Tuesday, November 10, 2009

Banks Killing Their Golden Goose

Back when I was in college banks hired beautiful girls to hawk credit cards to every passing student. The goal was to get all Americans so deeply in debt that by graduation they would have to work the next thirty years just to dig themselves out (Assuming they never got sick and/or fired). For bankers the ideal situation was some poor slob who used one credit card to pay off the other and did the reverse the next month. The banks found a way to sidestep state usury laws and make Americans credit card slaves.

In 2005, anticipating that Bush's policies and their own greed would inevitably lead to a depression, the banks pushed through new laws restricting bankruptcy. Their plan was to keep people in permanent debt even after going bankrupt. It backfired. The depression has been so severe that people are eschewing the ridiculous hurdles to bankruptcy and simply chucking it all, walking away from their debts and leaving the banks holding great big bags of nothing.

Banks are now scared of debt while at the same time they need debt to make profits. Their solution is to avoid the marginal debtor and really stick it to their better customers. Credit card rates have skyrocketed to the point that only a real idiot would use a credit card nowadays. Rates that used to be 8% are doubling. Interest rates for many have passed 20% and zipped beyond 30%. Hell, you can even find a credit card with an APR of 79.9% and with a $75 annual fee to boot.

My point is that I know people that used to live from credit card payment to credit card payment who are cutting up their cards and giving up credit cards entirely. Banks are killing the credit card goose trying to get at the last few flecks of gold.

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