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Friday, June 20, 2008

Banks continue to Squeeze Consumers Credit Card Debt Dry.

Rather than make a bold move and encourage consumers to pay down their debt by eliminating interest rate charges on OLD DEBT, the Banks continue to cling to the only way they know how to make money, charging ridiculously high interest rates on old credit card debt. The banks may then use this never ending old debt indenturedness to invest in businesses in other countries.

When will this madness end? Will it take physical riots to uproot a system that is trying to pretend the status quo is acceptable? Wall Street continues to crumble yet clings to it's credit card interest rate fiasco as a prize of some kind. Long Term Credit Card Debt is no prize, it is an anchor that continues to sink the american economy, american citizens, and Wall Street.

What is bad for the american consumer SHOULD ALSO BE BAD FOR WALL STREET, but somehow that does not seem to be the case.


Anonymous said...

What you propose would create a perverse incentive. It rewards people for not paying the interest on their loans.

How would you propose banks make money? Why should they make loans if not to collect interest?

Why does anyone bother commenting on your blog, anyway? you never engage the people who comment.

A.M. said...

I said OLD debt. So you think it's ok to pay 50 dollars in interest on a 29 dollar hair dryer? Just how does that help the economy?

Anonymous said...

Thanks for actually responding. I may sound a little strident, but I'm trying to figure out where you're coming from here.

As to what you said:
All debt eventually becomes old debt, so your distinction is basically irrelevant. The system you're proposing would essentially allow people to make the minimum monthly payment until it passed the arbitrary "old debt" stage. The government can't force credit card companies or banks to extend anyone credit, and no bank would operate in an environment where they couldn't charge interest however they pleased.

If the government instituted the policy you proposed, credit card companies would probably cease operating in the US (or at least, not extend credit to anyone that wouldn't promise to pay off very quickly - and perhaps incentivize paying off immediately by charging even higher rates of interest).

Essentially, credit card companies they have no reason to extend their product under the rules you propose in the US when they can operate just as easily elsewhere.

Moreover, I don't know why it's the government's job to hold individuals' hands and keep them from taking credit cards with a 30% interest rate. That's incredibly paternalistic.

Here's a challenge: why does it hurt the economy to charge that rate of interest?

A.M. said...

Defining "old debt" is subjective. I see old debt as debt that is over four years old. Another way to view old debt is someone still paying off a non-food, non investment product that no longer exists. That has to be the height of dumbness on all sides.

As for charging higher interest up front, I have no problem with that, it's the BACK END high interest rate that is the killer. Cap total interest one pays on a credit card debt at 50% to 100% of the amount borrowed. Then let the banks compete as to how fast they want their money back.

Once the 50%-100% interest rate charge is reached, the remaining attached debt is paid off interest free.

Our economy is hurt when people pay twice or three times what a consumeable product originally cost. Especially when the product becomes obsolete and the debt still exists.

Now the consumer is still paying off invisible product debt and they have less purchasing power for new products AND must work more hours and consume more job related resources just to pay off an indenturing style of debt.

The government capped all debt at around 18% but the banks discovered they could go to a specific state, lobby for higher interest rates, and then use that rate for the entire country.

That interest rate loophole may be about to come to an end if a certain lawsuit filed in New York that is challenging how a bank can loan money at higher rates than New York allows is won.

If the banks actually took what I call "indentured interest rate profits' and reinvested right in the local community where the debtor lived, the overall effect would be mitigated to some degree as the debtor would have more opportunities to find employment.

Instead, the money is hijacked out of the United States, and in exchange we get Walmart. People who are already in debt somehow feel like it is an even exchange because even though they owe too much money, at least they can buy cheap stuff at Walmart. It is not an even exchange, it is typical
Wall Street Change.

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