Breaking the Credit Card vicious cycle

[Kurt_and_Hunter]

Credit cards charge 20%+ in the lowest intra-bank interest rate environment since the depression.

Some of this is greed. But there is such a thing as a marketplace... any bank could grab a lot of market-share by freely issuing cards at 10% interest.

They do not because credit card default rates are through the roof.

Everyone who actually pays on their credit card is a sucker being milked to make up for the millions who will never pay off their cards.

But how the hell can any working family pay off debts at 29% interest? The minimum payments are so large there's no room for addressing any principal.

Defaults cause high rates which cause defaults which cause high rates...

The cycle needs to be, if not broken, at least re-booted.

Set up a public or subsidized-semi-private entity to refinance about a trillion or two dollars of credit card debt at 8-10%. Everyone stills owes the same money, but they now owe it to the government-backed corporation at a more manageable rate.

Every household with outstanding consumer debt sees an immediate reduction in their monthly debt-service which is the same as sending out a zillion stimulus checks. It makes a real difference if a family's minimum monthly debt service goes from $400 to $200. Profits for money-center banks are turned into household expenditures at struggling businesses.

The banks would have clean(er) consumer debt balance sheets and wouldn't "need" to charge insane rates.

And the government would do okay. There would be some defaults, of course, but 10% is good money. We would certainly not do any worse than we do bailing out mega-corps.

Two reasons this will never happen:

1) Banks might complain.

2) It would help ordinary people, which seems to be the current definition of "socialism." (Many people, even some Democrats, get more upset with helping unworthy neighbors than helping criminal corporations.)

[Swede]

1. Some homeowners can do consolidation loans,

anyone else is in trouble.

[democraticinsurgent]

2. very sane ideas

You know, the banks got along with 8% interest rates for a long long time. They also did pretty well by restricting credit.

Then they opened up the floodgates to anyone and everyone. What did they think would happen in an economic downturn?

The 29% interest rates are a self defeating strategy, forcing people who are trying to pay their bills into default and/or bankruptcy. The high rates are being applied punitively and wantonly, even to people who pay on time.

I have no sympathy for the banks, because they have brought this entirely upon themselves. Worse, they slurp at the taxpayer's trough and then go gambling with their free money, while the average taxpayer is left holding...an empty bag.

[Hamlette]

3. I think its a bad idea

I have no trouble helping those who cannot help themselves. I believe in better welfare benefits and universal health care paid for by the rich.

I don't believe in baling out people who got into credit card debt buying shit they didn't need.

In large part because they will do it again.

We need to make credit painful and expensive and change our culture away from the "I gotta have a new iPhone this very minute!"

[Kurt_and_Hunter]

5. As long as you realize you are proposing global mass-starvation...

The general structure of the global economy is what it is.

Without consumerism and debt the whole system collapses. Quickly.

In the abstract I agree with you. In practice, it would be roughly as humane to just have an all-out nuclear war. To say one might prefer a different system doesn't address the dislocation involved in changing it.

[Hamlette]

6. bullshit

what you are saying is that we all must live beyond our means in an unsustainable way or we will all starve to death.

That is complete bullshit.

This is not "the global economy". This is the American economy and it is totally unnecessary. Our parents didn't have credit cards and my generation didn't run up credit card debt. Of course, we had one old beat up car we shared with up to 4 drivers, a black and white TV (yes, ONE) we did not eat in restaurants or take vacations where we stayed in hotels.

The system doesn't collapse without debt. Period.

The system will contract without consumerism but so the hell what? Why not? We're Americans. We can do it. Sheesh. Let's go European.

Your nuclear war analogy is beyond the pale.

We stupid Americans made this culture and we can change it. Stop buying so much shit.

[Kurt_and_Hunter]

7. You are a crackpot. Ron Paul might be a good option for you.

The entire system is based on debt. Most new money is created through debt.

It is awesome that your generation didn't have credit card debt and one B&W TV and walked 800 miles to school in the snow.

