Current Events in December 2005

Santa is coming early to cell phone users, with a bagful of new goodies, each pricier than the next.

Cingular Wireless is launching a high-speed Internet service similar to those already offered by Verizon Wireless and Sprint Nextel. BroadbandConnect is being introduced in 16 U.S. cities and will be expanded to 100 metropolitan areas by the end of 2007.

The new service offers connection speeds similar to DSL and costs $60 per month, roughly the same price charged by Verizon and Sprint. German-owned T-Mobile does not have the technology on its network and has not announced any plans to add it.

Verizon Wireless, meanwhile, says its cell phone customers will soon be able to use their phones to watch live TV. The company has signed a deal with Qualcomm to use its new network, currently in development. Verizon Wireless users can already use their phones to watch short video clips but not live broadcasts.

The two companies say they expect to launch the new service in approximately half of the markets already covered by Verizon Wireless broadband network. They say they hope to make the service commercially available in 2006.

Cingular also says it plans to launch a push-to-talk phone service which integrates walkie-talkie and cellular technology across its network. It's intended to compete with Sprint Nextel's push-to-talk service available under the Nextel brand of phones. It's likely that, like Sprint, Cingular will initially target business customers.

Cingular also said it will begin selling a new line of so-called "smart phones" early next year that offer faster access to the Internet than Cingular's existing cellphones. Other hand-held devices that will specialize in music and video will also be available next year.

The new offerings from the cell phone companies are intended largely as a response to the growing popularity of Wi-Fi technology, which provides high-speed access from "hot spots," usually within a few hundred feet of the transmitter.

Google has announced plans to build a free Wi-Fi network throughout the San Francisco area and storm-battered New Orleans hopes to build a public Wi-Fi network to lure businesses and residents back to the Crescent City. Philadelphia was considering a similar plan.

Telephone companies have vehemently opposed municipal Wi-Fi networks, saying they encroach on its business and they are expected to file legal challenges against New Orleans and Philadelphia if the cities move ahead.

"With our 3G service, almost any spot in a city is a hot spot," said Ralph de la Vega, chief operating officer for Cingular Wireless.

But in fact, the service is spotty at best. A continuing ConsumerAffairs.com test of Verizon Wireless' service finds it improving in the Washington, D.C. area, but still too unpredictable for everyday use.

At $60 per month and with laptop plug-in cards costing more than $200 each, the wireless broadband services so far are attractive mostly to business customers.

Cingular's new service is available in cities including Boston, Chicago, Houston, Phoenix and Washington, D.C. The company says it will extend the network to cover most major cities next year, and service 100 metropolitan areas by the end of 2007.

Cingular claims its service won't drop connections when customers leave coverage areas. Instead, its service will transfer such connections to its slower nationwide network, they say.

Seventy-one percent of Americans support a five cent per drink increase in federal alcohol taxes, according to new survey research commissioned by the nonprofit Center for Science in the Public Interest (CSPI).

As lawmakers consider slashing popular social programs to bridge the federal budget gap, CSPI says they should instead consider raising taxes on beer, wine, and spirits -- which could raise more than $20 billion in desperately needed revenue over the next five years.

When asked whether they prefer raising alcohol taxes or cutting social programs as a way of offsetting the budget deficit, a whopping 79 percent of respondents favor the alcohol tax increase. Even 68 percent of Republicans surveyed and 70 percent of drinkers would support raising alcohol taxes over cutting programs such as food stamps, Medicaid, and drug benefits for the elderly.

"Raising alcohol taxes alone may not balance the budget, but it would boost revenues in a way that's popular, fair, and provides real money," said George A. Hacker, director of CSPI's alcohol policies project.

"In past decades, alcohol interests have too often beaten back any across-the-board increases in booze taxes. But with an expensive war being waged, and with painful cuts in popular social programs on the table, we can't let one politically powerful industry keep evading its fair share," Hacker added.

In recent decades, federal taxes on alcoholic beverages have effectively fallen dramatically due to inflation. That's because such taxes are typically assessed not as a percentage of the purchase price, but as a flat dollar amount.

Those levies have been raised only once for beer and wine, and only twice for liquor in the past 55 years. Had the federal tax on beer merely kept pace with inflation, it would be more than triple what it is today. Liquor taxes would have increased sixfold.

Most Americans would be largely unaffected by increases in alcohol taxes. More than one-third don't drink at all, and most others drink only occasionally. Eighty percent of the alcohol consumed in America is downed by twenty percent of the drinkers. According to the Adams Beer Handbook, more than half of beer and liquor drinkers have incomes above $60,000 a year.

"Cutting social programs such as Medicaid, Medicare, and food stamps is an absolutely unconscionable way to cut the deficit so long as lawmakers are leaving billions in alcohol tax increases off the table," said Hacker.

