Editore"s Note
Tilting at Windmills

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February 10, 2008
By: Kevin Drum

CREDIT CARD FOLLIES....What's a bank to do when its profits fall thanks to the subprime debacle and a slowdown in consumer borrowing? You guessed it:

Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up — in some cases to as much as 28% — even though they haven't been missing payments.

...."They need to raise rates because they can't raise fees anymore," [David] Robertson said. "It's politically untenable."

Politics also seems to be behind a subtle shift in language that's appeared in the terms and conditions of several top card issuers. Increasingly, lawmakers have been taking a skeptical view of banks' long-standing insistence that they can raise people's rates at any time for any reason.

Citibank announced last year that it would no longer make this claim. Instead, the bank now says people's rates may rise because of "general market conditions." Similarly, Capital One introduced language last year asserting that cardholders' rates could go up "if market conditions change." More broadly, BofA declares that credit card rates could increase due to "market conditions, business strategies or for any reason." [Italics mine.]

...."The card issuers are moving from a risk-management strategy to a revenue-generating strategy," [Robertson] said. "Credit cards are consistently the most profitable retail banking product," Robertson observed. "The growth is not there anymore. And with a recession coming down the pike, there's no expectation of more spending by consumers. The industry needs to raise prices to keep profits where they need to be."

The net result of this, of course, will be to scare the crap out of every credit card owner in the country, which will lead to even less consumer borrowing, which in turn will lead to even bigger problems for the banks. In other words, credit card issuers aren't just evil, they're stupid too. If Democrats in Congress had any guts at all (I know, I know), they would have long since introduced legislation to put an end to this and dared Republicans to vote against it. The campaign ads practically write themselves, don't they?

Kevin Drum 9:14 PM Permalink | Trackbacks | Comments (87)

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Comments

These types of articles make me laugh. So what if credit cards are raising the interest rate, if you have a problem with it don't purchase things you cannot afford and don't use a credit card. Pay cash, use a debit card. Americans need to live within their means and not purchase items they cannot afford. Remember, a bank is in the business of making money and if they can charge higher interest rates on credit cards they will. Like I said, pay for things in cash and if you cannot pay cash then you shouldn't purchase the item.

Posted by: Noel on February 10, 2008 at 9:22 PM | PERMALINK

I am grateful to pull out of the Clinton-Obama cage match. Thanks, Kevin. This is an important topic, one that cuts into the prosperity of most Americans, and actually threatens economic recovery. I desperately want our Congress to start leading and start bringing the credit industry to heal. But they have been too busy making bankruptcy impossible, and planning bailouts of the big banks.
There is probably no bigger issue than our looming economic collapse--and yeah, that even threatens national security more than Terra ever could. All the talk of martial law may be in preparation for economic catastrophe.

Posted by: Sparko on February 10, 2008 at 9:23 PM | PERMALINK

That's why my maternal grandparents pounded into my head the notion that you never charge anything to a credit card that you can't or won't pay off in 30 days -- and that was back in the good old days of 1982, with only 18% interest, compounded!

Posted by: Donald from Hawaii on February 10, 2008 at 9:24 PM | PERMALINK

The net result of this, of course, will be to scare the crap out of every credit card owner in the country,

I suspect that to a large extent the sort of credit card holder who would be affected by this sort of rate increase is the sort of credit card holder who doesn't really have much of a clue about what rates they're currently paying, and/or who is in such a financial bind that they are using credit cards as a last resort attempt to avoid going under.

Posted by: bobb on February 10, 2008 at 9:24 PM | PERMALINK

"Remember, a bank is in the business of making money and if they can charge higher interest rates on credit cards they will. Like I said, pay for things in cash and if you cannot pay cash then you shouldn't purchase the item."

Great advise, dude. Considering that the last items I put on my credit card were a doctor bill, a new heating coil to keep my car running and gas and groceries in a particularly tight month, I would be either out of a job for lack of transportation or dead with pneumonia for lack of medicine if I followed your wise counsel.

The real problem with this country is that it's full of self-righteous morons who lack the capacity to realize that their personal situation is their's alone.

Posted by: Wm on February 10, 2008 at 9:27 PM | PERMALINK

Wait a minute--If the banks are shooting themselves in the foot with this move, why does Congress need to do anything? Wouldn't Mr. Market duly punish them for their misdeeds? I don't think you believe this, Kevin. If Congress needs to do something, it's precisely because there's a strong likelihood that the banks *will* get away with it. I could also point out that the interest rate is irrelevant to those who pay *in full* every month, or avoid the financial crack altogether--but I see it's already been said.

Posted by: David in Nashville on February 10, 2008 at 9:28 PM | PERMALINK

The campaign ads practically write themselves, don't they?

They do -- but Democrats have to figure out a way to cut through the wedge non-issues that Republicans manage to get votes with.

An example of this is the interview with a low-income couple on PBS the other night. They went on and on about how angry they were that everything is becoming more expensive but their salaries are fixed or going down. Then they said they are voting Republican because of the abortion issue. That's what the campaign ads will have to deal with.

Posted by: JS on February 10, 2008 at 9:29 PM | PERMALINK

You almost have to admire the credit card companies.

Salaries have not been keeping up with the cost of living for years, unemployment keeps growing and there's a steady stream of young people who have to struggle to survive in an era of part-time jobs, no benefits and "service industry" employment. Credit card issuers know these people need them to survive and, once they have them, they can legally indenture them for years.

The real beauty and genius, though, is evident in these comments. Every puke with a few bucks in the bank has convinced themselves that only fools need credit cards, usually to pay for Xboxes, plasma TVs and three Cadillacs. Since they pay off their balances every month, they actively enjoy the thought of making the losers pay for not being as wise as them.

It's a wonderful system. Too bad, it's going to strangle the economy. That might even cause a little bit of indigestion for the folks on this thread who "know better."

Posted by: Wm on February 10, 2008 at 9:43 PM | PERMALINK

Democrats? Our party of Joe Biden respected elder?

Posted by: jerry on February 10, 2008 at 10:03 PM | PERMALINK

Actually, JS, I think that would make a great ad for the Democrats.

My problem with my party is that seeing what Harry Reid and Nancy Pelosi did over the last year, I certainly can't recommend the Democratic Party to anyone, and I would not be at all surprised to see either Obama or Clinton have a very tough time in the campaign.

Maybe I am not mainstream enough, but I've never seen a more disastrous year.

Posted by: jerry on February 10, 2008 at 10:07 PM | PERMALINK

Another great reason to move your money to a credit union.

