Caps on credit card rates?

[blueblood]

This has been one of the enduring, elitist, top-down class warfare myths about the financial crisis. These poor banks and investment firms were not "forced" to do anything.

Except when jimmy carter forced fdic insured banks to make loans that didn't discriminate on income. The other banks had no choice but to compete. Fast forward 30 yrs and it all came to a head.

In canada, there is no such regulation.

Also those low income people had no business walking into a financial institution getting mortgages on homes they can't afford. The bad thing with all those banks down there competing with each other is that the initial rate is low to get them in the door, the the rates are jacked right up to compensate the risk and ensure returns for bon/shareholders. A lot of people took a bath.

Nobody is forcing those people to walk in a bank and take loans of money they can't afford. Stupid policy and stupid people make for a big mess. Yet another reason why commerce/economics/management should be mandatory for high school grad.

We can learn the mistakes from our friends to the south, not repeat them.

[bloodyminded]

Also those low income people had no business walking into a financial institution getting mortgages on homes they can't afford. The bad thing with all those banks down there competing with each other is that the initial rate is low to get them in the door, the the rates are jacked right up to compensate the risk and ensure returns for bon/shareholders. A lot of people took a bath.

Nobody is forcing those people to walk in a bank and take loans of money they can't afford. Stupid policy and stupid people make for a big mess. Yet another reason why commerce/economics/management should be mandatory for high school grad.

Of course you're right that people shouldn't be buying and borrowing light-years out of their budget. But their desire was used by predators. The lenders said, "we're the experts; trust us; you can afford this. Oh, we know you can't possibly understand the mortgage agreement (Greenspan himself strongly suggested that he couldn't understand them!)...but we can, and we're telling you it'll be fine."

That doesn't make the borrowers right. But "buyer beware" is a practical consideration, not a moral one.

That people will let themselves be taken advantage of does not exonerate thsoe who take advantage of them. That road leads to ethical degeneracy.

The blame lays more squarely on those who did know what they were doing than those who didn't. That's pretty elementary.

[Moonbox]

That people will let themselves be taken advantage of does not exonerate thsoe who take advantage of them. That road leads to ethical degeneracy.

The blame lays more squarely on those who did know what they were doing than those who didn't. That's pretty elementary.

I would say in most cases you're right. Both parties can carry the blame but they also both got screwed in the end. The banks lost billions and billions over it. A lot of the people went bankrupt. Greed punished both of them. You can paint the banks as evil bogeymen all you want, but don't act like the people buying the houses are people we should feel sorry for.

[bloodyminded]

I would say in most cases you're right. Both parties can carry the blame but they also both got screwed in the end. The banks lost billions and billions over it. A lot of the people went bankrupt. Greed punished both of them. You can paint the banks as evil bogeymen all you want, but don't act like the people buying the houses are people we should feel sorry for.

Again: homebuyers were not trying to deceive the lenders.

The lenders were deceiving the homebuyers.

The distinction is stark.

Edited March 31, 2011 by bloodyminded

[blueblood]

Again: homebuyers were not trying to deceive the lenders.

The lenders were deceiving the homebuyers.

The distinction is stark.

I beg to differ. The lenders were deceived by the homebuyers saying they would be able to pay their mortgage. If you were borderline for getting a loan, would you tell the banker "I don't know if I can make enough money to pay the loan?" If you did, you'd get punted out of the office.

it cuts both ways.

The lenders either were forced to lend to bozos by legislation or by the bon/shareholders in order to compete with the banks under the legislation.

If anything its an attitude of entitlement on both sides that was the foundation for this mess. (I want a house vs. I want double digit returns)

[bloodyminded]

I beg to differ. The lenders were deceived by the homebuyers saying they would be able to pay their mortgage. If you were borderline for getting a loan, would you tell the banker "I don't know if I can make enough money to pay the loan?" If you did, you'd get punted out of the office.

No they didn't. They couldn't possibly even read the mortgage agreements. The lenders assured them all was possible.

it cuts both ways.

To a degree, but it's not equivalent.