"Especially when one considers that the $18 billion in current state and federal alcohol tax collections barely cover a tenth of the $185-billion price tag of underage drinking, alcohol abuse, and drunk-driving. Congress last found the courage to raise alcohol taxes in the Reconciliation Act of 1990, and it should follow that precedent today."

Last May, 59 prominent economists, including four Nobel laureates, called on Congress to raise alcohol taxes to help offset the massive economic and social costs of alcohol.

Henry Aaron, a senior fellow in economic studies at the Brookings Institution, said that lawmakers "would be well advised to increase a tax that would help close the federal deficit and discourage the continued epidemic of alcohol abuse."

In its 2005 budget options report for Congress, the Congressional Budget Office estimated that raising the tax on distilled spirits to $16 per proof gallon from the current rate of $13.50 and equalizing the rate of tax on the alcohol in beer and wine to that level would yield $27 billion in new revenue over the next five years.

Numerous researchers have concluded that higher taxes would lead to slightly less drinking, and could cut the incidence of alcohol problems and their costs. A nickel-a-drink tax increase might save as much as $5 billion per year.

Earmarking some of the revenues for alcohol treatment, prevention, and public education could further reduce the societal toll of alcohol problems, according to CSPI.

CSPI's survey was of a nationally representative sample of 512 American adults. The survey was conducted in mid-November via telephone by the Global Strategy Group polling firm. The margin of error is plus or minus 4.3 percent.

Okay so it's not sexy, but it is important to thousands of diabetics and their families. Retin-A, a skin cream used to treat acne and prevent wrinkles seems to help diabetic foot ulcers heal, according to an article published in the Archives of Dermatology.

Researchers treated 24 men with diabetic foot ulcers for a month with either Retin-A or a placebo. Retin-A solutions were left on the ulcers for ten minutes, rinsed off with salt water and coated with iodine gel.

After four months, 46 percent of those in the treatment group healed completely as compared to only 18 percent in the placebo group. Importantly, 85 percent of those people treated with Retin-A saw the ulcer shrink by at least half.

That is an excellent result. Fifteen percent of diabetics develop foot ulcers because of nerve damage and poor circulation.

The ulcers are painful, get infected and are hard to treat which is why Retin-A can help a lot of people.

The Transportation Security Administration (TSA) mistakenly put thousands of unsuspecting airline passengers on a "terrorist watch" list, according to one agency official.

The individuals were "selectees," meaning they were singled out for additional screening and verification before boarding an airplane.

CNET News reported that Jim Kennedy, TSA's director of "redress," revealed the error at a Department of Homeland Security (DHS) "privacy and integrity" committee meeting on Dec. 6th.

Kennedy said that 30,000 people were categorized as "selectees" for various reasons, including "fitting a certain profile, flying on a one-way ticket, or being selected randomly by a computer."

Passengers who have been repeatedly detained and screened in error can submit a "Passenger Identity Verification Form" to get their names removed, Kennedy said.

Much like the process for fixing credit report errors, the correction can take as long as 60 days, and involves sending numerous personal documents to TSA, including notarized copies of one's birth certificate, passport, and driver's license.

TSA has been advocating the implementation of the "Secure Flight" passenger screening program in order to more easily distinguish normal passengers from possible terrorists or saboteurs. The "Secure Flight" program has been criticized by privacy watchdogs and government auditors for not properly protecting the privacy of passenger records, and for relying too heavily on commercial databases for its information.

The TSA was forced to abandon using commercial databases in order to push the plan forward.

In addition, the TSA had previously helped defense contracting company TorchConcepts acquire millions of passenger records from JetBlue airlines in order to build "risk assessments" of airline passengers, in violation of the 1974 Privacy Act and JetBlue's own privacy policy.

A federal judge recently dismissed a lawsuit against JetBlue for selling the data without passengers' consent.

Despite the millions of dollars spent on improving airline security and screening, there has been no clear indication that travelers are any safer or at any greater risk than they were prior to the September 11th terrorist attacks.

The TSA recently relaxed its rules on carrying small cutting tools such as scissors on board planes, in order to focus more aggressively on detecting explosives.

The agency says use of these products could pose a risk of serious adverse events such as infections, particularly in children, the elderly, and individuals with weakened immune systems who are particularly susceptible to illness.

"We will not tolerate the marketing of products that use deceptive and untruthful claims to lure consumers into potentially dangerous situations," said Margaret Glavin, FDA's Associate Commissioner for Regulatory Affairs.

"We consider it a significant public health hazard when consumers are deliberately deceived into using potentially dangerous products that promise health benefits but deliver only risk of harm."

The company promotes Miracle II Neutralizer for ophthalmic use in the eyes, including treatment of cataracts and pink eye, and as an eyewash. FDA requires that all ophthalmic products be sterile. Due to the substantial risk posed by non-sterility, Miracle II Neutralizer should never be applied to the eyes.

Tedco, Inc., also markets Miracle II Neutralizer for other unapproved uses, including treatment of AIDS, cancer, Crohn's Disease, dermatitis, diaper rash, diabetes, ear ache, hemorrhoids, hives, gout, herpes, mouth ulcers, psoriasis, skin cancer, and yeast infection.

