Friday, April 24, 2009

Obama Seeks to exacerbate 'Credit Crunch'

AP:"""I trust that those in the industry who want to act responsibly will engage with us in a constructive fashion, and that we're going to get this done in short order," Obama said, delivering a pointed message to leading executives of credit-card issuing companies after a closed-door White House meeting.

Both the House and the Senate are pursuing bills to give consumers greater protections as an expansion of new rules slated to take effect next year. Obama said his economic advisers will examine the various proposals and work with Congress and the industry, but he made clear he wants to sign a bill into law.

"The days of any time, any reason rate hikes and late fee traps have to end," Obama said."

A credit card is intended to be a very short term loan, easily accessible by individuals and businesses. Its done marvels for speeding up purchasing and allowing flexibility in emergency financial situations people run into.

The price for this convenience?
High, HIGH interest rates. If its paid off in time, then your in the clear, and plenty of people are happy to lend to you again. But avoid or skip a payment, you'll be hurting. But you already knew this.
But because of these interest rates, and the rapid increase in cost to debtor, credit is easily and quickly available for a multitude of responsible Americans. It works well.

But the ponderous hand of government financial intervention, applying pressure or even legislation to lenders is nothing short of disastrous economic policy.
Required Lower Interest rates can only contract the available money pool from lenders, making it more difficult for low income, 'poor' Americans to borrow money for their needs. If the profit incentive for Credit Card companies is reduced, then they lend less, or what they do lend will have a higher base interest rate. Both outcomes are negative for all parties involved.

To borrow or not to borrow should be the decision of the Borrower and the Lender, not society through the savage blows of Federal law. This is economic populism at its worst, and I expected little else from the current administration.


Anonymous said...
This comment has been removed by a blog administrator.
Solameanie said...

YOWZERS! What a Tolstoy novel, Anonymous!

Anyway, PB, I can't help but think of the Scripture, "The borrower is the servant of the lender." Yikes!

Palm boy said...

Anon, FYI.

I removed your comment for several reasons.1. 19,117 words is excruciatingly long. If you can't have said what you want to say before 28 pages (Size 12 Times New Roman, single space)is done, then you need to start your own blog, and gently let us know about your fountain of wisdom.

2. Implied Profanity is not appreciated. Actual profanity will be removed.

3. It appears as if you have copied and pasted thoughts from many different times, like a copy/Past of your own blog, ranging from October 2008-April 2009.

Sola, thanks. But the choice should be left to the individual, not a government. If it's not to personal, Do you use credit cards or loans?

FAICA Soldier said...

This really does hurt everyone. Credit card companies work off of percentages that base their ability to lend on an expectation of a certain amount of interest and late fees. Requiring them to tighten their terms (reducing rates and fees) will certainly make it harder for lower income/lower credit score people to get money. And these are the people who need it the most. The other side of the coin is that credit card companies offer really low rates and incentives to people with great credit. So low that they have a tiny profit margin on them which is offset by the higher risk money they lend out. So if they reduce the higher risk lending, they also have to reduce the lower risk lending.

The higher risk lending is how those companies can afford 0% interest balance transfers and other benefits to paying customers. The stupid thing is that lending companies are the only ones really being hurt right now. Low income people are just not paying the bills. If the government would stay out of it, the lending companies would be forced to come up with their own strategy to survive in the face of difficulty.

So instead of letting the banks make their own deals with their customers and keeping the money movie, we are going to "bail out" the banks and then legislate it, so the money goes not to the consumer nor their bill collectors, but straight to the government where it dies.

Solameanie said...
This comment has been removed by the author.
Solameanie said...

BTW, since I brought it up . . .

I was late one time on a card payment, and they jacked my interest rate from 9 to 28 percent. After five months of yelling, I finally got them down to 14 percent. I am going to begin a new study of "usury."

Solameanie said...

Sorry about the deletion, Robert. I just read my second comment back and the "Oh, goodness no" didn't make any sense in light of your question i.e. do I have any loans or credit cards. I was thinking of "do I want the government to take over in this area?" Hence, the "Oh, goodness, no!"

I do have credit cards and a house mortgage. My vehicle is paid for. I wish I didn't have any debt, but that is difficult to do in this society. I'm not in favor of government takeovers, but I don't think some regulation of the credit market would be a bad thing, especially when onerous usury is involved. There's no excuse for jacking someone's interest from nine to 30 percent for one late payment. Hope that clarifies.

FAICA Soldier said...

30% does seem particularly awful but I still think the banking market, when left alone, has created their own solution to this. Things like balance tranfers give you the option of going with another bank when you don't like the deal your current bank is giving.

It still seems to me like the necessary result from controlling lending interest is to raise the interest to low risk borrowers and reduce the pool of money available to high risk borrows. I don't see how either of those things are helpful.

Solameanie said...

I think you're prolly right in the long run, FAICA. Perhaps me calling and yelling was enough to get the 30 down to 14. I'm still not happy, but we'll see what happens in the long run.

Oooh, that sounds like an Eagles album.

Palm boy said...

Joel, I think FAICA already said what I was going to say.

Vehicle paid off though, thats nice. I was very happy when I finished paying off my Jeep a few months back.

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