Your generation fed 3 billion people.

Today we are feeding 7 billion people.

I am sure the 4 billion extra people will be excited to have your fantasies about how the economy works for dinner.

[Hamlette]

8. really?

Our system is not based on debt. Period. And most new money is not created through debt. (whatever the hell that means).

The financial system crashed in 2008 not because there was too little money but because there was too much money. (Investors looking for places to invest money ended up investing it in risky instruments. Remember? Hello?)

Those extra 4 billion people don't eat plastic. Or debt. They eat food!

I'm not talking national debt. I'm not talking returning to the gold standard. I'm talking about not buying a fucking iPhone when you don't have enough money to pay for it.

All I'm advocating is that people live within their means. If you think that makes me a crackpot you have just made my case.

It's our culture. We can change it. Consumerism doesn't have to control our lives, doesn't have to be King.

(Don't know exactly what I said for you to attack me like you did. I suspect it's because you have credit card debt for your iPhone and you think my tax dollars should pay for the toys you have but couldn't afford to buy?)

(And it wasn't 800 miles but it was uphill both directions.)

(Oh, and I know how the economy works. It's my job.)

[Sinti]

10. You work in the financial sector? n/t

[Hamlette]

11. DH does

I'm legal counsel working closely with economists on unemployment and other labor related issues like training in the state/federal sector. DH is a banking lawyer, was state commissioner of financial institutions, has testified in Congress many times about these issues, and has spent the last several weeks (including mornings and weekends) on conference calls on the Dodd and Franks legislation. I pretty much live it.

[Chan790]

15. Actually...(and it is rare that I get to wear the populist-economics hat)

our economy is largely grown through debt as it is the only way that we can keep people buying stuff (believe it or not, the engine of our economy is driven pretty-much-solely by people buying "things"...that's true of any service-and-commerce-based economy in a non-manufacturing nation. If people don't buy things they don't need, then service-sector jobs are not created.) while real wages drop (which they have been since the 1970s...another joy of service-based economies.) That was part of the stimulus problem last year...any dollar spent towards paying down debt instead of buying crap is a wasted dollar from an economy-stimulation standpoint...it might be good for you to pay off your high-rate credit cards but it's not good for the person trying to keep a job selling you a TV or get one repairing the computer you didn't buy. Most people didn't "waste" their money in the right ways and that meant the effects of the stimulus were less than ideal. If you're an economist, then I know you know that much even if you want to play coy about it. Yes, our current economic model requires for mutual social benefit that people live beyond their means. Consumerism is king, greed is good, et cetera. We should want to live better than our parents...that's a progressive ideal, as much as liberty and responsible environmental stewardship and civil liberties.

While it's nice to think that that past is returnable, it's really not without the re-establishment of very-high tariffs to force greater manufacturing within the US. That in and of itself creates large problems:

One, the vast majority of Americans working in service sector positions do not want manufacturing-sector positions...as shitty as my past position was at Starbucks for minimum-wage, I would not trade it for my father's former (nasty, greasy, oily and metal-dusty) job at Pratt and Whitney as a machinist for twice the $18/hr. he was making in 1991. Clean-and-underpaid beats dirty-and-surrounded-by-carcinogens, even for vastly more money. In fact, that was the reason my parents both worked in conditions they knew were going to shorten their lifespans just to put me through college...so I would never have to work in that environment. Literally...they forbid me to major in engineering because engineers work in factories. They refused to send me to trade school or the military because they wanted me to zero-skills within that sector so I could not follow in their footsteps. These jobs, if they returned, will be largely-foisted upon the underclass...the college-uneducated, minorities, people living in poverty...great because it'll give them a roadmap to the American Dream...not so great as once they escape the manufacturing sector, they need to be replaced by a new underclass; this sector needs and is driven on human flesh. Like abattoirs, people do not choose to work as a die-maker or a first piece inspector or jet-blade stamper if they could be doing something that isn't dirty and dangerous.

