to “coin money.”  It does not address issuing paper money.  Coin, being made of metal, has intrinsic value, and prior to the Civil War, the government had not issued paper money on a regular basis that were not backed by gold or silver.   The Legal Tender Act of 1862 allowed the government to issue paper money as legal tender for all debts.  Objections were made and lawsuits filed arguing that it was not specifically authorized by the Constitution.  The Court said that specific authority is not required:

It is not indispensable to the to the existence of any power claimed for the federal government that it can be found specified in the words of the Constitution, or clearly and directly traceable to some one of the specified powers.  Its existence may be deduced fairly from more than one of the substantive powers expressly defined, or from them all combined.  And it is of importance to observe that Congress has often exercised, without question, powers that are not expressly given nor ancillary to any single enumerated power.

The Court went on to give some examples of such powers exercised by the federal government, including the expansion of the census beyond a mere counting:

Another illustration of this may be found in connection with the provisions respecting a census.  The Constitution orders an enumeration of free persons in the different states each 10 years.  The direction extends no further.  Yet Congress has repeatedly directed an enumeration not only of free persons in the states but of free persons in the territories, and not only an enumeration of persons but the collection of statistics respecting age, sex, and production.  Who questions the power to do so?  Legal Tender Cases, 12 Wallace 457; 20 L. Ed. 287 (1871)

Then in 1901, a federal district court said in U.S. v. Moriarty that:

The functions vested in the national government authorize the obtainment of information in order to enact laws adapted to the needs of the vast and varied interests of the people, after acquiring detailed knowledge thereof.  the government has the right to make the researches in order to meet its ever-widening obligations to the welfare of its citizens and to the world.  For the national government to know something, if not everything, beyond the fact that the population of each state reaches a certain limit, is apparent, when it is considered what is the dependence of this population upon the intelligent actions of the general government.

Obviously, the census has come a long way from the enumeration described in the Constitution.  The description of the census in the Legal Tender Cases is not part of the holding and so does not set any precedent, and the Moriarty case was merely a district trial court.  Until the Supreme Court gets involved, questions will remain about the authority of the census to go beyond what is necessary to determine the number of Representatives of each state.  But those questions are merely academic since Congress has authorized an expansion of the scope of the census and you do have to answer – unless, of course, you want to be the “test case.”

More Credit Card Rules – Effective 8/22/10 March 15, 2010

Posted by cybertao in Banking, Credit Cards, Finance, Law.
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The last group of proposed rules for credit cards was published in the Federal Register today, March 15, 2010.  Anyone wishing to comment on the proposed rules must send comments to the Federal Reserve by April 14, 2010.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009, usually called the Credit Card Act, was passed in May of 2009.  It included certain consumer protections to go into effect in stages and authorized the Federal Reserve Board to draft regulations implementing those protections.  The Board has already issued proposed and final regulations for the parts that went into effect August 20, 2009 and February 22, 2010.  The proposed regulations published today, once finalized, will go into effect August 22, 2010.  Below is a brief summary of two of the provisions important to consumers.  It is not a comprehensive or detailed review of the proposed regulation, but hopefully, gives a little more information than what you may have seen in the news headlines.

Responsible and Proportional Penalty Fees.

Penalty fees, such as late fees and overlimit fees, must be reasonable in proportion to the cost incurred by the card issuer.   This means  credit card issuers can pass on it’s costs incurred as a result of the violation.   Most of them have already been doing this, at least to some extent.

As an alternative to basing the fee on costs, card issuers may charge  what is reasonably necessary to deter the type of violation.  This, however, seems to be an area open to potential litigation by class-action plaintiff’s lawyers.  To rely on this alternative, the bank must use an “empirically derived, demonstrably and statistically sound model that reasonably estimates the effect of the amount of the fee on the frequency of violations.”   In other words, “a model must reasonably estimate that, independent of other variables, the imposition of a lower fee amount would result in a substantial increase in the frequency of the type of violation.”  See what I mean?  It could be quite easy for a trial lawyer to challenge the card issuer’s statistical model.

In any case, the amount of the fee may not exceed the dollar amount associated with the violation.  For example, if a consumer exceeds the credit limit by $5, the overlimit fee cannot exceed $5.   It follows from this that if there is no dollar amount associated with the violation, then there can be no fee.  The result is that inactivity fees and account termination fees are prohibited.

Reevaluation of Rate Increases.

The Credit Card Act requires that if a card issuer increases rates for reasons such as market conditions or the credit risk of the individual consumer, it must review those accounts at least every 6 months to determine whether the reason for increasing the rate still applies.  If it not longer applies, then the bank must reduce the rate within 30 days after completion of the review.  The proposed rule does not say how much the rate must be reduced.   When the rule becomes effective in August 2010, credit card companies must review all accounts on which rates have been raised since January 1, 2009.  Of course,  no review is required if the rate increase is simply due to an increase in the index on which a variable rate is based.  An example of this would be if you have a rate of the Prime Rate plus 3 points and the Prime Rate goes up.  The review would be necessary, however, if you have a rate of the Prime Rate plus 3 points and your rate is changed to the Prime Rate plus 4 points.

Nothing herein is or is intended to be legal advice.  Consult your own attorney about your particular situation.

