Obama Wipes the Noses of Crybaby Consumers

April 24, 2009 by  
Filed under Debt and Credit

crybaby_consumersThis week we saw the spectacle of President Obama wiping the noses of whiny consumers because credit card companies were being mean. He summoned the leaders of those companies to the White House to tell them to stop being such bad people, or he would spank them.

Mr. ToughMoneyLove doesn’t like credit cards or credit card companies yet I am unmoved by the entire issue. This is what I am really hearing among all of the fussing and complaining:

Boo hoo. Please Mr. President, take care of us. We don’t want to play by the credit card rules. In fact, we don’t even know what the rules are. We are too lazy to read the fine print. So don’t let the credit card companies play by the rules. That fine print shouldn’t apply to us. Make new rules just for us Mr. President. We need our credit.  In fact we want more of it. But our HELOC is maxed out and our mortgage is upside down.

We know that if we just stopped using plastic, the card companies would have to offer better service to get us back as customers. If they didn’t, they would be out of business. But we don’t want to stop using our cards. Credit cards are our right. We don’t care if impairing the credit card companies’ ability to compensate for risk will affect everyone.  We want everyone who owns a credit card – not just the crybabies – to pay for our insatiable appetite for stuff and the credit to buy it with.

We are pathetic, helpless consumers, Mr. President. We can’t look out for our own financial selves so you need to do it for us. Please make those bad credit card companies do it our way. We are eager and ready to buy more stuff Mr. President.  If you take care of us in this special credit card moment in history, we will flood the economy with a new wave of meaningless consumption. Then we will vote for you in the next election. The cycle will be complete. We will depend on you to help us spend without worrying about the bad credit card people. You will depend on us to keep you in charge of our lives. And easy access to consumer credit will become yet another entitlement that you have created for us. What a glorious future we will have together.

Thank you Mr. President for doing what we won’t do for ourselves. But before you go, there is one more tear we need you to dry. When we want to file bankruptcy, please make sure that those nasty credit card companies can’t stop us. After you clear the path toward more spending, we will max out those cards then need the bankruptcy courts to help us start over. That’s not too much to ask, is it? Our votes should pay for that.

Thanks again Mr. President. May we go to Disney World now?

Photo credit: Mastermag


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36 Responses to “Obama Wipes the Noses of Crybaby Consumers”
  1. MLR says:

    “The legislation would stop credit card issuers from imposing arbitrary interest rate increases and penalties, while halting certain billing practices.”

    I can’t say I am against regulating against –arbitrary– interest rate increases and penalties. Nothing wrong with consumer protection, IMO.

    But that must be why you are called TOUGH money love :p

  2. Snowy Heron says:

    I am no particular fan of Obama, but there are a lot of issues going on here. I truly believe that the long path that the US has taken to get us to this point financially began with the Depository Institutions Deregulation & Monetary Control Act of 1980. That’s when banks started merging like crazy, they were allowed to pay whatever interest rate they wanted to on deposits and they were allowed to charge whatever interest rate they wanted to on loans (i.e., they got rid of all the usury laws).

    It didn’t happen overnight, since many of the older bankers around at that time had lived through the financial chaos of the Depression and understood the importance of good underwriting, but as these old gentlemen retired and the banks started hiring hotshot MBAs (note: I actually do have an MBA in finance)who would walk over their dying grandmothers for a nickel, all the old rules got forgotten. In the late 80′s I started hearing some of these hotshots talk about “sexy” lending. I enjoy my chosen profession, but I have never thought of lending as sexy. What it meant was that they were taking bigger risks, mostly so that they would generate larger compensation packages. They did not understand the risks that they were taking, often because they didn’t hang around long enough to suffer the consequences.

    The credit card situation was part of this evolution. Banks used to carefully evaluate potential credit card customers and even turn them down. Then they figured out how to make huge amounts of money on even those customers that should not have credit cards. Just up their interest rates, charge them huge fees for payments that are 1 minute late, and bigger fees for going over your limit. Giving credit cards to students who have no job and no income was a no brainer since a lot of parents will cover their kids if they get into too much trouble.

    Granted, people should have been a lot smarter about taking on debt. But after going 50 years or so with people scarred by the Depression and government regs keeping a pretty tight leash on lenders, then loosing all of those controls and experience, it should not be surprised that we have ended up where we are.

  3. Matt SF says:

    Obama’s move is nothing but “baby proofing” our consumer dependent economy. He effectively put a gate in front of the staircase to prevent debtors from falling down the stairs and electric outlet plugs to keep them from getting shocked.

    It’s a brilliant strategy move in political sense. Every dollar he saves will be worth 10x more in political capital.

    However, sad to think that we’ve deteriorated this much as a civilization. Banks will do anything to boost their profits and consumers too dumb to solve their own financial woes.

  4. Rob Bennett says:

    We are too lazy to read the fine print.

    There was a time when there wasn’t so much fine print to read!

    Economies don’t work unless people can trust each other not to engage in trickery. The line as to what is acceptable legally from big corporations has been pushed so far in recent decades that it is not practically possible for many middle-class people to keep up. We all have emotional weaknesses. Big companies should not be making profits by exploiting them.

    I don’t know the details of what is being considered. But I support the idea of doing something about the sophisticated (and ethically dubious) marketing used today to get people enslaved in debt. I believe that this sort of thing is a big cause of the economic crisis we are living through today.

    Rob

  5. SJ says:

    Yay baby proofing!!!
    “However, sad to think that we’ve deteriorated this much as a civilization. Banks will do anything to boost their profits and consumers too dumb to solve their own financial woes.”

    I loved that line…

    It’s kind of interesting; for bankers the goals are to maximize short-term gains to max out comp. packages, as they won’t be around heh…
    While govt officials need to do the same, max out short-term happiness for re-election.