Posted by: colbertocrat on February 10, 2008 at 10:09 PM | PERMALINK

Kevin,
I was a bit suprised to see that you had not written anything about Mitt Romney's big win in Maine -- ;)

Posted by: theCoach on February 10, 2008 at 10:11 PM | PERMALINK

Great advise, dude. Considering that the last items I put on my credit card were a doctor bill, a new heating coil to keep my car running and gas and groceries in a particularly tight month, I would be either out of a job for lack of transportation or dead with pneumonia for lack of medicine if I followed your wise counsel.

I'm sympathetic to your plight but I think the OP has a valid point. I believe a lot of Americans' credit card debt is self-inflicted through non-essential purchases.

I wonder if any credible data exists that would show just what it is Americans buy on credit cards that put them into debt.

Posted by: Prince Roy on February 10, 2008 at 10:11 PM | PERMALINK

Does anyone remember usury laws? Exploiting poor or desperate people with high interest rates is almost as old as the other oldest profession and we used to have laws that recognized this for the criminal behavior that it is. Unfortunately the banking industry got those laws amended until they are now utterly meaningless.

Of course everyone should be perfectly responsible and excellent money managers, but that has never been true. We should again recognize the banks conduct is no different than the corner loan shark and re-criminalize this behavior.

Posted by: BobPM on February 10, 2008 at 10:12 PM | PERMALINK

Hello? Where is a national usury law when we need it? They need to set something like 2-3X prime rate maximum or something like that to put a stop to this bullshit. Oh yeah and as far as mortgages go, banks should offer ONE rate for the same product (30-yr fixed, i.e.) and let them compete on % down payments and credit ratings for customer like it should fucking be. None of this start out with 0%, going to 11% horseshit for nomads wanting nice rent from the bank. Oh yeah and line up these Republican financial wizards and beat them to death with a lead pipe.

Posted by: Doc at the Radar Station on February 10, 2008 at 10:13 PM | PERMALINK

This is the culmination of GWBs ownership society. The top 2% own the financial industry, the other 98% are debt slaves. This was facilitated by the passage of onerous bankruptcy laws coupled with an inability (ideologically driven of course) to regulate the industry.

And of coure JS is right, most of these new class of debt slaves, are unaware of the plot, and easily distracted by the wedge issues. The democrats don't want to bring this up because too many were complicit. And well saying anything would be decried as crass class warfare, not to mention the loss of corportate contributions.

With our new society, many people who never would buy things they can't afford, are really just one medical catastrophe away from joining the debt-slave class.

Posted by: bigTom on February 10, 2008 at 10:14 PM | PERMALINK

BA raised my wife's rate by nearly 10%, to 19.99%, because/despite no purchases, etc. for over 12 months, no late payments in 4 years, a balance of only 20% of available credit, and a FICO of 740.

Needless to say, that card's going back in two pieces.

Posted by: Davis X. Machina on February 10, 2008 at 10:17 PM | PERMALINK

Note that the plutocrats in power (including Mr. Reid, Mr. Kerry, and all the other democrats who voted for the bankruptcy bill) have allowed the banks to form ever greater monopolies under threat of the lie that they "need to be competetive" (ie, by paying tens of millions of dollars to their executives, or by losing millions of customers' financial data [Bank of America], or colluding to crush small competitors and then fix prices in the stratosphere), have been allowed to participate in vast networks of corrupt activity (faking IPO valuations, Enron-style altogether-fake IPO's, faking research results, faking credit ratings and lender insurance ratings based on them, bribing senators of both parties, outright mass fraud in foreign-currency credit card transactions, and on and on). They are able to get away with all this, and STILL charge $3.00 at both ends for ATM transactions that actually save them massive amounts of money in the first place, and STILL raise nuisance fees and lower protections and services and raise conditions and interest rates EVERY month (yes, you too have received those little slips in almost EVERY month's statement if you own any Bank of America or Chase or RBS cards-- which also means if you previously owned any MBNA cards, or Citibank cards, or Sony cards, or FirstUSA cards, or People's Bank cards, or any of the numerous other institutions these hyperbanks have been allowed to absorb).

Now they are raising interest rates on consumers in good standing when the cost of money to banks has just gone way down and the consumers are facing recession. So that the executives can still pay themselves obscenely.

This is nothing less than an act of rape on the American middle class by monopoly powers and the hyperrich, and Congressmen and Senators including numerous democrats unworthy of the name and paid huge sums by banking interests (e.g.: Reid, Biden, Byrd, Inouye, Landrieu, both Nelsons, Salazar, Stabenow), have been their pimps and procurers.

It is a national scandal. The banks need to be broken up, their boardrooms investigated for restraint of trade, limits set on nuisance fees, foreign exchange fees, ATM fees, interest rates, obscurantist finance charge computation (the infamous "two cycle average daily balance") and customer agreement volatility.

THEN we might see some competition, new banks entering the market, and consumers not afraid to spend the rebate checks they won't be getting thanks to Nancy Pelosi and Harry Reid.

Posted by: q on February 10, 2008 at 10:21 PM | PERMALINK

Some may want to watch this Frontline report on the credit card industry.

Posted by: Prince Roy on February 10, 2008 at 10:23 PM | PERMALINK

"I'm sympathetic to your plight but I think the OP has a valid point. I believe a lot of Americans' credit card debt is self-inflicted through non-essential purchases."

The thing is, I don't really have a plight. I make decent money and am able to pay back what I owe, although I have had that process slowed by sudden, unexplained rate jumps. That really pissed me off, but didn't destroy me financially.

But it doesn't take a huge amount of imagination or empathy to see how my bummer can become another person's destruction - or my own in the event of sudden illness, injury or unemployment. I'm just baffled at how these people can look upon financial practices that have caused revolutions in the past and "laugh."

The ultimate legacy of the Republican quarter century may the creation of generations of moral midgets on both sides of the aisle who see other's misfortunes and exploitation as parables of their own righteousness.

Posted by: Wm on February 10, 2008 at 10:25 PM | PERMALINK

One: As Davis notes above, there's already a limit on what credit card companies can do (i.e., if you don't like the rate, transfer your balance and cut the card up).

Two: I don't understand what Kevin proposes. Credit cards are legally a month-to-month loan; the terms of that loan are redetermined every month, and the borrower can either pay off the loan (the balance) or not. What could Congress do about the fact that rates change, other than change what we mean by a credit card?

