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Why are credit card companies being demonized for charging high rates?

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April 23, 2009 – Comments (60) | RELATED TICKERS: COF , DFS

 

I have a lot of problems with how banks and credit card companies have been run over the past several years.  Heck, two of my best active CAPS picks are shorts of Capital One (COF) and Discover (DFS), which have dropped 72% and 55% respectively since I gave them the old thumbs down.

Having said this, and I'll probably receive a number of virtual boos for taking this stance because bashing credit card companies is all the rage right now, but I don't see what the big deal about them charging high rates and fees is.

First of all, anyone who carries a balance on a credit that charges double digit interest rates is an idiot.  I use credit cards all the time.  I rarely pay cash for anything, but I never, ever let my balance roll over.  Why on Earth would I pay fifteen or twenty percent interest on a short term loan?  If I have to do that it means that I can't afford whatever I am buying.  I feel bad for people who run into legitimate financial troubles, but if they have to resort to buying things on a credit card and letting the charges roll over then they didn't save enough money for a rainy day.

I have absolutely no sympathy whatsoever for people who buy 50 inch flat screen TVs or fancy clothes on their card and carry a balance.  Don't make all sorts of discretionary purchases that you can't afford and then start whining about the fact that you have to pay a high interest rate on them.  Consumption is a privilege that you earn by working and saving, not a right.

Now one can argue that consumers are stupid and they don't realize that credit card companies have the right to change the terms of their short term loan whenever they want to so there should be better disclosure in the industry.  I have absolutely no problem with that, but I do have a problem with placing restrictions upon what credit card companies can charge.

If I had money that I wanted to loan to someone I wouldn't want anyone telling me how much I could charge.  I'll charge whatever I want to and if you don't like it, fine I have no problem with that...don't borrow from me.  If the rates that credit card companies charge are too high than people will eventually stop borrowing from them and the companies will either have to issue fewer loans or lower their rates and fees to what the market dictates.  That's how a free market is supposed to work.

Articles like this one in today's Washington Post annoy me to no end: As Recession Deepens, Even Credit Cards' Minimums Can Become a Burden.  Why am I as someone who was responsible, doesn't have a new TV, buys his clothes on sale, doesn't eat out every night and run up a huge credit card balance supposed to feel sorry for someone who rang up a huge debt and is idiotically only making the minimum payment on a loan that has terms that would make loan sharks proud?

I'm very curious to see what sort of new legislation for credit card companies gets passed by the Obama administration in the near future.  The legislation as it is currently proposed would "stop credit card issuers from imposing arbitrary interest rate increases and penalties."  What exactly is arbitrary?  If someone has money and loans it out why can't they charge whatever rate they want?  If you don't like the terms of the loan...don't borrow from them. 

I was against giving bailout money to credit card companies, but I can see the reason why it was done.  Americans have become too dependent upon credit cards.  If these companies crumbled it would be absolutely disastrous for the economy in the short run.  However, it bothers me that the government feels as though it can now dictate how these businesses are run and feels as though it can mandate that they become less profitable just because it gave them money.  Government interference in private companies is a dangerous road to head down.

It's actually pretty funny that the government would shoot itself in the foot like this.  On one hand it's loaning money to credit card companies so that they can continue to operate while at the same time it is attempting to limit how profitable they can be which will make it harder for them to pay the money back.  That's typical government for you.

Oh well, I don't have a lot of skin in this game anyhow.  I'm only short COF & DFS in CAPS and have a small position in AmEx bonds in real life, but I just don't understand why credit card companies are being villainizedand everyone automatically feels sorry for the idiots who spend more money than they can afford.  That sort of thinking is what got us into this mess. 

Am I way off base here?  I'd love to hear others thoughts on this subject.

Obama to prod credit card firms on fee practices

Deej

60 Comments – Post Your Own

#1) On April 23, 2009 at 10:51 AM, DaretothREdux (48.06) wrote:

Nope you are dead right on this one. I was thinking the exact same thing earlier today. It's a political show anyways, so that Obama can pretend to care about the masses on the one hand while shoveling billions under the table to billionaires (who funded his campaign) on the other hand.

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#2) On April 23, 2009 at 10:59 AM, 100ozRound (29.53) wrote:

ditto

I pay off my balances every month and I don't use cash or a debit card.

Credit cards offer fraud protection that debit cards don't.

Plus I get the cash back and other rewards that you don't get with cash or debit cards.

Now I think credit cards can be a bit shady and with all the legal jargon on their monthly statements, I can see why someone would  prefer not to read them.  But in the end, it all comes down to personal responsibility.  

I guess the next target will be payday loans....

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#3) On April 23, 2009 at 11:00 AM, bigpeach (29.15) wrote:

You're not off base at all. Rather than be angry, people should be greatful they had such lenient terms for so long. Card companies aren't being unfair, they're finally pricing this sort of debt more appropriately. Hard to see how one can be angry about that.

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#4) On April 23, 2009 at 11:13 AM, outoffocus (22.91) wrote:

I wholeheartedly agree with you.  Another question I have for these angry consumers is if they don't like it then why wont they leave?  They act like BOA, Capital One, JPM, and wachovia are the only banks out there. I refused credit cards from these institutions for years because they were ripoffs (especially Capital One, whats in my wallet? not that card).  I've had one credit card with my credit union for years and they dont pull these shenanigans.

Truth be told all these events were in the cards (no pun intended) for years.  People have been falsely inflating their credit scores with various shenanigans and now its backfiring.  For instance, financial advisors were advising people to keep unused credit cards open in order to maintain a high credit score.  Do they realize how ridiculous that sounds? Now these same people are mad because that ridiculous practice backfired on them when credit card companies started closing those unused credit lines. Here's a hint, If you want to maintain a high credit score then pay your bills on time.  Period. 

People maintained high credit scores by "floating debt" and  merely paying the minimum payment on their credit cards.  Now thats coming back to haunt them. 

Slowly but surely this high debt house of cards is collapsing on people.  But instead of realizing they were wrong and taking their bitter medicine they go crying to their leader to "fix" the rules so they can keep the party going.  This is why our government continues to grow in power.  The more we run to the government to fix our problems, the more we are willing to give up our freedoms in order to do so.  When are people going to realize that with freedom comes responsibility?