  6. It’s amazing that many want government to interfere with the free market, and then they wonder why our market economy doesn’t work. We can’t have it both ways.

    The market economy is always self-correcting. An economy with government interference is in need of constant correcting.

    Clair

  7. Rick Beagle says:

    Does no one here see the irony of this article and the one a few days ago bemoaning the “financial aid” companies that exploit college students? How can you call for more regulation at the beginning of the week and then bemoan regulations of another sort at the end of the week?

    I had my credit card rate jump from a single digit interest rate to a rate close to twenty percent with no change in my credit score or our income to justify the jump. We had a relatively small balance, which we paid off, and then canceled the card.
    In an ironic twist, the same credit card company keeps calling (despite me repeatedly asking them to stop), and flooding our box asking us to come back at a low interest rate?! The company was Wells Fargo Bank, so please don’t think this was some paltry outfit out to scam us (it was our ONLY credit card, and it was used exclusively for business related travel – for the free points).

    We are financially responsible (by all measuring sticks), and yet these jerks felt the necessity to try and double our interest rate in less than thirty days (including pre-existing debt). The even sent us a rather demeaning letter telling us to pay up or suffer the interest hike. No explanation and zero interest in discussing this issue.

    These organizations have had ample opportunities to regain the moral high ground but chose not to. I am not an advocate for those people who do not pay their bills, but honestly, the credit card industry needs to be brought down a notch or two. I am not sure how to regulate responsible banking, but ugh, something needs to be done.

    Rick Beagle

  8. James says:

    The American public is just as greedy as Wall St. They wanted all this “stuff” and the only way to get it was to leverage themselves up to their eyeballs -just like Wall St. But Wall St. has a get out of jail free card. I dont reckon anyone else has one of those do they? If you want to play the game fine-just dont whine and moan when you land on Park Avenue and see the bill.

  9. kitty says:

    Yes, this is so brilliant. Exactly when the credit card losses mount and banks are near-insolvent, all the economy needs are some rules that would make it more difficult for banks to lend. There was some guy who wrote email to a CNN program asking why credit cards don’t loan at the same rates as they pay on CDs. Sure, the banks should convert into charitable organizations and just give poor consumers money.

    Oh and it is so bad for these banks to cut credit limits for poor consumers. Doesn’t matter that they simply may not have enough capital to be able to lend up to these credit limits and still satisfy capital requirements.

    Yep, these regulations will definitely do wonders to the economy.

    @Rick – when you choose to carry a balance, it is your responsibility to read the rules and to know they have a right to raise rates at any moment. If you agreed to borrow under these conditions, you have no right to complain. They didn’t force you to accept a credit card, and they certainly didn’t force you to carry a balance. If fact, nowadays most credit cards offer automatic payment in full option – this gives you 100% guarantee of never be late (as long as you have money to pay for your purchases). They are not charitable organizations. They are experiencing a large number of defaults i.e. they actually are losing money. It doesn’t matter how responsible you are: when there are higher losses, the revenues have to offset them; otherwise, why would banks operate at a loss? In a recession, the risks of lending are higher, higher risk = higher interest rate. BTW – they raised my rates too, but I personally just don’t care since I don’t pay interest. For all I care they can charge me 10000%, I am not paying it. All these regulations will do is penalize responsible users by reducing number of rewards, cash backs and 0% offers – the latter is actually quite useful in cases of real emergency for which your emergency fund is a joke: a couple friends of mine used 0% offers to help pay for cancer treatment for their loved ones, for example.

  10. Rick Beagle says:

    Kitty,
    Your argument is tantamount to blaming a rape victim for the rape.

    At some point as you grow older you will realize two things: 1) businesses are run by people and sometimes those people are evil; and 2) businesses need people, not the other way around.

    It worked out, I ended my relationship with Wells Fargo Bank, and now do business with a local bank. I have always been a huge fan of supporting local businesses, so this was a good opportunity to continue that theme.

    Peace.
    Rick Beagle

  11. SJ says:

    The one part that surprised me about the present state (that this bill brought to light) is the charging interest on avg balance/double cycle.

    But honestly none of this will affect you if you pay your balance off on time. If making a purchase results in you having to carry a balance then you shouldn’t be buying it. Why do you deserve the item or deserve the mercy?

    I do agree this is bad business practice, but let’s let the people learn that high interest rates are bad mmkay? And thereby vote with their dollar as opposed to crying at mommy and uncles.

    I do agree tho, that some of what occurs when you have a balance really really sucks. And I guess as long as americans suck at this then changes to rates should be limited. So sad.

    If a company does bad practices it should be punished by us choosing not to deal with them. Those who carry balances should move balances to a different company. Those who don’t won’t care.

    It’s happened already, with DRM free, and other things i can’t come up with right now =)

  12. kitty says:

    “Your argument is tantamount to blaming a rape victim for the rape. ”
    Do the bank hold the customers down and force them to even use credit cards much less to carry a balance? The comparison with rape is utterly ridiculous. Credit cards aren’t a necessity nor is carrying a balance a requirement. The consumers have a choice. So how is it similar to rape? Oh poor consumers… Their parents forgot to teach them that when they borrow money they have to pay it back. So they confused borrowed money with their own money. How ever these big bad banks failed to “rape” my parents who came to the US from the Soviet Union of all places as refugees while in their 40s (43 and 48) and barely spoke English when they got credit cards a couple of years later? How did they figure out that if they don’t pay their balance in full by the due date they’ll pay high interest? They certainly weren’t able to read the fine print or even understand much on the first page except for the a) that they pay everything they don’t pay interest and b)if they don’t – they pay high interest. This is certainly a rocket science.

    The only people who I do have sympathy for are those who got in debt because of a life and death type of emergency like a serious illness. Can you honestly tell me that the majority of people in credit card debt got there because of a serious illness or because of overspending? Incidentally, I have a couple of friends who used 0% offers quite successfully when faced with high out-of-pocket costs for cancer treatment. They don’t consider themselves raped. They feel quite lucky.