Three: This "need it to survive" garbage has got to go. The United States in 2008 is the among the richest places in world history. In China, young people making a tenth (even adjusted for cost of living) of what young people in America make manage to save half their salary. There are certainly some who've gone into debt because of, for instance, an unexpected, uncovered medical problem. I've seen the Fed Survey of Consumer Finances data, and it's simply untrue to claim that situations like this are responsible for high debt. The reason most people are in debt is because they buy things they can't afford - I would imagine one would cut back to unprocessed groceries one can cook with (this is what I buy, and I spend less than 25 bucks a week) before running into debt.

4) Bank of America is slimy nonetheless, but there are a dozen regulations concerning fee disclosure that I'm more upset about that the fact that credit card rates can go up when market conditions change.

Posted by: cure on February 10, 2008 at 10:25 PM | PERMALINK

"This is the culmination of GWBs ownership society. The top 2% own the financial industry, the other 98% are debt slaves."
Posted by: bigTom on February 10, 2008

Maybe it's even worse. Dubya will soon be gone, but American Capitalism ("The only purpose of a corporation is to make money.") will be here for much longer.

In a winner-take-all society what happens to those who don't win?

Whatever made anyone think that we had to be in competition with one another all the time, to the point where a few people drive everyone else bankrupt and destroy the whole economy?

Posted by: MarkH on February 10, 2008 at 10:29 PM | PERMALINK

What really strikes me as transparently greedy and evil are those "checks" that credit card issuers mail credit card holders every month (and that I feel the compelled to shred). The banks are counting on being able to convert a large percentage of these low-rate loans to usurious-rate loans. I don't know the conversion rates but assume they're pretty high.
One assumes that the meticulous and greedy pukes manage, usually, to not get their loans converted and the rest, who don't pay bills twice a week or are short one month, run afoul of the low-rate conditions and then pay to cover the pukes low-rate loans and also pay additionally to increase the banks profits.

Posted by: Bill Arnold on February 10, 2008 at 10:29 PM | PERMALINK

(Correction: Kerry voted against the bankruptcy bill. But I he also voted down the Dayton amendment that would have set a 30% limit on credit card interest. Can't keep them down to a measly 30%, can we? Because Kerry receives about $36000 a year from the banking industry. Go figure.

Posted by: q on February 10, 2008 at 10:29 PM | PERMALINK

"This "need it to survive" garbage has got to go. The United States in 2008 is the among the richest places in world history. In China, young people making a tenth (even adjusted for cost of living) of what young people in America make manage to save half their salary."

You see, there's this thing called "cost of living." I suspect it's a little higher in the United States than in China. I'm not sure what the average citizen of communist China pays in rent or house payments. but I do doubt that it's as large a percentage of income as it is for most Americans.

As for cutting back on processed foods, I did that for health reasons. Raised my grocery bill a good chunk, since fresh food is massively more expensive than the high-fructose corn syrup laden stuff in the boxes.

Posted by: Wm on February 10, 2008 at 10:31 PM | PERMALINK

I know many persons who frequently get unsolicited offers from credit card companies to open new accounts with low interest rates, especially if coupled with a balance transfer.

Given the large number of financial institutions in the United States already offering credit cards, and the relatively low barriers to entry into this industry, I expect that, in the face of falling economic interest rates, companies like Capital One and Bank of America that are raising interest rates on credit card holders who are staying current in their payments will find that these rate increases can't be sustained in the market. Too many of their customers will go elsewhere.

Posted by: Joel Rubinstein on February 10, 2008 at 10:31 PM | PERMALINK

To those who pretend one can "just transfer the balance to another card", that's the pesky problem that the banks have solved by buying up the competing cards. 8 separate cards of mine are now owned by 2 banks. The biggest banks specifically prey on the poorest credit card risks and win massively on the fees and interest. Those cardholders would find it difficult to get any other card that didn't (by blatant monopoly practice) have the same sorts of fees and interest. 28%. Let's see. How many times the prime rate is that?

Posted by: q on February 10, 2008 at 10:35 PM | PERMALINK

But it doesn't take a huge amount of imagination or empathy to see how my bummer can become another person's destruction - or my own in the event of sudden illness, injury or unemployment. I'm just baffled at how these people can look upon financial practices that have caused revolutions in the past and "laugh."

I don't think people are necessarily laughing. Most of your concerns would be better addressed by other means-nationalized health care for instance.

I'm not convinced as of yet that the majority of credit card debt is from people who need the card to purchase basic, life-sustaining needs.

I know a lot of people who have credit card debt, and all of them are just like you-they are doing ok financially. They are just living beyond their means. The poster who brought up the example of the savings ethos in Asia raises a good point.

If someone could provide empirical data to show otherwise, I could be convinced otherwise, though.

Posted by: Prince Roy on February 10, 2008 at 10:42 PM | PERMALINK

There is also a wider issue here, which is whether the government should be taking steps to protect people from making bad decisions.

The Republican position is, of course, that it's a matter of "individual responsibility" and if people don't comprehend the meaning of a high or adjustable credit card (or mortgage) rate it's their fault -- and they should suffer for it.

But in other areas (illegal drugs for example) the government is very much involved in protecting people from themselves -- and you go to jail if you are caught with the wrong stuff. And the government requires warnings on bottles of alcohol and packs of cigarettes.

But you can do a lot more damage to yourself, and to your family, with the wrong credit decision -- and, there, there are no warnings, only misleading advertising.

Limiting the rates that banks can charge is tough, because they will argue that their rates have to be high enough to cover their delinquency losses. This, of course, is a vicious circle -- the higher the rates get, the more delinquencies there will be. And periodically, there will be major credit busts that bring the whole system down.

So it's better to concentrate on educating the consumer, protecting people from themselves. At a minimum, make it mandatory that, say, before opening a line of credit (card, mortgage, etc), everyone has to watch a Suze Orman video. Or the equivalent.

Posted by: JS on February 10, 2008 at 10:51 PM | PERMALINK

"I'm not convinced as of yet that the majority of credit card debt is from people who need the card to purchase basic, life-sustaining needs."

Define "life-sustaining." For me, taking the hit to keep my car running and thus keep the income from the job was "life sustaining." Admittedly, I could have chosen the moral route, chopped up my card and lost my job, home and health. It may have destroyed my future prospects, but it would have kept me morally pure. Next time I get into financial trouble, I'll dial up my bank's customer support and get some advice from one of their friendly staff of Asians.

Of course, my issues would be solved by better public transportation, universal health care and the return of Jesus. Since none of those things have happened yet or are guaranteed to happen in the future, I'd prefer to keep the conversation in the here and now.