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#5) On April 23, 2009 at 11:16 AM, icuryy4me (< 20) wrote:

I certainly agree that they should be left to their own devices and charge whatever interest rate they deem appropriate.

I feel the same is true of interest rates in genneral. I suspect that had that been the case the debt crisis might never have happened.

However, I think this is a partly political move, they are seen as helping out the consumers of credt card debit, and partly monetary as they are in essence making money cheaper thus incerasing the money supply directly with the consumer. they have been primarily pouring it into banks and hoping for something to come out the other end.

 --Nick

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#6) On April 23, 2009 at 11:16 AM, GNUBEE (28.41) wrote:

I think people are angry that CC Co's can change rates on a whim. If you agree to a low rate (not a teaser), then they decide for whatever reason to triple it, I think it is right to be outraged.

It is their marketshare over profitability mentality that made them offer low rates, they should have to stand by them. I was upset that they can chose to essentially void a contract at any time they wanted to (but I was aware they could, I'm not claiming ignorance)

Case in point, I had a 5.9 FIXED card, they (Chase) informed me that I could accept or close. It was a decent limit, but I told them to stuff it and close the account. It was nice to have access to a 5.9% unsecured LOC from them, with no real papwerwork, but what good is the term "FIXED" if it is not?

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#7) On April 23, 2009 at 11:21 AM, 4everlost (29.43) wrote:

I agree completely.  I use my credit card for almost every purchase and pay it off in full (I'm a rewards points fanatic).  I see the perspective that has some people miffed.  They are saying "Hey, we gave you taxpayer money, my money; now you're going to gouge me?"  It's an argument that doesn't hold up under scrutiny but no body wants to blame themselves for a problem they're in so they blame the CC companies.

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#8) On April 23, 2009 at 11:25 AM, alstry (35.61) wrote:

You are a fricken stooge...in the most affectionate of manners of course.

There is no doubt that people exploited credit cards in the same way people exploit drugs.  Nothing virtous about that behavior.

But there is also no doubt that the credit card issuers improperly loaned out billions of dollars where they shouldn't have and reported enormous profits as a result and management took huge bonuses on numbers they knew weren't sustainable.

Now we are giving the credit card companies FREE money because they are bankrupt due to reckless behavior.  In other words, we are bailing out the PUSHERS of bad debt in the same way we would be subsidizing drug dealers and incarcerating users.

Deej,

It is not that you are an idiot, on the contrary I think you are fairly intelligent.  It is just your perspective on analyzing problems all the way to the end is very limited for someone with your intelligence.

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#9) On April 23, 2009 at 11:30 AM, FollyFullFool (< 20) wrote:

I work a a very large financial organization, my job is front line, speaking with small and large businesses that have defaulted on thier credit cards. All I can say is the financial ignorance of the American people is staggering.

 Day after day I get to hear people tell me how they are going to sue my employer and how we can talk to thier lawyer. I consistantly tell them, thier lawyer is going to say, "You signed a perfectly legal, binding document I can't do anything, here is you bill" 

 It is very disheartening have to explain how a credit card works to a business owner who has defaulted with a balance of 50 - 100k. Reading thier statements is infuriating. 

 Now there are those people that are in legit trouble, and trust me we do everything we can for these people. But the majority of the people are ignorant, greedy, keeping up with the Jones idiots.

I was against the bail out (although my employer benefited quite nicely) and I think that everyone should be accountable for thier actions, including my employer,  and those people that charged $300 a month on online adult sites to a business card.

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#10) On April 23, 2009 at 11:35 AM, MikeMark (29.62) wrote:

Right on.

Here's just an added thought: this comes down to government intervention in a market. In this case it's the interest rate market on short term loans to individuals. Well, the government has been intervening in all the other interest rate markets via the Fed, why not this one too?

Really, we need far less government so that the market becomes free. Then recovery will begin.

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#11) On April 23, 2009 at 11:39 AM, Schmacko (68.48) wrote:

If a credit card company was irresponsible was ended up having to take bailout money (taxpayer money) doesn't it seem kinda dumb that they're trying to make that money back up by increasing fees and jacking up rates... on taxpayers... who are the ones keeping them afloat. 

If credit card companies can change the terms of their loans without notice why can't taxpayers change the terms of their loan to the credit card companies?  How bout the taxpayers have the govt do it for the collective group?  And you know what if the credit card companies don't like the terms and restrictions that comes with our loan to them they can gladly go look for bailout money from somewhere else....   

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#12) On April 23, 2009 at 11:44 AM, catoismymotor (30.49) wrote:

 Virtual Boo! You left the door wide open, Deej! For the most part I agree with your message. I am a strong believer in paying cash for everything. That is because I had to re-learn the right behaviors of a financially responsible individual after dealing with an uncomfortable amount of self inflicted of credit card debt. Notice I said self inflicted. When the penny dropped I knew I had to deal with it. Millions of pennies have dropped across this country over the last year. Almost as many families have chosen to deal with over leveraging themselves. It is those families that need some breathing room. Those families are re-learning, as I did, how to handle their finances. At this point for the major credit card companies to play dirty pool and raise their rates I believe is cruel. If a family is struggling to get by right now with rates as they are many will have to turn to bankruptcy attorneys should they go up. Things need to be left as they are. We need stability and predictability for a while yet in order to help calm this situation. If Obama wants to get the heads of these companies behind closed doors and speak to them using a loud voice and aggressive body language I have no problem with that.

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#13) On April 23, 2009 at 11:45 AM, bigpeach (29.15) wrote:

The other comment I would make is that all cards have an opt out provision. If the company wants to change your contract, you have the right to opt out, leaving your contract unchanged, and closing your account. It's difficult to see how anybody can be upset when they always have this option.

Need to correct my spelling of "grateful" in my comment above.

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#14) On April 23, 2009 at 11:49 AM, tonylogan1 (28.11) wrote:

I was wondering if anyone was going to be in opposition and it appears Alstry is the first.

The bottom line is that the various bailouts are the root of the problem. We cannot argue that the banks (credit card companies) have the right to charge whatever they want to make a profit, if they are also allowed to steal from the taxpayers.

If there were no bailouts, I would say let them charge what they want and let the free market sort it out. But we have killed the free market by giving out these bailouts.

