Lets say I owe the bank behind my credit card 1k dollars and Im paying 10pct interest because the best I can do is a little bit more than the minimum payment.
You come to me and tell me you are going to take out a loan for at least 25k dollars, get me to cosign for it, and garnish the taxes I will pay in the future to pay back the loan. Then you tell me you are going to take the 25k dollar loan proceeds and give it to the bank that I have my credit card with and charge it 5pct plus some warrants to in turn loan that money back to me if i want to increase my balance.
The problem isnt that the Fed is doing this (Yes I know we could argue this, but its too late now). The problem is that they are not asking for more from the Banks for doing it.
The same banks they are pumping money into, the same banks they want to work with to help save people’s homes, are many of the same banks that are pounding credit card holders with 10pct plus interest rates and fees that can pump up effective interest rates past 40pct !
In exchange for Bailout Funding, the TARP should require banks that issue credit cards, whether in their names or others, to limit interest rates and fees.
The usurious rates and charges in place today increase credit card defaults, which in turn increase mortgage defaults, which in turn cause people to have their live’s turned upside down and put the banks that we are bailing out in court to sue , garnish wages and all the other terrible things that can happen when a user defaults on their credit cards. All of which extend and deepen the recession we are in.
Its not like the Fed trusts banks that offer credit cards. They had to pass laws trying to protect consumers from banks trying to rip us off. You would think they would have recognized that the BailOut is the way to protect consumers even further.
If our country thinks the velocity of the decline in the housing market was fast. If our country thought the impact of banks , homeowners and hedge funds deleveraging was bad, what does the Bail Out BrainTrust think will happen when a quickly growing number of people default on their credit cards ?
Think compounding 10pct plus credit card interest rates on cards will extend or contract the recession ? Would we rather see families buying food and consumer items, or spending the money on interest and late fees ? Which will help the economy more ?
Normally, there would be no standing to ask banks to reduce their interest rates and eliminate their fees. Credit card junkies would just get what they deserve. Normally those same credit card junkies wouldn’t see their tax dollars loaned to banks at 5pct so they can borrow it at 10pct plus.
Now is the time for the Bail Out BrainTrust to be proactive. Tell Banks that when they take bailout money, they must limit interest rates to 6pct, eliminate late fees on balances under 1k dollars, and create extended term payoff options as an alternative to default. The TARP has evolved, it has to evolve to deal with consumer credit card debt.
I realize that this could lead banks to be less likely to issue new cards because of the reduced profit opportunity. I think we should take that chance.
I also realize that this will reduce profits for banks that need every bit of profit they can get to pay the 5pct interest on the preferred stock they are selling the Fed. This is not a problem at all.
There is 962 Billion dollars in credit card debt outstanding. Lets guess that the average effective rate is 10pct and 1/3 of people pay off their bills every month . Lowering that to 6pct means that the banks will lose about $25 Billion Dollars in interest and fees per year.
I would be ok with crediting lost interest against the 5pct coupon the Fed is getting from them. I would be happier if we said that if they dont do this, the next dollar we give them will pay us 9pct instead of 5pct.
When the Fed buys down credit card rates and fees there is a long list of benefits:
It acts as an immediate fiscal stimulus by putting money in the hands of people who need it the most and more importantly, are most likely to spend it. This will help the economy and hopefully limit the depth and duration of the recession we are in.
It reduces the number of mortgage defaults. People who cant pay their credit cards, cant pay their mortgages.
It reduces the write offs of credit card debt that banks would have to take. I know 100 to 200 Billion in credit card write offs may not seem like much these days, it is. More write offs means more BailOut money lent to them . It also eliminates the ultimate privacy disaster. Could you imagine if the Fed decided they needed to buy defaulted credit card debt? Could you imagine having the IRS calling you about your credit card debt ?
Of course there is the undesired consequence that more people will use their credit cards which readers of this blog know i think is a mistake. Unfortunately, desperate times call for desperate measures. This is credit crack and we are begging consumers to sample it and become addicted. I guess this is where my self interest takes over. Lower rates, and more people using credit could lead us out of the recession.
What if the Fed doesnt buy down credit card interest rates and fees ?
If you think its bad today, you ain’t seen nothing yet. Deleveraging of the consumer society we live in will QUICKLY take more money out of the system then we can possibly imagine and thats not good. In a nutshell, the people who can afford to spend using credit cards, will use their credit cards less and spend less because the interest rates are too high, their is uncertainty about jobs and they fear not being able to pay it off in 30 days. Those who can’t afford to use credit cards and are in a bad situation, will use their credit cards more, because they have no choice, and a quickly growing number of them will default on those growing balances. All of which is a negative for the economy.