As for empirical data, this article is fun and contains these nice factoids:

http://www.creditbloggers.com/2007/01/news_flash_medi.html

* Low- and middle-income medically indebted households had higher levels of credit card debt than those without medical debt-on average 46 percent higher. ($11,623 versus $7,964).
* Twenty-nine percent of low- and middle-income households with credit card debt reported that medical expenses contributed to their current balances. Within that group, 69 percent had a major medical expense in the previous three years.

Posted by: Wm on February 10, 2008 at 10:53 PM | PERMALINK

Another fun fact from the same article:

"The report also goes on to discuss the issue of medical credit cards and revolving lines of credit. These services are often offered to patients as "financial assistance" by health care providers when, in fact, they usually have higher rates and fees than comparable standard financial products."

Posted by: Wm on February 10, 2008 at 10:54 PM | PERMALINK

Legislation that would entail what Kevin suggests is the sort of common sense approach that would attract both the working class and all levels of the middle class. It's the sort of policy that any Democrat, particularly one like Hillary Clinton, would be wise to put front and center in any national campaign.

Posted by: Brian on February 10, 2008 at 10:54 PM | PERMALINK

For those of you who are arguing that credit card debt is largely a personal problem, and that we are all living beyond our means, you are wrong as to the first and right as to the second. Our credit card debt and mortgage crisis problems are the natural result of the decline of the average working family's income for about 20 straight years when adjusted for inflation.

In the old days when our incomes routinely kept pace with or exceeded the increased cost of living, credit card problems were relatively rare. In those days it was fair to blame the poor dumb bastard who was using credit card trying to keep up with the Joneses. As our incomes have stagnated or declined more and more families have been going into hock just to stay in place. The mortgage crisis is in part the result of people taking money out of real estate to pay off credit cards. Nobody has any money left in their real estate to pay off cards.

If you think I am kidding when I tell you that the American standard of living is in decline just remember when the average car loan was 36 months? Remember when it went to 60 months? Now 96 month loans are not uncommon. Remember when you used to get raises at the end of the year? Remember when your parents became more and more prosperous as they grew older? My parents retired at 55. Me, I will probably retire at 70, if ever. Remember when your parents could travel and save for retirement as soon as they finished paying for your college education? Remember the shock the first time you saw somebody using a credit card at the grocery?

Folks, we are like the frog put into the pan of water that is slowly heated up. A lot of us just haven't noticed, but our standard of living is in real decline. We don't like it, but we aren't doing anything about it. Our leaders don't really feel the need. They and their friends are still beating inflation.

The rest of us are not doing so well, but until we realize that second tier issues like abortion and illegal immigration and even international terrorism are not nearly as important as our declining standard of living the bulk of us will continue to watch our once wonderful standard of living decline. Our leaders will continue to laugh at us suckers while helping their friends.

Don't blame somebody for running up credit card debt. There but for the grace of God go you.

Posted by: Corpus Juris on February 10, 2008 at 11:09 PM | PERMALINK

The irony to me is the practices of the credit card companies are the same sleaziness that has led to serious social unrest time and time again throughout history. Abuse of credit by elites over the poor is pretty much the basic formula for creating unrest, from Ancient Rome to Bourbon France.

I just finished a section in Barbara Tuchman's The March of Folly where she described how the combination of political corruption and abuse of usury by the elites over the common folk in the Eighth Century directly led to a series of revolutions and civil wars that were ended by the armies of Islam being invited in and taking over the country. She noted that the population welcomed their new overlords, so sick were they of being abused by their old masters.

Americans like to think that they float outside of history, immune to its lessons. I suspect that those of us not drawing Social Security checks will live to see the day when that certainty shrivels away.

Posted by: Wm on February 10, 2008 at 11:21 PM | PERMALINK

The New York Times (amazingly) had an unbiased article about economic well-being today. It shows just how much richer Americans have become.

http://www.nytimes.com/2008/02/10/opinion/10cox.html?_r=1&ref=opinion&oref=slogin

Posted by: ex-liberal on February 10, 2008 at 11:22 PM | PERMALINK

Oops. In the above message, Tuchman was talking about 8th Century Spain.

Posted by: Wm on February 10, 2008 at 11:27 PM | PERMALINK

Whatever happened to usury laws?

Posted by: Jake on February 10, 2008 at 11:27 PM | PERMALINK

"The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status."

The low income households are eating their savings and assets to keep up with present consumption. That was a seriously depressing article ex-liberal.

Posted by: corpus juris on February 10, 2008 at 11:29 PM | PERMALINK

The New York Times (amazingly) had an unbiased article about economic well-being today. It shows just how much richer Americans have become.

I found the argument (from two bankers) stems from a rather ridiculous premise: Americans are richer because they consume more.

They fail to note that Americans are more in debt than at any time in our history.

Wm, I'm still unconvinced. If 3/10 people are in credit card debt because of medical expenses, the great majority, 7/10, are not. And nationalized health care is the real solution to that. The report also fails to describe what types of medical debts these are (open heart surgery or lasik?).

I do think interest rates should be pegged and capped to the prime rate. If it means less profits to the industry because they can't give cards anymore to risky borrowers, the better off we'll all be.

Posted by: Prince Roy on February 10, 2008 at 11:32 PM | PERMALINK

WM get a grip on things, we all have issues and some of us must take on debt but don't complain because the interest rates are too high. What if you didn't have access to those credit cards in the first place? Then you wouldn't have made it to work and you would not have payed your hospital bills. Credit from a bank is not a right, it's a privilege and you need to understand that or you'll be overextended like most Americans.

Posted by: Noel on February 10, 2008 at 11:39 PM | PERMALINK

As for state ursury laws, those state laws are preempted by the Federal National Banking Act and HOLA.

Posted by: Noel on February 10, 2008 at 11:44 PM | PERMALINK

I'm so glad we're fighting a war of civilizations against Muslim terrorists whose religion proscribes charging interest.

Posted by: In/Sanity on February 10, 2008 at 11:45 PM | PERMALINK

"WM get a grip on things, we all have issues and some of us must take on debt but don't complain because the interest rates are too high. What if you didn't have access to those credit cards in the first place? Then you wouldn't have made it to work and you would not have payed your hospital bills. Credit from a bank is not a right, it's a privilege and you need to understand that or you'll be overextended like most Americans."

Once again, I am financially fine. My debts are paid.