The whole concept through history of usury being immoral stems from the concept that interest charged gets “earned” by doing no “work”. The various bailouts take the stealing of real labor to a whole other level.

Since the free market is destroyed, the people may as well have someone looking out for them.

 

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#15) On April 23, 2009 at 11:56 AM, outoffocus (22.91) wrote:

 At this point for the major credit card companies to play dirty pool and raise their rates I believe is cruel.

You're right, it is cruel.  But did you honestly expect better from these companies?  The whole banking system is set up to make money from your indebtedness.  The longer you are in debt, the more money they make period.  Credit cards have been legalized loan sharking for a long time.

Also, if people have no consequences for their actions then there is no incentive to change.  People need to understand that there are consequences to debt, serious consequences.  It is only through these consequences that people will see debt for what it really is, slavery.

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#16) On April 23, 2009 at 11:58 AM, TMFDiogenes (80.24) wrote:

The problem also comes down to the fact that credit card companies can charge whatever rates they want precisely because they do not operate in a competitive market. The significant network effects make their business oligopolistic. Dunno what that means for policy, but if the rationale for a free market is that it promotes competition, thereby benefitting customers, that's not true of this industry. On the other hand, you're right: no one's making people take these loans, so I have no comment on what should be done.

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#17) On April 23, 2009 at 11:59 AM, DemonDoug (85.14) wrote:

but I don't see what the big deal about them charging high rates and fees is.

It's a wonder you can breath with you head that high up Deej.

The big deal is that we are bailing them out on the front end, and they are kicking us in the butt out the back door.  It's not just the interest rate, but the fees, and the interest on interest, the interest on fees, etc.  The problem is deceptive practices, fine print fees, basically underhanded/unethical exploitation of people who can least afford it, along with the fact that we are bailing them out!!!  Also, yeah you can invoke plasma tv's and stuff, but this is a depression.  Many people are ringing up bills to pay for groceries and (you guessed it) health care services, basic needs of daily life.  While CC companies should not be expected to fund personal bailouts of individuals, the fact that they are using this as an opportunity to take advantage of those in debt stinks to high hell.

I don't think anyone is up in arms that people bought unnecessary items with money they didn't have.  The bottom line is that American companies being bailed out by American taxpayers are turning around and smacking the American public in the face with these practices and policies.

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#18) On April 23, 2009 at 12:08 PM, edbbear (< 20) wrote:

The credit card companies are taking advantage of people by giving them credit limits at a certain amount and a certain rate and then jacking up the interest when the economy sours and the card holders have little means to pay them off. 

I totally agree that people are being short-sighted when they carry a balance on their credit card.  However, the credit card companies encourage them to do so.  They had to give them the money to begin with.  It's predatory to then change the rules on them when they have no alternative (and I don't care if they disclaim they can raise the rate at any time--it's predatory to take advantage of people like that).  This is one area that Congress is right to regulate--particularly when the banks are being financed by the government right now.  

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#19) On April 23, 2009 at 12:13 PM, cbwang888 (25.95) wrote:

Card companies  charge high rate from dummies to cover their heavy loss due to rising delinquencies. Those dummies later on will default their credit card debts after they lost their incomes. Then? The government will force taxpayers pick up the bills. But tax revenue is drying up as economy going south... No problem, more T-bond sales and fed can print more to buy. Problem solved.

 

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#20) On April 23, 2009 at 12:16 PM, lemoneater (79.16) wrote:

Somehow the scenario with these bailed out credit card companies raising their rates reminds me of the parable in the Bible where a servant owing a huge some of money to his master gets debt forgiveness, but then that same servant goes to another servant who owes him a miniscule amount and threatens to throw him into prison unless he pays up immediately. Matthew 18:25-28 Some things don't change!

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#21) On April 23, 2009 at 12:16 PM, alstry (35.61) wrote:

Doug,

My appreciation for you mind only grows with time even though we sometimes may disagree at the outset.

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#22) On April 23, 2009 at 12:23 PM, alstry (35.61) wrote:

NO ONE IS MAKING PEOPLE MAKE THESE LOANS????

TMFDiog....

I appreciate that statement.  But where do you expect the family who has been fired from their jobs as a proximate result of the reckless banking behavior of overleveraging our society to get money to pay for food, shelther and medical care if their savings have been depleted.

I am not saying that there is an easy answer....the issue is what caused the problem.....and that is the overleveraging of almost every aspect of our economy..... and the problem is that money is running out across society as we scrable to try to pay it back but mathematically there is simply not enough dollars to do so.....and I can almost guarantee you that every facet of American life will be affected.....it is just beginning.

Why do you think I am such a cocky prick about such a difficult issue.....it is because I can see the picture clearly and it is not good.....just like a doctor who sees his patient with serious cancer.

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#23) On April 23, 2009 at 12:34 PM, TMFDeej (99.40) wrote:

You are a fricken stooge

Alsty, you are ruse an incapible of having an intelligent discussion without being insulting.  I have wasted too much time interacting with you already.  Please don't comment on my blogs any more. 

Here's a summary of my recent responses to you for your convenience.  Enjoy because I'm done interacting with you:

"Alsty, perhaps your incoherant, third-person rambling is some sort of satire that I just don't get.  I too understand that things are bad and that they will get worse before we hit a bottom and being to very slowly recover.

You're over-the-top predictions are either created to get a rise out of people, stroke your ego, become the winner in the uber bear contest, whatever. 

When you state that the majority of the companies in the S&P 500 will go bankrupt as you have on many occasions you have absolutely no idea what you're talking about.

During the Great Depression from 1930 to 1935, and things aren't nearly that bad in the United States yet defaults on high yield (this is the worst of the worst aka junk bonds) averaged 9% defaults, with a peak rate in 1933 of 15.4%.  During the recessions of the '70s and '80s, which may turn out to be milder than the current one but they aren't yet, corporate bond defaults averaged 8.8% and 9.9%, respectively.  Defaults were also high during thr 2001 - 2002 period when they ballooned to just under 15%.

So basically the historical record in JUNK bond defaults that was experienced during the greatest depression that the world has ever seen could double and we still wouldn't be any near your outrageous prediction.  And this is junk paper, not investment grade stuff.

I can't believe that I'm even wasting my time responding to you, but there are the actual facts predictions that were made up out of thin air in an effort to draw attention to yourself like yours. 

