Credit Cards in the world of taxpayer-owned banks
"meet the new boss. Same as the old boss." -The Who
The American people ponied up $700 billion to supposedly bail out some big banks on Wall Street. So far, we have not seen the banks what banks are supposed to do, lend people money. Instead they are doing the thing that Wall Street raiders do, take over other companies. PNC and Fifth Third were the first banks to make deals, backed by taxpayer dollars.
Bush and Paulsen encouraged bad behavior in their bailout bill. They gave big banks money and tax incentives to gobble up small banks. They made sure that their buddies on Wall Street were taken care of.
Most big banks didn't need bad behavior encouragement. They've been able to do harmful things long before the government started subsiding them.
Some of the biggest abuses come in the way that banks have handed out credit cards. Now that I, like every other American taxpayer, indirectly owns part of the Wall Street banks, I want to talk to them about how they have been acting.
I want to do is to throw credit card companies off every college campus. Is it any wonder that the banks needed a $700 billion bailout? What kind of business gives huge lines of credit to students who don't have jobs?
I always thought that you had to have a job to get credit. Not anymore. I have a college student in my household. He has minimal income, no assets and big student loans. However, the credit card companies love him. He gets ten times more mail than I do. All of them "pre approved" credit cards. All go straight in the trash.
Its bad for the college students to run up debt before they have jobs. Its bad for the nation to have a generation of college graduates paying off high interest credit cards instead of saving money to buy houses and cars.
Giving cards to college students couldn't have been that great of a business or the banks wouldn't have needed a bailout.
I saw an article in the New York Times that said that credit cards were the next problem area for the banks.
We've had years of students, people coming out of bankruptcy and people with no income getting tons of credit cards. Usually with interest rates and fees that would make a loan shark blush.
Since they are getting multi million dollars bonuses, executives at Wall Street banks should have figured out what most of us know. Broke people don't pay loans back.
You can charge them all the interest and fees that you want. If they don't have any money, they are not going to give any to you. Especially if you are an unsecured debtor like a credit card.
People will make an extra effort to hang on to secured debts, like their houses and cars. The credit cards will be last in line.
We are now in an economy where a lot of people who were barely hanging on will get closer to the edge. You see people losing their jobs or going from high paying jobs to minimum wages. You see people who counted on the value of their house or 401k plan being suddenly disappointed.
We see a lot of people worried about feeding their families and keeping a roof over their heads.
When it comes to feeding your family or paying your credit card, the family is going to win every time.
I hope the banks factored that reality in before the came up with the $700 billion figure. They might want to hang on to some of that taxpayer cash instead of using it to buy other banks.
As bad as people are projecting, it will get worse. Recent events will change how people feel about debt.
People who got stuck with high interest credit cards aren't going to be in a hurry to pay them off.
Even if they can.
Banks had two things going for them in collecting credit card debts. They could shame people by embarrassing them in front of their neighbors and they could threaten to hurt their credit scores.
Its going to be hard for a bank that was bailed out by taxpayers to shame anyone into anything. Since people with good credit can't get loans, there is no incentive for someone with bad credit to even bother. They can default on their debt and make the banks come after them.
I've tried to collect from someone who was determined not to pay me. It was expensive, time consuming and I never did get all my money. Try multiplying that by a few million people. That is what the big banks are going to be dealing with.
From a moral standpoint, I want banks to clean up their act in the credit card department. Since many of the bankers work for me, and the rest of the American taxpayers, I'd like to protect my investment by making sure the credit card issuers get out of the stupidity game.
I can't afford to give them another $700 billion.
Don McNay is the founder of McNay Settlement Group and the author of the book Son of a Son of A Gambler: Winners, Losers and What to Do When You Win the Lottery. You can write to him at email@example.com or read other things he has written at www.donmcnay.com He is Treasurer of the National Society of Newspaper Columnists.