Kunst

Credit Card Catastrophe: Congress Can't Help

Credit cards are financial heroin, and banks are pushers.

The banks know their product hurts most of their customers. They don't care, because that's how they make their money. No different than the tobacco industry. Through credit cards, banks intentionally lend money to people who can't afford it. They make exorbitant profit on obscene interest rates, while many people's balances climb and climb, until they reach the breaking point and they go bankrupt. The banks don't care, because they charge such high interest that it covers the default rate.

Credit cards as an instrument of financial torture are not in the country's interest. Limit the interest rate so something reasonable, say twice the prime rate. But this will cut off many people from credit, the banks will say. Yes, it will. That's the point. Banks lend to people who can't handle it, let them get in deeper and deeper. Only the high interest rates make that possible. At 10-12%, the banks will have to limit credit to those who can actually afford and handle it. The simple fact is that most people should not have credit cards. They are poison and of no benefit to the average person. At best, they make people feel better temporarily (like heroin) at the cost of long-term destruction.

While we're at it, let's legislate an automatic write-off of 50% of credit card debt for anyone who goes bankrupt. Again, that will make the banks lend more responsibly, i.e., to people who are good credit risks.

Late Payments on Credit Cards Reach Record Levels

Site you cite...


On Feb 06 07:11 PM Stephen Rosenman wrote:

> Sites you site do not allow reader to enter. Not helpful. Your
> information adds little as well.

Six Key Quotes From U.S. Bancorp's Q408 Conference Call

I appreciate these summaries of key points. I read a few transcripts of particular interest to me, but there is so much more out there it would be good to know. Thanks for the help.

Cramer's Stop Trading! Stop the Bonuses (12/23/08)

Who do those directors answer to? The stockholders have lost control of most companies.


On Dec 24 11:14 PM Double P wrote:

> Where is the resposibility of the Directors who approved these salaries
> and almost all of the bad ideas promoted by these corporations?

Cramer's Stop Trading! Stop the Bonuses (12/23/08)

Where I come from, bonuses are paid when the company makes money. How do you justify mega-bonuses in companies that are barely still alive?

Here Comes a Consumer Killer

Cards are very convenient, but they are a terrible way to borrow. The best way to borrow is NOT. Use a debit card and make sure there is money in your bank account BEFORE you buy something.

Financials To Resume Meltdown Momentarily

OMG, two articles in a row by this guy. What did I do to deserve that.

A piece of advice from an avocation I pursue: If you are a young man, grow a mustache. If you are old, lose weight.

American Express Calls Investment Banks' Bluff

American Express is more expensive than Visa and Mastercard on both the consumer and merchant side. We have dumped them on both. I just don't see what makes them special enough to command a premium.

Credit Card Breakdown: AmEx Disappoints, as Predicted

American Express is more expensive than Visa and Mastercard on both the consumer and merchant side. We have dumped them on both. I just don't see what makes them special enough to command a premium.

Barron's Goes Bullish on Banks, Again

You got it, Hammer.

See my post at
7/20/08: seekingalpha.com/artic...

Barron's Goes Bullish on Banks, Again

The real bottom in financials will come when the big overseas (oil exporters) money decides its time to trade in their dollars for banks.

Mutual Funds Snap Up Oversold Credit and Retailing Stocks

How much for that deck chair on the Titanic?

American Express Drops a Bomb on Consumer Spending

I watched the New Hampshire presidential debates. Not one of the candidates (with the oddball exception of Ron Paul) even acknowledged the real problems we have, let alone proposed meaningful solutions.

Regarding real estate, I have an unusual theory. Real estate values are deflating at the moment, because they got way ahead of the trend line. That is a big problem for our financial system, which is based on debt, leverage, and the expectation that RE values always go up. Stick with me to the end to see how I think this will be "fixed".

I don't think Bernanke and company are going to let overall deflation take hold, and that is a serious danger with the money balloon deflating the way it is. Maybe I'm too cynical, but I just don't see the US ever paying back all the debt we have accumulated -- federal debt, entitlements; state/local government and corporate retiree commitments; and of course, consumer debt.

At some point, I think the Fed/US government (yes, they are the same really, at least they work toward the same ends) will essentially pay off those debts by super-inflating the US dollar. Conceptually, all they have to do is write a $9 trillion check and the national debt is gone. That's the advantage of having your debts in your own currency (once anyway).