The firm sells Miracle II Neutralizer Gel for many of the same unapproved uses, including diaper rash, diabetes, gout, psoriasis, and skin cancer.

Tedco, Inc., promotes its Miracle II products with claims such as, "supreme technology has made possible for a perfect soap cleaner, deodorizer, natural insecticide and antibacterial product to be put on the market. This is the only product that is made in the world that can wash a newborn baby or clean up an oil spill and everything in between."

Contrary to such claims, recent FDA testing of Miracle II Neutralizer and Miracle II Neutralizer Gel revealed bacterial contamination and poor manufacturing conditions.

Although Tedco, Inc., has been advised by FDA of the contamination found in its Miracle II Neutralizer and Miracle II Neutralizer Gel products, the firm has declined to voluntarily remove the products from the market.

A number of stores sell Miracle II Neutralizer and Miracle II Neutralizer Gel, and the products are distributed and sold worldwide and sold via the Internet. The products are packaged in 8 oz, 22 oz, and one-gallon size containers.

December 6, 2005
A government report accuses food marketers of using billions in marketing dollars to lure children away from good diet choices. The Institute of Medicine report is billed as "the most comprehensive review" of existing scientific studies and could be a watershed similar to the 1964 Surgeon General's report on smoking.

Television advertising strongly influences what children under 12 eat and the food industry should spend its marketing dollars on nutritious food and drinks, and if voluntary efforts don't work, Congress should take action, the report said.

"The foods advertised are predominantly high in calories and low in nutrition -- the sort of diet that puts children's long-term health at risk," said J. Michael McGinnis, a senior scholar at the institute and chairman of the report committee.

Marketing and food industry officials called the report a "flawed study" and disputed its conclusions. But the findings came as no surprise to Iowa Sen. Tom Harkin, who requested the report.

"We like to think that SpongeBob SquarePants and Shrek and the pretty little princesses are likable, kid-friendly characters, but they're being used to manipulate vulnerable children to make unhealthy choices," said Mr. Harkin, the senior Democrat on the Senate Agriculture, Nutrition and Forestry Committee. "The industry must stop pushing junk food on our kids."

"Ample information and studies [indicate] that television advertising influences the food preferences, purchase requests and diets at least of children under 12 and is associated with the increased rates of obesity among children and youth," the report charges.

"The Institute of Medicine's report on food marketing to children is a milestone that marks the beginning of the end of junk-food marketing to kids," said Margo G. Wootan, Nutrition Policy Director of the Center for Science in the Public Interest. "The report sends a clear signal to food company executives and advertisers that the industry needs to completely rethink the way they do business."

"Lawmakers should look at the IOM report as a roadmap to help improve kids' diets and address childhood obesity," she said.

"Getting junk food out of schools, promoting fruits and vegetables, putting nutrition info on chain restaurant menus, and scrutinizing food ads on children's television programming are four things Congress could consider right now to advance the IOM's recommendations," Wootan said.

The report urges the food industry to work voluntarily with the government to forge "an agenda to turn beverage and marketing toward better diets." But if such action doesn't yield substantial results within two years, the report calls for legislative action.

Industry executives contend the report fails to take into account recent changes in food marketing, is based on no new research, and doesn't explain how food marketing can be a culprit in childhood obesity even as food ads aimed at children are declining while obesity rates among children continues to rise.

The advertising industry was quick to react.

"It's an enormously radical proposal that if the advertising is not adequately balanced, the government will step in to force the desired balance. How would that be determined? Based on what? Who would be deciding what is and isn't balance, what foods are good and which aren't and based on what?" he told Advertising Age.

Such arguments were ignited by the Surgeon General's report on tobacco as well. But, like it or not, Joe Camel and other tobacco-licensed characters were pulled off the street and put into rehab programs as a result of the landmark report.

The Grocery Manufacturers Association said its members have already taken steps to implement many of the report's recommendations. "The marketplace is already responding and legislation is costly, complicated and really not necessary," said Richard Martin, a GMA spokesman.

According to the FTC, DSW's data-security failure allowed hackers to gain access to the sensitive credit card, debit card, and checking account information of more than 1.4 million customers.

The settlement will require DSW to implement a comprehensive information-security program and obtain audits by an independent third-party security professional every other year for 20 years.

Columbus, Ohio-based DSW operates approximately 190 stores in 32 states. In 2004, DSW generated $961 million in net sales and sold approximately 23.7 million pairs of shoes.

According to the FTC's complaint, DSW uses computer networks to obtain authorization for credit card, debit card, and check purchases at its stores and to track inventory.

For credit and debit card purchases, DSW collects information, such as name, card number, and expiration date, from the magnetic stripe on the back of the cards. This magnetic stripe information is particularly sensitive because it contains a security code that can be used to create counterfeit cards that appear genuine in the authorization process.

