Banking Industry Suicide
Has anyone noticed that the American banking industry is slowly committing suicide? Seriously, that is the only common sense explanation I can fathom for their recent raising of interest rates on any and all credit cards. The American consumer should not stand for this type of behavior.
It almost seems that they gathered together in some board room high above Wall Street and reasoned, “Well, we have record unemployment, people are not buying and borrowing as much as we like, and foreclosures are still a problem. How can we drive the final nail into this sucker? Of course! We can raise our interest rates and discourage people from borrowing even more. Then, when we get bored with this idea, we could all take a flying leap out our office windows!”
I realize that it has not been an easy time the last few years for American banks. First there were a record number of housing foreclosures, which in turn caused several of the larger banks (example, Lehman Brothers) to fail. The federal government (i.e., the Bush administration) started the trend - against its better judgment - of bailing out the banking industry. The Obama administration has signaled that it is willing to extend another round of stimulus money to the industry.There are several problems with this proposal.
One is that the first round of stimulus money has not affected the economy in a positive way, which the opponents of the original stimulus are more than happy to point out to anyone who will listen on Faux News. Never mind that not all of the original stimulus package has been used yet; as far as they are concerned, it is a failure, period.
The stimulus also came with conditions. It could not be used to restore the outrageous executive bonuses that had to be slashed due to the recession. It was also understood that the stimulus money would be used on small businesses, encouraging their ventures to grow and stimulate the local economies. So guess what happened? Executive bonuses returned, and requirements for lending have led banks to become stingier than Scrooge.
The Obama administration also enacted regulations which would make it more difficult for credit card lenders to raise their interest rates on a customer's existing balance. These laws take effect in a few months and — obviously sensing that their party is nearly over — the banks are raising their rates now ahead of the new regulations. They do this despite the fact that recent reports show that consumers have already been borrowing less during the last ten months. Economists fear that if this trend continues, the economy will not rebound as quickly as they hoped.
My message to economists: be afraid, be very afraid. The unemployed cannot hope to keep up with the higher interest rates. Even working people will not be able to meet their monthly minimums unless they sacrifice other areas of their lives. Many may have to choose between buying food, clothing or other necessities, making their mortgage payments, and preserving their good credit by meeting the demands of the credit card issuers.
It is not a pretty choice. I’m afraid many people will have to resort to drastic measures to keep from declaring bankruptcy or defaulting on their home loans. The easiest answer would be to pay off the credit cards and tell them all “Go to hell!” but not everyone will have the resources to exercise that option.
I’ve never taken an economics class and I hope my common sense is wrong, but it appears that the other shoe has yet to drop in this recession. Everyone is looking for a sign, any sign at all, that the current economic nightmare will end soon. The American banking industry seems content to maintain the same old self-destructive attitudes that got the country into a recession in the first place. It seems that their philosophy is, “Look out for number one!”
In the meantime, for any ladies and gentlemen still cocooned in the board rooms of corporate America, I have just one wish: Happy Landings!
(Thank you for reading. Please remember very little is actually free in a free society.)
It almost seems that they gathered together in some board room high above Wall Street and reasoned, “Well, we have record unemployment, people are not buying and borrowing as much as we like, and foreclosures are still a problem. How can we drive the final nail into this sucker? Of course! We can raise our interest rates and discourage people from borrowing even more. Then, when we get bored with this idea, we could all take a flying leap out our office windows!”
I realize that it has not been an easy time the last few years for American banks. First there were a record number of housing foreclosures, which in turn caused several of the larger banks (example, Lehman Brothers) to fail. The federal government (i.e., the Bush administration) started the trend - against its better judgment - of bailing out the banking industry. The Obama administration has signaled that it is willing to extend another round of stimulus money to the industry.There are several problems with this proposal.
One is that the first round of stimulus money has not affected the economy in a positive way, which the opponents of the original stimulus are more than happy to point out to anyone who will listen on Faux News. Never mind that not all of the original stimulus package has been used yet; as far as they are concerned, it is a failure, period.
The stimulus also came with conditions. It could not be used to restore the outrageous executive bonuses that had to be slashed due to the recession. It was also understood that the stimulus money would be used on small businesses, encouraging their ventures to grow and stimulate the local economies. So guess what happened? Executive bonuses returned, and requirements for lending have led banks to become stingier than Scrooge.
The Obama administration also enacted regulations which would make it more difficult for credit card lenders to raise their interest rates on a customer's existing balance. These laws take effect in a few months and — obviously sensing that their party is nearly over — the banks are raising their rates now ahead of the new regulations. They do this despite the fact that recent reports show that consumers have already been borrowing less during the last ten months. Economists fear that if this trend continues, the economy will not rebound as quickly as they hoped.
My message to economists: be afraid, be very afraid. The unemployed cannot hope to keep up with the higher interest rates. Even working people will not be able to meet their monthly minimums unless they sacrifice other areas of their lives. Many may have to choose between buying food, clothing or other necessities, making their mortgage payments, and preserving their good credit by meeting the demands of the credit card issuers.
It is not a pretty choice. I’m afraid many people will have to resort to drastic measures to keep from declaring bankruptcy or defaulting on their home loans. The easiest answer would be to pay off the credit cards and tell them all “Go to hell!” but not everyone will have the resources to exercise that option.
I’ve never taken an economics class and I hope my common sense is wrong, but it appears that the other shoe has yet to drop in this recession. Everyone is looking for a sign, any sign at all, that the current economic nightmare will end soon. The American banking industry seems content to maintain the same old self-destructive attitudes that got the country into a recession in the first place. It seems that their philosophy is, “Look out for number one!”
In the meantime, for any ladies and gentlemen still cocooned in the board rooms of corporate America, I have just one wish: Happy Landings!
(Thank you for reading. Please remember very little is actually free in a free society.)
posted by todd gunther | 6:50 AM
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