If anything its an attitude of entitlement on both sides that was the foundation for this mess. (I want a house vs. I want double digit returns)

Yes, this is exactly right.

1. "I want a house."

2. "I want a gazillion dollar return, and I don't care what happens to the poeple I assured could afford what I was selling; and if and when it falls, the taxpayers will reward me with a giant bonus for all my good work."

These are not the same.

Edited March 31, 2011 by bloodyminded

[blueblood]

No they didn't. They couldn't possibly even read the mortgage agreements. The lenders assured them all was possible.

To a degree, but it's not equivalent.

Yes, this is exactly right.

1. "I want a house."

2. "I want a gazillion dollar return, and I don't care what happens to the poeple I assured could afford what I was selling; and if and when it falls, the taxpayers will reward me with a giant bonus for all my good work."

These are not the same.

It doesn't take a rocket scientist to look at the price of the house vs. Income. Probly not a good idea to buy a house at 8x earnings.

Those investors were at parts a little slow as well. The cash flow of lehman was slashed for a year before the collapse, yet their income (through the liabilities of homeowners) was still rising. Had the investors looked at cash flow, they wouldn't have went for such a bath.

As for those bonuses, they are included in the contracts. It was cheaper to pay the bonuses than go through the litigation that was sure to come. It sucks, but that's how it goes down.

[bloodyminded]

It doesn't take a rocket scientist to look at the price of the house vs. Income. Probly not a good idea to buy a house at 8x earnings.

Those investors were at parts a little slow as well. The cash flow of lehman was slashed for a year before the collapse, yet their income (through the liabilities of homeowners) was still rising. Had the investors looked at cash flow, they wouldn't have went for such a bath.

As for those bonuses, they are included in the contracts. It was cheaper to pay the bonuses than go through the litigation that was sure to come. It sucks, but that's how it goes down.

Yes, some welfare is contractually obligated; whereas others (say, when it's actually needed) are not.

[Tilter]

It's quite relevant vis a vis if you can afford not to have a balance, you don't need credit cards. Whether you use your CC for new clothes or for iTunes, you are using the card....and while paypal apppears here and there and even some have onlinbe debit access, CC acceptance is universal on the web....even with paypal.

And again....

Is still a non sequitor because many people are using a CC to acquire debt, but for convenience and for emergencies...like a car breaking down in the middle of the night....debit cards are of little use when you need access to thousands of dollars

Edited March 31, 2011 by Tilter

[GostHacked]

If I get that money for free from the government I would be happy to have an extra 100 bucks for nothing.

That 100 bucks came from your taxes.

[Tilter]

If you can pay the balance every month you get about Layton's rate--- at your home bank.

If you can't NORMALLY pay the balance you couldn't use credit cards.

If you can normally pay the balance but are occasionally take longer to repay you are doing it correctly, are liked by the banks & usually get good interest rate.

None of this applies to Store cards---- they are out to soak you for as much as they can, every month, all month.

[Bonam]

If you can pay the balance every month you get about Layton's rate--- at your home bank.

No, if you pay the balance every month, your interest rate is 0.

[Moonbox]

Again: homebuyers were not trying to deceive the lenders.

The lenders were deceiving the homebuyers.

The distinction is stark.

The distinction is illusionary. The lenders were not deceiving the homebuyers. The lenders were just irresponsible. They didn't tell the homebuyers that the mortgages were affordable for ever and that they would never be foreclosed on. They told the homebuyers that they could approve them for x-sized mortgage. Many of the homebuyers likely lied when it came to their income, because they didn't have to confirm it down south.

People act like the home buyers were helpless baby rabbits who had no choice and couldn't do basic math and budgeting. They were greedily trying to get themselves into homes that they couldn't afford realistically and the mortgage lenders greedily wanted to give them mortgages that were unacceptably risky.

The banks screwed themselves just as badly as the homebuyers did. It was bad for both groups. I'm sure there were tons of executives and brokers who profited in terms of bonuses, but they were doing what their shareholders and directors were telling them to.

