Wed, 24 Aug 2005

More Wow!

I received a most welcome and insightful comment to this post from the author of the original piece that inspired the whole thing. Since many don't click through to read the writebacks, and since this is such an important issue, I've taken the liberty of moving the whole comment to here:

Thanks for getting the word out ...

also I am very glad to see the value of realtime peer review in action. I intend on putting out a second heads-up -- more a call to action than a warning shout (which, I think, has been done).

So, what can people do? Getting the word out just might be enough.

That the increase in minimum payments is tied to a ruling by the Executive Branch, rather than an Act of Congress, means that public awareness in this instance has a very strong chance of producing a positive result.

I have a feeling that the Bush Administration will be more than happy to do the right thing, once it is made aware of just how many voters (many of them in states that remain very appreciative of his leadership) will be impaired by what I am sure was a well-meaning ruling.

"For whom?" remains the question.

I mean, a lot of the circa 3 million people (est. 3% of roughly 100MM consumer cardholders in the USA today) are going to be shoved off the financial cliff with no warning.

I am of the opinion that the more conscientious (in this instance, self-interested rational-acting) creditors are giving their consumers the heads-up by raising the minimums now -- while bankruptcies are soaring before the October 17 deadline, it is nothing compared to the number of consumers that early warning will save from such a fate -- and retain as debtors in good standing.

What's the self-interested angle? Why, rolling persons with large balances and good credit (but, alas, tight cash flow) over to secured debt -- home equity lines for example, which will retain longer (as long as 30-yr) terms of payment (ergo, lower minimums!)..and the banks will be thanked for giving customers what they had before, albeit with a transactions fee, of course. And since such debt is secured, well, the shareholders are going to like it.

This is why the big commercial banks have been gobbling up the companies that sell only credit cards..because (a) they can and (b) they can make a lot of money for doing so and (c) be thanked for 'saving' debtors for doing so.

Oops. Forgot to mention. If you go this route but retain an adjustable-rate line of credit, you are only delaying the inevitable, and since the debt will be secured by your home or other assets...guess what? It's a goner, if you fold.

As for the scope of troubles -- interest rates are going up, which means even more folks are going to go under as a result of carrying adjustable-rate debt of all sorts -- cards, home loans, you name it.

It's not a question of if, but of how many. Just fudging around with some numbers, I come up with something on the order of several hundred thousand more bankruptcies for every 1-point increase in the prime rate.

In the long run, in a rising-rate environment, everyone's a marginal debtor.

Oops.

I must say this is a very interesting take on who benefits, and why. It explains why the recent rash of mergers in the industry, despite the apparent cliff that this move represents for the banks.

There's a lot to think about here. So far, I've mentioned this to some fifty people personally, and gods know how many more by email and blogging, and have only found a handful (4 or five) who were aware of it. My accountant was in the dark, as were the staffers at the congressional offices I've spoken with.

If I were still a dyed in the wool Republican, I be worried for the future of the party - this could be the precursor to the kind of massive swing to the left that was last seen in American politics in 1932. Just wait until all these Red State suburbanites get their November credit card bills ... some things in politics last a remarkably short time, but recessions seem to stretch on forever.

/Politics | 1 writeback | permanent link

On 8/26/2005 06:55:53
cskendrick wrote

Thanks Again!

comment...

 
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