Giving Credit

I'm all for completely unregulated credit IF those institutions that want to do so have two conditions. One they recieve no funding or backing or financing from the federal government. If they want to extend massive amounts of credit at 100% interest let them but NOT with any publically backed funding or insurance. No going to the Fed window for hand outs… earn your own cpaitol and risk it as you desire. Rip off and defraud as best you can.

The only other requirement is that every correspondence they make has to have a big red stamp that says they are unregulated and they have no backing of the US government.

Other companies at their choosing can borrow and be backed by the government of the United States but they have to follow very strict rules on rates and lending practices, disclosures ect… All their correspondences will be marked with a big blue label stating that they are so regulated and so backed by the US government.

I know where I'd put my money. But again this will never happen because the corportist love privatizing their prifits as long as they can socialize their risks and losses.

Cry me a river….

The banks have been using their leverage in Congress to pull all sort of sweetheart deals for themselves, from bankruptcy "reform" to avoiding liability for false reporting to credit agencies to bailouts of their mortgage arms. They regularly entice an unsophisticated group of people without any income–college students–to take huge amounts of credit card debt and they do it by bribing the colleges, with the knowledge that the students' parents will almost always pay it back.

Here is one small part of credit card reform that makes sense: So-called "risk-based pricing" The idea is that if you are late in payment on one card or have some other negative credit hit, then every other card will jack your interest rate up to the ceiling. The end result is that somebody who might have been able to get out of debt suddenly goes from, say, 10% to 35% and now has no chance of getting out of debt.

I could stomach this, except for one problem: risk-based pricing depends on the banks receiving accurate information about their borrowers. But, a large percentage (~ 1/3) of credit reports have significant negative inaccuracies. When something like that happens, it can create a huge mess for the borrower to clean up, and they may end up having to pay many thousands of dollars more than they otherwise would have.

Ordinarily, there would be a solution — the borrower would be able to sue either the credit reporting agency or the bank that made the incorrect initial statement. However, the banks and the credit reporting agencies have bought congressmen to exempt them from liability.

Huebert's complaint that proposed regulations shield people who don't pay attention to the rules is laughable: has anybody tried to read the rules? They make the initial offer in language that a 4-year-old can read and then give you the fine print in fine print written at the reading level of a PhD dissertation.

He asks whether it is too much to read the fine print and then stick with the terms of the deal. But, banks constantly change the deal. And, it happens most frequently in the Summer when they know people don't pay as much attention to the fliers in their credit card statements.

The big banking reforms that need to happen are: (1) changes in credit card terms should be conspicuous, written in plain English and given far enough in advance to allow the consumer to find an alternative; (2) the credit reporting agencies and the companies that report information to them need to be liable for inaccuracies in credit reports; and (3) consumer debt should be treated just like any other debt in the bankruptcy act.

Any businessman who seeks subsidies and bailouts is not friend of mine.

Posted by: Crusader

And the massive growth of the lobbying industry is clear evidence of the wealthy socialist desires to steal more from the public trough. The results to our country and economy are clear… as they were before the Great Depression.

Crusader –

Well, not all problems. They could, for example, while I am on a 3-week vacation modify my contract to get rid of any grace period and give me only one week notice. Or, they could incorrectly report that I never paid them $10,000 just before I tried to close on my house.

I'm not pro-regulation, but I think it's hysterical that the Banks are asking for the government to leave them alone here, while their lobbyists are busy fellating Congress on a score of other matters. I'm with Muirgeo on this one (did I just say that?)

If they want to extend massive amounts of credit at 100% interest let them but NOT with any publically backed funding or insurance. No going to the Fed window for hand outs…

No lobbying Congress to limit bankruptcy after you've made your loans. In fact, no Congressional limitations on bankruptcy whatever. It's strictly a matter of common law with no jurisdiction for any Federal court.

The only exceptions are bankers themselves, if they accept credit from the Fed. If they ever can't repay it, even if courts free all of their debtors from the obligation, they have the most limited bankruptcy protection imaginable. None of their personal assets are protected, and they're slaves to the state for life.