Please call your state representative and senator and ask them to act on credit card debt. Tell them we want them to be proactive. Before its too late.
59 thoughts on “The Fed Should Buy Down Consumer Credit Card Rates – Fast”
Pingback: The Investor Rebellion » Mark Cuban’s latest blog is on the coming credit card crisis
“Pumpkin” isn’t the only turkey which received a pardon this year.
All of the fat birds in their ivory towers are standing in line
waiting their turn to gobble up some of the green stuff.
I vote for the trickle up economics.
Give all of the bail-out to those on the bottom and the ones on the
top can wait until it trickles up to them.
Besides, credit card companies don’t lend money.
They lend their own credit.
Aren’t ”straw purchases” were illegal.
Comment by Brian -
When IT went in the tank in 2002, I went from making 170k to 50k almost overnight.
Credit cards came into play for me during that transition. Over a couple of years, and
while trying to launch an unsuccesful business I racked up 40k. One phenominal trick of the CC Companies is that they won’t accept a payment online for the same day, and the payments are not due on the same calendar day every month. One payment late, and your 7.9% $15,000 debt goes to 28%.
I’m sorry, but at that point, you start getting screwed, hard. And it’s not optional, like a systemic agreement modification that you can refuse, you just get bent over.
I’m finally back over 100k, and I’m basicly living check to check over this debt…no…this interest rate really. I consider walking away from it all, every time I get paid. My credit rating, due to high balances makes it difficult to get a consolidation loan. I would do just about anything for a 30k, 3yr, 10% unsecured loan. It would change my life, but I’m not a big huge billion dollar company that nails the customer for every dime it can get….so I don’t qualify.
I wonder why this whole situation pisses me off? I wonder.
Comment by Hank -
What about the average americans that do pay their bills on time?
Shouldn’t they receive the same relief as those who don’t pay
Comment by Lisa C -
Mr. Cuban The solution to the mortgage crisis and the overwhelming credit card debt is a “Reversed Ponzi” scheme. With the government paying $800. per mortgage mitigation there’s millions if not billions to be made while helping end the crisis. When a scheme is ran honestly they can work and this one would benefit the banks, the credit card companies and the homeowners.
Comment by richard rainey -
Mr. Faure by initiating the contact with Mr. Cuban and giving him propriety information about the company was criminal on the part of Mr. Faure only. Mr. Cuban, being only a stock holder, has no obligation to the public or the company as to what he would do with his stock in light of that information. Since the action Mr. Faure was going to take in regards to the company would have been detrimental to their value Mr. Cuban had every right to sell his stock, as it is his personal property and is below the amount of ownership that would make him give notification to the SEC. Mr. Faure by giving Mr. Cuban this propriety information made that info public.
It appears to me that Mr. Faure”s motives for giving Mr. Cuban this information could border on an attempt to use inside information to induce Mr. Cuban into buying the new issue those getting him to engae in insider trading to Mr. Faure benefit or buy giving Mr. Cuban this information in order to prevent him from selling his stocks with because of the inside information given to him. To me that is more of an act of extortion than a tip. Mr. Cuban just didn’t submit to such a play and defended his position by selling his personal property before in was injured by Mr. Faure gambit.
Comment by richard rainey -
You know what they need to leave Mark Cuban alone he hasn’t done anything wrong to these people dang they just mad because he has alot of money and a great franchise. So you know what Mark will get out of this situation so tell the sec to screw off.
Comment by Kwame Smith -
Credit card debt… When my Husband and I moved to DC in Jan of 93
he had one credit card and I had none. I was 19 and he was 21. We slowly racked up
credit card debt. I love to shop and give gifts for peoples b’day and Christmas… I have
a tendancy to go overboard even when it is going into debt. I love to see the look on peoples
faces when they are surprised with a gift. Now 15 years later, three kids, a wedding, several
diff car payments and many years of renting instead of buying..(i didn’t want to buy, i didn’t
want to be locked in.. I wanted us to move back to Rochester NY to be with family)
We are burried in credit card debt. When we went from a two income family to a one income family
so I could stay home and raise the kids. I am a big part of the problem I still continue to overspend, who wants the kids to be disappointed on their Bday or on Christmas? With having three kids all in sports it just gets harder and harder. All three downhill ski, one is on the downhill race team, all three do gymnastics and soccer too… We used to horseback ride but can’t afford that anymore. about a year ago we had looked into buying/building a new house, even had a contract on one to build… I am so glad we didn’t end up doing it… we would have been in huge trouble.