    You didn’t like Wells Fargo, so you switched banks. Great. This is how it works – you don’t like a business, you take your business elsewhere. You don’t dictate to businesses what kind of prices they should set. Otherwise, don’t be surprised when you’ll not be able to borrow at all in cases when you actually do need money – like high medical expenses.

  13. Rick Beagle says:

    “The only people who I do have sympathy for are those who got in debt because of a life and death type of emergency like a serious illness. Can you honestly tell me that the majority of people in credit card debt got there because of a serious illness or because of overspending? Incidentally, I have a couple of friends who used 0% offers quite successfully when faced with high out-of-pocket costs for cancer treatment. They don’t consider themselves raped. They feel quite lucky.”

    You deride my comment on rape, then give the above example, and using your straw man, I am sure that a “loan shark” could find a few fans if they had to chose between a loan and say, death.

    Your continued support of business practices that continue to abuse and subjugate those who have foolishly gotten themselves over their heads is odious and leaves little room for human compassion. Which is why capitalists devoid of humanity were replaced with liberals this last election. It would appear that all of those whiny little adults care more about each other than supporting the huge profit margins of say Wells Fargo Bank.

    Perhaps the capitalist should quit whining about us protecting ourselves from their unscrupulous acts, and develop some responsible business practices that would allow them to avoid being legislated against?

    As for medical expenses, prepare yourself, that might actually be addressed this year and make the extremely ill less of a target for these types of business practices.

    Peace.
    Rick Beagle

  14. kitty says:

    Rick,
    Most of those people who “foolishly gotten themselves over their heads” are people who didn’t understand that when they borrow money they have to pay it back. This is something I understood at the age of 8. These poor people used borrowed money to buy things that my parents who worked hard at jobs that were well below their level of education felt they couldn’t afford to buy. My parents still don’t have an HD TV; my parents drive 1995 Corolla that I gave them after their 1984 car broke down. But they also have savings, not a huge amount but enough to live in the same modest lifestyle they always have. Throughout the years I saw a number of immigrants who came to the US – from Russia, Poland, India, China, etc. with nothing yet managed to make a life for themselves without whining of how they are taken advantage of and without getting into credit card debt. I am sure there are some immigrants who are in debt too, but many aren’t. Your “poor people” used borrowed money to buy wide screen TVs, fancy cars and mansions. Not all of these “poor credit card users” are even poor, some had pretty high salaries. My straw man example is no less straw man than your reference to rape or loan sharks – my example simply shows that someone who is responsible and has brains can use credit cards to their advantage while yours is just rhetoric. Loan sharks break dead beats knees or kill, credit card issuers take losses instead. Tell me since you are so sympathetic, under which conditions would you lend your own money to people you don’t know and who you know are bad with money?

    Yes, I have compassion to people that got into debt because of medical bills which is why I donate money to organization that help people. But they aren’t the majority. The majority are those who got into debt because they bought houses or things they cannot afford. Having being born in a poorer country, having parents who actually experienced hunger, having a cousin who lives in a one bedroom apartment in St Petersburg with her mother and who works 2 jobs to earn $500 a month, I have no sympathy for those who got into credit card debt because of overspending.

  15. Matt SF says:

    Not sure if you guys saw this one, but what would happen if the government actually issued it’s own credit cards? Slate puts together an interesting idea here:

    http://www.slate.com/id/2216865

    I have a differing idea considering the environment we’re in and our continued path towards the government relaxing credit standards.

    Anyone deemed as a credit risk by Corporate America would automatically qualify for a “US Citizen Loan”, where their future tax returns would be held as future collateral.

    Considering that most people in with credit card debt can’t manage their finances very well, they would be given a yearly “US Citizen loan” equivalent to the average size of their annual income tax returns. At least this way, the government knows they will get their money back. Eventually.

  16. Matt SF says:

    The above comment is written in a Devil’s Advocate tone of voice.

  17. SJ says:

    “(Europeans also have a different relationship with credit cards, using them to make routine payments rather than rack up debt.) ”
    Does any other nation use credit cards to rack up debt?

    So you are suggesting a pseudo secured card with limit estimated based off of future tax returns? Sounds reasonable but tricky.

    I think having the government aim for a reasonable profit is acceptable. That way it’s at least not a cost/burden on other tax payers. And regardless, they are offering a service that goes beyond the essentials =). That said we’ll ignore corruption/etc. (it’s the new social security fund!)

    I think this could be likened to what is happening with student loans. Except the “customer” in this case should be more responsible =P. Should the govt be helping out that much?

    A few problems. The big one would be how it would be invading the turf of the banks uh-oh! And more importantly, competing with the banks. I think that was one of the big problems and fears of nationalization of banks (logistic issues aside)

    The second issue would be if credit limit is low, the people might as well get into more credit card debt etc. In which case it could help, lower avg rates etc. But still would the banks have to raise rates lol?

    It looks like it would take away the “best prey” of the credit card companies, i.e. those that pay off regularly but carry a balance. How does that affect things?

    Ohwellz. The govt competing with businesses is always scary, esp in terms of commodity goods. I’ll say I have nothing against govt take over of most services =P

    And finally to above: I have no compassion for people who got into credit card debt b/c of the latest ipod. And that is probably a good majority.

  18. Rick Beagle says:

    “Yes, I have compassion to people that got into debt because of medical bills which is why I donate money to organization that help people. But they aren’t the majority. The majority are those who got into debt because they bought houses or things they cannot afford. Having being born in a poorer country, having parents who actually experienced hunger, having a cousin who lives in a one bedroom apartment in St Petersburg with her mother and who works 2 jobs to earn $500 a month, I have no sympathy for those who got into credit card debt because of overspending.”