"

"Also, Alsty you're playing the game with a moving target.  The other day I already established that you exaggerated how low the unemployment rate was when you started blogging to make yourself look better and if I had the time I suspect that I would find that you didn't even start talking about the broader measure of unemployment, U6, until you realized that your 50% target that you love to throw around was not even close to possible using the narrower definition."

"

I don't know what level U6 is headed to, Alsty.  No one knows for certain at this point.  Anyone who pretends to is only guessing.  The situation is dynamic.  So yes, I am being consistent in not providing a concrete estimate other than it won't be the 50% number that you love to throw about so often.

The opposite of consistency is inconsistency, which is what you have displayed when talking about the employment situation.  You're playing the game with a moving target, Alsty. 

The other day I already established that you exaggerated how low the unemployment rate was when you started blogging to make yourself look better.  If I felt like wasting my time shoveling through your drivel, I suspect that I would find that you didn't even start talking about the broader measure of unemployment, U6, until you realized that your 50% target that you love to throw around was not even close to possible using the narrower definition.

You're flat wrong when you say that all companies are much more leveraged today than they were in the past.  Some companies are highly leveraged, but others are in great shape. 

Companies have been hording cash lately,  According to data from Standard & Poor’s, as of Q3 '08 non-financial S&P 500 companies had increased the cash on their balance sheets to $647.8 billion, up 7% from the spring of 2007.  The cash holdings of these non-financials now totals more than 45% of their long-term debt. That’s the highest proportion since at least 1980.

Some companies absolutely will go bankrupt during this mess.  Many already have.  However to say that most companies will go bankrupt is completely nuts."

That's wasted several minutes of my life that I'll never get back.

Good bye.  It's lunch time.

Deej

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#24) On April 23, 2009 at 12:35 PM, tbarth88 (< 20) wrote:

For the most part, I agree with your position here but, having worked in the financial sector for most of my career as a systems engineer, I understand some of what is driving the anger. I pay my balances off each month and use my credit cards for just about everything I don't pay for using BillPay. However, not too long ago, when a bank raised the rate on their credit card, the new rate only applied to new charges. You continued to pay the old rate on the current balance until it was paid off. This has changed as now the new rate applies not just to new purchases but to your outstanding balance as well.The other annoyance is what happens when one company cuts your credit line. Suddenly, your using too high a percentage of your available credit leading to a reduction in your credit score which in turn, triggers an across the board raise of rates for most of your other cards (also retroactive). I have even heard of a case where one company raised someone rate because their neighborhood was considered to be 'in decline'.Please don't mistake my understanding for sympathy. I have made EVERY stupid financial error possible and probably even some that up till I did it, to be impossible. I learned from my mistakes but that does not make me immune. Living in Phoenix, the foreclosure capital, I know lots of people that have lost jobs through no fault of their own and have had to live on their credit cards as a result but these are people are in the minority. I just see it differently when they are people I know. The economy takes its tool on us all and, while I bought a home before the jump in prices, put 30% down and made all my payments (including extra principle each month), I am now 40K in the hole thanks to the price decline. At least i can afford to weather this storm--at least while i still have my job (my bank recently acquired a failing bank and, despite the tidy profit last quarter, still plans to lay people off). Like I said, none of us are immune.

That said, one scary stat...In August of 1997 I was working for Visa, Inc. as a programmer. The company was in a very celebratory mood because during that month, they had processed enough charges to put them over the $1 trillion mark and we were still months away from the holiday season! I doubt many of my coworkers understood the cold shiver that went down my spine...

Thom

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#25) On April 23, 2009 at 12:59 PM, Varchild2008 (83.61) wrote:

Simple answer.... America elected Liberals.

So.... Elect Liberals.... you Get Liberalism....

Which means profits = bad.
Corporations = Bad.
Working Hard to pay off your debts = Bad.

Government = Good!
Government tis going to buy me a car, a house, pay off my credit debt, pay for my school, pay for my protection, pay for  firefighters to put out any fires in my house, pay for my health care, pay for the "Greening" of America's environment, pay for more Windmills, pay for free College Education, pay for..

I just need stuff... and so I need Government... Go Government!

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#26) On April 23, 2009 at 1:03 PM, alstry (35.61) wrote:

Deej,

Seriously, I do respect you and appreciate all of your hard work....if anyone knows first hand, it is me:)

But again, you respond to my comment with collateral issues that have nothing to do with my comment.  Hence, you avoid the issue and that is why I say you are living with your head in the sand with your backside in the air and only dealing with the problems on the surface.

From the beginning, I have said that what I call functional unemployment, what the government sorta reports as U6 unemployment will likely climb to between 30%-50%....there has been no inconsistency in my projections for the most part since I started blogging here about a year ago.....everyone of my posts are archived and open for anyone to see.

It is not that I am forecasting this number out of my backside....I have a fairly strong math aptitude and this problem does not require me to go much beyond the basics of additon, subtraction, multiplication and division.  I am very confident of my preidiction and I am one of the very few out there that I am aware of making it.

You don't have to agree with me right now....but if we continue down the same path of losing over 600K jobs per week....I am mathematically certain you will in a very short period of time.

And as far as you wanting to hold citizens personally responsible for their behavior and subsidize banks from what I consider even more reprehensible actions....if I really thought you felt that way, I would call you on it......but I truly believe you are simply not thinking the problem through...

I don't blame you for it....you are simply intellectually challenged in this area......but I have little doubt that the facts will soon bring you over to the Alstrynomics camp.....just be open enough to give the facts a little time.

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#27) On April 23, 2009 at 1:27 PM, ClandPhoenix (85.11) wrote:

Varchild2008,

Did you really just blame all of the economic problems that we are experiencing on the election of "liberals"? You are saying that liberals are responsible for these tough times that started a year before Obama was even elected? On liberals who have controlled the government for what 1/3rd of one year over the last decade? 

I am not siding with conservatives or liberals but that statement is... well it lowers my faith in humanity.

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#28) On April 23, 2009 at 1:52 PM, Laniel (71.00) wrote:

The CC companies have changed the rules and altered the playing field.

