Academic

Dance with the Devil in the Pale Moonlight

By Adam Benforado

Today, President Obama signed a bill that holds the hope of significantly reigning in credit card companies.  This legislation actually appears to have a bit of a bite, at least in comparison to the regulations that the Federal Reserve passed last December.  We will see how things work out in nine months when the law actually goes into effect. 

By signing the bill, Obama managed to meet his self-imposed deadline of Memorial Day and the reason was simple: attacking credit card companies has wide popular appeal.  It?s something that everyone can get behind?well, everyone but the bankers who profit from arbitrarily raising interest rates and imposing outrageous fees.   

So what do you do if you?re one of these bankers?  How do you respond?

The answer is ?divide and conquer.?  You seek to stir up division in the angry mob.  And that is exactly what the industry did this week and it is exactly what we should expect them to continue to do over the coming months.

The first step for credit card companies has been to establish the erroneous assumption that they have a right to a certain level of profits.  According to this narrative, as a result of the government taking away a source of revenue through unfair regulation, they must find some way to make up the difference in order to return to the fair status quo position.   

The second step is to explain to the public that in ?rebalancing? the equation, the only route is to take something away from you, responsible middle-upper-class consumer.  Innovation?  New and improved products and services?  That's just not realistic. 

This leads to the final step: placing the blame for this injustice on irresponsible poor people.  As any bank lobbyist will happily explain, if Congress is going to limit penalties on riskier borrowers, there is no choice but to go after all of you who pay your bills every month in full.  Because of lazy and foolish poor people buying flat screen TVs and jet skis that they have no right to be buying?and a government who irrationally wants to bailout these degenerates?you are going to have to start paying annual fees and lose your rewards program memberships.  You may even have to start paying interest immediately when you buy a product! 

As Edward L. Yingling, CEO of the American Bankers Association, told the New York Times, ?Those that manage their credit well will in some degree subsidize those that have credit problems.?

It?s a clever little three-step dance.  Here?s one person who hopes they trip up.

Full post as published by The Faculty Lounge on May 22, 2009 (boomark / email).