New Credit Card Rules Effective 2/22/2010. February 24, 2010

Posted by cybertao in Banking, Credit Cards, Finance, Law, Money.
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The new Federal Reserve rules for credit cards went into effect February 22, 2010.  Do you feel better yet?  Of course the rules were designed to benefit consumers and, in some instances they do, but in some they are meaningless or may even harm consumers.  To some extent it could be argued that the new rules promote socialism.  Lenders have tried to impose higher costs on negative behavior that increases the risk to the lender, like going over credit limit, paying late, and having a declining credit score.  The new rules restrict the lender’s ability to target these bad behaviors so they may have to, instead, increase the costs to everyone.   In other words, low risk borrowers could end up subsidizing higher risk borrowers.  The new rules cover three areas: disclosure of terms, limits on rates and fees, and changes in billing and payments.  In discussing these rules below, I tend to use the word “lender” rather than “credit card company” to reinforce the notion that you really are a borrower dealing with a lender, the bank.  The credit card company is just the marketing and servicing arm of a bank.


Over-Limit Fees:

Over-limit fees may be largely a thing of the past.  Now such fees are permitted only if you “opt-in,” that is, if you affirmatively agree that the lender can charge you a fee if you go over your limit.  There are two negatives to this.   Most people will not opt-in so more people will be denied credit at the point of sale, which could be both inconvenient and embarrassing.  Also,  a significant amount of profits came from over-limit fees.  Now that loss of income will have to be made up somewhere else, perhaps in higher rates for all.

Rate Increases:

Any introductory “teaser” rates on a new account will now have to last for at least 6 months.  Other than this, lenders can, as they could in the past, raise your rates for any reason as long as they give you the required notice), but under the new rules they cannot do so during the first 12 months.  After that they can increase your rates, but only on new balances (new purchases) not on existing balances.  This is a significant benefit to consumers, because in the past, lenders invariably applied the new, higher rate to whatever you currently owe plus whatever new purchases you make.  Now your old interest rate will continue to apply to your old balance.  Previously, if you got a notice that your rate was being increased you could close your account and pay it off at the old rate.  Now you do not have to close your account.  You can keep your account open and continue to pay your balance at the old rate and just be aware that any new purchases will have the new rate.


Payoff Estimate:

The major new disclosure is that lenders have to show you on your monthly statement how long it will take to pay off your balance if you make the minimum payment and how much you will need to pay each month to get your balance paid off in three years.  Typically, it would take much more than three years for many people to pay off their balance if they only make the minimum payment.  Of course, this assumes you do not make any more purchases that would add to your balance.  For that reason lenders opposed having to add this information as it could be misunderstood by consumers.  They also opposed it because it was expensive to program the computers to calculate the information.

Notice of Rate Increases:

Previously, lenders had to give 15 days notice prior to increasing your rate.  Now they have to give 45 days notice.  Of course this does not apply if the increase is simply because you have a variable rate tied to an index like the prime rate and the prime rate goes up.  Even in the past, you would get 15 days before the interest rate change took place at the beginning of the month, and since you don’t get billed until the end of the month, in reality, you often got an about 45 days notice before the bill was due.  Now with 45 days notice prior to the new rate going into effect, you may really get about 75 days notice.  This could turn out to be a bad thing.  Credit card companies hire as many math Ph.D’s as they can to develop models that will determine the risk, and therefore the pricing, for each person as precisely as possible.  This makes the rates as fair as possible.  With the increased notice period, they will have to look at outdated credit report information to make their determination of who has an increased risk and should have increased rates.  This means if your credit worthiness is improving you may get included in the group whose rate will be increased simply because the law does not allow the lender to look at your most recent credit information at the time it must make it’s decision.   As we have seen above, the change in interest rate now applies only to new purchases, not existing balances.  With that change, there was no need to also increase the notice period.


How Payments Are Applied:

One of the most significant changes, especially if you are a fan of low rate balance transfers,  is that payments must now be applied to the balance with the highest interest rate.  In the past, the way lenders made money from zero percent or low rate balance transfers was that they kept higher rate balances outstanding for a longer time.  Generally, they would apply payments of principal to the lowest rate balance first.  This means if you have a 0% balance transfer, $5000 in purchases with a 12% rate and a $3,000 cash advance at 15%, the payments would go toward paying down your balance transfer and the bank would continue to earn 12% and 15% on the other balances.  Only when the balance transfer was fully paid off would any of your principal payments go toward the purchase balance, and then finally to the cash advance balance.  Now, the payments will have to go toward the balance with the 15% rate until that is paid off.  It seems like the fair thing to do, but already banks have started offering fewer choices of low-interest rate balance transfers.   Some 0% offers may still be found, but they are rare.

Payment Dates and Times:

The lender must mail your statement at least 21 days before payment is due.  Perhaps more significant is that the cut-off time for payments cannot be earlier than 5:00 p.m. on the due date.  Previously, many lenders would use an earlier cut-off time so that a payment received at, say, 2:00 p.m. would be treated as if it were received the next day.

Double-cycle billing:

In the past, some lenders would use a sneaky way of getting extra interest.  If you did not pay off your balance in full, they would charge interest on both the current billing period and the previous billing period.  This practice, called two-cycle or double-cycle billing, is now prohibited.  This would have been an important benefit to consumers, but it is really meaningless since all major credit card companies stopped doing it a few years ago.

Of course, this is not the end.  More changes are coming in August, and Barney Frank wants to create a new Consumer Financial Protection Agency that would oversee credit card companies, as well as most areas of consumer finance.

Nothing herein is or is intended to be legal advice.  Consult your own attorney regarding your particular situation.

Supreme Court Decides Aggravated Identity Theft Case May 12, 2009

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Earlier I wrote about the oral arguments in the case of Flores-Figueroa v. U.S. in which the Supreme Court was going to decide what, in a sentence, an adverb modifies.  This would determine whether an illegal alien using false identification numbers must know the numbers belong to another person in order to be convicted of aggravated identity theft.  The Court has now decided the case in favor of the defendant, Flores-Figueroa.  See my article on the decision at Lawserver.