Let me suggest a scenario: My credit score is within 50 points of max. I am a conscientious customer who pays on time and rarely rolls over CC debt. I have a good job with good insurance. My wife has a good job. If a card raises fees, I switch cards.

Then, catastrophic illness strikes. My good insurance isn't great insurance, so I have significant bills from this. One medical facility is willing to knock off a couple of grand from their bill if I pay within 60 days, so I use a CC to pay them. Meanwhile, my son has to have five surgeries in the first two years of his life. I have to temporarily carry a balance on my CC.

Suddenly, credit dries up. Now, if my CC company decides to increase my interest rate or reduce my credit line, I can do little about it. Except pay. Because readily available credit is no longer readily available. That is changing the rules unfairly.

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#29) On April 23, 2009 at 2:35 PM, Option1307 (29.73) wrote:

This whole situation is strikingly similar to the AIG bonuses fiasco...

I whole heartedly believe agree that CC compaines should be allowed to card whatever rate they deem acceptable, whether that is 1% or 90%, I could careless. People have the right to borrow from these comapnies, or not, it's their choice. It's a free market and there is nothing illegal about higher rates. Similarily there was nothing illegal about AIG giving out massive bonuses.

However, the problem is, and some have pointed this out above, that we are bailing these companies out on the side. Therefore, this is essentially a slap in the face. We are getting screwed twice by the same company, bailing them out and paying higher rates. Or in the AIG case, bailing them out and then funding their retirements. This is where I have a problem with them and why the higher rates bother me personally. Thankfully I never carry a balance over, but the principle just strikes me as wrong and unethical. 

These companies are taking the phrase "having your cake and eating too" to a whole new extreme the is absolutely absurd...

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#30) On April 23, 2009 at 2:40 PM, outoffocus (22.91) wrote:

Bailouts are unethical.  Theres a reason why these companies should have failed, because they were horrible companies with flawed business models. What did our fearless leader say? If you put lipstick on a pig its still a pig.

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#31) On April 23, 2009 at 2:42 PM, clanza875 (33.16) wrote:

Just stop paying the cards then. Don't give them any money at all. Then they can charge whatever they want. Eventually, they'll come back and beg you for 20 cents on the original dollar.

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#32) On April 23, 2009 at 3:05 PM, Tastylunch (29.25) wrote:

I agree with DemonDoug,

 Although I understand your point deej

But I do think you need to look into human behavior more as to why people carry balances. Most people are a lot more trusting than most realize. They believe the mortgage broker who tells them they can afford that house in the good school district for their kids, they believe the cc company that tells them they can buy that Flat screen tv/vacation. Then when they get accustomed to that sort of thing, it's hard to turn off when rates go up. These companies are very good at preying on people's gullibility and financial illitreacy. 

They aren't nearly as stupid as you made them sound out to be. Frankly if you have low income in many cases you have to CC as a cash management tool.

for many people paying it off every month is not an option unfortunately.

So high rates in of itself is not unfair it's what in association with.

The credit card companies are extremely unethical and put conusmers at a distinct disadvatage.

They do everything in their power to make consumers spend more than they should. They are rewarded by hurting the consumer and they encoruage reckless behavior They are bad actors in this.Peopl have flaws

If you cancel your card you FICO score drops

If you carry a balance  you get usurious interest

They can cut your cc line w/o warning 

 if you accept their cards and have a dispute you are not allowed to go to court.

 They charge retailers like myself exorbitant fees to accept them and force us to accept all or none, increasing everyone's cost of goods.

Then the credit card companies ask us for more money on credit they should have never lent out and penalize the people they coerced into taking it in the first place? Eventhough the credit card companies knew what kind of risk there was?

At the end of the day the credit companies only make good money if you make bad choices.So their interests are directly opposed to their customers.

I can not be sympathetic to that.

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#33) On April 23, 2009 at 3:39 PM, loancollector (< 20) wrote:

Obviously none of you people have ever been in a bind where you have to spend money on your credit cards to deal with some unforeseen situation, this is where they (credit card companies) get you and drive you to financial ruin. They leave absolutely no way out, your monthly payments go up exponentially and you get burried. Hope you never have to experience this to find out.

Of course if you have the money to pay your full bill every month or have the choice not to spend at all,  there is no problem to complain about and all your arguements hold, personal responsibility and all that but that is not the whole story.

Some oversight over what the banks and money lenders do is always good, nothing in this world runs without some level of control over it...

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#34) On April 23, 2009 at 3:46 PM, TMFDeej (99.40) wrote:

Thanks for reading and commenting everyone.  I figured that this post would generate some interesting conversation.  Let me clarify that I'm not defending credit card companies (for the most part they are a bunch of tricky scumbags) but rather stressing that people need to be responsible for themselves. 

I take care of myself and my family and I don't expect handouts from others.  Could I have purchased a larger home than I did and had no cash in the bank for an unexpected medical emergency?  Of course, but I take care of myself.

Do I have to wake up at 5 AM every single morning to do extra consulting on the side to make extra money that I save for a rainy day?  Of course not, but I do so anyways to protect myself and my loved ones in case something happens.

Could my family get by on only one salary so that my wife could stay home with the kids?  Probably...but we'd have no margin for error.

Could I have a huge TV or a huge wardrobe or go on vacations all over the place like I see so many other people doing?  Yes I could, but I don't because it wouldn't be responsible.

People should take care of themselves, not expect Uncle Sam to take care of them.

If you are stupid enough not to realize that you are signing up for an open-ended contract with absurd interest rates when you get a credit card then you get what you deserve.  That's just the way it is.

I'm sorry, but ignorance is not an excuse.  I can't get out of a speeding ticket by saying "Oh sorry officier, I didn't know that the limit was only 55."  Not knowing that a credit card is a bad deal is the same thing.

It's a cruel world out there.  As the Pat McGee band says in its song Rebecca "There is a price to pay when you put on that face and roll the dice, One day soon you'll realize the world ain't that nice..."  That's just the way it is

Of course, the bailout money complicates things a little bit.  I am more than a little annoyed with all of the bailout money that the government is flinging around but that wasn't my point. 

My point is that there's no such thing as restraint or personal responsability any more.  That is a large part of the reason that we're in the mess that we're in today.

Deej

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#35) On April 23, 2009 at 4:37 PM, alstry (35.61) wrote:

I hope for your sake that no one in your family gets seriously ill and/or loses their job beyond their control and are unable to find replacement work for a protracted period of time.