[bloodyminded]

The distinction is illusionary. The lenders were not deceiving the homebuyers. The lenders were just irresponsible. They didn't tell the homebuyers that the mortgages were affordable for ever and that they would never be foreclosed on. They told the homebuyers that they could approve them for x-sized mortgage. Many of the homebuyers likely lied when it came to their income, because they didn't have to confirm it down south.

Well, that's interesting that none of the interested parties--say, the lenders themselves, even when being forced into interview before Representatives--have been making that claim. They must all be altruists who wish to take the fall for the homebuyers.

People act like the home buyers were helpless baby rabbits who had no choice and couldn't do basic math and budgeting.

According to Alan Greenspan, the mortage agreements often tended to be indecipherable. Of course, he's a radical lefty trying to discredit Wall Street. But the lenders claimed to understand the agreements...and said to the buyers, "You can afford this!"

And why not? The mortgages were to be bundled and sold, and so wouldn't be their problem anyway.

They were greedily trying to get themselves into homes that they couldn't afford realistically and the mortgage lenders greedily wanted to give them mortgages that were unacceptably risky.

Like I said, I agree. But these are two different types of greed (which, by the way, I'm continually told is an untrammelled "good"). Why we determine to draw an equivalence between financial experts who are millionaires and those who aren't financial experts and are hungry for a too-expensive home...well, I can't say why. It's frankly bizarre to me.

The banks screwed themselves just as badly as the homebuyers did. It was bad for both groups.

Well...for one a hell of a lot more than for the other. Demonstrably. There's no comparison.

I'm sure there were tons of executives and brokers who profited in terms of bonuses, but they were doing what their shareholders and directors were telling them to.

So...is it demanding ethical degeneracy that's to blame, or obeying it? They both sound pretty greasy.

(There are people who are ethical shareholders...they're the ones who got laughed and mocked out of the WalMart shareholders meeting, for example.)

Edited March 31, 2011 by bloodyminded

[Bonam]

According to Alan Greenspan, the mortage agreements often tended to be indecipherable. Of course, he's a radical lefty trying to discredit Wall Street. But the lenders claimed to understand the agreements...and said to the buyers, "You can afford this!"

And why not? The mortgages were to be bundled and sold, and so wouldn't be their problem anyway.

I don't say this to absolve the lenders of their irresponsible lending practices, but in the end, it is the responsibility of a buyer (in this case the borrower) to be aware of all the conditions related to what they are purchasing (borrowing). If the product and the terms associated with buying it are so opaque as to be extremely difficult to understand, the prospective buyer should either put in the effort to understand them, go to another provider that will offer them a more straightforward agreement, or recognize and accept the risk inherent in agreeing to something that one does not understand.

Would you sign a contract that you don't understand? That is "indecipherable"? Do you think signing such a contract is a good idea? In your opinion, do you think the people that signed such contracts were making good financial decisions?

Now, maybe these people were not well educated in finances and were easy to fool, and irresponsible lenders took advantage of that. But even so, I would still say that some of the blame goes onto the people that made these poor decisions, by borrowing more than they could afford, and signing contracts that they did not understand.

[bloodyminded]

I don't say this to absolve the lenders of their irresponsible lending practices, but in the end, it is the responsibility of a buyer (in this case the borrower) to be aware of all the conditions related to what they are purchasing (borrowing). If the product and the terms associated with buying it are so opaque as to be extremely difficult to understand, the prospective buyer should either put in the effort to understand them, go to another provider that will offer them a more straightforward agreement, or recognize and accept the risk inherent in agreeing to something that one does not understand.

Would you sign a contract that you don't understand? That is "indecipherable"? Do you think signing such a contract is a good idea? In your opinion, do you think the people that signed such contracts were making good financial decisions?

Now, maybe these people were not well educated in finances and were easy to fool, and irresponsible lenders took advantage of that. But even so, I would still say that some of the blame goes onto the people that made these poor decisions, by borrowing more than they could afford, and signing contracts that they did not understand.

Some of the blame does, yes. (I've made this point in, I believe, every post I've made here.)

And yes, as I've said, I firmly believe in "buyer beware," (with some limitaitons...say, a restaurant serving me poison is 100% liable.)

But I believe in it because it's practical; not because it's ethical. Ethics doesn't come into it.