Two, any transfer back to a manufacturing-based economy both requires a long-period of retraining for a workforce not-capable of doing skilled manufacturing labor and will be accompanied at-first by a severe and deepening recession driven by massive job losses as our current service-economy is dependent upon the importation of cheap product from Asia and the third-world. The same tariffs that create the manufacturing jobs destroy the service ones we currently rely upon.

Three, those manufacturing jobs are highly-polluting. The town the factory was in that my parents worked in, is...twenty years after the plant closed...still blanketed in carbon dust and industrial chemicals. The cancer rate is through the roof. It's illegal in several parts of town to have a well because the ground-water has the chemical characteristics of battery acid. The factory itself is a Superfund site. Most people in Southington, CT would tell you that things are better off for P&W no longer being a resident of their community, even if it does cost the city millions a year in taxes (not to mention lost wages) and contribute to a higher-than-the-national-average unemployment rate. The cost of the conditions you want to cite to return to was ecological and they were traumatic.

I respect that our current model is not-sustainable...everybody knows that much...but the one that is required by your propositions is also not sustainable. If you have a better solution I'd love to hear it, but expecting that people will want to return to owning less things, paying more for them and not being able to finance them freely is absurd. It's unrealistic. It's blind to basic human drives. It'd make a great premise for a Swiftian satire if Jonathan Swift just weren't dead.

[Hamlette]

19. here's what I don't get about what you say

you say the only way for us to survive is for us to go in debt but then you say it is not sustainable.

And you ask me for a solution?

I gave you mine. Stop consuming. The economy will contract and it will hurt in the beginning but if your method isn't sustainable, what have we got to lose? Let's go European!

[Sinti]

9. How about people who used their credit cards for groceries

because they got laid off and had to eat for a month or two - or their rent - or to pay a hospital or other medical bill? There are many, many reasons why people get into huge credit card debt that have nothing to do with shiny gadgets.

Survival in this nation for many is painful, expensive, and entirely hit-or-miss. The desire to blame and punish has so outweighed the desire to lift up and encourage in both parties, I'm not sure we deserve anything better than what we have.

Until we all agree that we all deserve to live a decent life, none of us will live a decent life. Even if you have plenty, if you refuse to help your brother you have the wonderful advantage of watching others go undernourished in substandard homes, or if they're not one of the lucky ones starve on the street.

I remember going into DC to work in winter and seeing the cops pry dead frozen homeless people off the street every morning. It's ugly. I guess they were all drunks or addicts. When I was homeless, with two jobs, I was as sober as a judge. Some of us don't have the luxury of thinking that could never be us.

I know Bootstraps, Self Control, and Commonsense!!! All I see is Jackboots and the Whip Master.

[Hamlette]

12. I have complete sympathy for those who used credit for necessities

but paying off everyone's credit card (or helping to) is not the best answer because the net is too big and I have no sympathy for those who don't use credit for necessities. I've seen a few bankruptcy pleadings in my time. One of the problems with easy credit is ppl run up debt on bling thinking they have plenty of time/money to pay it back but then when the economy goes south they are much worse off than they would have been without that iPhone.

There are other ways to help those in need and we should look at those things (universal health care, a better safety net). Look at countries with a great safety net (Europe) and they don't have credit card debt in large part because they don't have as much bling as we do and the culture has discouraged it (because its not needed? Chicken and the egg but the proposal doesn't solve the problem. IMHO

[Sinti]

14. Okay, I understand better

Thank you.

I feel the whole system is badly broken. We are experiencing systemic failure, and we refuse to recognize it. Strong regulation would have prevented this.

The CCs and other businesses get very upset when people live within their means, and work very hard to push people to buy their stupid, too-easily-breakable crap on credit. People are strongly encouraged/persuaded/brainwashed into buying a bunch of stuff they don't need, and probably won't use much, to keep up with everyone else and feel like an equal human being. There's a powerful socio-scientific aspect to advertising that's employed. Gratefully, I don't watch the TV, but I know how it's done from the inside.