I appreiciate your appeal for personal responsiblitly and respect it..... but it appears you have little appreciation for the single most significant reason that causes people to declare BK in America.....and it is NOT lack of personal responsibility.

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#36) On April 23, 2009 at 4:44 PM, ClandPhoenix (85.11) wrote:

Those who think they are self sufficient are ignorant to their dependence on society. We are all dependent on society... we choose to be so as an arguably insane friend of mine pointed out. Cherry picking what constitutes a dependency does not remove the reality of our interdependence on one another. Get off the high horse.

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#37) On April 23, 2009 at 5:06 PM, alstry (35.61) wrote:

Cland,

Obviously you think with your head above the ground....that might not make you very popular with Deej....

Deej....no need to respond......loosen your undies and appreciate how soft I was on you for this blog.

 

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#38) On April 23, 2009 at 5:14 PM, tonylogan1 (28.11) wrote:

Deej -  I think you are also neglecting to understand how much the economy has forced many people to take on debt. I don’t mean everyone; I am talking from a macro-economic perspective.

Look at the way businesses and governments operate. They all carry huge debts. Both companies and governments only go bankrupt when they can no longer service their debts, not just because they have big debts.

If you ever want to run a big company, you'll find out pretty quick that you cannot grow without taking on debt. And this is because your competitors are also taking on debt, driving the price of everything up (commercial real estate, etc)

If the terms on company and government debts were radically changed at this point in our economy, you could easily see 95% of businesses and governments go instantly broke.

For this reason, it remains important to exercise some amount of control over these credit card monopolies. Real citizens bill of rights as far as fair credit goes are important for government to enforce to prevent citizens from truly being debt slaves.

One last example from me in Los Angeles: The housing bubble, allowing people to take on huge debt, drove up the cost of both houses and rent. Because of this debt bubble, many people now pay way more than they otherwise would for rent, just because many factors conspired to make everything in their lives less affordable.

The government bailouts have everything to do with this, because without them, these companies would fail, debt levels across the board would come down, and things would become affordable to the point that people could buy and sell what they needed with cash instead of with home equity loans, credit cards, and whatever else they have used these last 10+ years

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#39) On April 23, 2009 at 5:25 PM, ClandPhoenix (85.11) wrote:

Personally I think your a fear monger Alstry. However, on the subject of the far rights claims to self dependence I cant help but get irritated. It is either an illusion or cherry picking of what is and is not a societal dependence.

Self Dependence Argument: I make lots of money because I worked hard to obtain it and do not need goverment support to help me.

Possible Problems: Are you compensated for your knowledge? If yes - where did you get it? Public K-12? Then your dependent, Private K-12? Your still dependent... somone from the society you live it at some point provided you with your skill set.

You did not go to school at all and make money through physical labor? Who consumes your output? Your still dependent.

Your a farmer? Same problem somone consumes your output.

You live off the land, gather your own water, sew your own cloths? Who protects your right to the land you live on... your dependent.

Everyone is dependent to some degree on the society that they choose to live in. Self dependence is an illusion that fools like to market themselves as.

The far right and the far left are both nuts. The far right is just more annoying because of their better than thou illusion.

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#40) On April 23, 2009 at 5:29 PM, Laniel (71.00) wrote:

Deej: "I'm sorry, but ignorance is not an excuse.  I can't get out of a speeding ticket by saying "Oh sorry officier, I didn't know that the limit was only 55."  Not knowing that a credit card is a bad deal is the same thing."

Sometimes it's the only deal that you have, and knowing it doesn't change anything. I'm just glad I had the credit to cover my son's operations. 

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#41) On April 23, 2009 at 5:32 PM, alstry (35.61) wrote:

I agree pretty much with what you said...but having a system that rewards excellence, hard work, productivity, innovation and the like is better than the altnernative.

As far as being a fear monger...I think in the end you will find my projections are dead on or conservative......unless of course we never find out because war breaks out.....

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#42) On April 23, 2009 at 5:44 PM, ClandPhoenix (85.11) wrote:

Ah.. but my position is win win... lets say your right Alstry and everything goes to crap. No one will be here on caps to point a finger and laugh at the nay sayers. If your wrong I can say "See your guys were nuts".

I agree that the system should reward excellence, hard work, productivity and innovation. I do not agree that those things some how make you no longer dependent on society.

I still think you should pay taxes... you should even pay higher taxes as is the case. The more you have managed to succeed within a society the greater responsibility you have for taking care of that society. That society has a greater share of the responsibility for your success than you do... it fed you when you were incapable of feeding yourself, it taught you how to survive, it is educating the people who buy your services or products, it is protecting your gathered assests etc... the list goes on forever.

Self made men are a myth and are arrogant.

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#43) On April 23, 2009 at 5:52 PM, solarfool314 (< 20) wrote:

The credit card business has a name for people that carry no balance-Deadbeats.

That says it all doesn't it?

They exist to make money, not to make our lives more convenient, and high interest is the quickest way to do it.

CH

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#44) On April 23, 2009 at 5:59 PM, alstry (35.61) wrote:

Cland,

I think you and I are pretty much tracking......

In the end, we are all living in one system......let's call that system the Titanic......and right now its taking on water....lots of water.

People like Deej for the most part are very good people and well intentioned......but they have a fear that uncertain events should not be able to control their lives.......pretty soon we are all about to feel the effect of one massive uncertain effect....I am just not exactly sure what it is........