My husband does computer work and thankfully still has a job with the economy in the toilet.
In this day and age I don’t know how families can afford to have one parent stay home to raise the kids and make sure they are brought up to be smart, caring and responsible individuals. If not for
credit cards I don’t know how we would get by. When the gas prices were thru the roof that was a huge strain as well… I had tried to get a job working nights to make some extra money to try to
reduce our debt but with the economy there are not many jobs to go around. I never heard from any
of the places I applied. Now I am working at the Gymnastics place the kids take classes at so
we can afford that… You want to encourage your kids to go as far as they can and be the best at what they do.. I have tried to find fundraisers that can be done by families to raise money for things like that but most are geared for non profit organizations. So I am out of luck in that respect. I just with the economy would bounce back so one day I won’t be stressing that all the cards are paid and What happens if one of the cars dies and we have to get another. So when you talk about being under water …. I totally get that…. we are drowning and the big businesses are just getting fatter wallets.
Comment by Lisa Sciarrino -
You have got to be kidding right??? I know too many of the people that are in trouble andletting them off the hook will teach them nothing. Require banks to pay at least 5.25% on savings accounts and don’t let them sell their loans etc. This is the old model & should be followed. This would encourage people to save instead of using credit cards. Starting the cycle all over by giving consumers money to spend is nuts. The point is that this country cannot exist as it is now, a consumer driven service economy. The model just doesn’t work.
Comment by Candy Noll -
You have a great notion here for fixing this problem. The only thing I would add is I have seen many people apply for credit-max it out then leave the country. this is our money they are taking.
Comment by Pedro Morales -
yep all debt is money and that debt enslaves us
to the banks and the central banks. Id be happy if they would just do away with the frqctional reserve system and get real with money.
Seriously at 19-1 lending ratios its no wonder we’re all alittle
screwed. I dont care what any politician says, theres
no way any ofthem are evergonna pay down the debts.
they cant there wouldnt be any money if they did
Comment by shane -
i think this idea is a good short term fix, however i believe this will just elongate the death spiral of the credit card investments that currently appear to be paying OK.
I think the only solution is some sort of massive debt forgiveness. I hate to say it – i have saved every penny my whole life, low debt and put my efforts into building sustainable companies. SI this would sting like a mother for me. I just don’t know any way out of this.
If the consumers can’t buy then things just continue to get worse.
Comment by jhep -
The problem is layered in the complexity of man. To want more but to
gain more is to accrue debt. The dollar is a note in which it is
valued only to be able to exchange debt between its holders. It is disgusting all over that money rules our lives so much.
Comment by chrismccardell -
Paying off credit cards monthly so interest and the ridiculous “late fee” of $30 is truly a logical way of doing business. Unfortunatly, real life situations, such as divorce, job loss… take a 2 person income down to one, this has been a major factor, so logic was just thrown out the window of the house you lost in forclosure.
Instead of creditors and mortgage companies working with the consumer to help them, they used it as an opportunity to push them down the stairs(to say it nicely)on there way out the door of the
the house you just lost. They then sell the house to recoup their loss. Yet they have received the interest off of the loan since very little is paid to the principle for the 1st 10 years of the loan.
The $ sign replaced compassion. From experience, once you hit that first step you do not stop till you are at the bottom of the stairs. Then they put a brick wall to keep consumers paying there high fees.
In my opinion, when you replace compassion with greed and treat your fellow American as a financial slaves, the money hungry business men who conjured up ways to screw consumers out of hard earned money, have also destroyed the American dream for so many people.
The Government is now bailing them out. Why??? So they can keep us in the same position???
I guess we wouldn’t want them to give up the million dollar a month salery they pay themself!!!
I am sorry if If I went off course, but really needed to vent.
Comment by Debbie -
I have never paid credit card interest in my life. I collect interest.
I don’t pay interest. How may idiots used a credit card to pay for
that steak dinner last year? How many idiots have a revolving balance
on the credit card? They never payoff the balance. They just pay
the minimum payment each month. They will be paying interest on that
steak dinner for 22 years. I don’t blame the credit card companies
at all. I received 77 credit card applications in the mail last year.
I opened ZERO accounts. I take personal responsibility for everything
I do. Nobody put a gun to my head and forced me to incorrectly use
a credit card. I don’t buy anything I can’t afford — ever.
