July 5 | Ian Welsh
rates on 10-year Treasury bonds are only about 3 percent, many consumers still carry tens of thousands of dollars of credit card debt at 20 percent or more. This burden has been a continuing drag on spending. The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.
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With their debt service payments cut by more than half, consumers could increase spending immediately. And the five-percentage-point spread on money lent under the program would help cover its administrative costs, and maybe even relieve short-run government budget pressure.
This is, of course, correct, though I’d only push it up 4%, myself. I originally suggested this February 9, 2009. It was the right thing to do then, it’s still the right thing to do. more
And it’s not just the big banks. Servicing fees and penalties are ridiculous. Penalties are hammering the under 30 crowd in a serious way. They get these $30-$50 overcharge penalties and just suck it up.
Then there are the credit card operations. Banks borrow at 0% and charge 25%, regardless of credit and payment history. Congress passed the credit bill but said they’d have to get around to doing something about the outrageous rates later. Well, it’s later!
The Money Party has an endless appetite. They won’t stop unless they’re forced to stop and when will that happen? Not in the foreseeable future.
The banks will fight caps on credit card interest rates and fees more fiercely than the reform legislation, because default rates have only begun to stabilize, and are still at historically high levels. In a double dip recession, any deterioration in default rates now goes straight to the bottom line in a product that is already losing money.