    Nice rant there on the perceived abuses of Americans and their credit cards. Here is a thought, most of the people who have credit card debt are responsible people who pay off their debt. I say this categorically based on the fact that credit cards obviously make a profit.
    That statement does not argue that there are abuses or that people couldn’t be more prudent with their debt. However, even the poor behavior of this group does not justify the hiking of rates by credit card companies to obscene levels. It is also counterproductive to the directive given them when they “accepted” taxpayer money (i.e. get money flowing in the economy again).
    Combine this abuse with the rewrite of the bankruptcy code by the banking industry several years ago, and you begin to see a predatory pattern that needs an intervention. I am not stating that companies shouldn’t have the right to make a profit, and I realize that “obscene” is an objective term. But I submit that a company who takes taxpayer money, buys another bank, and posts record profits in this economy while doubling their interest rates on their customers’ debt might pass any sort of litmus test for the descriptor provided.

    Peace.
    Rick Beagle

  19. kitty says:

    “But I submit that a company who takes taxpayer money…”
    You do realize, don’t you that some of these companies were FORCED to take TARP money by Paulson? For example, Wells Fargo that you mentioned in a previous post was one bank whose CEO objected very vocally against being forced to take TARP? They are also prevented from repaying the money. Also, TARP is a loan, not a cash gift. Does your lender tell you what to do with the money you borrow, especially several months after the fact? If you want to talk about predatory lending how about TARP: a) here take the money it’s your duty, you all (first 9 banks) have to take it so that there is more money available for lending and so there is no stigma attached to it. No conditions, just give us preferred stock and pay us 5% for first 5 years and 9% thereafter in dividends. Also give us stock warrants that will enable us to buy stock at this specified price even if the price of your stock drops. b) oh by the way, you cannot pre-pay until we allow it. Also when you pre-pay, you have to buy back your stock warrants. If your stock has fallen in the meantime, buying back these stock warrants may result in 60% interest for the few months that you had the loan c) (several months later) Now that you have taken the money we are dictate to you how you run your business – how you decorate your offices, where you schedule meetings, what you pay your employees, etc. banks: “But some of us were told to take the money” congress: if you don’t want it, you can give it back. (some) banks: OK, fine, where do we send a check (oh and want about these warrants – if we buy them back it’ll mean we have to pay 60% interest in some cases) treasury: nope, you cannot return the money just yet. And yes, you have to buy these warrants back even if it means that you have to pay us the amount close to 60% interest for the few months you had TARP. It gets me so angry when people mention “oh they took TARP” even when in many cases banks didn’t even need or want the money and that they pay billions in dividends.

    Also, I consider anybody who carries a balance irresponsible unless there was a really good reason for it and not just over-spending. Also, I am not sure if you know, but the losses in credit card industry are mounting – they are expected to get up as high as 10%.

  20. Matt SF says:

    @ Rick

    Just curious, but what is your stance on social lending networks like Prosper and Lending Tree?

    I’m not setting you up or anything, I’m just curious if you view all lenders as “bad guys” or just the big banks.

  21. SJ says:

    Carrying a balance is irresponsible. Period.
    Credit cards lose money purely from defaults. I am kind of surprised they are getting hit that badly. I guess the delayed nature of the business.

    The fact they are losing money now is b/c people are unable to pay off their debts.

    What is wrong with obscene profits? (I think it’s wrong, but not for moral factor; it’s just inefficient)

    Also I think they were forced to buy a bank lol.

  22. Rick Beagle says:

    Kitty,
    If anyone here thinks the government “made” Big Banks do anything, I have a bridge to sell them. As to your suggestion that these banks were righteously shocked when their gift (and it was a freaking gift) from the taxpayers came with substantial strings is absurd, especially given the public opinion of their actions and an Administration change (that favors labor). These are supposed to be the “smartest people in the room” (and I agree), to think that their acts of arrogance could continue unabated with little to no repercussions/consequences was simply stupid.

    As for these companies being allowed to repay these loans, I have no problem with this assuming they aren’t tossing their financial institution under the bus to protect their inflated egos and paychecks. Having worked in M & A for a bit, many of these comments could be construed as an effort to try and attract new business, keep old business, and help inflate their stocks by claiming that they are “heads and shoulders” above their “ready to fail” competitors. Unfortunately, much of this rhetoric does not reflect the actual state of these institutions, hence the holding pattern currently in place.

    The stress tests are an attempt to cut through the public facade, and determine whether these financial institutions are truly viable for long term stability (in a declining economy). Unfortunately, these same institutions are lobbying both policy makers and the public in an effort to produce results that support their comments. Another good idea side swiped by a corrupt political class. Sigh.

    Matt SF,
    I am not opposed to pay day lenders (I believe this the nature of the businesses to which you refer), but I do believe there should be a cap on their products to insure that we discourage abuse. The current legislation pending -as I understand it- does little to nothing to curb those abuses and needs to be revisited.

    SJ
    Carrying a balance in irresponsible – to which I would raise my voice in agreement.

    As to your question, what is wrong with obscene profits? If the profits are well beyond the norm of current market norms then we usually have manipulation of some sort (i.e. cooked books, monopoly, etc.), and that is never a good thing.

    Peace.
    Rick Beagle

  23. Rick Beagle says:

    My apologies for the double post:

    “Also, I am not sure if you know, but the losses in credit card industry are mounting – they are expected to get up as high as 10%.”

    Yes, I am aware of this, which is in part the reason for my disgust over the doubling of interest rates. They are literally pricing themselves into a losing situation by insuring that their customers can not pay their debt.

  24. kitty says:

    “If anyone here thinks the government “made” Big Banks do anything, I have a bridge to sell them. As to your suggestion that these banks were righteously shocked when their gift (and it was a freaking gift) from the taxpayers came with substantial strings is absurd, especially given the public opinion of their actions and an Administration change (that favors labor).”