I just have a problem being screwed. I define being screwed as shopping around for a card with good rates, paying my bills in full on time and suddenly having my interest rate jacked up for no reason. I define doing all the right things, abiding by my terms of the contract and still having my bank strongarm me into paying them more simply because they can as being screwed. I define being screwed as knowing that this is made possible by a deep corruption in my elected officials and an equally corrupted sense of moral superiority among many of my fellow countrymen.

Of course, not being exploited is a privilege. One reserved, I guess, for my betters. I suppose I can feel snug and warm knowing that I am smarter and better than those who really are losing everything they have because of bad luck or bad choices.

It certainly seems to be working for you, Noel. Or maybe it's not, but you've been convinced that it's some form of virtue to be screwed. Or, as you put it, "some of us must take on debt but don't complain because the interest rates are too high."

Posted by: WM on February 10, 2008 at 11:57 PM | PERMALINK

In the good old days, poor people would just starve and die.

Posted by: absent observer on February 11, 2008 at 12:01 AM | PERMALINK

Prince Roy,

There's a tremendous amount of signal to noise on the issue, but I'm amazed at how difficult it is to find information on just how people do use credit cards. Anectdotally, I'd say that people of my age and class (young, professional, college-educated and earning a moderate income) tend to use credit cards to fill gaps in income, not to purchase luxury items. I wouldn't be shocked if that wasn't true for all categories of Americans, but I am shocked that no one seems to be collecting this data.

There is a lot of data on why people file for bankruptcy, but I'm not sure that I'd be comfortably equating bankruptcy directly with credit card debt. I suspect most people are like me, capable of taking the hit when credit card companies screw with their service agreements.

That, of course, is not immoral, since they are making an honest profit off of my powerlessness and lack of thrift. That's been the American way since the first indentured servant stepped off the boat at Jamestown.

Posted by: WM on February 11, 2008 at 12:04 AM | PERMALINK

The irony is that our government, through the Fed, is lowering interest rates to help banks borrow at lower rates. The banks, in turn, are screwing the taxpayer, who is indirectly paying for the Fed and funding its policies.

The Fed, which appears to represent private banking interests more than the tax payer, is helping the banks screw the tax payer. That is the real problem. Look at Greenspan. He helped the banks screw the individuals and has now landed a cushy job with a hedge fund that profited heavily from its short positions in the mortgage securities market. What a deal.

Posted by: rational on February 11, 2008 at 12:04 AM | PERMALINK

I paid off over 20k in credit card debt and I still owe for student loans from law school. But when I had that 20k in credit card debt I cut my cards, paid cash and didn't purchase anything that I couldn't afford and pay cash for. I didn't own a credit card for 4 years, thank goodness for debit cards because that saved me because I could rent cars and travel with my Visa debit card.

I was saddled with a lot of debt but you can get out if you just live within your means. Medical costs is another issue and as you know doctors cannot refuse patients if they cannot pay. Thus using a credit card for medical expenses doesn't make much sense.

Posted by: Noel on February 11, 2008 at 12:07 AM | PERMALINK

"I paid off over 20k in credit card debt and I still owe for student loans from law school. But when I had that 20k in credit card debt I cut my cards, paid cash and didn't purchase anything that I couldn't afford and pay cash for. I didn't own a credit card for 4 years, thank goodness for debit cards because that saved me because I could rent cars and travel with my Visa debit card."

Ah. You've found Jesus, cut back on the burgers, stopped smoking and learned the true meaning of love. I'm sorry, but this issue seems a little bigger than your personal journey of discovery.

As for the "doctors cannot refuse patients" line, I'm at a loss for words. All those people going bankrupt over medical bills, dying for lack of treatment and slaving at crappy jobs for the insurance have got it all wrong? They could just show up at the doctor's office of their choice, demand to be treated and receive the best care possible?

Posted by: Wm on February 11, 2008 at 12:12 AM | PERMALINK

I usually find myself being accused of "blaming the victim", but now it is my turn to apply that to all our trolls here. It is well known fact of human nature that we have a lot of people who are weak when it comes to putting things off. Only a Puritan mentality would consider it OK to make their exploitation the foundation of a good chunk of our economy. We don't even try to warn young people, by teaching them in high school about basic personal finance, then we set them loose into our world of predatory gotcha capitalism. What an upstanding moral society we are!

Posted by: bigTom on February 11, 2008 at 12:17 AM | PERMALINK

Kevin, not a chance; credit card users who are either undisciplined or actually running the edge, will continue to use credit cards no matter the rate, and just further into debt.

Posted by: SocraticGadfly on February 11, 2008 at 12:18 AM | PERMALINK

By the way, isn't Capitol One the one that used to run all those commercials with the barbarians? The one whose business hook was that they weren't like the other credit card companies - no tricks, no hidden fees, no sneaky interest rate bumps.

Posted by: Wm on February 11, 2008 at 12:49 AM | PERMALINK

Remember the shock the first time you saw somebody using a credit card at the grocery?

I remember the first time I saw a credit card machine in an emergency room: November 1, 1999

Posted by: Doc at the Radar Station on February 11, 2008 at 12:55 AM | PERMALINK

Capital One did this to me. You have the option of accepting the new terms or closing the account at your previous terms and paying off the account. I closed my account. Greedy fuckers! This is part of why people get upset at CEO compensation

Posted by: Bob B. on February 11, 2008 at 1:03 AM | PERMALINK

In other words, credit card issuers aren't just evil, they're stupid too.

Tell me about it. After weathering an economic "perfect storm" back during the first Bush II recession, I've been paying off credit card debt ever since and should finally put the stake through its heart this year. No complaints - if not for the easy credit access, I would have lost the house. It was a very large debt spread over several cards but miraculously I always managed at least the minimum payment, on time, and usually much more than the minimum payment. So last spring, one of the card issuers doubles the interest rate. I call and raise hell and tell them, look, I'm just going to move the debt somewhere else with a locked in rate if you don't work with me, you have access to my credit reports and know I can easily do it; their basic response was a yawn. So, I did what I told them I was going to do. And I suspect that everyone who had an account with them who had the means to go elsewhere did the same.

Basically, they only succeeded in purging their best risks. Because everyone carrying a balance would go elsewhere if they could; the thing that keeps people from doing it is if they are overextended, have a history of missed or late payments, etc. So they kept that base of customers and the people like me left. Now, theoretically, the higher interest rates are going to generate a greater income stream. The problem with the theory is that now, the majority of the customers remaining are the ones who miss payments or make late payments, and raising their monthly minimum is only going to exacerbate that problem. At the same time, the company has lost the revenue stream from their best customers, the revenue that they could count on coming in every month. And in fact, it's actually costing them money to have lost those account balances, because a certain number of the good customers who moved balances elsewhere, such as myself, have kept their no-annual-fee card and continue to use it and pay the balance in full each month...which means the company is not only providing us with a free ride on credit for a month on purchases, but is also incurring the expense of administrating the account, mailing costs, etc.

