We wait for economic recovery, but it doesn’t come. Millions of us remain unemployed. Whole neighborhoods, street after street, are abandoned, their residents victims of foreclosure. Washington is paralyzed. But the problem isn’t ours alone. Europe is on the brink of fiscal collapse. The Chinese stock market is teetering, and the Middle East continues to suffer political and economic chaos.
The question that burns within all of us is whether or not anything can be done, and if not, then what happens?
There is certainly something that can be done to revitalize the US economy, which is already beginning to show signs of recovery. This has to do with the one area of banking that has remained sacrosanct through the crisis. It is the credit card industry. True, there was a Credit Card Reform Act, but it ignored the central problem.
As great American financial institutions began to collapse in late 2008, the Bush Administration was faced with a quandary: should they let it happen, or should they attempt to stave off the crisis. They elected to provide the banks with vast infusions of public money.
The banks did not respond positively and patriotically to the helping hand extended to them by the American people. On the contrary, they bit that hand. They did it by brutally raising credit card interest rates, and doing it at the worst possible time for the American economy. At the time of greatest job insecurity since the Great Depression, people opened their credit card bills to find that their interest rates had, in many cases, doubled. And this did not simply extend to people with bad credit. People with good credit suffered similarly.
This was done because the economic crisis was causing credit card defaults, and the banks wanted to maintain the profitability of their cards at pre-recession levels. The reason that default levels rose so dramatically is that people who were not creditworthy had been offered credit. When they couldn’t pay, the banks response was to take the shortfall out of the pockets of their good customers.
Ever since, Americans have been wary of debt, and very understandably. I don’t know about you, but I rarely use credit cards anymore. Instead, I’m paying them off. My objective is to become debt free and to stay that way. I don’t trust the banks to loan me money for fear that they will jack up my interest rates without warning. I know that I’m not alone in this, because American savings rates have been rising since 2009, and show no sign of slowing down.
If this is to change, credit card interest rates must not only be regulated, they must be rolled back for customers in good standing who have experienced increases. The rates must be fixed at a certain percentage above prime. This will force the banks to act responsibility by extending credit only to those who actually deserve it, and not throwing credit cards at everybody, then making the creditworthy pay for the losses incurred when the bankrupt fail to pay.
However, the banking lobby has fought furiously to prevent this issue from even being discussed. It was not part of the Credit Reform Act, but it should have been its centerpiece. It is never discussed in the media and in congress, but it is the central reason that Americans are afraid to buy. Until we can be assured that the purchase of a television set today at a 12% interest will not turn into a debt tomorrow at a 24%, we simply are not going to be buyers.
But can Washington change this? Of course it can’t. Washington is frozen between political extremes, and neither of them have a viable solution to our problems. The left, if given license, will sink us in yet more inappropriate regulation. If the right gets its way, all regulation will be abandoned.
What about what most of us actually want, which is fair, effective government and sensible regulation? We want regulation to provide companies with a coherent framework in which to do business and make a reasonable profit. We don’t want it to stifle them, and we don’t want it to be abandoned so that they can wreck our lives any more than they already have.
You wouldn’t know it from listening to the media wailing at us from the left and the right, or the politicians who scream extremist slogans in an effort to agitate us into action, but we are a people who want to be governed fairly by moderation and consensus. Instead, congress is divided into warring camps and nothing useful is being done.
A good place for consensus to start would be to fix the credit card industry. It is the one sure way to restore demand, and essential if demand is to be sustained.
Will it happen? Certainly not. Washington won't touch it. And that, I think, is a damn shame and an outrage. We need new brooms, and not liberals or conservatives. Moderation is the American way, and we need to seek out political leaders who understand that fact, and who also understand how government by consensus works.
We need to stop letting the leatest media loudmouth turn our heads and trick us into sending extremists to congress. We need people of moderation, both Democrats and Republicans, to step up and take the reins of leadership.