A couple of days ago, before I got distracted making spreadsheets that seem to have made the Angry Bear even angrier*,I mentioned in passing that the government keeps track of typos on loan documents, I thought I’d elaborate.
There’s a law called the Community Reinvestment Act (CRA). Under the CRA banks are required to lend to all communities, even to change their risk criteria if an applicant is from an under-represented locale. It’s also illegal to refuse a loan due to the geographical location of the applicant. The net effect of this is that banks are obligated to make a certain number of loans they’re pretty damn certain are going to default. Now, anybody lending money expects a certain default rate because even with the best measures you can’t predict everything. Naturally banks evaluate all the data they can gather on loan applicants to try to assess the likelihood of default on any prospective loan. Banks also try to minimize the proportion of their outstanding loans that will default and have to be charged off, no surprise there. We’re in business to make money, after all.
The requirements of the CRA tend to drive up the default rate bank-wide, and as a result the CRA tends to drive interest rates up. Meaning that the well-intentioned CRA is ensuring that some folks we otherwise wouldn’t lend to are getting loans, but that the interest charged on loans for everyone is higher. Hurts more than it helps, in all likelihood. Anyway, this is where we get into the thing about typos.
The bank is permitted a 5% error rate on CRA documentation. An error on a piece of CRA documentation for a loan can be anything from a misspelled name, a transposed couple of digits in an address; to a wrong “physical address” (not to be confused with the “business address” and “mailing address”) or incorrect zip code. In short: typos. Anybody who’s worked with any kind of manual data-entry can tell you that these things happen. If you process tens of thousands of loans, typos by lenders, assistants, clerks, or other officers are going to happen. Especially because any given loan document is touched by so many hands once it’s been filled out.
The penalties for violation vary, and are mostly ineligibility for certain government incentives (which is a wholly other strange world in which I am not particularly versed), but there is still an entire government program designed around making sure banks don’t have typos. The world gets curiouser and curiouser.
* I think he sort of misses my point, but this is a digression from the purpose of this post. I’m in no way advocating that the SS trust bonds be sold on the secondary market (I kind of think it’d be a pretty bad idea for a lot of reasons), but I was trying to get across that current and past tax revenues from the payroll tax were used to purchase the bonds and future tax revenues from the income tax (or hey, maybe a VAT) will have to be used to pay them back. Professor Thoma is right that Congress has an obligation to pay back the SS trust bonds, but the revenue to do that will have to come out of future tax takings because taxes are the only source of revenue the government has other than selling debt. For years OASDI has been supporting general fund spending, and one day in the future that balance is going to go the other way…that’ll present a bit of a problem.
Does this mean I favor privitization? Well, in some sort of libertarian fantasy land, hell yes. Of course, in said same libertarian fantasy land OASDI would have never existed so it wouldn’t even be an issue. But we live in the real world, and at present it doesn’t seem like loading up a bunch more government debt to finance a transition would be a super great idea. In fact, with the deficit already at something like 4.8% of GDP, it might be a damn bad idea. Because government debt is really just a way to shift the tax burden from the present to the future, I think we’ve probalby already done enough of that. I think cutting future benefits is a fine thing to do, I think fixing Medicare/Medicaid first (not bloody likely) could help with the SS problem, I think raising the retirement age might be the most politically tenable solution at present. And, while we’re at it, go to price-indexing from wage-indexing: the indexing thing has only been around since Nixon, and wage-indexing makes real benefits grow over time.
Hell, my current expectations out of Social Security are zero, a big doughnut. I’d be okay with having all of my future SS benefits scrapped even if I was still forced to pay payroll taxes to pay for current geezers. Just say: Hey, all you folks under 25, you’re not getting squat, but you’ll have to pay anyway until folks 26 and older are out of the system (and maybe do a phase out by age or something, I’m just spouting off a thought here, please don’t take it too seriously or anything). Is it capricious and arbitrary? Yeah, yeah it is, but it’d aid in achieving the long-term goal of getting the government out of people’s retirement planning. I also think it’d be a little more honest about the pay-as-you-go nature of Social Security.
I think that’s the other thing that gets lost in talk of “future retirees” the folks who will retire in 2040 and after are mostly pretty young and maybe not even expecting anything from Social Security in the first place. If I retire at the age of 67 it’ll be 2049. The retirees of 2075 haven’t even been born. Those folks don’t have expectations of the system, so go ahead and make a change while you have the opportunity.
Yeah, so this addendum is like a post of its own, but I’m going to leave it here anyway. My point is, in short, that I’d be okay with a solvent Social Security system and, while I’d be more okay with a completely private approach to retirement in general, I’m not so sure that the current privitization schemes provide enough benefit beyond what we can do with tweaks to the system as is (reduce benefits, raise the age, price-index). I do favor personal and/or private accounts (if we have forced-savings at all), and I think that’s achievable in the long run, but in the short-term making tweaks to the present system is probably better until we get the rampant pace of government deficit spending under control. If anybody knows a single viable candidate from either side of the aisle who could actually accomplish this, I’d be goddamned interested to know. Beutler, I’m looking at you.