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#45) On April 23, 2009 at 6:11 PM, Oldfashioned1 (< 20) wrote:

I'm amazed that I see zero commentary about the roots of the issue. Admittedly, the question posed was "why are credit card companies being demonized for charging high rates?". The comments have ranged from semi scholarly to gut reactions and have ranged far afield from the title issue. In my opinion, the answer to the question is simple: they earned it. They have taken advantage of every possible legal gouge technique. So, on one hand, one could simply say they are playing by the rules and should be commended. On the other hand, there is a larger issue. Those who allowed them the unfettered ability to employ such tactics are the ones who should be pilloried.  Usury is a term that seems to be lost thse days -- ever since credit card companies set up shop in States where there is really no limit on how much interest they want to charge. The Congress allowed this to occur and it is the only body which can change the rules. Really now, do you think 20% + interest is fair? And yes, no one forces people to use these cards. But what few on this post seem to acknowledge is that credit card companies use the same tactics as drug dealers: you can have a few free or cheap samples until they have you hooked and then, watch out! If credit card companies were interested in anything besides building their profit, they would check people out BEFORE they issued them a card. That one step might cut delinquencies by a large percentage. But that's not was has happened for the last umpteen years. My dog once got a "pre approved" card offer in the mail. He may have been a better risk than some of those who actually got a card and used it. I tire of rambling so I'll end with this. Credit card companies do what they do because they can. Many people who misuse the privilege of having a credit card (and many who haven't) are now suffering the consequences of bad legislation which no one seems to recall. Demonizing the companies (even though they deserve it on a moral level) will never fix the problem. Rules that will prevent them from charging usurious rates and fees will. If that ever happens, some of you will get your wish -- we'll have a new great depression.

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#46) On April 23, 2009 at 6:11 PM, nottheSEC (78.67) wrote:

Look going concerns can operate how they want no matter how I thinks it distasteful to raise rates in a bad time. Hypocrisy is when you use taxpayer money to do it. Its simple.

It is wrong if you are old and blow all your money gambling because you thought it was a sure thing. You now need to borrow money from your broke parents as a last resort. You need to be nice. Maybe mow the lawn.

It is also wrong if you are a 100 year old bank and blow money speculating because you thought it was a sure thing. You now need to borrow from broke taxpayers as a last resort. You need to be nice and not gouge fees

If you do not like your parents in your daily dealings, intervention, scolding or conditions for borrowing the money do not  borrow the money or set a quick payback  date.

If you do not like TAXPAYERS  in your daily dealings, intervention, congressional scolding or conditions for borrowing the money do not borrow the money or set a quick payback  date.

Personal responsibility means going it on your own ESPECIALLY in rough times corporation or individual.

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#47) On April 23, 2009 at 6:12 PM, Oldfashioned1 (< 20) wrote:

I'm amazed that I see zero commentary about the roots of the issue. Admittedly, the question posed was "why are credit card companies being demonized for charging high rates?". The comments have ranged from semi scholarly to gut reactions and have ranged far afield from the title issue. In my opinion, the answer to the question is simple: they earned it. They have taken advantage of every possible legal gouge technique. So, on one hand, one could simply say they are playing by the rules and should be commended. On the other hand, there is a larger issue. Those who allowed them the unfettered ability to employ such tactics are the ones who should be pilloried.  Usury is a term that seems to be lost thse days -- ever since credit card companies set up shop in States where there is really no limit on how much interest they want to charge. The Congress allowed this to occur and it is the only body which can change the rules. Really now, do you think 20% + interest is fair? And yes, no one forces people to use these cards. But what few on this post seem to acknowledge is that credit card companies use the same tactics as drug dealers: you can have a few free or cheap samples until they have you hooked and then, watch out! If credit card companies were interested in anything besides building their profit, they would check people out BEFORE they issued them a card. That one step might cut delinquencies by a large percentage. But that's not was has happened for the last umpteen years. My dog once got a "pre approved" card offer in the mail. He may have been a better risk than some of those who actually got a card and used it. I tire of rambling so I'll end with this. Credit card companies do what they do because they can. Many people who misuse the privilege of having a credit card (and many who haven't) are now suffering the consequences of bad legislation which no one seems to recall. Demonizing the companies (even though they deserve it on a moral level) will never fix the problem. Rules that will prevent them from charging usurious rates and fees will. If that ever happens, some of you will get your wish -- we'll have a new great depression.

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#48) On April 23, 2009 at 6:13 PM, nottheSEC (78.67) wrote:

Also give thanks for your blessings if you are able and healthy to have money for your daily need and emergencies. Some unfortunately do not because of poor financial education and often happenstance. my nickle...J

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#49) On April 23, 2009 at 6:14 PM, Oldfashioned1 (< 20) wrote:

I'm amazed that I see zero commentary about the roots of the issue. Admittedly, the question posed was "why are credit card companies being demonized for charging high rates?". The comments have ranged from semi scholarly to gut reactions and have ranged far afield from the title issue. In my opinion, the answer to the question is simple: they earned it. They have taken advantage of every possible legal gouge technique. So, on one hand, one could simply say they are playing by the rules and should be commended. On the other hand, there is a larger issue. Those who allowed them the unfettered ability to employ such tactics are the ones who should be pilloried.  Usury is a term that seems to be lost thse days -- ever since credit card companies set up shop in States where there is really no limit on how much interest they want to charge. The Congress allowed this to occur and it is the only body which can change the rules. Really now, do you think 20% + interest is fair? And yes, no one forces people to use these cards. But what few on this post seem to acknowledge is that credit card companies use the same tactics as drug dealers: you can have a few free or cheap samples until they have you hooked and then, watch out! If credit card companies were interested in anything besides building their profit, they would check people out BEFORE they issued them a card. That one step might cut delinquencies by a large percentage. But that's not was has happened for the last umpteen years. My dog once got a "pre approved" card offer in the mail. He may have been a better risk than some of those who actually got a card and used it. I tire of rambling so I'll end with this. Credit card companies do what they do because they can. Many people who misuse the privilege of having a credit card (and many who haven't) are now suffering the consequences of bad legislation which no one seems to recall. Demonizing the companies (even though they deserve it on a moral level) will never fix the problem. Rules that will prevent them from charging usurious rates and fees will. If that ever happens, some of you will get your wish -- we'll have a new great depression.