For check purchases, DSW collects information such as routing number, account number, check number, and the consumer's driver's license number and state.

In each case, the information was wirelessly transmitted to a computer network located in the store, and from there was sent to the appropriate bank or check processor.

The FTC charges that until at least March 2005, DSW engaged in a number of practices that, taken together, failed to provide reasonable and appropriate security for sensitive customer information. Specifically, the agency alleges that DSW:

• created unnecessary risks to sensitive information by storing it in multiple files when it no longer had a business need to keep the information;
• failed to use readily available security measures to limit access to its computer networks through wireless access points on the networks;
• stored the information in unencrypted files that could be easily accessed using a commonly known user ID and password;
• failed to limit sufficiently the ability of computers on one in-store network to connect to computers on other in-store and corporate networks; and
• failed to employ sufficient measures to detect unauthorized access.

The FTC charges that a total of approximately 1.4 million credit and debit cards and 96,000 checking accounts were compromised, and that there have been fraudulent charges on some of these accounts.

Further, some customers whose checking account information was compromised have incurred out-of-pocket expenses in connection with closing their accounts and ordering new checks. Some checking account customers have contacted DSW to request reimbursement for their expenses, and DSW has provided some amount of reimbursement to these customers.

According to DSW's SEC filings, as of July 2005, the company's exposure for losses related to the breach ranges from $6.5 million to $9.5 million.

The FTC alleges that DSW's failure to secure customers' sensitive information was an unfair practice because it caused substantial injury that was not reasonably avoidable by consumers and not outweighed by offsetting benefits to consumers or competition.

The settlement requires DSW to establish and maintain a comprehensive information security program that includes administrative, technical, and physical safeguards.

It also requires DSW to obtain, every two years for the next 20 years, an audit from a qualified, independent, third-party professional to assure that its security program meets the standards of the order.

DSW also will be subject to standard record keeping and reporting provisions to allow the FTC to monitor compliance.

This is the FTC's seventh case challenging faulty data security practices by retailers and others.

According to Consumer's Association, McDonalds, Burger King, KFC and Pizza Hut are off by 100 calories or more on some of their calorie calculations. Researchers for the group's magazine, Which, purchased 20 food items from the four restaurant chains. The items as received were tested by an independent, accredited food laboratory.

The researchers say they found that a Big Mac and medium French fries meal, which McDonald's says contains 786 calories, actually had 900 calories. A Whopper and regular French fries meal, which Burger King says contains 13 grams of saturated fat, was found to actually have 19 grams. KFC's Zinger Crunch Salad, which was supposed to contain 2.4 grams of saturated fat, actually had 6.7 grams.

The reason for the discrepancies, according to the restaurants, is the portions reviewed by the Which researchers were larger, or different than the ones the company tested to determine caloric content.

In one case the restaurant staff over portioned the order. In another, the restaurant staff used a high-fat salad dressing and added croutons.

The consumer group suggests people watching their calories should take the restaurant's posted calories with a grain of salt, keeping in mind the sandwich they're eating could have a more generous serving of condiments than the one the company tested.

Though he welcomed McDonald's recent announcement that it will add nutrition labels to food packaging, Which editor Malcolm Colms said, restaurants should give people accurate information on the amount of fat, sugar and salt in foods, prominently displayed so customers can see it before they order.

Melanie Kovacs is as all-American as one can be. Blonde and blue-eyed, with a winning smile, she works a quiet government job in the suburbs of Maryland while raising a baby girl by herself.

She likes to go to concerts in D.C. with friends, wonders if her daughter will start walking soon, and exercises regularly to get rid of her (largely imagined) excess poundage.

And like many other Americans, Melanie (not her real name) is climbing her way out of a quicksand trap of credit card debt and rising prices for goods, while trying to provide a good education for her daughter and a decent living for herself.

Melanie's solution was to refinance her new home in Maryland using a two-year adjustable mortgage, and cash out the equity to pay off her credit card debt.

"It got to the point where it felt like I was getting nowhere," she recalled. "I'd make these big payments each month, but the interest just kept getting bigger and bigger, so my debt never really changed."

By consolidating her debt via the refinance, Melanie is taking a risk, due to the possibility of her mortgage payments increasing, but she sees it as a good deal.

"My total payments will only be $100 more a month -- it's worth it to get rid of those awful credit cards, and housing prices in this area are just fantastic." Melanie plans to sell her home before her payments increase, counting on the continuing appreciation of homes in the D.C. area to offset her closing costs.

Melanie's story illustrates several key points about the American economy. Americans are carrying more debt on their backs than ever before, and are saving less and less money for the future. High gas and energy prices and record levels of credit card debt are frightening consumers away from spending more money, while the slowing housing market is putting an end to the frenzy of using "creative mortgages" and "bubble" pricing to cash out money from homes.

