Sunday, February 17, 2008


Explaing Senator Obama to Progressives

Over at Maryland Weekly (née Crablaw), Bruce has posted a small rant about credit card companies slightly altering their due dates. Bruce correctly notes that many of us just pay out automatically on a set day of the month which means this bit of chicanery can lead to unknowing late fees. I noticed the same stunt awhile back. I’ve since paid down that credit card and no longer carry it in my wallet. Like Bruce, I didn’t appreciate the tactic so that company and I are no longer doing business.

But Bruce’s posting served a larger purpose by giving noted progressive blogger Isaac Smith a chance to decry the “evil, evil” credit card companies AND pump (please note that that’s with a -u-) Senator Obama’s candidacy:

“The fact that Barack Obama, for example, needs to propose that credit card companies should be prohibited from retroactively increasing interest rates…”Credit Card Dirty Tricks Maryland Weekly

...only that’s not what the companies do and that’s not what the Senator is proposing. Instead, the Senator is suggesting that increases in interest rates charged cannot be applied to previously-incurred debt. For example, you miss a payment. The card company can probably now increase the applied to all your debt going forward, no matter when incurred. That is NOT the same as retroactively increasing interest rates - an example of which would be if the Company came back to you this month and told you the interest rate charged on your November statement had been changed this month and you now owed them an extra $60 for November.

That said, the Senator’s proposal strikes me as mere populist rhetoric. We willingly agree to interest-free financing, for instance, when we sign up for those six-months-same-as-cash deals. If we pay it off prior to the due date, all’s good. But if we don’t, interest accrues back to the day of purchase. As one who has taken advantage of this purchase option on more than one occasion, I will not be happy if the Senator manages to outlaw this practice. Nor can I see the practical difference between raising interest rates on old debt by a credit card company for a missed payment and an Adjustable Rate Mortgage – which, of course, can also raise interest rates on old debt. The reasons for the increase may be different but the end result is the same.

Should the Senator’s proposals go through, the card companies will, of course, adjust – probably with a higher initial rate or perhaps just not issue a card at all to the suspect borrowers. Environmentalists that they are, this will no doubt give the progressive community an opportunity to then recycle old complaints about redlining etc.

"pump (please note that that’s with a -u-)"

ok, that's the sly hit of the week.

Jokes aside, I think it's better to look at a credit card company not as a "bank" (suggesting some relationship or standing involving a fiduciary duty, notwithstanding that most or many are indeed banks) but as a counterparty who is essentially betting against you and wants to see your misfortune.

In the case of insurance, the counterparty is betting against your investment but generally in harmony with your overall interest (e.g. both you and they hope you don't get in a car wreck, die, etc.) But the credit card company makes the most when your overall interest suffers, etc. If you lose your job, you will likely make late payments and therefore they win, etc.

The cure of course is to cease doing business with them after payment in full. It's worth noting that the Swiss use credit cards relatively rarely; that nation of bankers is wise.
thanks Bruce - I'm no apologist for credit card companies but the ultimate responsibility for people screwing up with their credit lies with the people doing the crewing up. The card companies can make questionable decisions but they can't make you use the credit they offer. To me all this populist hand-wringing over an over-extended part of the populace just feeds into the progressive ideal that, as a a people, we are too stupid to take care of ourselves.
Sometime soon I am going to do a post over at my place about affluence, specifically how we as a culture have dealt with it. I predict in advance that both liberals and conservatives will be uncomfortable with my conclusions.

An advance hit: how we as human beings tend to ignore externalities or hidden capital depletion. For example: a wealthy society may tend to lose cooking skills, but the drop in "cooking knowledge" rarely goes down in GDP figures as a net loss. Replacing "cooking" with innumerable other examples (e.g. how to repair a TV, the "Polish plumber" who gives the statist French nightmares, etc.)
doesn't a lot of that hidden capital depletion go to Ricardo's "comparative advantage" - that my lack of cooking skills can be more than offset by my increase in professional skills (yes, this is a hypothetical) derived in the time not used cooking?
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