I'm talking about ethics.

In this sense, it's mostly the lenders' fault.

Edited March 31, 2011 by bloodyminded

[Moonbox]

Well, that's interesting that none of the interested parties--say, the lenders themselves, even when being forced into interview before Representatives--have been making that claim. They must all be altruists who wish to take the fall for the homebuyers.

Wtf are you even talking about? That doesn't even make sense. They did not state that they were willfully deceiving homebuyers. That's called fraud.

According to Alan Greenspan, the mortage agreements often tended to be indecipherable.

Listening to Alan Greenspan weigh in on this is absolutely laughable. Time Magazine lists him as #3 on the list of people most responsible for the financial collapse. It was under his benign influence that the sub-prime fiasco was allowed to happen and he allowed it and encouraged it.

As for mortgage agreements being indecipherable, that's retarded. Basically all a homebuyer needs to know on his mortgage is how much the mortgage payment is going to be and how long it will take to pay off. That is ALL he needs to know to determine whether he can afford the mortgage or not. It wasn't indecipherable banking language that confused the poor homebuyers into complicated agreements where they had no idea what they'd be paying month to month. The mortgage agreement says: "Your payment is 'X' dollars monthly" and the homebuyer signs on to that. Homeowners were signing the mortgage agreements and defaulting DESPITE their payments not going up.

Why we determine to draw an equivalence between financial experts who are millionaires and those who aren't financial experts and are hungry for a too-expensive home...well, I can't say why. It's frankly bizarre to me.

You don't need to be a financial expert to buy a home. It's REALLY simple stuff.

So...is it demanding ethical degeneracy that's to blame, or obeying it? They both sound pretty greasy.

(There are people who are ethical shareholders...they're the ones who got laughed and mocked out of the WalMart shareholders meeting, for example.)

The problem is systemic and across the entire population. It's a shining example of why regulation is required in the financial industry. It shows us that, if not restrained, greed will eventually blow up in everyone's faces. It blows up in shareholders' faces, in blows up in employees' faces, it blows up in the government's face and it blows up in the average persons' face as well.

Edited March 31, 2011 by Moonbox

[bloodyminded]

Wtf are you even talking about? That doesn't even make sense. They did not state that they were willfully deceiving homebuyers. That's called fraud.

No...you made the claim that the buyers were wilfully misrepresenting their incomes to the poor, addle-minded little lenders.

I replied that, if that were the case, why did the lenders not point that out to authorities when it looked like they might be in some legal hot water?

Because they wanted to spare the homeowners any of their own well-deserved blame, for lying about their incomes?

Why would the lenders do this?

Why didn't they say what you're saying? They forgot?

Listening to Alan Greenspan weigh in on this is absolutely laughable. Time Magazine lists him as #3 on the list of people most responsible for the financial collapse. It was under his benign influence that the sub-prime fiasco was allowed to happen and he allowed it and encouraged it.

He was also conservative "experts" go-to guy to defend de-regulation.

Which a lot of conservatives are still doing.

I get the sense we're not quite in disagreement here.

As for mortgage agreements being indecipherable, that's retarded. Basically all a homebuyer needs to know on his mortgage is how much the mortgage payment is going to be and how long it will take to pay off. That is ALL he needs to know to determine whether he can afford the mortgage or not. It wasn't indecipherable banking language that confused the poor homebuyers into complicated agreements where they had no idea what they'd be paying month to month.

Yes. It was.

The mortgage agreement says: "Your payment is 'X' dollars monthly"

No. Those are the normal mortgages; that's my mortgage; those are the mortgages that have a normal, tolerable level of default, and aren't related much to the crisis we're talking about.

You don't need to be a financial expert to buy a home. It's REALLY simple stuff.

It's straightfoward, I agree. Until people who know more than you make an effort to hoodwink you.

The problem is systemic and across the entire population. It's a shining example of why regulation is required in the financial industry. It shows us that, if not restrained, greed will eventually blow up in everyone's faces. It blows up in shareholders' faces, in blows up in employees' faces, it blows up in the government's face and it blows up in the average persons' face as well.