    Hello? Are we re-writing history here so that it matches our opinions? Originally, TARP was meant for the stronger institutions. Those of us who actually followed the news back then remember that Paulson invited CEOs of 9 largest banks – regardless on whether or not the banks were solvent – and told them “you all are taking it”. The idea was that if everyone takes it there will be no stigma attached to it, so weaker institutions would take it. Some of these first 9 tried to object. Unlike you, I actually read business news as well as earnings reports sometimes. Some of these institutions were quite profitable and in no danger of going under. And yes, the treasury can make banks do things. Like follow on a deal with Merrill Lynch when BofA wanted to back out. Or are you denying it too? Yes everyone knew about coming administration change, but everyone believed that we still live in a lawful society.

    As to TARP being a gift – since when you have to pay dividends on a gift? Are you denying that banks pay dividends on this money? Hello? Do you have some proof or is it again your little bit of class hatred? Stock warrants in Goldman are not at all worthless – go and see the stock quote. Ditto Morgan Chase. Sure 5% for the first 5 years doesn’t seem like much – unless you remember that the government borrows for near-0 these days. Since when you get stock warrants and preferred stocks in exchange for a gift? Are you denying that banks are paying dividends or that the government holds stock warrants? Do you have this little thing called proof?

    I am just citing facts. Please show me one earnings report before TARP that showed that Wells Fargo, for example, or Goldman Sachs or Morgan Chase had any risk of going under? You on the other hands have no facts, just your beliefs. Who cares about the facts anyway when there is an opinion available, right?

    Some banks needed the money, but not all of them. Also, when the first 9 banks took the money they put their competitors at a disadvantage. Since there was no conditions attached – and no, nobody thought the government will completely ignore the contract law and start applying rules retroactively, some of the other healthy banks took the money too.

    Incidentally, do you know that the government’s plans for private public partnership and TALF are not very successful because nobody with a private capital nowadays wants to deal with the government? Last TALF auctions were extremely disappointing. 5 billion loans sold instead of 100 billion that government wanted. Talking about cutting your nose to spite your face.

  25. SJ says:

    @Rick:
    I don’t see how any of the legislation seeks to protect those responsible, i.e. those that don’t carry a balance.
    So here I’m confused, are you saying yay for protecting irresponsible people?
    In this case obscene profits (from JUST the credit card portion) would result only b/c credit card holders are being reckless and irresponsible.
    Same as a casino ripping you off

    I’m going to ignore banking in general cuz well, there are plenty of nicer options… it’s not like the banks collude and set insane rates.

  26. Matt SF says:

    @ Rick Beagle

    I was referring to social lending networks, not pay day loans, like Prosper & Lending Tree b/c they essentially turn us (the general public) into bankers and credit card lenders.

    So all of us now have the ability to finance consumer loans. The rates are competitive and range anywhere from 5% to the 30% range based on credit worthiness.

    Think of it like a 3 year personal loan you could get from your neighborhood bank.

  27. Rick Beagle says:

    Let me start with LJ,
    I have to recant a bit, and as Kitty and I alluded to earlier, there are times when carrying a balance is not irresponsible (life or death situation as an example). But in general, we all agree that most of the credit card debt was simply irresponsible spending on the part of consumers and irresponsible lending on the part of bankers (I assume we all agree that bankers did a poor job of managing their risks). With that said, I still believe that banks should not be allowed to double and even triple the interest rate on that carried balance (outside of an introductory offer obviously). My reasoning for this is two fold, one it incurs higher defaults, and two it is (in my opinion) morally objectionable.

    Matt SF,
    I am not familiar with business model for either of those companies, but they sound interesting. I will read up on them after I finish my note to Kitty. Thank you for bringing them to my attention.

    Kitty,
    For someone who reads the news, you seem to have a comprehension problem. TARP was a gift of public money to financial institutions by the Bush Administration to hide “bad” banks and prop up our entire financial industry. This “loan” as you call it, came with very few strings, and quite frankly kept many of these banks from failing. While on the cusp of failing, these same banks felt it appropriate to pay bonuses, hold lavish parties, and other “things” that had nothing to do with repaying those gifts.
    Personally, I am appalled that we did not nationalize them (um, this is our standard approach, why did we change?), gut them appropriately, and the put them back into the market place. Paul Krugman has several excellent articles on this fiasco, and I strongly encourage you to read them.
    There are three reasons that TALF is not achieving the desired result: 1) the assets are toxic (for a reason); 2)there are many reasons to believe that we have not hit bottom yet; and 3) businesses think they can get an even better deal if they are patient. Many of us in the industry believe that Wells Fargo Bank (as an example) does not have the resources to survive in this downturn economy for very long. Why buy now, when the fire sale is sure to happen?

    Peace.
    Rick Beagle

  28. kitty says:

    “TARP was a gift of public money to financial institutions by the Bush Administration to hide “bad” banks and prop up our entire financial industry.”

    Are you denying that the government got dividend-paying preferred stock and stock warrants in exchange for the money? Or do you think it was worthless? Do you have any idea how much Goldman Sachs stock is worth? Just because you believe it was a gift doesn’t make it so. FYI: this is the official application for TARP http://www.treas.gov/press/releases/reports/applicationguidelines.pdf — search for “preferred” and read below to see the information about preferred shares or stock warrants and the dividends that must be paid on it.

    As to strings – there are laws. Why should the government be any different from other investors? In case of Citi where the bank was indeed in big trouble, government owns a lot of common stock, it’s the single major shareholder, so the government could simply vote any measure it wanted legally. Government also owns a large chunk of common stock in BofA, although not as much as in Citibank. However, the preferred stock that government got with most banks doesn’t give voting rights. Why should government violate the rights of other shareholders who actually own shares with voting rights? You cannot go back and violate the terms of the agreement, not in lawful society. Unlike with credit cards, there was no provision for changes with new administration. Going back and changing the rules is the violation of the original agreement of giving money in exchange for preferred, not common, stock.