"You are not good enough to be among us and basically don't deserve life if you don't have whatever the new cool thing is." That's how they sell it at the moment. They use the primal instinct of fear - in this case, fear of rejection from the tribe. In caveman days such rejection meant death.

In my job I listen to financial analysts, public relations people, and C-levels basically all day. It's the making sausage side of the human-devaluing economy. The people I work for feel like we demand too much, and should get much lower wages, and many fewer job opportunities - that would fix the whole mess, because we'd be back in our place as rats in their maze.

How you see it all depends on your lens...

[Hamlette]

18. they push it on us because we fall for it.

When I first started working I overspent a bit on clothes, and my son did a bit on gadgets, but not for long and a big part of it, IMHO, is the way my whole extended family lives. That is my culture. Going into debt for anything but your car or house or taking out a second mortgage is next to divorce or murder. It is not done. The person with the most status in my family is the one who saves instead of spends.

We need to start changing the culture ourselves. Yes, the financial institutions have some blame but regulation of institutions isn't the issue, its regulation of ourselves. We have to accept our own responsibility in this mess we are in or we will be in it again in another 20-30 years. We determine what we value in society, not the advertisers.

Europeans are not like we are when it comes to consuming shit we don't need. It has made us fat and unhappy, IMHO. We have lost sight of what enriches our lives. It ain't a new iPhone each year.

[Sinti]

20. I've seen people take out second mortgages to buy new cars

So, I understand that side of it. We are removed from what truly gives us life. In a sense we are obsessed with our tools, and money is one of those tools.

My family is/was French. My mother became a naturalized American citizen - and you're right, going into debt is not approved of, except for the house and car (a reasonable car). The focus was always on the family, good meals together, good conversation, listening to music and going to see live shows in the park... it's a good life. If all of us became like that we'd be better off, but the corporations would go bankrupt, then where would we get jobs?

That's another facet of this gem that we have to clear up. Busting the monopolies would certainly help, and good strong regulation that is respectful of both the individual and the whole of society. We've got a heck of a road ahead, and a lot of explaining to do about how real life should work, IMO.

[sinkingfeeling]

4. I got that dreaded letter from Citi Cards on Saturday. They're raising my rate to 19.99% at the end

of year. I put one massive charge on their card about 8 months ago and planned to have the $20,000 paid off in 3 years.
So last night, I took out a fixed rate (8.99%) 3 year loan and had them directly apply the entire amount to the credit card.

Bye-bye Citi Card. I've been a good customer of theirs for over 20 years and they got uppity because I wasn't charging anymore. Actually said in the letter that I could 'earn interest back' if I charged a minimum of $500 a month.

[Yavin4]

13. The Credit Card Has Replaced Real Wage Growth

In our parents and grandparents' generation, they formed unions and collectively bargained for middle class wages to fund their lives. Today, we don't want to form unions and as a result, our wages don't keep up with the cost of living. Thus, "middle class" families shift a sizable portion of their cost of living onto credit cards.

Also, as has been researched, it's not profligate spending that's the cause of so much credit card debt. It's just the routine costs of life in America. Co-pays on INSURANCE policies. Lack of public transportation which forces people to spend money on cars and their maintenance. Educational loans. The list goes on and on.

Poor wage growth is the nexus of the credit card problem in America.

[Chan790]

17. Thank you...

I just posted a long and meandering post (most of which was about the necessity of returning to "the good old days" of manufacturing to escape our current fiscal hole.) about the consumer-debt culture and you're out-shown me...both hitting the elephant in the room that I glanced around blindly and zeroing in on the causes of our current mess far more concisely.

[freddie mertz]

16. They just jacked up my CITI card, had it for over a decade...

Used to be low interest (relatively), NOW it would be 29.95 %.

So I called to reject it, then cut it up and tossed it in the garbage.

I have a balance that is not small, and have no idea how I'll pay it off anytime soon after the LAST increase.

But I rejected this one as TOO MUCH.

Shouldn't be legal.