Pundits and statistics keep telling us that the economy is performing solidly. Growth is up, productivity is up, and stocks are bullish. Yet everyday people like Melanie have had to take drastic steps just to get out of the downward spiral of debt, often shifting their debts from one avenue to another just to ease the burden.

What's really happening to the American economy, and what can we expect down the road?

The Gas Price Seesaw

Drivers are breathing a sigh of relative relief at the pump, as prices for regular unleaded gas have fallen to a national average of $2.12, down from record highs of $3.50 and better circa Labor Day 2005.

Although the damage to Gulf Coast oil platforms from Hurricane Katrina is massive and will take many months to fully repair, many drilling rigs are coming back online and pumping millions of gallons of crude to eager markets.

Yet consumers are still angry over what they see as blatant profiteering by the major oil companies, taking advantage of the war in Iraq and America's worst natural disaster to pull in record profits. Many state Attorneys General are investigating claims of gouging at the pump, a charge that oil executives flatly deny.

This is not a new development by any means, as gas was topping $2 a gallon in early 2004. Jason Toews, creator of Gasbuddy.com, a nationwide gas price monitoring Web site, correctly predicted that prices would continue to rise.

"Any time supply goes down, prices go up," Toews said in an interview at the time. "In the interim, it doesn't seem like we're going to see lower prices." Toews credited the increases in 2004 to OPEC's raising continual increases on crude oil prices, and low oil and gas inventories in America.

In 2005, President Bush was forced to tap the Strategic Petroleum Reserve in order to ease oil prices in the wake of Katrina, and the International Energy Agency released two million barrels of oil a day for 30 days after the hurricane struck. Once the reserve and emergency supplies are used up, there is every possibility that gas prices will climb to $3 a gallon again.

The instability of oil prices doesn't just affect how often we drive. Home heating costs are expected to skyrocket throughout the winter.

Households heated by natural gas are expected to pay $350 a month this year, an increase of 48 percent from 2004. Homeowners using oil for heating will be paying $378, an increase of 32 percent. The average American may be spending 20 percent of their take-home pay on energy costs this year, according to a Wall Street Journal report.

The one-two punch of high gas and heating prices has pushed many Americans to cut their holiday shopping and pull back from purchases in order to save money, which will cut into retailer profits and further darken the economic picture.

Many surveys and polling organizations have reported that Americans plan to spend less this holiday season. Retailers were forced to resort to massive discounts and early openings to get customers spending this year.

Using Homes as ATMs

One of the biggest growth areas for the economy over the last five years has been the real estate market.

Boom markets such as California's Bay Area, the greater Washington, D.C. metro region, and the greater Boston area, led sellers to frantically increase prices to astronomical levels, and buyers to use increasingly risky mortgages just to "lock in" and grab hold of a plum property.

Now there are signs that the housing market is cooling off. Inventories are increasing, sellers are cutting prices, and buyers are increasingly wary of taking a dip into the pool. Although a nationwide housing price crash seems unlikely, the slowing of home sales in major markets has analysts worried about the economy's reliance on housing to drive national output.

For many consumers, the biggest benefit of the housing boom was the ability of owners to tap their homes' equity via loans or lines of credit, essentially using their homes as ATMs to fund their spending and pay their bills. Economy.com reported that equity cash-outs in Massachusetts jumped from 4 percent in 2001 to 14 percent in 2004.

In order to best take advantage of the astounding price appreciation of their homes, many owners followed the same route as Melanie Kovacs, and refinanced using a "creative" or "alternative" mortgage to the traditional 30-year fixed mortgage.

Interest-only mortgages, adjustable-rate mortgages (ARMs), and negative-option amortization loans have gone from arcane buzz phrases on realtors' lips to common means of financing homes. These mortgage products are all designed to take advantage of short-term interest rates, and with the Federal Reserve Board continually raising interest rates to combat inflation, many buyers are going to be in for a bad case of "sticker shock."

Although many homeowners used equity cashouts to buy expensive goods and take vacations, just as many did what Melanie did and used their equity to manage or pay off other debt, such as college tuition costs and credit card charges.

This may seem like a smart move in the short term, but with interest rates rising and the market cooling, the possibility exists that homeowners who refinanced with the intent to sell before the rates change may find themselves unable to move their house.

This can trap a homeowner in a home they can't afford, with massive debt still hanging over their head, and the threat of foreclosure in the future.

The reliance on home sales and equity to power the economy isn't just a case of regional "bubbles." The Economist reported recently that the principal cause for the housing boom didn't come from Wall Street or K Street, but from Beijing.

The emergence of China's army of cheap labor workers helped multinational corporations see much higher returns on investment and profit. Companies could pay workers less in America due to the threat of outsourcing, and buy goods made in China much more cheaply, leaving them flush with excess capital.

This capital was circulated back into the market in the form of "asset bubbles," specifically putting money into the real estate investment market.

The upshot is that the housing boom will last only as long as rates stay low and consumers can continue to spend, and as long as China is willing to continue to buy millions of U.S. Treasury bonds, keeping interest rates at record-low levels.