    “While on the cusp of failing, these same banks felt it appropriate to pay bonuses, hold lavish parties, and other “things” that had nothing to do with repaying those gifts.”
    Goldman Sachs wasn’t “on the cusp of failing” as you say it. Neither was Wells Fargo or Morgan Chase. For that matter neither were some of the companies that took TARP later e.g. USB or American Express. I challenge you to prove me otherwise. Use real earnings reports to demonstrate how these companies were “on the cusp of failing”. Check stock prices as well, especially pre-TARP.

    TALF is not for buying toxic assets, it’s to give government-guaranteed loans to consumer and small businesses. You can google for it – there is an official treasury information available. You are confusing TALF with PPIP which hasn’t had any auctions yet. Some banks already said that they don’t want to participate either as a seller (!) or as a buyer.

    This is my last post on this subject. It is pointless to argue with you since you have your opinions and aren’t interested in the facts. It’s also off topic — I apologize to TML and others for it.

    Back on credit card subject – while I might even agree that some of the practices are objectionable and that increasing rates may be counter-productive and increase rates of defaults, I still don’t believe it is up to the government to do it. I believe government actions will be counter-productive and lead to tighter credit. Time will tell.

  29. Kitty and others – no need to apologize to me for your vigorous debate. I am enjoying the commentary even if it does digress. I can learn a lot from reading what others have to say even if what they say is wrong!

  30. Rick Beagle says:

    Kitty,
    Back to the credit card discussion (several nice articles came out today on the various abuses), if not the government then who? The industry sure as heck can not self-regulate itself.

    Okay Kitty back to our argument, here is a thought, what would have happened to those companies if they had not taken TARP money? What would have happened to their stockholders? It was a gift from heaven itself.

    “Are you denying that the government got dividend-paying preferred stock and stock warrants in exchange for the money? Or do you think it was worthless?”
    How much are they worth if the company fails? But that question pales to the underlying concern here, why is our government investing in these organizations? It is a governing body, not an investment firm.

    “Goldman Sachs wasn’t “on the cusp of failing” as you say it. Neither was Wells Fargo or Morgan Chase. For that matter neither were some of the companies that took TARP later e.g. USB or American Express. I challenge you to prove me otherwise. Use real earnings reports to demonstrate how these companies were “on the cusp of failing”. Check stock prices as well, especially pre-TARP.”
    You lost me with your logic here. Are you suggesting that companies that took TARP money (because they are so big hearted) and then decided to hold lavish events (as an example) were within their rights as companies to spend money however they saw fit? Perhaps only the ones that were “forced” to take the money should be allowed to use that money wastefully?

    “As to strings – there are laws. Why should the government be any different from other investors? In case of Citi where the bank was indeed in big trouble, government owns a lot of common stock, it’s the single major shareholder, so the government could simply vote any measure it wanted legally. Government also owns a large chunk of common stock in BofA, although not as much as in Citibank. However, the preferred stock that government got with most banks doesn’t give voting rights. Why should government violate the rights of other shareholders who actually own shares with voting rights? You cannot go back and violate the terms of the agreement, not in lawful society.”
    This is the biggest bunch of hooey I have ever seen anyone put forth in my life. If the government perceives abuses to the good will of the American taxpayer and the misuse of their tax money, they get to change the laws/regulations. The fine print for this isn’t that hard to read…(cough) constitution/CNN poll.
    But let me leverage against your absurd statement and say this – good. The bankers are distressed because getting a loan from the Feds is a nightmare for them. Does anyone not think that is the right message for these bankers to take away from this whole fiasco?

    I just read my response to TAFL and I am perplexed at how I confused the two terms. I cannot apologize profusely enough, I can only assume that somehow I jumbled a number of topics into one POS. Let me try this again….

    “Incidentally, do you know that the government’s plans for private public partnership and TALF are not very successful because nobody with a private capital nowadays wants to deal with the government? Last TALF auctions were extremely disappointing. 5 billion loans sold instead of 100 billion that government wanted. Talking about cutting your nose to spite your face.”
    I think the skittishness that remains in the market (and rightfully so) has more to do with this than your suggestion. Concerns about the dollar would be my best guess, but who knows?

    As for P-PIPs, even with VERY favorable terms for investors – I suspect we will see the same thing. I don’t know, the win-win for the investor might be enough for people to put money back into the game….

    Peace.
    Rick Beagle

  31. kitty says:

    “if not the government then who? ”
    Free market. You don’t like the business, you don’t use it. There are options: 1) not to use cards 2) always pay balances in full 3) switch banks, maybe even to some promotional offer 4) use peer-to-peer lending. Or if you want to get even and make money off them, you could do 0% arbitrage, although with bank saving accounts’ interest as low as it is and most 0% offer having transfer fees this is no longer an attractive option. Some people did make some nice change though.

    “what would have happened to those companies if they had not taken TARP money? What would have happened to their stockholders? It was a gift from heaven itself.”

    Most of these companies were just fine without TARP, so no TARP was not a gift from heaven. Goldman Sachs stock was in upper double digits, for example, and the company has no exposure to sub-prime – if anything they played against CDOs, but this is a different story. Wells Fargo whose CEO was the one to resist most strongly to TARP – it is public knowledge, just google for Wells Fargo and TARP – was viewed as one of the healthier banks with very little if any exposure to sub-prime. Remember, this was before they bought Wachovia. Even some banks that asked for TARP were not in danger – US Bancorp for example, that also was one of the strongest banks with conservative lending practices took the money because they felt they were in a competitive disadvantage (they are repaying it, by the way); USB CEO just called the whole program “bait and switch”).

