Tuesday, March 24, 2009
Making Folks Whole
A key feature of the Obama administration’s plan for reviving the economy involves making the banks whole, but what about consumers? As some top economists have been telling us, until the federal help gets down to the household level, it won’t be enough to start the nation’s economic engine.
Much of this unwholeness has to do with credit cards. Comedian Jon Stewart recently proposed that the feds give consumers enough money to pay off their credit card debt. They’d be whole, and the banks would be, too, at least as far as that segment of their balance sheets goes.
But how do you give consumers the money while ensuring they actually use it to deal with their debt? You could offer them a choice: The feds could say, we’ll pay off your credit card, but in return, you agree to hold only a single card with a credit limit of $1,000. Or, the card becomes a charge card only – you have to pay the balance off at the end of the month. Those cardholders with existing credit lines who don’t need the help and want to continue with their card companies could do so under their current terms. Simply put: If you accept government help, you live with the conditions imposed. But you don’t have to accept that help.
This would not preclude the banks from loosening up the restrictions on the bailed-out consumers after, say, one year. But the banks would have to hang on to those deals they make.
The other leg of this stool is revising the whole credit score system so that it’s based on individual creditor performance. A bank’s relationship with the cardholder should be based on that relationship only, not on how that debtor is performing with other creditors. If a debtor accepts direct federal help, perhaps one of the conditions could be the imposition of a baseline credit score, which would go up as the consumer responsibly deals with debt going forward.
Once consumers are made whole, they will resume spending, because they’ll feel better. Will it be at the same level as the old days? No. The nation’s economic engine will be running at much lower RPMs.
But really, would that be so bad? Does reality have to bite?
There, now I’ve said it.
Much of this unwholeness has to do with credit cards. Comedian Jon Stewart recently proposed that the feds give consumers enough money to pay off their credit card debt. They’d be whole, and the banks would be, too, at least as far as that segment of their balance sheets goes.
But how do you give consumers the money while ensuring they actually use it to deal with their debt? You could offer them a choice: The feds could say, we’ll pay off your credit card, but in return, you agree to hold only a single card with a credit limit of $1,000. Or, the card becomes a charge card only – you have to pay the balance off at the end of the month. Those cardholders with existing credit lines who don’t need the help and want to continue with their card companies could do so under their current terms. Simply put: If you accept government help, you live with the conditions imposed. But you don’t have to accept that help.
This would not preclude the banks from loosening up the restrictions on the bailed-out consumers after, say, one year. But the banks would have to hang on to those deals they make.
The other leg of this stool is revising the whole credit score system so that it’s based on individual creditor performance. A bank’s relationship with the cardholder should be based on that relationship only, not on how that debtor is performing with other creditors. If a debtor accepts direct federal help, perhaps one of the conditions could be the imposition of a baseline credit score, which would go up as the consumer responsibly deals with debt going forward.
Once consumers are made whole, they will resume spending, because they’ll feel better. Will it be at the same level as the old days? No. The nation’s economic engine will be running at much lower RPMs.
But really, would that be so bad? Does reality have to bite?
There, now I’ve said it.
Wednesday, March 18, 2009
About Face
I changed my mind, bit the bullet and joined Facebook.
Concerns about privacy caused me to hesitate, but as I often tell anyone who will listen, the privacy horse left the barn a long time ago in this country, so why not?
As of this writing I have a dozen Facebook friends, most of whom I used to work with. What amazes me is how much these people have to share. Particularly the women. They all seem to have hundreds of pictures of themselves. Now I’m three times their age in many cases, and I have a only a third as many photos. And no small number of those are from film, so I’d have to convert them into jpgs for posting. That’s a lot of work. If I wanted to make Facebook a full-time job, I’m sure it would be easy. I think it must be a consuming occupation with some of these folks. And I see how this amoebic acquisition of friendships can become addicting.
But here’s my problem. My life just isn’t all that interesting, and I have no way of holding up my end in the sharing department. I was a journalist for a long time, and spent most of it concerned with what was happening to others, not to me. In this profession, we’re often so involved with others’ lives that we sometimes substitute that for living our own. But maybe that says more about me than about the profession.
I do hope my newfound friends forgives my lack of production. There will be very little to post on the wall for a while -- just for perspective, I have about enough for a Twitter a month, or a Christmas letter every couple of years. As for Facebook, I enjoy reading about what’s happening to people I know, although I’m still partly at the “What’s the point?” stage of the whole experience. I think there is one, which I expect to fully grasp in time. For now, though, please be patient.
There, now I’ve said it. Your friend, Coughswitch.
Concerns about privacy caused me to hesitate, but as I often tell anyone who will listen, the privacy horse left the barn a long time ago in this country, so why not?
As of this writing I have a dozen Facebook friends, most of whom I used to work with. What amazes me is how much these people have to share. Particularly the women. They all seem to have hundreds of pictures of themselves. Now I’m three times their age in many cases, and I have a only a third as many photos. And no small number of those are from film, so I’d have to convert them into jpgs for posting. That’s a lot of work. If I wanted to make Facebook a full-time job, I’m sure it would be easy. I think it must be a consuming occupation with some of these folks. And I see how this amoebic acquisition of friendships can become addicting.