Comment by Kurt -
“t would take you seconds to find articles about people who have paid off the principal of their unsecured loans yet continue to owe amounts that will require them to make payments for years to come, generating interest income on those initial loans that are many times that of the average market 10% per year.”
All of this could be easily avoided by simply PAYING OFF YOUR BALANCE IN FYLL by the end of the month. I’ve used credit cards for over 20 years and I’ve never paid a penny in interest or late charge. The credit cards nowadays even let you set up automatic payment in full so that they take the full amount of money you spent during the month off your bank account. This way you are guaranteed to never be late. If you don’t take advantage of that and still cannot pay the full amount on time – it is YOUR FAULT.
Have you seen junk bonds that offer less than double digit returns? The same bankrupcy laws supposedly apply to them as well, don’t they? Would you lend your own money to people who overspend?
Those customers who have good credit rating can always take advantage of 0% deals. I had a friend who when faced with medical expenses because of her mother’s cancer shuffled the balances between 0% offers until she comfortably paid it off. If you don’t get 0% offers than your credit is bad, so it is your own fault.
These regulations may help irresponsible people, but they are going to hurt responsible credit card users as there’ll be fewer 0% offers and fewer cashbacks and rewards.
Comment by kitty -
I get it. the politicians cannot get it right.
The banks will take advantage of the system and game it for max
You have great ideas. Ig you will not run for national office
yourself, how about getting in tight with someone who is in position
to fix things.
Surely you can offer advice to the incoming Obama administration and
steer them towards adopting many of your ideas. This one concerning
banks and credit card rates should be a no-brainer. Ignore the
lobbies and do the job right. you can do it. Please.
Comment by Mark Wolfinger -
I’m more inclined to get tougher on the credit card companies and
force Americans to rely less on credit cards at all. The high balances
and high interest rates are bad enough, but the late payment fees and
deceptive practices must be reigned in.
Comment by Jillian -
Statements about CC debt being unsecured and therefor higher risk and deserving of higher interest rates clearly didn’t pay much attention to the so-called bankruptcy reform bill passed a few years back. The bill added means tests to the bankruptcy laws severly limiting the ability of people to enter into chapter 7, which would liquidate their debts. Instead we now steer people into chapter 13, which requires payment plans. The jury is still out on how many people successfully navigate chap 13, though a lot of folks think the majority of the people pushed into it by the means test will end up in chap 7 eventually anyway… after they have been in court-mandated payment plans for a while. You can punch your local zip code into http://www.legalconsumer.com/bankruptcy/means-test/ and see what the limits and protections would be in your area, but I’d be astonished if 5% of those reading this are living within the limitations there.
Certainly there is a different risk profile in unsecured lending but to claim that it’s therefor something that should be completely wild west territory is insane. It would take you seconds to find articles about people who have paid off the principal of their unsecured loans yet continue to owe amounts that will require them to make payments for years to come, generating interest income on those initial loans that are many times that of the average market 10% per year.
Mark’s proposal may not be perfect, but to call it inappropriate overlooks the reality of the current consumer revolving credit market.
Comment by phearlez -
Credit card debt is an unsecured debt, and people who carry balances aren’t exactly good in managing money. If you were to lend your money to somebody whom you don’t know, someone who obviously doesn’t live within one’s means, and without any collateral,
wouldn’t you want a high rate too? Think of credit card debt as junk bonds. If you buy junk bonds, you want high return to justify the risk, right? So do credit card
companies. Even if somebody’s credit rating is high, the fact that
this person carries a balance shows that they are not exactly to be
trusted with money.
Additionally, I don’t believe credit card defaults is a problem on
the same scale as mortgage crisis. The main reason the mortgage crisis
got so huge is because of the whole derivatives market – mortgage-backed
securities and credit default swaps. These derivatives amplified the
problem exponentially. I am not aware of anybody selling
“credit card debt backed securities” or of major investment companies
being leveraged 40 to 1 to buy these securities. If they do, please correct me,
it would be interesting. It’s highly unlikely that credit card writeoffs
would be on the scale of hundred billion. Maybe for all banks together.
Additionally, it always amuses me how Americans talk about credit
cards being difficult to understand. It is quite simple if you know a few rules:
1) If you borrow money you always have to pay it back.
Consequently, credit is not the same as spending money.