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#50) On April 23, 2009 at 6:15 PM, Oldfashioned1 (< 20) wrote:

I'm amazed that I see zero commentary about the roots of the issue. Admittedly, the question posed was "why are credit card companies being demonized for charging high rates?". The comments have ranged from semi scholarly to gut reactions and have ranged far afield from the title issue. In my opinion, the answer to the question is simple: they earned it. They have taken advantage of every possible legal gouge technique. So, on one hand, one could simply say they are playing by the rules and should be commended. On the other hand, there is a larger issue. Those who allowed them the unfettered ability to employ such tactics are the ones who should be pilloried.  Usury is a term that seems to be lost thse days -- ever since credit card companies set up shop in States where there is really no limit on how much interest they want to charge. The Congress allowed this to occur and it is the only body which can change the rules. Really now, do you think 20% + interest is fair? And yes, no one forces people to use these cards. But what few on this post seem to acknowledge is that credit card companies use the same tactics as drug dealers: you can have a few free or cheap samples until they have you hooked and then, watch out! If credit card companies were interested in anything besides building their profit, they would check people out BEFORE they issued them a card. That one step might cut delinquencies by a large percentage. But that's not was has happened for the last umpteen years. My dog once got a "pre approved" card offer in the mail. He may have been a better risk than some of those who actually got a card and used it. I tire of rambling so I'll end with this. Credit card companies do what they do because they can. Many people who misuse the privilege of having a credit card (and many who haven't) are now suffering the consequences of bad legislation which no one seems to recall. Demonizing the companies (even though they deserve it on a moral level) will never fix the problem. Rules that will prevent them from charging usurious rates and fees will. If that ever happens, some of you will get your wish -- we'll have a new great depression.

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#51) On April 23, 2009 at 6:20 PM, Oldfashioned1 (< 20) wrote:

I apologize for the multiples of my post. Seeing no one else to fault, I blame it on operator error. Mea culpa, fellow Fools

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#52) On April 23, 2009 at 6:33 PM, oldiemoldie (< 20) wrote:

Yes,  you're way off base.  We have had several credit cards for 20 years or more with very low interest rates.  Bank of America bought out all the companies who issued these cards.  We had around $200,000 in credit with these cards.  This was reported as part of  our credit rating, and we have an excellent credit rating.  The first thing BOA did was to cut our credit on these accounts.  The next thing that happened last week was that they raised the interest rate to 25%.  Since we have no balances we could cancel these cards - sure - but then our credit rating gets dinged!  People, people, you don't just cancel credit cards.  How many of you have a credit rating over 800?

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#53) On April 23, 2009 at 8:03 PM, GKuhfeldt (75.06) wrote:

"On one hand it's loaning money to credit card companies so that they can continue to operate while at the same time it is attempting to limit how profitable they can be which will make it harder for them to pay the money back.  That's typical government for you."

 

I think in the the current administration's eyes they are not shooting themselves in the foot.  This is another step toward government power over private companies.  The government is continually over stepping its bounds, this is just another example.  There are banks that were forced to take TARP money and were refused when they wanted to pay the government back (The Bank of New York being one of them).  I honestly believe that Washington is slowly taking over the finance sector.  We are creeping closer and closer to socialism.  

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#54) On April 23, 2009 at 8:08 PM, OtherOracleOfOMA (34.54) wrote:

So the fact that the Wall Street/City of London cartel, through various sorts of market manipulations and usurious financial instruments, forces workers to borrow the income they've rightfully earned at interest, is actually the people's fault, eh? BULLSHIT.

The working people of this and other nations have been fleeced and defrauded by this fascist slime-mold and organized crime syndicate. But never mind that - continue on blaming the victims, you fool.

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#55) On April 23, 2009 at 8:13 PM, OtherOracleOfOMA (34.54) wrote:

This is another step toward government power over private companies.

Yes, and as it should be. Governments are formed by "We The People" to protect themselves and defend the common interest. The most dangerous and insidious threat to the general interest today is usury, and it is right, necessary, and proper that the government - the people collectively - defend against this threat.

Now, you might think that it should be the other way about, with private companies exercising power over the sovereign government, in which case you'd be a fascist.

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#56) On April 23, 2009 at 8:29 PM, TMFDeej (99.40) wrote:

Far right.  Ha.  Though I am a registered Republican who cant vote for any because the current base of the party sickens me.  I couldn't bring myself to vote for either candidate this time around. 

I certainly never claimed that I wasn't dependent upon society.  That's putting words in my mouth.  My point was not to bash people who have had medical problems.  Lots of people fall on hard times through little fault of their own.

Anyone who doesn't see that a large percentage of the people who are in credit card debt up to their eyeballs got there by buying 5,000 pairs of shoes, going out to eat five nights a week, going on fancy vacations,buying too big a house, driving too expensive a car is fooling themselves.

Deej

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#57) On April 23, 2009 at 11:04 PM, DragontoadX (63.07) wrote:

Anyone who doesn't see that a large percentage of the people who are in credit card debt up to their eyeballs got there by buying 5,000 pairs of shoes, going out to eat five nights a week, going on fancy vacations,buying too big a house, driving too expensive a car is fooling themselves.

Perhaps this is true of "a large percentage of the people who are in credit card debt up to their eyeballs", but there are many who don't fall under that category.  As the recession/depression deepens, the percentage of debtors who got into their predicament in the way you describe will be greatly decreased.

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#58) On April 24, 2009 at 5:33 AM, DemonDoug (85.14) wrote:

Deej: Imagine your local municipality paid for a whole bunch of food supplies to be given to restaurants, so they could operate their businesses, because they no longer had the financial ability to buy their own food.  Now imagine that same restaurant raising their prices, which would in effect raise the costs on the same people who are providing them with the raw materials to run their business.

That is what the banks are doing, and that is why people are mad.  The implication is "Hey, we are helping you out, you should help us out," and the fact that they are basically biting the hand that feeds them is galling to most people (including myself).

There are other factors at play here, but there is a continuation of the inherent immorality of the banking system at play here, and if more people finally get outraged to the point of doing something about it, I'm all for it.

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#59) On April 24, 2009 at 11:02 AM, nottheSEC (78.67) wrote:

DD spot on "..basically biting the hand that feeds them is galling to most people.."  My point exactly in my staying with the parents example offiscated unintentionally in a row of oldfashioned1 posts.

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#60) On April 24, 2009 at 4:33 PM, shalumov (98.46) wrote:

deej, I agree with you on the using credit cards (I personally always use credit cards and pay off the whole amount at the end of the month), but I do not agree with you that they can change the percentage when ever they want. Imagine that your mortgage company does change the rate when they feel like it. There are some cases when you need to use credit card, and the rate should state the same on what the credit card user and the issuer are agreed to. and if the user dunb enough to leave the balance on the credit card, at least he knows that he will be charged X% as he agreed, and not 2*X% because Banks just feel to double the % they will be charging this credit card suer.

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