Yes it's a rotten trick, but does anyone really think we are ever going to spend less than we take in (government or consumer) so we can use part of our current income to pay off accumulated debt? A lot of accumulated debt that would take a long time to pay off? Isn't that the exact opposite of what we've been doing for decades? We pay $400 billion a year just in INTEREST on the national debt. If we made taxes exceed spending (by raising and/or cutting) by $300B a year on top of the interest, it would take us 30+ years just to pay off the official national debt. And that's on top of the impending sharp increases in Social Security and Medicare outlays. I'm sorry, I just don't see that happening.

What's the other alternative? Debt continues to increase, interest payments continue to increase, until something breaks. For individuals, its usually bankruptcy. Theoretically, the US government can borrow for ever, but does that make sense? Remember the rule: if something cannot continue, it will stop. It's only a question of when and how. Last week, Moody's warned that the credit rating of the US government could be negatively affected within the next decade (!) if a realistic solution to the entitlements wave isn't found.

I think the party will stop something like this: 1) the dollar continually weakens, meaning that those who sell stuff to us demand more of our less valuable dollars for that stuff. 2) interest rates on federal debt go up, pushing that $400B to higher levels. 3) This feeds on itself until the dollar really drops in value. 4) At some point this turns into an undeniable CRISIS. Then, the Fed/US government balloon the money supply, more or less wiping out our debts.

Back to the housing equity problem. People over-stretched to buy houses on the expectation that values would continue to go up. Implicitly they also expected incomes to go up, because a lot of buyers were over their heads from a cash flow point of view once those ARMs reset. Neither expectation has been fulfilled, and massive foreclosures are the result. Two million houses are unoccupied in the US today. This could easily feed on itself and cause a major deflationary spiral in housing prices. Even "normal" homeowners will find that they no longer have any equity in their homes, even if they can make the payments OK.

What would "fix" this? How about if housing prices doubled? Would that solve the problem? Yeah, pretty much. Those folks who are underwater have equity again. If they can't make the payments, they can sell without going bankrupt. The wealth effect is back. People can use that equity to spend, spend, spend. Sort of.

How do housing prices double? In about 20 years, under current conditions. But if you super-inflate the US dollar, it can be accomplished very quickly. Lenders get screwed, but they're not doing too well as things stand now. Foreign lenders in particular wind up holding the bag. Borrowers largely escape, paying back debt in cheaper, more plentiful dollars. Incomes go up (this is a key necessity) but not as much as prices (this is a key reality, and a painful one).

The situation is pretty ugly. A one-time super-inflation can wipe out most of our debt, at the cost of drastically reducing the value of the US dollar. After that, no more external debts in dollars, you can count on that.

If you don't like this "solution" (and I don't), tell me how all that debt is going to get repaid honestly.

American Express Drops a Bomb on Consumer Spending

Inflation is the mechanism for reducing the American standard of living to world standards, and to the level that can be supported by the value we create.

For a long time, Americans have been paid far more than people in other countries for the same work, and have consumed a disproportionate amount of the world's resources (e.g., energy). This cannot continue. The barriers (transportation, tariffs, information) that made it possible have fallen.

It isn't practical to cut wages in half. Instead, inflation will increase costs relative to income until the same result is achieved. Underreporting inflation keeps incomes from rising proportionally, not that they could.

Another mechanism is replacement of skilled American workers with equally (plus or minus) skilled foreign workers who will do the job for less, whether here or in their own countries. It's called competition, something the high-cost provider never likes.

The problem is compounded by America's substandard educational level. Gone are the days when a high school diploma could give you a middle-class career job. Other countries are far more committed to advanced education (e.g., math, science, languages) because they know this is the path to success. We have been sitting on our butts thinking that kind of effort wasn't necessary. Wrong.

America is still living in Fantasy Land. Awakening to reality can be brutal, but it's the first step in getting our act together.

American Express Drops a Bomb on Consumer Spending

I agree with the comment about Amex's excessive discount fees. We phased them out over the last year and now accept only Visa and Mastercard. I also dumped Amex personally because I am unwilling to pay an annual fee. American Express has no differentiation for me over Visa/MC.

But the delinquencies problem says something else. Amex bills are supposed to be paid off monthly, not carried from month to month. Traditionally Amex customers have been more affluent, although with Costco and Sam's Club pushing them I wonder if they have democratized. Anyway, if this group is having troubles, what does that say more generally, and about Visa and Mastercard in particular?