2) If you pay your balance in full by the end of grace period, you
don’t pay interest. If you don’t pay in full – you’ll pay a lot
If this is so complicated, pray explain to me how both I and especially my parents who immigrated to the US from the Soviet Union of all places at the age of 40+ were able to figure this out even
without being able to speak English properly, much less read and
understand the fine print. Yet they figured out how to use credit
cards without paying any interest. Have used them for over 25 years now,
and never paid a penny in interest. I assure you, we didn’t have
“financial education” in the Soviet Union. When my mother grew up,
they earned so little money that they run out before the end of the
month. Then they ate bread and onions until the next payday. It wasn’t
as bad when I grew up, but we still didn’t exactly have “financial
If there are credit card regulations, a lot of people wouldn’t be able
to get cards. Also, forget 0% offers, or rewards or cash back.
Comment by kitty -
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Yes, the poor old consumers got tackled in an alley and forced to rack
up debt on credit cards. Protecting poor self-control, be it at the business level, or the consumer level will NOT get us out of this mess. Period.
Comment by Trevor Lee -
Several years ago I was an active advocate for pending legislation and learned the hard way that Congress does not listen to the “Average Joe.” With the elections next week, most of the incumbents are at great risk of getting the boot, so anything radically new like your proposal will not advance with a room full of lame ducks. This needs to be presented to the fresh blood coming into office after the first of the year. And then you have to allow them time to learn the ropes, make their alliances and fire up the legislative process. The citizens won’t have much inludence on their senators and congressmen until next June, no matter how great the idea may be. I wonder what the economy will look like in June? That’s what we need to plan to work on and prepare for.
Comment by Donna Lundy -
Interesting concept and I think the credit card companies need some scrutiny. I’m not sure I’m comfortable with the Government buying down anything from them. There are a lot of shady practices in the credit card industry. I’d like to see more oversight and a thorough house cleaning of the slezy ones.
Comment by Darryl -
This may be a little off the topic but I have been wanting to ask you this for a while now.
I saw an episode of the Chris Myers Interview with you, and when asked about what you would do
if you were running the NBA you said ‘I would have all the teams put money into a pool for marketing, and hire some new age younge marketers to target the younger generation’. As a recent marketing graduate I was wondering if you have any openings in your marketing department for any ‘younge blood marketers’ ?
Comment by Sean G -
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The cat is already out of the bag and the $700B is as good as gone. I think this will have to be included in another BailOut. Hank/Ben/Neel have already over-allocated where they want this money to go. Besides, most lawmakers have tunnel vision. They cannot focus on too many things at once and if they do their constituents will punish them come re-election time.
Nevertheless, I think that it is a good idea but should be tried out on business customers first. They are more likely to repay under the better interest rates and can better contribute to the economy than individuals. Most of the businesses that still use credit cards to finance operations are small businesses and entrepreneurs so this would also cover your goal to help the little guy.
Comment by econ365 -
This is exactly the type of wide reaching economic measure which has a chance of showing some results on the economy as a whole. Regulations, like those you suggest, would move the bailout away from its current state of help for the wealthy and towards being a help for the domestic
economy as a whole.
I would also like to see even a small portion of the bailout given to the SBA to distribute to small and medium sized businesses for hiring and expansion through loans and investments.
Comment by MStaples -
Your blog is my favorite website. I have a hard time agreeing with helping people that prove unhelpable. Years ago, two of my cousins received $75K inheritances when their mother died. They could have paid off the house they were living in, saved it, invested it or whatever, but instead they went on a huge spending spree. They bought TV’s, cars, and many other consumable, depreciating assets. In about a year, they were completely out of money. For the next year, they sold many of the assets they bought and consumed that money too. After another year or two, they sold their houses and burned through any equity they had in the same manner. They now live in very low rent apartments and live paycheck to paycheck. There’s no way to help some people.
I’m nearly certain you could give them another $75K and they would burn through it in the same manner. Is that the economy recovery you are speaking of? They could have paid off the house they were in, and lived “rent free” for the rest of their lives. The money they spend on rent would be their stimulus today, every single month. What tops it all off is that this all happened about 15 years ago and those cars and TV’s aren’t even impressive today.
If you take away all of a self made millionaire’s money and give it to a regular person, guess what happens. When you come back in a few years, the millionaire is well on his way to get back and the regular person is broke again. It happens all the time.
Comment by Rocky -
The introduction of a recent book I read, ‘The Ultimate Question’, hits on a major problem directly affecting large financial institutions. Their problem is the reliance on ‘bad’ profits to prop up shareholder value and stock price. By raising interest rates and making money on ‘negative’ transactions (late fees, overdraft charges, etc.), they have effectively destroyed any customer loyalty.