The companies playing the raise-the-rate games will greatly increase the theoretical money coming in each month. The real money? Not so much.

Posted by: Jennifer on February 11, 2008 at 1:13 AM | PERMALINK

Lower rates for me, not for thee!

Posted by: sherifffruitfly on February 11, 2008 at 1:26 AM | PERMALINK

Are all of you "tough shit credit users" folks the same *ahem* Democrats who hate Hillary and will vote for McCain? Just curious.

Posted by: Bush Lover on February 11, 2008 at 1:26 AM | PERMALINK

bigTom: "We don't even try to warn young people, by teaching them in high school about basic personal finance, then we set them loose into our world of predatory gotcha capitalism."

How right you are. Everything I learned about fiscal discipline came from my maternal grandparents, because my grandfather was a long-time vice president at First Western Bank (now Sanwa Bank) in Los Angeles, and was a founding member of the American Institute of Banking. I learned from the inside out just how predatory the system can be to the ignorant and the uninitiated. It was an advantage a lot of my peers didn't have, for which I am grateful.

We really need to teach our kids about money and fiscal discipline. Unfortunately, it's hard to teach it first-hand when so many of us don't possess that knowledge ourselves.

Posted by: Donald from Hawaii on February 11, 2008 at 1:35 AM | PERMALINK

Because everyone carrying a balance would go elsewhere if they could

Isn't transferring your balance to another card the same as a "cash advance" for which cards charge usurious rates?

I've never transferred a balance, so I don't know. I'm just looking at my latest statement. 9% for balances, 21.9% for cash advances

Posted by: anonymous on February 11, 2008 at 1:35 AM | PERMALINK

anon - I don't know about your specific situation, but in my case, I get checks pretty much every week from one or more of the companies I have accounts with...sometimes they are for the regular rate, but often there are checks with teaser rates that will allow a choice between up to a year interest free or a low fixed rate until the balance is paid in full. There are fees associated with the checks, generally a $5 minimum and 3% of transferred balance, up to a cap of $200, maximum (sometimes there's no cap - it's just 3% of balance). So there is some expense associated with the transfer, but when you're going from 9.99% to 3.9% with a large balance, within 2 or 3 months you've already covered that fee with the savings on interest.

Posted by: Jennifer on February 11, 2008 at 1:44 AM | PERMALINK

Isn't transferring your balance to another card the same as a "cash advance" for which cards charge usurious rates?

The checks they send out often have full transaction fees and/or are treated as cash advance. Or they have a deadline, often not written on the check itself, after which it is treated that way.

For those with great credit ratings (me) they will occasionally offer a low fixed-for-life-of-loan transfer (2, 3, 5%), which may or may not have a transaction fee (worth it for the fixed rate). Much more commonly, they offer a "promotional" transfer rate which last a few months and then jumps up to 19% or whatever your nominal rate is. So you have to have many cards and run a wild goose chase to keep low rates, often entailing billing dates at all different times of month making it much easier to have a payment late.

A single payment late by a single day and they will typically obliterate the fixed rate from any such balances and throw your all your rates up to 28% without warning. In addition to the $30+ late fee. If you have more than one card, chances are several of your cards have been purchased by one of the others, and they will raise the rates to punitive levels on all cards they now own (though they might have different names on the cards).

Keep in mind that without doing any of these things they would already be making massive profits.

But when their executives are fired for incompetence and sloppiness they get 30 million dollar going away presents, 10-year golf memberships and whatnot. And when they're caught embezzling billions of dollars (or in the case of the big banking firms, colluding in this), and they've destroy thousands of people's pensions, they stand a good chance of walking away. And with the march of "tort reform" (= state obstruction of justice), there's no recourse in civil court against them.

And if they screw up and over-extend themselves on bad bets with other people's money? Are they left to twist in the wind like the lower-middle-and-working class consumer? The market will punish them? Not a chance. Pillars of society, these institutions. Can't have them going under. The ever-patriotic American taxpayer will bail them out.

Just as the working poor with no health insurance pay 3 times what the insured executive pays, the poor and the middle class are treated to a punitive double standard in credit and bankruptcy law.

Posted by: q on February 11, 2008 at 2:09 AM | PERMALINK

That nytimes op-ed by the Dallas Fedsters was hilarious, ex-lib. The rich are getting richer and the poor poorer, but consumption is up, so everything's hunky-dory! ROTFLMAO.

"...the abstract, income-based way in which we measure the so-called poverty rate no longer applies..." Stop, you're killing me! (Really!)

The poor are able to spend more than they earn by selling their homes and cars, so they're doing just great!

Plus, VCRs are cheaper today than ever before!

This is a joke, right?

Wake me when this is over.

Posted by: Nancy Irving on February 11, 2008 at 2:10 AM | PERMALINK

Note too that this will kill the effect of a "stimulus package". This almost guarantees that any tax "rebate" will go to paying down personal debt.

Posted by: sherifffruitfly on February 11, 2008 at 2:30 AM | PERMALINK

'That, of course, is not immoral, since they are making an honest profit off of my powerlessness and lack of thrift. That's been the American way since the first indentured servant stepped off the boat at Jamestown.'

Until the job filled by the powerless and spendthrift indentured servant was outsourced to a slave.

These days, it has now become the Chinese way, via America - except in the case of the Chinese, no one has ever accused them of being spendthrifts, while powerless goes without saying in a state ruled by those that control essentially all wealth and power - hmm, maybe the Chinese and American way are only separated by thriftiness?

Posted by: rent_to_own on February 11, 2008 at 2:54 AM | PERMALINK

Are all of you "tough shit credit users" folks the same *ahem* Democrats who hate Hillary and will vote for McCain? Just curious.

I actually dislike the typical Hillbot more than the woman herself, ,but to answer your question:

I'm neither an Obama or HRC supporter, and am not a member of either party.

I voted for McCain in the 2000 Virginia primary, but never again, somewhat because of his stance on the present war, but primarily due to his response when the Bush/Cheney campaign in 2000 slandered and maligned him in South Carolina and beyond. His basic response-'thank you sir, may I have another'. To be honest, I lost what respect I had for the man.