With consumer skittishness increasing along with short-term rates, as the Economist put it, "[t]he fate of American house prices could thus be determined by unelected bureaucrats in Beijing rather than the unelected central bankers of the West."

Credit Card Chaos

No overview of America's economy can overlook the enormous power of the credit industry. Card issuers and the banks they partner with have been claiming chart-busting revenue from the usage of plastic.

Visa recorded revenue of 2.4 billion in 2004, and scored a victory on "Black Friday" in 2005 through increased numbers of shoppers using Visa cards for purchases -- up 11.6 percent from 2004. Visa also leads the overall credit market, holding 53.9 percent of an incredible $2.7 trillion in overall consumer card charges for 2005 so far, according to Cardweb.com.

Those charges include $1.9 trillion in credit card charges, and $800 million in debit charges.

The high gas prices from Hurricane Katrina's wake created a windfall for card issuers as well. Credit card companies were bringing in almost $20 million a day from increased processing fees incurred when customers used their cards to pay for gas, averaging $2.2 billion a year, The Washington Post reported.

That's a lot of money to be throwing around, and most of the profit comes from late fees, over-limit-fees, balance transfer fees, and so on. As Melanie Kovacs found to her dismay, trying to pay off her Bank of America card was akin to running in place.

"Every time I charged something to the card," she recalled, "the charges would appear instantly, but when I tried to pay it off, the payments would always be marked 'late.' Even by just one day. Then I'd get hit with late fees, the balance would go up to the maximum, and they'd instantly switch my interest rate to something terrible!"

Melanie's story is all-too-common among cardholders, as we've reported so frequently this year. The average American carries $10,000 in credit card debt, spread out among as many as four cards, and each one of those is a plastic time bomb that can ruin a cardholder's credit rating, lead them to bankruptcy, and so on.

Why are we becoming ever more reliant on credit?

Many naysayers simply chalk it up to a lack of personal responsibility. "If they'd only live within their means and not splurge on SUV's and dinners at fancy restaurants, they'd be able to save more!" goes the cry.

There's a lot of truth to that. Many Americans are so driven by the "money equals happiness" mindset that they will finance themselves to the max just to keep up with the Joneses.

But just as many are using cards not for luxuries, but for basic needs such as food, clothes, child expenses, and health care costs. What has gone wrong when we're forced to use plastic to finance things we should be buying with cash?

It's all connected

Hale Stewart, a Houston, Texas tax lawyer and accountant, sees the American financial picture boiled down to a few basic elements -- "weak job growth, lack of meaningful upward mobility, and an explosion of consumer debt."

In his view, because "people are making the same [money] as they did five years ago," they've turned to things like credit cards and home equity to finance their lifestyles and cover basic needs.

Stewart, who regularly blogs on economic issues under the pseudonym "Bonddad," believes the American consumer is "almost maxed out on debt. Eventually they'll get to a point where they just can't take any more [debt] on, voluntarily or otherwise."

"The economy is standing up on sticks. Something's just not working right."

The economic "recovery" that armchair pundits have been crowing about has come at the loss of America's manufacturing base. 2.8 million manufacturing jobs have been cut in America since January 2001, and nearly 600,000 information technology-related jobs have followed suit. What job creation there is has been in specific areas such as housing construction and health care.

In fact, housing-related occupations such as realtors and brokers have accounted for almost 40 percent of the job market, according to Stewart. "When housing goes," he says, "we're gonna be in for some real problems."

Why aren't we saving more? Why aren't we putting money aside into retirement accounts, CD's, or just not spending it as soon as we get it? The answer, says Stewart, is the influx of cheap money and cheap labor from abroad that allows us to keep interest rates low, and enables consumers to finance large cars and larger homes using their equity and credit cards.

"Consumer spending accounts for 70 percent of gross domestic product," said Stewart. "If you could get something at an interest rate of 3 percent, what would you do? I know what I'd do -- I'd buy the damn thing!"

But, as the Gulf Coast storms remind us, the good times don't roll on forever. Eventually, the market will start to correct itself. All of America's major financing options, from homes to credit cards, are facing potential profit shortfalls and "adjustments."

The credit card industry, in particular, is in for a "perfect storm" caused by consumer defaults, natural disasters, and, ironically, by the very laws the industry worked so hard to pass.

Payback is Hell

Credit card companies and banks lobbied furiously to pass bankruptcy "reform" legislation for many years, and finally succeeded in May 2005.

The "Bankruptcy Reform and Consumer Protection Act" was a love note to creditors (and a pornographic e-mail to consumers), with its complex rules for filing, punitive financial restrictions, and mandated credit counseling that would cost debtors money and time. At the time, it seemed that MBNA had won the war.

However, Americans filed bankruptcy in record numbers to beat the implementation of the new law and get their cases heard under the old rules. 200,000 Americans filed bankruptcy in September 2005, prior to the new laws taking effect on Oct. 17.