I agree completely with all of this.

[Bonam]

Some of the blame does, yes. (I've made this point in, I believe, every post I've made here.)

And yes, as I've said, I firmly believe in "buyer beware," (with some limitaitons...say, a restaurant serving me poison is 100% liable.)

But I believe in it because it's practical; not because it's ethical. Ethics doesn't come into it.

I'm talking about ethics.

In this sense, it's mostly the lenders' fault.

Ethically, I don't see anything wrong on behalf of either the buyers or the lenders. The lenders provided a product that people wanted. Is a salesman that tries to sell you something that you can't really afford a bad, unethical person? I see those every time I go into an electronics store and they try to sell me a bigger TV or something. I don't think trying to make such sales is in any way fundamentally immoral or unethical.

If there was ethical misconduct anywhere, it was on the part of the rating agencies that rated subprime mortgage backed CDOs as AAA investments.

Edited March 31, 2011 by Bonam

[Dave_ON]

There's nothing to think about. Your example is a million dollar earnings on ten billion dollars invested. If Mastercard makes nearly $2 billion per year in profits, for your example to be relevant they would have to invest $20 trillion. They don't.

The debate has been revolving around the amount of risk these companies assume and how damaging it will be for them if they're regulated to make only 5% above prime (which gives them roughly 8% right now). The prime rate itself gives them a profit, the additional 5% above prime ought to be more than enough to make up for the risk.

Perhaps I'm jaded with the banks, but I don't see any problem whatsoever with helping Canadians in debt by reducing crippling and nearly criminal interest rates (upwards of 30% in some cases) to something more reasonable when companies are earning straight profit (after all of their losses and so-called risks) of between $1.5-4 Billion per year and that's following the worst recession we've had in nearly 30 years. How much is enough?

Ahh but you still fail to see the point. Who is paying for this help? Is it the bank, some dehumanized amorphous entintiy that won't miss a few hundered thousand? Or is it me, a hard working, financialy responsible Canadian who invests heavily and wants to see a good return for that? Why is it MY responsibility to pay for others mistakes? I'm sorry to hear Joe off the street is down on his luck, but I take care of myself and it's his responsibility to do the same. That doesn't mean it should happen on my dime. Bottom line the government has no place regulating such an industry without a full in depth analysis of how this affect other lending products, as well as investors in the bank. Nothing gets you nothing, taking money from me to give to joe off the street cause he's down on his luck or a deadbeat isn't fair to me. I'm glad the bank is posting huge profits, it means my RRSP's and other investments will continue to grow. I don't plan on working until my dying day and I'll be depending on those investments during my autumn years.

[Dave_ON]

The problem here is people are arguing like the Credit Card companies and the Banks are lending their own money. They aren't they are lending money which they are lent at an interest rate that is .75% right now. MasterCard could lend a Trillion dollars and make 100 million a year off of it because they don't need that Trillion in Capital they just got the Bank of Canada and say this is how much money I need to lend it out to the Canadian people. It is our money we should get a say.

Noe you're just being silly. Do the banks have access to the bank of Canada of course they do, and yes they do borrow at a cheap rate but as I've already addressed, they're backing their loans up with substantial capital, and other liquid and fixed assets. That's besides the point however, it's not just the BoC money they are lending it's my money. It's my RRSP's, my money in my Savings account, the capital from my mortgage, the money I pay on car loan. All of this comes from me, not the BoC, a large degree of the banks capital is from the public, they already have assets that are backed and insured and THAT is why they get such a good interest rate. So you are only telling half the story punked, perhaps you don't have any investments, perhaps with your union job your company is setting your retirement nest egg aside for you with no contribution require from you. If even if that is the case you should be hoping and praying that the banks continue to make huge profits because your company's RRSP is invested in a, you guessed it, bank. It's your money and everyone else who has any amount of money that isn't stuffed in the mattress sitting in an account. It's not "The bank" making a profit, it's all their investors, which are people, who worked hard for the money they invested and rightly so expect to see a decent return on it. If joe off the street can't pay his bills that's sad for him, but honestly it's not my problem.