Comment by Matt C -
Hey Mark, How about the financial institutions that are owed money from indivduals from c.c dept,mortgages,insurance policies,credit those in some way We are are already helping to bail them out.Figure how much of that persons taxes are paid for part of this bail out and have it credited to them. Kind of paying back a loan. Thats what everybody else has to do. That money saved from paying the mortgage or credit card debt would no doubt pumped back into the economy. I wrote something to that effect in your last blog about new ideas. I got so caught up in being pissed from being hustled from these guys, I wasnt thinking about a new business. I was thinking of how to get my tax money back from these guys. Thanks for the thoughts.
Comment by Frankie from Lawnside -
I do believe that the Feds should step in to help with the foreclosure problem, though don’t agree with their approach (see http://interacc.typepad.com/synthesis/2008/10/lending-crisis.html).
But, helping reduce basic, simple consumer debt doesn’t make sense. I still get 2-3 offers/week for credit cards from various lenders. They’re not hesitating to lend these dollars. Consumers are still amazingly …dumb about their persistence in getting into credit-card debt. You’ve written about this.
What does make for a great consumer stimulus? Positioning and marketing.
In their haste to get Congress to act, the Fed, Treasury and White House went on a massive campaign to tell the world how bad things are, how dire the situation is if not addressed immediately, and how quickly we’re going to go into a massive depression if Congress doesn’t immediately do what they want.
Congress acted. But the Fed/Treasury/White House kept up the fear message, saying it’s much worse than they thought and will take much longer to fix than they anticipated.
Why would anyone want to go out and spend given this?
Reducing credit card liability might give people a chance to breath a sigh of relief, but it’s not going to get them to spend more.
To do that, the three Amigos above + the candidates + Wall Street + others need to start talking about the fundamentals of the American and global economy, and that they remain strong; they will need to assure consumers that debt will be available soon, and that the market is starting to bottom out, and there are some amazing bargains (both on Wall Street and in the neighborhood mall) to be had, and that the iron is hot – strike now!
It’s a perception game.
In their haste to get Congress to act, the Fed, Treasury and White House went on a massive campaign to tell the world how bad things are, how dire the situation is if not addressed immediately, and how quickly we’re going to go into a massive depression if Congress doesn’t immediately do what they want.
So Congress did. But then they started saying it was going to take much longer
Comment by Shafeen Charania -
This is a good idea in principle, but if rates are artificially capped at 6%, the banks will have dramatically raise their lending criteria. it would mean a big rate reduction for existing carholders, and ultra-tight standards for new borrowers. A huge segment of the population would no longer have access to unsecured credit.
Comment by Ben -
AMEN! Mark, you should be part of the brain trust. The lack of creative thought and transparency sickens me. I like how you can think at a high level as in the trenches, very inspiring/refreshing.
Comment by cjagers -
mark, i admire you enthusiasm in economics particularly money and banking. What is more fascinating then seeing how and where the money supply goes, afterall it is the very thing that governs us. I belelieve you are correct in saying the fed should buy down consumber credit card debt. This would put money into the peoples hands who are the most likely to spend it. Most rich people put their mones into safe, secure investments cds, bonds, etc..especially in times like these. We need to put money back into the peoples hands whom have the highest propensity to consume therefore promoting immediate job growth.
Comment by chris -
Three bald men walk into a room wearing suits …… you fill in what a joke this rescue package is!
Comment by David -
This is a bad idea.
Interventionism of this kind is not only unfair, people agreed
the terms, but will have negative consequences. It will make it
harder to get credit in the future, because creditors will be worried
about the terms getting changed after the fact.
If you want to help people with too much credit card debt, send them
some of your own money, or set up a fund to which people who agree with
you can contribute.
Having the government force other people to help them is neither moral
Comment by Gil -
Simple! Don’t trust 3 bald men that wear suits! Souns like the start of a bad joke.
Comment by David -
Accountability should transcend socioeconomic status. If ‘Joe the Fat Cat’ is allowed to walk scot-free, ‘Joe the Alley Cat’ deserves the same. Every American citizen should be afforded the opportunity to shake a financial Etch A Sketch.
Comment by Jim Parham -
If you mandate that credit card companies charge only uneconomically
low rates, then why would probably just abandon the business. The end
result would be an even greater credit crunch: instead of unsecured
consumer credit being available at high interest rates (~20% APR),
you would have no credit available (legally, at least) at 6% APR.
