Why South Dakota Should be Renamed The Loanshake State

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It takes a lot to shock me these days, but South Dakota Gov. Mike Rounds succeeded with his hypocritical support for states’ rights and denunciation of federal authority in a recent story in The New York Times.

Rounds was included in the story because he signed a bill into law in March 2010 declaring that the federal regulation of firearms is invalid if a weapon is made and used in South Dakota.

I’m not outraged by Rounds because I object to states’ rights or the denunciation of federal authority. I’m outraged because no state has benefited more from the federal usurption of states’ rights the past 30 years than little old South Dakota, which has helped undermine state ursury laws that would otherwise cap interest rates at 11% in most places.

I’m also outraged because Rounds loves to push his religion in people’s faces. He brings it up all the time when he’s pandering to religious adherents by highlighting his objection to legalized abortion, but you never hear him say word one about being Roman Catholic when it’s time to talk about state usury laws. And the main reason many of us are paying 29% interest on our credit cards is because South Dakota got rid of its cap on interest rates to attract banking jobs.

Rounds and his fellow Roman Catholics are the Loanshark cashState’s largest single religious group. This is a church that roundly criticized Jews in the Middle Ages for lending at interest – aka usury – at a time when that same minority group (to which I belong) was forbidden from owning land and belonging to many European labor guilds.

Christianity, Islam and Judaism have historically viewed usury in a negative light. AKA the lending of money at unreasnoably high interest rates.

Which begs the question “if it was wrong for Jews to be money lenders during the Middle Ages, when so many other employment opportunities were closed to them, why is it now OK for South Dakota and supposedly devout Mike Rounds?”

Rounds claims the bible is just as alive now as it was a thousands years ago. So, what gives? When did the faithful decide that exploiting their fellow human beings via predatory lending and exorbinant fees and interest rates was a holier vocation than helping to feed the world as a family farmer?

RoundsThere’s plenty of land in the Loanshark State, which has the fifth-lowest population density in the U.S. and plenty of farms and ranches. So there are certainly other ways to make a living there besides money lending. Its tiny population of 812,383 is also one of the reasons South Dakota receives so much federal aid, which rolls in from the payroll taxes of residents living in more populous states (the Bronx alone has 1.4 million residents and it’s a single county).

Any time the Loanshark State wants to carry its own weight it can start by sending back the road dollars it parasites from the rest of the nation. We could really use that money to fix potholes in places like the densely populated Northeast.

The real question is why Rounds and his state are such ardent supporters both of usury and of the kind of exorbitant interest rates that were primarily charged by criminals prior to 1980?

Those criminals were called “loansharks” right up until 1979. We call them bankers today.

One of the reasons that Rounds religious beliefs merit our attention is because he’s made them an issue in his campaigns and administration. He’s a loyal and proudly active Catholic when it comes to abortion, having signed a controversial bill banning most abortions in early 2006. He even lists himself as a member of St. Peter and Paul Catholic Church of Pierre and the Knights of Columbus on the state government website.

So much for separation of church and state in South Dakota right?

Wrong.

loansRounds religious IQ apparently nosedives the moment there’s money to be made from ignoring Catholicism’s extensive prohibitions on usury. And this is one of policies the Vatican gets very right.

So, his selective opposition to federal authority and support for states’ rights is hypocritical on both political and religious levels. He’s a big-time sinner and a professional and religious opportunist of the lowest type.

There’s only one way to respond to the kind of disinformation campaign Rounds and his cronies are directing at America and that’s by fulfilling the Confucian adage that the first step toward wisdom is to call things by their right name. Well, given the way South Dakota has conducted itself the past 30 years, it really doesn’t deserve to be called “The Mt. Rushmore State.” A more accurate nickname by far would be “The LoanShark State.”

As for Rounds, he is a man for whom religious convictions are a luxury. That’s worse than being a fallen Jew like me.

I don’t make any bones about being a member of the “gin and tonica” sect of non-practicing Jews. I love bacon and shrimp. And Unlike Walter Sobchak in the classic film The Big Lebowski, I do roll on Shabbos. Hell, I even sleep with a Catholic woman every night of my life and thank God for bringing us together.

mamon3In short, I’m a bit of a sinner, strictly from a dogmatic standpoint. However, I’m also a better man than Mike Rounds, who only pretends to be a man of faith when it suits his political purposes. That’s low.

To understand why I feel so strongly about this topic you have to understand what the federal government and the wonderfully effective lobbyists of the banking industry have done to state usury laws.

In 1980, inflation had pushed interest rates so high that banks were having a hard time making profitable loans to consumers at rates under 11%. The effective federal funds rate in January of 1981 was an incredible 19.1%. That’s the all-time high for this measure of the interest rates banks charge eachother for overnight loans, according to the Federal Reserve.

Most state usury laws capped lending rates around 11% and 12% at the time. So, President Reagan – he of the small government talk and big government deficit spending walk – passed an emergency measure allowing federally chartered banks to charge interest rates anywhere in the U.S. that matched those in the states where they were headquartered.

mammon1South Dakota had no cap on interest rates and many credit card issuers immediately relocated there, including Citigroup Inc. The cabal of financial service companies that found a way to pull themselves up by the boostraps of working Americans by setting up shop in South Dakota includes Great Western Bank, Total Card Inc., BankFirst, Capital Card Services, HSBC, PREMIER Bankcard, and Wells Fargo.

Credit card lending rates have been rising ever since the 1980 rule change because state usury laws were never restored after the “emergency” ended.

The really ridiculous thing is that banks now pay less to borrow money from eachother than ever before and credit card interest rates are higher than they were in 1981. Remember the record high of 19.1% banks were paying to borrow from one another in January of 1981? Well, the effective federal funds rate was a record low of 11 basis points in January of this year.

Not 11 percent. No. Eleven basis points – 100 basis points equal a single percentage point. That rounds off to zero.

mammon4In other words, borrowing money is nearly free for banks, but they’re not sharing those great terms with their credit card consumers. Most of us are still paying 29 percent. That rate has not come down.

If there were any justice in this country, besides the kind you can afford to pay for, those rates would be back at 8 percent to 11 percent.

The funny thing about all this is that the federal funds target rate, which is set by Fed policymakers, and the federal funds effective rate are both supposed to be benchmarks that influence other lending rates. However, that relationship has broken down in the credit card industry.

Instead of reflecting the rates consumers are being charged they now reflect the widening and narrowing profit margins of credit card issuers, who don’t share the benefits of low rates with cardholders.

Let’s look at how this change impacts a typical consumer.

John Q. Public was paying 24 percent on his credit card balance when the federal funds effective rate was 19 percent in 1981, which produced a gap of roughly 5 percent between his borrowing costs and the bank’s overnight borrowing costs. Today, the bank is basically paying zero and John is paying 29 percent, which yields a gap of 29 percent.

That means lenders are the only beneficiaries of the lowest federal funds effective rate in U.S. history. Credit card interest rates remain ridiculously high, ever for cardholders with excellent credit scores, despite reduced credit card usage.

mammon2That’s not how a free market is supposed to work.

To summarize, with South Dakota’s help the nation’s credit card industry has created a world where they derive all the benefits from interest rate fluctuations and shift all the burdens to consumers. In the process, they have destroyed the ability of individual states to limit lending rates within their borders.

South Dakota and the credit card industry also have eroded the quality of life for everyday Americans by reducing their discretionary income – the amount of money families have left after paying for essentials.

Thank you Loanshark State. Why don’t you do us all a favor and secede?

Cause you seceded from caring about the rest of this nation a long time ago. And take that Mike Rounds piece of garbage with you.