Since all of those cases will be arbitrated under the old laws, card issuers and banks are expecting record levels of default. HSBC recorded an additional $100 million in defaults in the third quarter of 2005, relating to the bankruptcy filings.

In addition, the devastation from Hurricane Katrina caused many financial institutions to charge off high levels of loss. J.P. Morgan Chase alone recorded $100 million in losses from Katrina, while Capital One saw a charge of $44 million.

The credit industry is also facing more potential defaults from increased mandatory minimum payments, and many fed-up customers are simply paying their debts off and closing their cards faster. MBNA was so shaken by its cardholders' account closings that its profits fell by 94 percent, leading to its takeover by Bank of America.

If there is any positive news to take from America's grim financial picture, it may simply be that consumers are becoming more and more aware that we, as a nation, can't live on borrowed money.

People are waking up to the idea of saving more, spending less, cutting up the cards, and finding economic alternatives to gas-guzzling SUV's. Although Hale Stewart is pessimistic regarding the country's outlook, he concedes that "we're not over the cliff, but we're damn close to it...I've been dead wrong before."

Melanie Kovacs doesn't pretend to understand the ins and outs of economics, GDP, or housing bubbles. All she knows is that she is paying off her debt as quickly as she can and building a better life for herself and her daughter.

"I look at all that debt I accumulated and I think, 'What happened, man? Where did it all come from?" she says. "Now I'm just glad to be getting rid of it all."

December 2, 2005
King of Fans Inc. is recalling more than 200,000 Maxi-Heat oil-filled radiator heaters. Welds in the heating fins can break, allowing oil to leak. This poses a burn and fall hazard to consumers.

King of Fans Inc. has received 81 reports of incidents involving leaking oil. Two minor burns were reported, along with two reports of falls in the oil.

The portable electric radiator-style heaters have seven fins, one of which has the control panel attached to it. The units are gray with a black control panel. Maxi-Heat is printed below the handle indentation on the control panel. The model number 70030 and date codes 0705 and 0805 are printed on the UL label on the lower right side of the control panel. The following purchase order numbers are located on the bottom of the radiator heaters packaging: 56199910, 56199924, 56199961, 57105731, 57105732, 57100092, 57100089, 57100086, 57105685, and 57105686.

The units were sold at Home Depot stores in the Northeast and Midwest from October 2005 through November 2005 for about $35.

Consumers should immediately stop using these heaters and unplug them. Return the recalled heaters to a Home Depot store for a full refund.

Consumer Contact: For additional information, contact King of Fans toll-free at (866) 443-1291 between 7 a.m. and 7 p.m. Monday through Friday, or visit the companys Web site at www.kingoffans.com.

The recall is being conducted in cooperation with the U.S. Consumer Product Safety Commission (CPSC).

A Chicago-area man who used his religious ties with pastors and fellow church members to lure them into a web that snared 144 victims in nine states with promises of big investment returns has pleaded guilty to numerous felonies and has been sentenced to serve 7.5 years in prison.

James E. Upshaw of Oak Brook has pleaded guilty to the charges against him. Although some of the charges are consolidated in the plea, Upshaw originally was indicted on four counts of theft of over $100,000, a Class One Felony; six counts of theft of over $10,000, a Class Two Felony; and 16 counts of securities fraud, a Class Three Felony, Illinois Attorney General Lisa Madigan said.

Upshaw's victims included a destitute woman who took her last dollars and won $812,000 at a casino only to be taken in by the con artist, a woman represented by famed lawyer Johnnie Cochran who won a medical malpractice settlement and a pastor who invested church funds. Several of Upshaw's victims were older than 60.

Holding himself out as a preacher, praying during his presentations and implying that his investment decisions were communicated to him by God, Upshaw duped his victims into "investing" $6.5 million with him between 2001 and 2004.

Upshaw paid out approximately $4.5 of the $6.5 million to investors as purported returns on their investments, and in some instances, as a return of principal. He used the remaining $2 million to run his business, pay himself and his wife, make a down payment on a $1 million house in Oak Brook and pay other debts.

It appears from thousands of records that only about $80,000 of the $6.5 million actually was invested.

All the investors' funds were deposited in Illinois banks. Upshaw managed to pay money to early investors by using money that came in from new investors, a classic pyramid scheme. However, his failure to invest the money and his lavish lifestyle eventually caught up with him and his checks to investors started bouncing.

Known as an "affinity fraud," in which a criminal or con artist convinces people to trust him because they share a common religious or ethnic background, Upshaw not only hit Chicago-area churches but made numerous presentations across the country to preach his special brand of investment gospel.

"James Upshaw used his charisma, charm and seeming trustworthiness to bilk nearly 150 people to hand over their hard-earned money and savings," Madigan said. "This crime is especially heinous because people truly believed he was looking out for their best interests. In fact, the only interest he was looking out for was his own."