    The definition of TARP changed a lot from when it was first introduced. The original purpose was NOT to keep bad banks from failing but to free up credit markets. After the fall of Lehman the credit markets froze – there was no lending between banks and even good companies couldn’t get credit. I happen to own stock in a large Greek shipping company. Their ships were stranded because they couldn’t get loans to pay their crew (they first pay, the deliver goods, then get paid). Main reasons were a) banks couldn’t trust each other since nobody could be sure of what the other bank has on the balance sheet b) banks expected further (paper) losses in value of their CDOs and hoarded capital against future losses in CDO value (that counts against capital requirements – banks are required to maintain a certain minimum ratio between capital and the amount of money they can lend, normally it is around 10% i.e. banks take $100 in deposits, keep $10 and lend $90. At the height of credit crisis it went up to almost to a 100% as banks were hoarding cash) c) there simply were fewer large banks. The idea of TARP was to encourage banks to start lending again by providing capital to improve capital ratios. It also helped to buy weaker banks (even if it wasn’t the original intention, it was encouraged).

    The reason for asking EVERY one of 9 largest banks to take the money regardless of their balance sheet is to avoid stigma associated with the money: without this every bank asking for money would’ve been viewed as weak, so banks would’ve been reluctant to take it. Again, this is public knowledge, I don’t understand how you can deny it other than your own beliefs.

    “How much are they worth if the company fails? But that question pales to the underlying concern here, why is our government investing in these organizations?”
    See above. Show me how, for example, Wells Fargo was in any danger. Even Bank of America was OK until it bought Countrywide and Merrill Lynch.

    A very entertaining article – yes it is just an opinion, but it tells how much money a bank that just repaid TARP had to pay in interest and also illustrates some TARP conditions: http://www.wboy.com/story.cfm?func=viewstory&storyid=57393

    “Are you suggesting that companies that took TARP money (because they are so big hearted) and then decided to hold lavish events (as an example) were within their rights as companies to spend money however they saw fit? Perhaps only the ones that were “forced” to take the money should be allowed to use that money wastefully?”
    Ethically or legally? In many cases TARP money was a fairly small percentage of total money the bank had. Ethically, I’d imagine the bank that never wanted this money in the first place has a perfect right to use some of its other money for whatever purpose. If you have 10 billion and borrow another 1 billion, don’t you have a right to use a small part of your own 10 billion for whatever you want? I do agree that the bank that depended on this money for survival shouldn’t ethically throw lavish parties. But legally, the only obligation companies had was what was written in the contracts. As long as they paid interest on the preferred stocks the government owned and satisfied other requirements they legally could “throw parties”.

    Does your mortgage holder tells you if you can waste money on remodeling your kitchen?

    ”If the government perceives abuses to the good will of the American taxpayer and the misuse of their tax money, they get to change the laws/regulations.”

    The laws shouldn’t be retroactive. Also any governments’ creating laws based on “perceptions” is probably dangerous. Especially if some of these laws are not even constitutional (I”ll let TML comment on that if he wants).

    “The bankers are distressed because getting a loan from the Feds is a nightmare for them. Does anyone not think that is the right message for these bankers to take away from this whole fiasco?”
    This class warfare, posturing and changing rules after the fact is hurting more than just a few CEOs. Would you deal with a lender who changed rules on you after the fact? Yes credit cards do it, but at least they warn you about it even if in fine print. Forget loans, would you deal with any party that started changing rules on you after the fact? Not to mention, that the government’s action would result in strongest banks’ repaying TARP sooner – instead of continuing getting high interest and potentially making money on the investment – and only weakest banks holding TARP money. But the main problem is that this is endangering success of future government programs and hurting the recovery.

    “I think the skittishness that remains in the market (and rightfully so) has more to do with this than your suggestion. Concerns about the dollar would be my best guess, but who knows?”
    You are determined to find any reason for it other than blaming lack of trust in the government. Sure, some of these things you mention may be one of the reasons. But again, would you deal with anybody who changes the rules on you after the fact and is capable to create a law to allow them to do so?
    Most of the analysts I heard in fact mention what I said – nobody trusts the government any more not to change the rules. I did hear a number of banks’ say that “they learned their lesson” on dealing with the government and don’t want to continue. Read this article: http://www.cnbc.com/id/30470105 : “While administration officials say they never expected every bank to participate, large banks whose involvement was regarded as vital to the plan’s success have said they will not be involved. Executives worry that whatever assurances the White House gives them, an angry Congress might impose new rules on banks that participate, particularly on pay.” Again, this is just an opinion, but it makes sense.

  32. Rick Beagle says:

    Kitty,
    You and I must be living on different planets, because you and I are looking at the same data and coming to completely different conclusion. On the matter of TALF you read that government interference is scaring away large financial institutions, but I read that we still have a long term viability issues:

    But the disputes over the stress tests, which have been administered to 19 big banks, and a lackluster reception to the third effort, the Term Asset-Backed Securities Loan Facility, or TALF, are also potential worries.
    Large banks are being put through a battery of tests to see whether they will hold up under pressure in the worst-case economic assumptions over the next two years. Big banks like Citigroup, Bank of America, PNC Financial and Wells Fargo [WFC 19.97 0.49 (+2.52%) ] are disputing some of the early findings, which suggest some banks may need to raise capital, according to people briefed on the exams.

    The above quote is from the link you actually provided.

    Most of your comments are based on you presumption that these financial institutions are all sound, to which I would say you are sadly mistaken. Let me walk you through this crazy opinion you seem to think I have….

    “The original purpose was NOT to keep bad banks from failing but to free up credit markets.”
    To which I would say hooey! Why exactly did the credit markets seize up Kitty? Because banks were afraid to transfer money to failing institutions (please don’t make me link this for you). It was and has always been about propping up the industry, and keeping the lifeblood of the economy moving.