Crusader,

Paying off your balance on time every month is a very, very, very bad idea. It will lower your credit rating and make it harder for you to get credit in the future. You see, banks don't make very much money off of people like you. You are a liability to them that the annual fee does little to remedy. Sooner or later, they'll show you the door or add little additional charges to make you profitable to them or to encourage you to get someone elses' card. Plus, your paying off every month's balance demonstrates to the credit rating companies that you do not have sufficient experience with managing credit and that will lower your credit rating. You are far better off in a lot of ways using a debit card if you do pay your bills off every month.

I have a Fico score of 849. The highest Fico score is 850; (that includes Bill Gates). I have never in my life not paid off a balance on my credit card when it came due. I have been late maybe twice, and each time I called and they waived the charges.

David you have gotten your facts completely wrong again. Are you sure you are not Martin?

Paying off your balance each month has no effect on your credit score. Most people assume it helps, but this is not true. Whether you pay it all off or not never enters the picture, since that doesn't get reported to the credit bureaus.

Pay at least the minimum, of course.

I'm all for completely unregulated credit IF those institutions that want to do so have two conditions.
Posted by: muirgeo

So you’re in favor of regulated credit. Period. I don’t care what your conditions and stipulations are, you invalidated yourself with this statement, which was your opening salvo.

You still have no clue whatsoever about economics.
Posted by: Mesa Econoguy

OK let's get rid of the requirement for a a big red stamp. They can still use the big red stamp if they think it will help them but it will be optional. Everyone will recognize them by the lack of a big blue stamp required of the regulated credit lenders. But sure we can have give them absolutely no disclosure requirements as you might wish.

The first condition of getting NO government support is NOT a regulation. So there you have it. A system that can run completely on its own and unregulated but alongside a government regulated system. People would have a choice of which type of institutions they would do business with and that seems a reasonable compromise to me.

You are a liability to them that the annual fee does little to remedy. Sooner or later, they'll show you the door or add little additional charges to make you profitable to them or to encourage you to get someone elses' card.

Like some of the other posters, I also pay my balances in full every month and have a very high FICO score. I also haven't seen any additional charges. The competition for credit card customers is pretty heated. Also, they do make money even if you pay off your balances in fully every month. They make money from your purchases because they charge the retailer a convenience fee for every purchase.

People would have a choice of which type of institutions they would do business with and that seems a reasonable compromise to me.
Posted by: muirgeo

That would be fantastic, but that's not what happens. Credit, and financial services in general, is so heavily regulated that fully informed open choice almost never happens. This is also true in the mortgage area, with massive rules & regs which distort incentives and can actually lead to less disclosure.

Of course, it also helps to be well-connected Democrat fundraisers…

Muirduck – agreed that sometimes it's a battle between the wealthy socialists and the poor ones. However, I'd prefer true free markets where all profit/risk is privatized. This whole bailout mentality began in the 1930s and hasn't left us since. Something about this nation's morality fundamentally altered then. Don't know why.

WRT regulation. I'm subject to and most familiar with SEC regulation. Most of the regulation designed to create a "level playing field" has exactly the opposite effect. It creates rents for market makers, makes markets less transparent for retailer investors and limits choices. I rant about this sometimes, but the usual response is that the regulations are good because of the intention rather than the actual outcome. I can't imagine it's different for any other regulated industry.

I will now commence rioting.

Posted by: Methinks | Aug 15, 2008 2:08:18 PM

No thanks, we had enough of that with those WTO freaks in 1999.

“FICO score is not arbitrarily decided by the bank.”
Posted by: Oil Shock | Aug 14, 2008 11:32:39 PM

But it can indeed be arbitrarily decided by FICO and given that they are many more banks than one FICO, the arbitrary decision of the banks mights be preferable than the one single decision of a FICO.

What amazes me is that among so many intelligent people discussing the deregulated financial markets there is so little discussion on how information cartels like the credit rating agencies have de-facto encroached on such liberty.