Comment by DaveinHackensack -
it seems to me that although you make this suggestion in good faith,
it would merely be enabling and giving them incentive to take on more
credit card debt instead of living within their means by lowering
you are a billionaire now and admit to having to eat ketchup
sandwiches, if others could have that discipline instead of eating
at cheesecake factory on their plastic then they would be worried
about rates low or high.
Comment by chase meister -
This continuation of cheaper credit will only be a short term fix. I can
appreciated your fear of people staying home to read or watch TV rather
than going to ball games, but anything that curtails consumerism will
have huge long term benefits.
Save our money America.
Comment by trip -
Banks don’t print money. If you limit their rates on credit cards, they’ll raise rates elsewhere.
What about those of us who don’t even have credit cards, because we had the foresight to avoid their “usurious rates”? Why are you punishing good financial planning, and helping lousy financial planning?
The message this would send would be clear. Just as the bailout justified bad corporate decisions, this would justify bad personal decisions. I’d be stupid *not* to get a credit card, since the rates would be artificially low, I’m paying for those low rates whether I want to or not, and if things turn really bad the Fed will step in and bail me out anyway.
This would be completely in line with the recent bailout: another horrible idea.
Comment by Alan -
The consumer culture and spending beyond ones means are, in my opinion, the foundation of this entire crisis. Let’s just get on with the correction, suffer through it and move on to eventual better times, where people do like our grandparents did, and spend the only the money they have earned
Comment by JP -
Wow the moral hazard in this kind of thing would be amazing.
Comment by Jay -
Mark, changing the culture and attitude of the American way
of buying things, then a lot of problems will be gone.
Look to the situation in a country as Portugal, they can never buy a
thing on credit, then the euro came, and all the cc companys, result: the country is one step away from a general disaster. At the end the people are sad, but the have there
Wii and mobilphone….but no money to eat! Goodluck from Holland!
Comment by robert snel (from the Netherlands) -
I think McCain’s 401k withdrawal changes will do a lot to help average Americans reduce their debts. And because of this I may have to vote for the old guy.
Comment by darryl -
FYI, the Hope 4 Homeowners (H4H) that you are referring to that the banks are to be doing for consumers, in theory it sounds like a great deal. In reality it will not get off the ground, I have been working with clients to try and walk them through this and the original lenders are refusing to do it since it the govt stuck the word “voluntary” in there. So the next step you say go to the HUD approved lenders….tried this also, ironically I know a someone who is approved, their hands are tied because they have to get the okay from the current lender to “write off” a portion of the loan, they aren’t returning calls from these lenders who are trying to help, again because it is not mandatory.
I think it is a good idea about lowering CC’s as part of the deal, but realistically, if someone is struggling with the mortgage, I can probably say that they don’t have a 10% rate, more like 15-24%, so even bringing it down to 10% would help these people and the banks are still profiting. I agree with the comment that it will bring the supply of credit down but is that such a bad thing? People will need to start living within their means? Getting back to the basics?
As for the comment to forgive student loans? I would tend to disagree with that, sorry to who wrote that but those loans were done in the good faith of paying them back and are usually tax deductible and set at already low rates. I don’t think it is fair to forgive those since others for years have had to pay them back and what message does that send to those just now taking loans out, max the loans, the govt will forgive them later. I think we are going to begin a very slippery slop with that one, but aren’t we with the mortgages and suggested CC relief.
Ah, what webs we weave.
Comment by debt2dreams -
Mark, you’re getting close…the govt needs to bail out the American people who are saddled in massive debt. Sure, some will abuse this one-time bailout, but many will turn their lives around. If the U.S. can forgive the debt of other countries, they should do the same for its citizens. Otherwise, the govt. can have their little 700b clambake, then come to find that people are far too mired in debt to afford anything.
Comment by Kevman -
The way I read what MC was saying:
– yes, banks would take a hit, relatively speaking, for which they would receive some redress in the form of bailout. This would be a way of letting the bailout “trickle down” to consumers.
– yes, this would lead to a reduction in the supply of credit cards, and (I suspect) other forms of unsecured credit. From previous posts, I get the impression that MC would consider this a good thing! 8)
It would be a bailout of people who are financially-irresponsible, but you’re already bailing out out financially-irresponsible bankers. If you are going to allow some people to evade the full consequences of their actions, you may as well go the whole hog.
Comment by brian t -
I appreciate your ‘everyman’ attitude and ideals, but I don’t believe regular folks can affect much change in the world. People that make ‘the rules’ don’t care about Joe Average.