But here’s my problem. My life just isn’t all that interesting, and I have no way of holding up my end in the sharing department. I was a journalist for a long time, and spent most of it concerned with what was happening to others, not to me. In this profession, we’re often so involved with others’ lives that we sometimes substitute that for living our own. But maybe that says more about me than about the profession.
I do hope my newfound friends forgives my lack of production. There will be very little to post on the wall for a while -- just for perspective, I have about enough for a Twitter a month, or a Christmas letter every couple of years. As for Facebook, I enjoy reading about what’s happening to people I know, although I’m still partly at the “What’s the point?” stage of the whole experience. I think there is one, which I expect to fully grasp in time. For now, though, please be patient.
There, now I’ve said it. Your friend, Coughswitch.
Sunday, March 1, 2009
Go Figure
The current economic downturn offers many reminders that we shouldn’t take things too personally. I was really offended about a notice I received until I found out that many others are having the same experience -- but it still doesn’t compute.
I have been dealing with a particular credit card company for more than 25 years. I have never had a late payment in that time. On rare occasions I could only make the minimum payment; other times I have been able to pay the balance down to zero at the end of the month.
Recently, I received a notice that as of mid-April, my annual interest rate would be increased to almost 18 percent. “Extraordinary changes in the economic environment,” they said. This particular company received federal bailout funds, and the major federal interest rates are almost zero, so where does the company come by the 18 percent figure?
That’s only half the story. The same company sent me a promotional offer saying that if I transferred a balance over from another card, I would enjoy zero percent interest on that amount for an entire year. So times are so tough that my regular rate will be 18 percent, but they can still offer zero percent on transfers.
Then there are the penalty rates. If for some reason I am late on a payment, the company has the right to raise the rate to almost 30 percent. Now in these extraordinary times, it might not be unusual that someone would be late on a payment or unable to meet a minimum. So if the company can’t get the regular payment out of a debtor in that situation, where do they think they’re going to get the 30 percent interest from? And you’re trapped: If you cancel your account, your credit score could be damaged, so the personal finance gurus say.
One of these, Suze Orman, is telling us that paying the minimum amount on your card each month isn’t good enough to protect your credit score or your credit line. Which sounds to me like the minimum payment the credit card companies want isn’t a minimum at all. It would be nice, then, if they told us what the real minimum is. Please don’t get me started on the whole FICO score thing – that’s a whole ‘nother discussion.
Many of these credit card issues will go away when new federal regulations take effect – but they don’t until 2010, so how are the card companies going to be treating customers between now and then?
In a much earlier post we speculated about the end of the credit card. The cards won’t go away, but put me down for this prediction: within 10 years, the revolving balance thing will disappear, going the way of credit default swaps and other such instruments. Either the banks will eventually conclude that revolving balances are bad business, or more likely, they will be flat-out illegal. There will be cards, but you’ll have to settle up every month, just like in the old, old days. Junkies, the street will be dry before you know it.
There, now I’ve said it.
I have been dealing with a particular credit card company for more than 25 years. I have never had a late payment in that time. On rare occasions I could only make the minimum payment; other times I have been able to pay the balance down to zero at the end of the month.
Recently, I received a notice that as of mid-April, my annual interest rate would be increased to almost 18 percent. “Extraordinary changes in the economic environment,” they said. This particular company received federal bailout funds, and the major federal interest rates are almost zero, so where does the company come by the 18 percent figure?
That’s only half the story. The same company sent me a promotional offer saying that if I transferred a balance over from another card, I would enjoy zero percent interest on that amount for an entire year. So times are so tough that my regular rate will be 18 percent, but they can still offer zero percent on transfers.
Then there are the penalty rates. If for some reason I am late on a payment, the company has the right to raise the rate to almost 30 percent. Now in these extraordinary times, it might not be unusual that someone would be late on a payment or unable to meet a minimum. So if the company can’t get the regular payment out of a debtor in that situation, where do they think they’re going to get the 30 percent interest from? And you’re trapped: If you cancel your account, your credit score could be damaged, so the personal finance gurus say.
One of these, Suze Orman, is telling us that paying the minimum amount on your card each month isn’t good enough to protect your credit score or your credit line. Which sounds to me like the minimum payment the credit card companies want isn’t a minimum at all. It would be nice, then, if they told us what the real minimum is. Please don’t get me started on the whole FICO score thing – that’s a whole ‘nother discussion.
Many of these credit card issues will go away when new federal regulations take effect – but they don’t until 2010, so how are the card companies going to be treating customers between now and then?
In a much earlier post we speculated about the end of the credit card. The cards won’t go away, but put me down for this prediction: within 10 years, the revolving balance thing will disappear, going the way of credit default swaps and other such instruments. Either the banks will eventually conclude that revolving balances are bad business, or more likely, they will be flat-out illegal. There will be cards, but you’ll have to settle up every month, just like in the old, old days. Junkies, the street will be dry before you know it.
There, now I’ve said it.
Subscribe to:
Posts (Atom)