I am not enamored of Obama, and do not get why so many find him 'inspirational'. But I do respect him for his early opposition to the war. It's tipped the scales in his favor.

As for HRC, 90% I will vote third party of she is the nominee. Here are the reasons why it will be very difficult for me to vote for HRC:

--she did not oppose the war, but tried to rationalize her vote by shoving all the blame on Bush. (She had no power of independent judgment?)

--she supported Kyl/Lieberman, which essentially is the extension of the Bush doctrine into Iran.

--she is a leader in a dem controlled Congress that has caved in and kowtowed to Bush on every significant issue.

--she has yet to publicly condemn Bush for his unlawful expansion of executive branch powers. Nor has she led a fight to end his administration's spying on US citizens without a warrant.

--if she is elected, and were to be re-elected, there will have been a Bush or Clinton in the White House from 1989-2016. This is not healthy for a democracy. While it ranks last among my concerns, this is a legitimate issue.

Posted by: Prince Roy on February 11, 2008 at 3:53 AM | PERMALINK

"The love of money is the root of all evil..."
--I Timothy 6:10

Posted by: Quotation Man on February 11, 2008 at 6:20 AM | PERMALINK

Capital One is the lowest of the low, in terms of being predatory in their lending practices. I personally know a couple of their senior executives - the Chief Auditor and a Senior VP of Finance - and both are gigantic assholes. I would never borrow from them.

The ancient Hebrews had a tradition in connection with their celebration of Jubilee, whereby every seven years, all debts would be forgiven. There is much wisdom in this.

Debt is a form of slavery.

Posted by: The Conservative Deflator on February 11, 2008 at 6:38 AM | PERMALINK

Good thread and thanks to all.

Even the trolls. I find it reassuring to see their ignorant posts shot down by the educated and thoughtful posters.

What I can't believe. 28% interest. Holy bejesus. How in the heck is anyone going to climb out of that hole?

Posted by: jharp on February 11, 2008 at 7:02 AM | PERMALINK

"Bank of America is slimy nonetheless"
It sure is! We bank with them because they bought out Fleet Bank. Fortunately. we do not have one of their credit cards.However our latest bank statement shows that on their own Bank of America enrolled us in a "Keep the Change" program that they have been pushing. Starting a year or so ago they sent us mail inviting us to sign up for the program; we also saw it advertised n TV. We chose not to sign up, but as of our last statement Bank of America made the decision for us and enrolled us anyway. Today I will go to the bank and insist we be removed from the program. If Bank of America wants this so badly, it must be good for them and bad for us.
(This is a program where they round off payments to the next higher even number- then take the extra change they charged your checking account and put it in your savings account.Last month they charged an extra $2.40 and then moved it to savings. In our view it is not worth the extra bookkeeping on our part since the interest they are paying on the savings account is miniscule. Also Consumer Reports has recommended against joining this program, which they say can generate fees for the bank.)

Posted by: myrna on February 11, 2008 at 8:13 AM | PERMALINK

Kevin -

I recently had the interest rate on my three credit cards from BofA raised from 6.99% to 21.99%, 7.99% to 23.99%, and 7.99% to 28.99%. This after being a loyal customer for 20+ years and a FICO score over 700. In otherwords, I'm not a credit risk. I was so pissed off, I paid all of them off immediately. From now on, I'll use the cards and pay them off monthly. NO interest charges.

I'll keep using them because I spend enough to gain a few free airline tickets every year from the mileage.

But screw them. They won't get another penny in interest from me.

Posted by: EdT on February 11, 2008 at 8:39 AM | PERMALINK

The poop is about to hit the fan. I have drastically cut back spending in my household and I'm sure my family isn't the only one, not by a long shot. While some people are hoping we avoid a recession, I just hope we avoid another depression. Although as miserable as that would be, maybe it's a necessary thing. It might wake a few people up, although at the expense of much hardship.

Posted by: e. nonee moose on February 11, 2008 at 8:45 AM | PERMALINK

In classic case of targeted ad failure the banner ad at the top of the page is for Bank of America.

:)

Posted by: crack on February 11, 2008 at 9:08 AM | PERMALINK

Note that FIRST the new bankruptcy law was passed, ensuring that old credit card debt could not be erased as part of bankruptcy proceedings.
THEN Bank of America raised their interest rates to usurious levels. One followed the other. There is a form online to contact the Senate Banking Committee, but it's not likely they will do anything, seeing as Congress gave the banking lobby everything they wanted at the expense of consumers.

Posted by: myrna on February 11, 2008 at 9:12 AM | PERMALINK

And guess what Hillbots: HRC supported the earlier version of the bill that became the 2005 Bankruptcy law (she missed the final vote due to Bill's heart surgery); Obama opposed it and voted against it. Yet another plus in the Obama column.

Posted by: Prince Roy on February 11, 2008 at 9:37 AM | PERMALINK

Where's Ralph Nader with an honest credit card and banking operation? Or, is such work beneath him?

Posted by: ferd on February 11, 2008 at 9:47 AM | PERMALINK

I paid off over 20k in credit card debt and I still owe for student loans from law school. But when I had that 20k in credit card debt I cut my cards, paid cash and didn't purchase anything that I couldn't afford and pay cash for.

I'm assuming that if you ever buy a house you'll apply the same policy and not take out a mortgage but buy only enough house that you can pay cash for?

Posted by: Stefan on February 11, 2008 at 9:48 AM | PERMALINK

Medical costs is another issue and as you know doctors cannot refuse patients if they cannot pay. Thus using a credit card for medical expenses doesn't make much sense.

What??? I'm afraid you're wildly incorrect here. Doctors have an ethical obligation to provide emergency services to a patient in immediate distress, but they certainly can refuse patients if they cannot pay and do so every day. So if you show up at the emergency room with a stab wound to the stomach, they have to treat you; if you show up with cancer and need months or years of care costing hundreds of thousands of dollars of care, well, you'd better have the money upfront or you're going to die.

Posted by: Stefan on February 11, 2008 at 9:56 AM | PERMALINK

>"Americans need to live within their means and not purchase items they cannot afford. "

That is actually the crux of the current economic collapse. The current monetary system is dependent on the creation of ever-increasing amounts of debt at an ever-increasing rate to 'function' [sic].

Since 1970 or so... and especially since Reganomics, our percieved 'prosperity' was an un-sustainable illusion. The current system has now reached it's tipping point... and I'd say there's a 50-50 chance it's going to finally fall over, big time.