Madigan said Upshaw operated a company called Upshaw and Associates, LLC, located in Westchester. The business provided tax return preparation and consultation services, and after 2001, investment advice.

Upshaw would pitch one of several purported investment vehicles to unwitting victims, including investments in commodities, commercial paper and silver and gold. He sold a monthly program, a quarterly program and a two-year program as well as a money market plan.

The amount of interest earned from a particular program was different for different investors depending on how much they invested, how they wanted the interest paid and how strapped Upshaw was for money.

Madigan's office separated the charges into two different indictments because one of the cases involved Upshaw promising to represent a victim in a tax matter she was involved in with the Internal Revenue Service (IRS), which was different from his other crimes.

In that case, Upshaw not only failed to provide the woman with the promised representation, but he also stole the money she gave him to pay the IRS, Madigan said.

While Madigan's office is seeking restitution for investors, at this time, there are no known assets with which to repay victims roughly $3 million they are owed.

In a civil case last year, the Securities and Exchange Commission (SEC) seized Upshaw's home and other assets.

"A man who once had millions of other people's money now has about $700 in a bank account," Madigan said. "This is a heartbreaking, cautionary tale for potential investors to very carefully check out whom they trust their money with, no matter how that person presents himself."

By Martin H. Bosworth
ConsumerAffairs.com

December 1, 2005
Sony BMG's bad month is now officially a bad year. New York Attorney General Elliot Spitzer is investigating the possibility of filing yet another lawsuit against the electronics giant over its CD copy-protection software.

Spitzer sent investigators posing as customers to New York retail stores and record outlets to verify that Sony had recalled the CD's containing the software. The investigators were able to find copies of the CD's on the shelves of Best Buy, Wal-Mart, the Virgin Megastore, and other retailer outlets, according to BusinessWeek.

"It is unacceptable that more than three weeks after this serious vulnerability was revealed, these same CDs are still on shelves, during the busiest shopping days of the year," Spitzer said.

Spitzer had previously locked horns with Sony over its usage of "pay for play" tactics to get radio stations playing Sony artists. Sony agreed to major "corporate-wide" reforms and to enforce internal compliance of its promotion practices.

Spitzer isn't the only one getting into the ring with Sony. A class action lawsuit filed against Sony and First4 Internet, makers of the "rootkit" software that was installed on users' machines, is enlisting the services of Windows systems expert Mark Russinovich.

Russinovich is credited with exposing the dangers of the "rootkit" to the public, including its crippling of users' computer systems and the holes it opens for outside hackers to control computers.

The class action suit alleges that, "It is probable that millions of consumers have played these discs on their PC's and thus compromised their systems without knowing it. Today, several viruses have been reported that exploit the weakness that [the rootkit] created. Millions of users are at risk from these viruses that destroy software and steal personal information."

Even the District of Columbia is filing a lawsuit to get the Sony CD's off the shelves. D.C. resident Nicholas Xanthakos filed suit on behalf of the District on Nov. 30th, using the city's consumer protection code to act as a "private attorney general," according to the Hollywood Reporter.

Lawsuits have already been filed by Texas Attorney General Greg Abbott and the Electronic Frontier Foundation over the dangerous software. Massachusetts has opened an investigation.

The Sony "rootkit" scandal has reignited the war between consumers and media companies over the rights of buyers to share content via CD copying or file sharing.

Everyone from Microsoft to the Department of Homeland Security has come out against Sony's practices, particularly the lack of disclosure of the rootkit's effects on computers, and the corporation's slow response to consumer complaints.

When questioned about the rootkit by NPR, Thomas Hesse, president of Sony's global digital entertainment division, made the now-infamous statement, "Most people, I think, don't even know what a rootkit is, so why should they care about it?"

Sony BMG Music Entertainment has recalled its compact discs that contain copy protection software with the potential to expose computers to viruses and other security risks, but despite the recall, some of the CDs are still being sold.

Massachusetts Attorney General Tom Reilly warns many of the discs are still being sold to unsuspecting consumers in Boston.

Earlier this month, Sony BMG asked retailers to stop selling 52 music titles containing extended copyright protection (XCP) technology and to return the CDs to the company. Some of these CDs, however, are still being sold in Boston stores, Reilly said.

There is a potential security risk to consumers when consumers play these CDs on any computer with a Windows operating system. For this reason, Reilly said consumers are advised not to purchase the affected CDs, and not to play them on their computers.

Consumers can identify recalled CDs by looking at the table on the back of the CD case bearing the words "Compatible With:" on the side. If the URL at the bottom of the table contains the letters XCP, the CD is among those recalled by Sony.

Meanwhile, Reilly is conducting an investigation of Sony BMG related to the privacy and consumer protection issues raised by the copy protection software that Sony BMG used on the CDs.

Sony BMG has announced an exchange program for consumers who have already purchased CDs containing the XCP software. Under the terms of the program, affected consumers will be able to receive replacement or non-copy protected CDs.