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Thursday, May 14, 2009

Loaves, Fishes and Credit Cards

The new Messiah attempts to repeat the trick:

U.S. President Barack Obama will hold a town hall meeting next week in New Mexico to promote congressional efforts to reform credit card practices, the White House said on Friday.

Banks such as Bank of America Corp (BAC.N)>, JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) and Capital One Financial Corp (COF.N) face a new set of rules issued by the Federal Reserve last year aimed at reining in abusive credit card practices.

[...]

"For many people credit cards provide an opportunity to finance purchases," Gibbs said. "But we think there's a more equitable way to do that and I think that those reforms are on their way through Congress."


That's exactly what credit cards do not provide, and were never intended to provide.  You don't finance major purchases at 20% and up on short-term revolving credit.  This is a politically expedient attempt to repeal something basic to economics, and life in general:  You cannot consume something that hasn't been produced.   With credit you can consume, without producing, by having the surplus production of someone else lent to you.  Unless the lender is an usually generous mood, you eventually have to pay it back.  

"Abusive" credit card practices are another way of saying trying to stay in business.  Credit cards are unsecured debt with a very high default rate.  Late payments - even for minimums - are very common.  High interest rates and "hidden" charges are how these firms pay their workers and - perish the thought - even turn a profit for those forgotten men of modern capitalism, the shareholders.  Curbing "abusive" credit card practices amounts to partially seizing privately held capital, without compensation.  A clear violation of the Fifth Amendment of the US Constitution.  

By re-writing the contracts between credit card holders and credit card companies, another constitutional violation, Congress and the Obama administration has coercively stolen shareholder value.  Who wins?  The spendthrift who now have the political weight to have their recklessness subsidized by the prudent.  What goes around, however, comes around in politics and economics.  Credit cards, once offered with great facility, may start to have tighter sign-up requirements.  Once upon a time, credit cards were offered to only bank clients with long and stellar credit records.  Thanks to the Messiah of Chicago, we might be going back in that direction.

Posted by Richard Anderson on May 14, 2009 | Permalink

Comments

Is anyone surprised about blatant violations of property rights anymore? Look at what happened to Chryslers' bondholders.

If people don't like paying outrageous interest rates and fees, they should live within their means and save. Of course, we're assuming here that they actually have incentives to save.

Posted by: Charles | 2009-05-14 8:11:00 AM

The entire financial train wreck the entire developed world is in right now boils down to exactly one thing. The average people not understanding how money works. They demand to be allowed to purchase things they can't afford, be protected from risk, see ever increasing returns on their investments (which is usually something that's not really investment or an RRSP / 401(k) etc). They want easy credit but to be allowed to default without penalty, they want dollar values on all accounts and investments to be assured and they want everything without work.

It's madness. The only way to fix this is to institute mass financial education. When I was in high school they didn't even offer an economics or finance class, and it was a flag ship school for the district with 1,400 students.

Now because I took the time to learn about money, my returns are getting nailed so that johnny spend free can see the balance on his government propped up pension for his government propped up job that shouldn't even have a pension can keep growing.

When people look back and sort out the bullshit and look at the real numbers, 2008-2015 will show the worst inflation in history and it will wipe out the purchasing power of hundreds of millions, maybe more than a billion people. It's not going to create post apocalyptic wasteland but it's not going to be pretty. But hey we'll all be millionaires!

Posted by: Pete | 2009-05-14 10:36:11 AM

Charles,

You often comment here and just as often I wonder whether you are also the same Charles of either ThePolitic.com or FreeMarkets.ca. Charles is a common enough name that it could be just coincidence.

Posted by: Kalim Kassam | 2009-05-14 1:24:38 PM

Nope ... not the same. I don't comment on many sites to be honest.

Posted by: Charles | 2009-05-14 1:57:18 PM

The interest rate could be 500% for all I care. I have never once not paid off an entire monthly credit card balance.

I max out my credit card expenses to get the free air travel plus I find that it is essentially an average of 15 days free interest on my money vs paying by debit, cheque or cash.

Credit card also insure your losses, have great fraud protection(cheques, debit and cash does not),good car rental insurance although their travel insurance rates are uncompetitive.

Credit cards are so much better than any other mode of payment.

Please don't screw this up Obama!

Epsi

PS. No. I don't work for any credit card company or bank!

Posted by: epsilon | 2009-05-14 4:36:10 PM


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