Joe the Plumber, on the other hand… He’s important, right? At least momentarily to a gaggle of charlatans. Regular folks will always be the first to get crushed, and the last for everything else.
Why do sharks circle people that can barely keep a roof over their head (let alone eat)? What about the captains of the ship… The ‘leaders’ who sailed us straight into the iceberg?
They shrug their shoulders and cruise away scot-free …in a bigger vessel!
Comment by Jim Parham -
Mark, Great idea. I will write to my congressman and State Senator
tomorrow. With the credit crunch we are in currently, the credit
markets have already dried up. Anyone in trouble with their credit
cards or when they do get into trouble with their credit cards,
having to use them because of the economical situation will not be
eligible to transfer their balance to a lower rate credit card.
Bank’s do and will take advantage of this by increasing APR’s.
On the other hand forgiving loans is completely reckless. If you are
going to wipe student loan debt, why stop there? Wipe credit card,
mortgages and secured loans. Why don’t we.? Just hit the reset button.
Come on… get real…. people in debt have to get out of debt. Would
you consider forgiving the 700B bailout debt the banks owe taxpayers?
themselves, so it will not happen again.
Comment by jvortega -
you are still only dealing with the symptoms … the problem is a very simple one –>
Using a tool (debt) as a foundation.
Tools are tools, they should be used as tools and for what they are appropriate for and best used for.
Debt is not a building block for anything, it is a tool and has good and bad points.
The bottom line is a societal issue and we are only now seeing the result of the millions, if not millions raised to the millions of individual decisions over many years (not that long in the scope of time, but yeah).
treating the symptom of outragious unsecured consumer credit card debt does not deal with a population who is willing to basically put themselves into slavery for a new TV or other stuff that is basically worthless in a short period of time.
Comment by Nation -
We have a govt that used taxpayer dollars without our consent to lend to Banks. Americans got no say, and now we have Banks get all their money for their poor decisions and then it is business ans usual on the credit card end. Although this solution makes sense, we are still facing the issue of no prosectuion and no accountability for the bigger mess created.
Its too bad our govt plays the game of REACTION rather than the business man thinking of proaction. I resepect the idea to write my congressman, and I did that in regards to the bailout– I received a letter back from my congressman stating that in principal and based on his platform that he was elected he SHOULD vote against the bailout.. But my congressman then went on to tell me that he believed it was in the best interest of the country that he vote FOR the bailout despite what he was elected to do… There is no courage left in our political leaders–
Love the blog Mark… can’t wait for NBA to start.
Comment by Ken Burns -
This is getting into dangerous interventionist territory.
When you regulate down the price of something, supply diminishes. If (like in Zimbabwe) you order prices to be lower then it costs suppliers to supply, they stop supplying. If shops have to sell at lower then they buy at, they stop stocking. A forced 6% could leave credit card markets completely dry. Is anyone selling cards @6% at the moment? Why not? Can you do it without a loss?
Comment by nethy -
I think this is a great idea! I think it would be an even better idea for the government to consider forgiving student loan debt–at least the federal portions, if not the private debt as well. In my opinion, student loan debt has at least been incurred (in theory) so that the person incurring the debt might be a more productive member of society. Shouldn’t these student loan debtors be forgiven before credit card debtors, who have spent their money on god-knows-what. Not that I’m judging . . . I am in the unfortunate situation of having both types of debt. I am only saying that relief for student loan debts should be prioritized above relief for credit card debts.
Comment by anon -
Perfectly said, can’t agree more. I’m going to write/call my congress person.
Comment by Mark -
Mark, This is the best idea I have heard about the Fed Bailout. Too bad the Feds don’t think this way.
Comment by John Mark Parsons -
Unsecured consumer credit is a problem, but not nearly as big as the issues related to business loans, mortgages and complex securities. I think your proposal is a good one – for banks that take TARP money. Still, I think the card companies are justified in the rates they charge…because their loans are unsecured!
I always default to education concerns – unsecured consumer credit through credit cards have the highest rates around, save payday loans. If “borrowers” understood the complexities of credit cards (think cigarette-like warnings on the front of the cards) then perhaps their use would be limited. Banks are doing some of this on their own business by pushing debit cards and lowering credit lines. The banks get smaller processing fees and say goodbye to your deposit sooner, but they limit downside risk significantly.
You’ve got to remember, the merchants are hooked on credit cards too. No more layaway – though I saw a recent story that said layaway is coming back. The merchants were willing to pay significant fees to get their money faster. Cut credit cards in half and people will only shop on payday.
Comment by Ari -
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