Thursday, February 25, 2010

Those Unintended Consequences Again

From Monday's Washington Post:
During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.

It wasn't supposed to be this way. The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.

But there was a catch. Card companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped.
As Reason's Nick Gillespie notes:
Consumer advocates, including politicians who have helped to created mega-gigundo deficits at the local, state, and national levels, have already started calling for the next round of regulations, in which villainous bankers, finally get their comeuppance. But sadly, just like Mr. Potter in It's a Wonderful Life, the people giving credit will always find a way to prosper.
"The credit card issuers can adjust their tactics faster than Congress can pass laws," said Joshua Frank, author of [a] report [for the Center for Responsible Lending].
Which is to say, the best way to ensure access to credit and decent treatment is by market competition, not by top-down regulation that stymies the development of many different types of credit instruments.
(via Carpe Diem)

9 comments:

Stan said...

Hey Carl, long time...

And today at the HC summit they're talking all kinds of regulations with no sign of backing off.

I know it was a vanity circus, but when the feigning is so obvious doesn't it become pointless?

Carl said...

Stan: Great to hear from you again!--I feared you disappeared. And I agree the HC summit was pointless--at best.

suek said...

Disagree with you on the HC summit. It finally gave the GOP an opportunity to refute the claim being pushed by the Dems that the GOP had no ideas. It pointed up the fact that the problem wasn't that the GOP was "the party of "NO"", but the fact that the Dems were simply refusing to consider any GOP ideas offered. Those of us who follow politics already knew this, but the summit put it out there in the open for all to see. Obama didn't do himself any favors, either.

On topic, however, I'm not so sure the credit situation is a bad development. My reason: my young friend had run up a significant credit card debt. Never mind why - that's a different problem! She had also been depositing funds regularly into a mututal funds account over a period of years. She considered the interest rate to be an expense she could handle.

BUT...

Then her credit card company bumped her interest up to 29.xx% - in spite of the fact that she had paid each and every payment on time - and more than doubled her monthly payments. At the young age of 28, she nearly had a heart attack! Result? she withdrew funds from her Mutual funds account and paid off her card. She has a second card with a lesser amount on it, and she expects to get that paid off within 3-6 months. In other words, she's learned that you better not let your debt get out of hand. Fortuately, she had something to fall back on - that was the good thing, (although I have to wonder about paying the amount she was paying in interest instead of putting _that_ into savings) and has awakened to the fact that she can't live the life she was enjoying before (partying every weekend, etc) without financial consequences.

I suspect she's not alone in learning these lessons. Of course, the result is going to be _some_ contraction of the economy simply due to the fact that people won't be buying stuff and getting over-extended on their credit. That will slow down any possible recovery, but all in all, I think it's a good thing.

suek said...

Must add re the "summit"...

As far as getting anything actually _done_, yes, I agree, it was pointless.

Carl said...

Sue: Your friend learned an important lesson (though it's possible to wonder why it took so long). But the same issue explains the lack of cost control in healthcare. So let's use similar wisdom. I would suggest something like this, though I would eliminate -- rather than extend -- the health insurance tax deduction (lowering income taxes to remain revenue neutral).

BTW, I mostly agree with Arnold Kling's take on the summit.

suek said...

>>...though it's possible to wonder why it took so long...>>

You know what they say..."Growing up is haaard to do..."...!!

It's also time consuming, and can't be rushed. One of the problems with today's attitudes about marriage and children is that dealing with actual responsibility is not a requirement for way past the age it _used_ to be!

OBloodyHell said...

> Disagree with you on the HC summit. It finally gave the GOP an opportunity to refute the claim being pushed by the Dems that the GOP had no ideas. It pointed up the fact that the problem wasn't that the GOP was "the party of "NO"", but the fact that the Dems were simply refusing to consider any GOP ideas offered. Those of us who follow politics already knew this, but the summit put it out there in the open for all to see. Obama didn't do himself any favors, either.

Sue, don't expect to hear that from the media (Are we surprised? Can I get a "HELL, No!") -- Courtesy MRC:

At 'Landmark' Summit an 'Exasperated' Obama Succeeded in Proving GOP 'Party of No'

CBS:
“The President often seemed exasperated with Republican arguments,” CBS's Chip Reid empathetically conveyed in reporting on Thursday's health care policy summit before he declared that President Obama had achieved what he needed to accomplish: "Well, he really did, Katie. What he really wanted to do was convince the American people, and more importantly wavering Democrats in Congress, that the Republicans are the party of no. They won't compromise and he now has no choice but to move ahead with Democrats alone."

ABC:
Echoing Reid's assessment of Obama's “exasperation,” ABC's Jake Tapper saw “from the Republicans, some old arguments and new frustrations for the President.” George Stephanopoulos decided Obama had “reinforced his bipartisan bonafides, showed that he was reaching out.”

And there was similar followup from both nets:
CBS's Plante Blames GOP For Gridlock at Health Care Summit
ABC's George Stephanopoulos Hypes Democratic Spin on Reconciliation

No word from MRC on NBC's spin...

The WaPo, however, gushed similarly:
'Professor Obama' Schools 'Undisciplined Pupils' of GOP

And then the media wonder why it is people are "ignoring them in droves...."

OBloodyHell said...

> It's also time consuming, and can't be rushed. One of the problems with today's attitudes about marriage and children is that dealing with actual responsibility is not a requirement for way past the age it _used_ to be!

It's also kind of ridiculous in that parents just can't be anything but coddling to their kids these days.

I was on my way over to a friend's house, and he asked me to stop by McD's and get his son some "Chicken Selects".

Now, I was unaware that McD's actually had subdivided their chicken options into "Chicken McCrap" and "Expensive Chicken S***", so all *I* heard was "McNuggets".... So I bought "MeNuggets".... The result was he took the 10yo OUT to go get him his "Selects". Not as a special reward, but because that's what the 10yo wanted.

Me? "When you are spending your own money, you can have the 'Selects'. Until then, you'll eat what you've got in front of you."

Bad parenting? No, sensible parenting. Doting on your kids some of the time is one thing, giving in to their every whiny little whim is another.

The only possible thing saving this kid from a life of "What about ME?" narcissism is the fact that the parents are fairly devout Xtians and raising him with those values.

suek said...

One of my grandsons is autistic. What you're describing sounds a bit like the way they treat him. Honestly, for about his first few years, I thought that he was simply spoiled, but it became apparent from the extremity of it that he had a problem. I don't know how they manage to deal with it day in and day out. He's now in his mid-teens and for the most part is manageable, though difficult. It's sort of like living with someone who is obsessive-compulsive on steroids, and who has no self-control when frustrated in his compulsions. Thank heavens he focused on McDonald's french fries as his mandatory requirement - they had one not far from home. He "required" fries at least once a day. At least they weren't all that expensive.

It sounds like your friend's son doesn't have that excuse.
When my kids were small, my rules sounded pretty much like your rules. "Here's dinner...." Period. We also had Saturday cereal...they always wanted the various pre-sweetened stuff. That stuff was ex_pen_sive for three boys...so they each got to choose _one_ cereal that was a "Saturday" cereal, and I chose the rest which was what they ate the rest of the week. The other rule was that they could only have one box of cereal open at a time.

We didn't go to McDonalds(or any other fast food places), unless it was a special treat or we were away from home for some reason.