    To whit, if the financial industry is so robust as you claim, then why are banks failing at a record number (twenty-nine for the year a couple of days ago)? Oh, let me guess none of those other financial institutions took TARP money (snark)? Or maybe you think that yes there are weaknesses in the financial machinery but the nine banks to which you refer are “immune” from failing?

    Sigh, I do agree with your comments on Goldman Sachs but not for the reasons you have put forward. I believe that they are entirely too well connected politically to be allowed to fail, and please note that they have been very very quiet through this entire debacle (and generally supportive).

    Well Fargo on the other hand could be summed up by saying, “Methinks thou dost protest too much”. They are not nearly as secure as they would pretend imho based on random tidbits, and some personal experience beyond that listed already (I used to work for them and parted amicably after 11 years). They are a truly creative bunch and it is my hope that they can dig themselves out of the Wachovia debacle. But I have my doubts.

    As for the remaining nine, I think there are a number of them that are as Paul Krugman describes them – walking dead (zombies). Some are hanging on by a thread and others like Goldman will end up doing extremely well. Dr. Krugman has several excellent articles on the matter here. I hope you enjoy his insights as much as I do.

    As for whether these “loans” were really gifts… I am tired of arguing the point because you obviously believe that businesses can do no wrong. Time will tell on which of us had it right. It would be nice to see you win that battle because it means I didn’t just foresee trillions getting flushed down the toilet.

    Oh, and your comment on credit card companies and free market – ROFL. You crack me up….

    If you are agreeable, we can revisit this later in the year for a “I told you so” moment? Just a toast to the oracles of HardTruth.

    Peace.
    Rick Beagle

  33. Rick Beagle says:

    ugh… please insert nineteen where I said nine, and seventeen where appropriate.

  34. kitty says:

    “Most of your comments are based on you presumption that these financial institutions are all sound, to which I would say you are sadly mistaken. Let me walk you through this crazy opinion you seem to think I have….”

    First of all, I never said all of the financial institutions that took TARP were sound, I said some of the banks that took TARP were sound. I said some of the banks would’ve been fine without it, not all banks. Why are you deliberately misquoting me? I don’t know how many were sound and how many were not – maybe I shouldn’t have said “most” of the first 9, I should’ve said “some” or “almost half”. Citi was certaianly not sound. The banks I specifically mentioned by name were not in danger of collapsing. I don’t know about others, I didn’t see their balance sheet. You, on the other hand, are insisting on painting every bank that took TARP with the same brush. Are you denying that Paulson didn’t give a choice to the first 9 banks?

    As to stress test – this test is not about whether the banks have enough capital now it is whether or not they have enough capital if many very bad things happen. However, I will reserve judgement on that until we know both the test and the results. As to current situation of Wells – a lot of it is due to Wachovia, and this purchase happened after it took TARP (correct me if I am mistaken).

    “Because banks were afraid to transfer money to failing institutions (please don’t make me link this for you).”
    Because banks DIDN’T KNOW which institutions were failing and which were not. Some were failing. Some were not. Same with TARP really – the whole idea of having all 9 institution take it is that having taken TARP wouldn’t immediately separate good institutions from bad ones. And this was only one of the reasons, hoarding money against future losses in paper value of CDOs was another.

    “To whit, if the financial industry is so robust as you claim”
    I made claim about specific institutions not the whole financial industry. It is you who paint all banks that took TARP with the same brush, not me. My point was that you cannot say “they took TARP so they have to do X” because NOT all of those who took TARP needed it. Please show me where in my posts have I made any claims about financial industry as a whole or all financial institutions?

    “As for whether these “loans” were really gifts… I am tired of arguing the point because you obviously believe that businesses can do no wrong. ”
    I don’t say businesses can do no wrong. I do however believe that a) you don’t pay dividends on gifts and b) you don’t give preferred stocks and stock warrants on gifts and c) gifts come with no strings attach. If I give you a gift, ask for your company stock in return and tell you what need to do with it, would you consider it gift? Maybe it is my English and I don’t understand the meaning of this word?

    I also believe that government’s interfering is counter-productive, hurting the taxpayers and the economy.

    Out of curiousity – what was your job in Wells Fargo that let you know more about its operations than most of us? I work for a large corporation and I don’t know any more about its finances than any shareholder.

  35. Rick Beagle says:

    M&A (mergers and acquisitions (project) manager for a period).
    But everything I have stated should be construed as pure speculation, not fact.

  36. AnnJo, Seattle says:

    Kitty, I’ve appreciated reading your comments. Very useful review and counter to Rick’s historical revisionism. It won’t make a dent on him, of course, but for the rest of us it’s a reminder of how bizarrely off track things can get when the government exempts itself from the obligation to respect its own and others’ contractual rights and obligations.

    As for the original post – “crybaby consumers” will have more to cry about as the effects of new regulations hit them. I’m in favor of some regulation: creditors should not be allowed to break knee-caps to collect on debt, or commit fraud (lie) in their dealings with customers. But when someone signs a contract that warns interest rates may be raised on 10 or 30 or 90 day notice, they have not been abused when that happens. If you sign a variable interest rate contract, how can you complain that the interest varies? If you want or need a fixed rate longer-term loan or a loan with the interest rate pegged to some particular index, you should get one (assuming you qualify). Credit cards are not intended to be such instruments.

    If credit card companies are restricted from changing rates, especially on their riskiest customers, they will simply tighten lending standards. Is the risky customer better off having a higher interest loan or having no loan at all? I don’t know, and nobody else does either, except for the risky customer, who will then be deprived of the choice that used to be available.

    By the way, I happen to think our society would generally be more financially stable if people who aren’t good at handling money and debt have a very hard time qualifying for substantial debt. But those people may disagree with me, and as long as they are adults and not under a legal guardianship, it really isn’t my business or the government’s business to choose exactly where their place should be on the lifestyle versus risk scale. That our current crop of politicians assume it is their business worries me a great deal.

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