The good news is that over the long run, it will be a good thing for the planet. An economic system that requires eternal growth at an ever-increasing pace doesn't fit on a finite sphere with limited resources.

Posted by: Buford on February 11, 2008 at 10:10 AM | PERMALINK

I was saddled with a lot of debt but you can get out if you just live within your means.

Should probably actually read:

I was saddled with a lot of debt but you can get out if you just live within your means and do not suffer any intervening emergency such as divorce, job loss or personal or family member's serious illness.

Posted by: Stefan on February 11, 2008 at 10:18 AM | PERMALINK

I'm able to use credit cards purely as a convenience by paying off the balance each month. In the last ten years I don't think I've paid a dime in interest, so in a sense I am riding on the backs of those who do.

I feel fortunate to be in this position, but I have not always been. There was a time when I carried some credit card debt out of necessity, not a huge amount, but enough that I was always uncomfortable with it. Eventually I got it paid off, and became determined not to do it again. It was a little bit like when I quit smoking.

In our market economy the most effective way, probably the only way, to battle outrageous CC interest rates is to stop paying them. Banks have at least this in common with the Catholic church. Nothing else is going to get their attention.

By the way, the credit card companies have a name for people like me who pay off the balance each month. They call us deadbeats. It's a name I bear with pride.

Posted by: Michael Ryle on February 11, 2008 at 10:20 AM | PERMALINK

"They went on and on about how angry they were that everything is becoming more expensive but their salaries are fixed or going down. Then they said they are voting Republican because of the abortion issue."

This couple is no different from the individuals who persist in smoking through a hole in their throat after cancer has made it impossible to smoke in the normal fashion.

I seriously doubt that there is anything a Democratic candidate at any level can do to reach people like this, since they form the nucleus of the impervious-to-reality Bush dead-enders.

Posted by: bluestatedon on February 11, 2008 at 10:42 AM | PERMALINK

Noel,

I was saddled with a lot of debt but you can get out if you just live within your means. Medical costs is another issue and as you know doctors cannot refuse patients if they cannot pay. Thus using a credit card for medical expenses doesn't make much sense.

Perhaps you are too young to realize this is one of many, many Republican talking points that has been constantly drummed into us since the 1970's.

"If I can do it so can you" is a load of crap, pure and simple, a fallacy designed to allow you to ignore the plight of your fellow citizen.

Posted by: Tripp on February 11, 2008 at 10:56 AM | PERMALINK

Speaking of usury, I managed to read a couple of the lines of fine print that one of those "Get Cash NOW!!" TV ads had. You know the ones - bills piling up? Do you need to decide between feeding your family or heating your home? Get Cash NOW! No Credit Check. All you need is a checking account!

In the fine print that flashed on the screen for about a second it disclosed that the APR was 98%!

The annual percentage rate for this loan was 98%!

That's like throwing a drowning person a breath of air and an anchor.

Tell me that is not usury. And for you "personal responsibility" "self-made" Libertarian types tell me that the sainted Adam Smith himself did NOT warn about the dangers of usury.

Posted by: Tripp on February 11, 2008 at 11:02 AM | PERMALINK

Buford,

Since 1970 or so... and especially since Reaganomics, our perceived 'prosperity' was an un-sustainable illusion. The current system has now reached it's tipping point... and I'd say there's a 50-50 chance it's going to finally fall over, big time.

Actually I'd put the year at 1973 with the forming of the trilateral commission but that's just me. It seems to me many of the ultra-rich on that commission also own many of the big banks still standing today.

They see the end of the industrial age coming and they are building their fortresses.

I could be wrong though. Maybe it is the fault of the people who have no power instead of the people with all the power. Yeah. In the olden days the poor would have no children and if they did they simply starved quietly. What in the world is wrong with the poor today? If I can be rich so can they.

And, yeah, I am a forum hog today.

Posted by: Tripp on February 11, 2008 at 11:23 AM | PERMALINK

Banks are allowed to "export" their home state interest rate cap and use it nationally. Delaware has no cap. Hence, banks tend to headquarter in Delaware. Other state attorneys general have attempted to overcome this, but have been unable to. There is no such thing as a national usury law.

Posted by: Matt on February 11, 2008 at 11:48 AM | PERMALINK

Medical costs is another issue and as you know doctors cannot refuse patients if they cannot pay. Thus using a credit card for medical expenses doesn't make much sense.

To add to my point above, even if if you receive emergency medical care you will still be expected to pay for it. So if you show up at the emergency room with a stab wound to the stomach, yes they'll treat you, but then they'll also send you a bill for $75,000. The fact that they have to treat you in certain situations doesn't mean that they can't also bill you for it.

Posted by: Stefan on February 11, 2008 at 11:55 AM | PERMALINK

Operation Mayhem. The first rule...

Posted by: Tyler Durden on February 11, 2008 at 1:54 PM | PERMALINK

Some of the comments made by the more right-leaning commenters above remind me of why our national dialogue has gotten so poisoned. Many people on the right side of the aisle have bought into this false narrative that there is a perfect "free market" and that, left to it's own operation, this market will always allocate resources efficiently and in the best way possible. There is one problem with this thesis - THERE IS NO "FREE MARKET"!

Instead, what we have are "rigged" markets, where those who control the means of production, in concert with those who control the media, make decisions that don't result in efficient or equitable allocation of resources. The people who control the production of widgets influence how much is produced, artificially driving prices up or down, depending on their whims. If you say anyone can begin producing a product for which there is a shortage, I say you are full of it. There are significant barriers to entry - including litigious producers, artificial cartels, collusion among suppliers, and outright piracy of ideas, none of which are being prosecuted by the Bush White House.

On the demand side, advertising influences consumer behavior, so that people make irrational purchasing decisions, based on purely aesthetic or whimiscial reasons, like a celebrity's sex appeal. If we all made rational purchasing decisions, based on sound economic reasons, we would all drive Toyota Corollas. Instead, people buy piece-of-crap Chevy H2's, because they think they are "sexy" or cool. Is this rational decision-making? I think not. Why would you then expect this glorious "free market" to operate to the benefit of all consumers???

On a slightly unrelated note, countries like the United States, use debt to enslave developing countries and thereby ensure their permanent third world status and restrict their ability to join the "club" of privileged countries. Ask someone in Bolivia. Better yet, read "Confessions of an Economic Hit Man" by John Perkins. That will open your eyes....

Posted by: The Conservative Deflator on February 11, 2008 at 5:53 PM | PERMALINK




 

 

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