The deadbeats of the credit card industry aren’t who you think

By Michael Fraase

Tuesday, 19 May 2009 09:41PM CDT

Section: Business

Credit card shatteredPity the poor credit card companies; they’re in a tough business. They only stand to make an estimated US$20 billion this year on late fees, over-limit fees, and other penalty fees. Andrew Martin, writing for the New York Times, says the “good deal” for people who pay their credit cards off each month is just about over.

With Congress having just passed legislation that would limit penalties on risky credit card holders, the credit card companies have to make up that revenue somewhere. According to Martin, they’re “going after those people with sterling credit.”

Expect the return of annual fees and the elimination of loyalty reward programs for starters. Next, the card companies will likely eliminate grace periods, charging interest at the point of purchase.

David Robertson who publishes a newsletter on the credit card business told Martin that people who pay their credit cards in full each month “have been enjoying the equivalent of a free ride.” Never mind the fact that credit card companies collect an average of 2-3% on each and every credit card transaction. Free ride indeed. Martin reports that the credit card industry refers to those who pay their credit cards in full each month as “deadbeats.” Nice, very nice, coming from the recipients of the public bailout of the US banking industry.

For one solid week, we “deadbeats” should simply refuse to use our credit cards. Use cash or heaven forbid, a check, for a change. I suspect that would send an audible signal—30 percent worth. According to a 2005 Government Accountability Office report, 70 percent and growing of credit card companies’ revenue comes from interest charges; the rest comes from annual fees and merchant processing fees.

An especially disturbing point of Martin’s report is the finding that Bank of America and JPMorgan Chase “account for 80 percent of the credit card industry.” Too big to fail = too big to exist.

Update: Wednesday, 20 May 2009 12:31PM CDT: I meant to get this in last night but it slipped through the cracks. If the US Congress would grow a set there would be interest rate limits set on the credit card companies. Four percent more than they’re willing to pay for deposits sounds about right.

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Want to move to Amsterdam? It’s not moving here

By Michael Fraase

Sunday, 03 May 2009 12:55PM CDT

Section: Business

CapitalismEvery couple of months it seems like a first-person narrative of an American expatriate living an European social-welfare existence—most recently like Russell Shorto’s account in the New York Times magazine—pops up. Every time I read one of these I long for the time when the US comes to its collective senses and institutes this kind of a social undertaking on a massive, all-encompassing scale, Fox News and Rush Limbaugh be damned.

When are we going to wake up, come to our senses, and realize that Gordon Gekko capitalism is just, well, wrong.

Face it, the taxes are about the same all in. But instead of reinforcing the American oligarchy, the collective wealth is used in these European states to benefit everyone.

Oh, sure, there are problems. Europeans ride bikes for real, drive too close to each other, and that plastic wrap in European groceries is just too much. The one that really gets to me, though is “consensus and conformity.” As if conformity isn’t the demanded norm in the US. The idea of the American pioneer, the great non-conformist is a myth. It died 30 years ago.

I figure I’ve got no more than 20-30 years of this life left; probably less—maybe a lot less. The question, which becomes more pressing every year, is whether I want to live in the land of Gordon Gekko and his somehow malformed inherently inferiorly designed clones or something more; something else. I used to hope the European social movement would come here, but after the last half of 2008 and most of the first half of 2009 it’s never been clearer that’s not going to happen in the US. Not ever. All that’s left is to put Gekko’s profile on the money.

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Reverse merit pay

By Michael Fraase

Sunday, 26 April 2009 11:39AM CDT

Section: Business

Market crashMerit pay—paying someone based on positive outcomes—has been controversial for almost 40 years. Except on Wall Street where, apparently, reverse merit pay—paying someone based on failure—has become the norm.

Louise Story, writing in the New York Times, reports that “workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began….” Interesting concept: drive your company over the cliff and reap the financial rewards; nice work if you can get it.

Story reports that six of the biggest Wall Street players are setting aside more than US$36 billion for first-quarter salaries for employees. Goldman Sachs alone has set aside US$4.7 billion. “If that level continues all year, it would add up to average pay of US$569,220 per worker,” writes Story. That’s almost as much as the 2007 pay level, which—according to Story—set a record. Morgan Stanley—which lost US$578 million for the quarter—set aside an unbelievable US$2.08 billion for compensation; a mind-blowing 68% of revenue.

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