First, the government needs to live within its means to limit the need for taxes. Now if you have to spend money on military, bail out every single financial institution, pay retirement/entitlements and other government services. If revenues are going down; now there is a devils bargain that needs to paid. The question is do you pay it or do your children, grandchildren and great-grandchildren get stuck with the bill?

Second, anybody who earns income qualifies for a credit card. Now has the credit card companies gone overboard about the amount of credit — that’s true. However, I bet if you survey these folks that got into trouble I would bet a whole lot of them had a life reversal because of lost of job or medical emergency or plain poor financial management of their affairs. So, I don’t know who to feel sorry for the creditor or debtor?

Finally, financial companies I guess own the government so I can’t imagine it will change. Theoretically, if it did I would imagine the credit card rules would change as well — probably to a secure debt scheme. It will be like the good old/bad days when credit was really difficult to obtain. Credit cards is what has built this consumer based economy. Changes will create whole new economic reality.

If we take as fact, “there isn’t much demand for credit these days” the next most logical step would be to ask how profit centered credit providers would make up for defaulting accounts. This is important because if there is not the usual influx of new accounts AND there is an increase in defaults the only solution left to credit issuers is to monetize everyone you already have on the hook and by any means necessary or NOT. What is Wall Street behaving like if not a drunken Frat House!

Miss a payment on one account and suddenly all the rest of your creditors are raising interest rates demonstrates a pick a fight with one of us and you’ve picked a fight with all of us attitude. Only they’re going to get back at you, each and all of them, by screwing you to the wall.

The precursors for this type of corporate behavior have been around for some time. Ever since I can remember there were 20th. Century Insurance envelopes in my home as my parents were pretty much lifetime policy holders. My lifetime anyway. Seriously, they went literal decades without car accidents and when I was in my early thirties my dad had an accident and then my 17 year old brother (the youngest) less than a year a part. Maybe a year later my brother had another accident. 20th. Century cancelled my parents. I was livid. My parents had gone my lifetime with no accidents, while insuring a plethora of luxury and non-luxury automobiles in addition to mom, dad and four sons. What really got me was when I got my own cars I went with another provider and told my dad he should consider changing because 20th. Century was relatively high. He declined because they’d been with them so long he didn’t see the need in changing. 20th. Century of course, no loyalty whatsoever didn’t mind.

I have a question too. As I understand it, some loans are insured against default. In these instances, lenders have an incentive to let the account go into default which would trigger the policy payout instead of working with a delinquent account holder. If that is so, if AIG held most of these insurance policies (theoretically), had we let AIG fail, would not the banks have been on a more even footing with borrowers and so a lot more willing to compromise?

On PBS recently there was some discussion as to why lenders weren’t just adjusting loans to keep existing homeowners in their homes. If they can’t afford a 700K home but they can a 550K or so loan, why do the banks prefer empty homes. If the truth is that the key to honest negotiations with the banks was the demise of AIG, then Wall Street owns all of Congress. Congress not only gave them tax payer money to gamble with but they set the deck and made sure the tax payers got no cards and the banks got all the cards.

Exhibits…
- Banks, Credit Cards etc want to loan money out at the best rate of returns. The debtors that have jobs and earn income but are just squeaking by make the best prospects.
- Title, Mortgage and Home Servers want to increase sales of properties to increase profits.
- Real Estate Brokers etc want to increase commissions by increasing the cost of the properties they are selling.
- Brokers make fat commissions bundling this debt and selling it as triple-A bonds
- Rating companies make fat fees by saying that debt is worth the triple-A rating
- Politicians (yes…both Democratic and Republican…there is no exemptions here) get contributions from all of the above. They tell the voters how great this is and the system works just great.
- The consumers are sold on the Madison Ave marketing and advertisement put out by all players listed above.

Things have to change. Things must change. But, how it changes will have unattended consequences going forward.

“Socialism is for the rich, capitalism is for the poor”.

I don’t think any regulations, even the best structured, overseen by the best people can completely solve these issues. In a lot of ways this country lost it’s sole over the last few decades. We don’t build lives in single communities, families don’t live near each other, and nobody trusts anybody. At the fundamental level that was always the best regulation, a trusted relationship with a banker or financial advisor, or insurance agent, or CPA over years and years, helping you makes these decisions and knowing they were advising you in your best interest. Instead, we apply for the 0% transfer balance credit card from XYZ bank of some state with lax banking laws and suddenly a year later all that interest comes due in a balloon payment, and debt slavery has begun.

Obviously, other people are too stupid to manage their own lives. The Democrats have to do it for them – geniuses like Barney Frank and Chris Dodd.

If we are truly concerned about the foolish use of credit and debt slavery, we should think about all the 18 year-olds who are racking up tens of thousands in debt collecting worthless educational credentials. This is debt that is essentially immune from the bankruptcy process, comes with unconscionable penalties for people who can’t pay it back on time and will be collected with the full assistance of government agencies.

Of course this kind of debt slavery props up the bloated higher education sector of the economy – a key constituency of the Democratic Party.

The problem is banks stopped being smart when the got addicted to debt slavery. They started giving away debt at horribly low (bad) rates to ever increase the number of debt slaves. Well now the cows have come home and they have decided they need to go back to being wise lenders. As my grandmother always said, you made your bed now go lay down in it.

We shall see shortly another example with credit card reform.

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?ref=business

Here’s a guy, an economic reporter for the Times who wrote several early-warning articles and still got personally fully dragged into the credit card and subprime frenzy.

What draw my attention is the last sentence:

“I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall.”

I wonder what the big picture is here?