Mailing In Economic Reform

Bloggified by Jake on Thursday, April 22, 2010

Over the weekend, I received a letter made to look like a bill for the registration of this domain with the exception of some fine print stating that it is not a bill.

This letter should be at the forefront of any and all discussion of economic reform.

President Obama is insisting we reform Wall Street and vows he'll veto any legislation that "doesn't bring the derivatives market under control." What constitutes "control" is debatable. In fact, we really don't know how either side of the aisle wants our economy to run. The one thing we can count on in the weeks and months to come is talking points and key terms that will be repeated and regurgitated regardless of their truth. And the one phrase we'll hear more than any other will be "free market."

But what is the free market? To what extent should we support the free market? If child labor can be hired for less than adult labor, the free market would dictate that a good factory owner should hire kids. For that matter, the free market would tend toward slavery. Now, clearly we have legislation that outlaws slavery, but one could argue that such legislation unfairly regulates the free market.

However, I'm going to assume most congressmen don't support the return of slavery--okay, maybe Jim DeMint--but we still need to know what we should expect of our economy moving forward. And this letter sets the stage for that debate perfectly.

This letter notes that the domain registration on is running out "soon." It reminds me that if I want to keep the domain, I'll need to pay to re-register. It never claims to be from my domain registrar. It even uses the phrase "switch" to indicate that I'd be changing companies. And it promises an opportunity to save money by taking advantage of deals on multiyear registrations.

All of these things are factually true, but still the presentation of the letter is a clear attempt at deceit. The company behind it is hoping to take advantage of people who've registered a domain or had a domain registered for them by a relative or friend. By presenting a bill-looking advertisement, the goal is to have some suckers sign off and send in a check for quadruple the amount it should cost to register their domain without even thinking. I will be renewing for nine dollars through my current registrar, while this letter offers me the "deal" of two-years for $50. The "deal" being that one year with this company is $30, so I'd save ten bucks by going for two.

The question is whether this is a business that should or should not continue to operate in our economy henceforth.

Some will argue that the person who first took the time to craft this letter, to search for soon-to-expire domains, and to mail out these "non-bills" should be rewarded for his ingenuity. He's not lying about anything, and it isn't his fault if people don't bother to thoroughly read a document before signing it. And unlike Nigerian princes and bank presidents who are simply out to steal the money of their targets, this company is serving its customers, albeit at a grossly inflated rate.

And that is a cornerstone of marketing, isn't it? The comic store where I used to work prided itself on not giving discounts, instead relying on being the cool attitude of the store and the customer service to win over customers from other stores. The comics aren't any different and the "customer service" consists mostly of upselling customers the way Amazon's "People who bought items in your cart also purchased" feature does.

If legislation were introduced to outlaw such practices, it would be a perfect representation of the "nanny state" Fox News commentators love to warn us about.

The same could be said for predatory lenders, the banks that set out to give loans to people they knew couldn't pay them back because they knew there was money to be made on credit default swaps when the houses foreclosed. Why should the government protect someone who is too stupid to understand that he can't afford a $500,000 home on a salary of $40,000 a year?

A recent episode of This American Life examined the actions of a Wall Street hedge fund that made billions of dollars by creating bonds it knew were likely to collapse, then buying insurance against the collapse. Days later, the Justice Department announced it was filing fraud charges against Goldman-Sachs for a similar practice.

The company in the story linked about was doing the equivalent of building a $100,000 house with frayed wiring and using oily rags for insulation, then buying a $10 million fire insurance policy on it. The company lost millions on the failed bonds, but made billions on the insurance. In fact, much of the housing credit boom--which fueled the predatory lenders mentioned previously--was a direct result of this company demanding riskier credit pools to include in its bonds.

Should such behavior be punished or rewarded?

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