[Moonbox]

No...you made the claim that the buyers were wilfully misrepresenting their incomes to the poor, addle-minded little lenders.

I replied that, if that were the case, why did the lenders not point that out to authorities when it looked like they might be in some legal hot water?

The lenders were willfully misrepresenting their income. They do that in Canada too. That's why USUALLY most banks require borrowers to provide verification of their income. The banks in the US got so greedy that they didn't even bother with that REALLY basic requirement. What would they have gained by pointing out to the authorities that they were stupid and negligent? It was common knowledge already.

He was also conservative "experts" go-to guy to defend de-regulation.

Which a lot of conservatives are still doing.

I get the sense we're not quite in disagreement here.

It seems we do agree, though I'm not sure why you brought Greenspan, one of the architects of the financial meltdown, into the argument saying he doesn't understand mortgage agreements. He's full of BS.

No. Those are the normal mortgages; that's my mortgage; those are the mortgages that have a normal, tolerable level of default, and aren't related much to the crisis we're talking about.

They're completely related. Your risk of default has nothing to do with how complicated the mortgage agreement is.

It's straightfoward, I agree. Until people who know more than you make an effort to hoodwink you.

There's nothing to hoodwink. Everyone knows what their income is. The mortgage payment is spelled out to you VERY clearly. It doesn't take a colossal mathematical and reasoning skills to determine whether or not the mortgage is affordable to you, unless we're talking about drooling idiots with nails driven through their skulls.

I agree completely with all of this.

Okay but take your agreement one step further and consider that when I say the problem is systemic I mean that it's cultural and goes from the very top to the very bottom. The problem was in the corporate and financial systems, its poor regulation, the government and all the way down to the rich and poor consumers alike. They were ALL greedy and they ALL got themselves into the mess together. A very few people probably made out like bandits with their bonuses, but they were no more greedy/incompetent than the rest of the country. They were simply in the right place at the right time.

[WWWTT]

I had recently asked an associate in China what she pays for interest on her card.

She told me her credit limit im RMB or Yuan.She has one month to pay without penalty(interest)And if she is late to pay the full amount owing the rate of interest is at 6%

She was not able to tell me who has set this rate however it believe it is safe to assume that this rate is not out of the kindness of the banks there.

WWWTT

[M.Dancer]

She told me her credit limit im RMB or Yuan.She has one month to pay without penalty(interest)And if she is late to pay the full amount owing the rate of interest is at 6%

Gosh..I would love to believe you, I really really would....it's just that....well...

Deng Jialing, 27, got his first credit card from China Merchants Bank in 2006 when he was working for a cellphone parts manufacturer in Shenzhen, making a little more than $500 a month. His card's limit started at about $400, and like all Chinese credit cards, his had an 18.25% annual interest rate, set by the government

...it gets better

Imagine there was a law that said if you missed two credit card payments in a row, you had to pay the full balance immediately, with heavy penalties. And if you didn't, your bank would take out an ad in your local newspaper, calling you a deadbeat. Or worse, thugs in suits might show up at your office, haul you down to the bank and keep you there for hours until you signed a promise to pay.

Welcome to the world of plastic -- Chinese style.

Chinese banks don't have national credit bureaus and sophisticated scoring models that allow them to churn out approvals in minutes. Instead, armies of young workers pore over paper applications, manually verifying one piece of information at a time.

Yet banks in China have issued tens of millions of credit cards in recent years. Today, more than 100 million are in circulation among China's 1.3 billion people, up from just 3 million in 2003, according to analysts and bankers.

Unlike American credit card firms, which are cutting back because of rising delinquencies, Chinese banks are stepping up their marketing of plastic. In the next five to 10 years, analysts say, China could issue 1 billion new cards, largely to a mass market that has little experience with credit.

Chi Wei Joong, a former American Express Co. executive, runs the credit card operations for China Merchants Bank. He has more than 9,000 workers nationwide. In every major city, Joong's sales force researches office buildings, their occupancy rates, average rents and other statistics. A report is then sent to the bank's credit department, which assigns a credit score for the building before salespeople target folks who work there.

"This is to control risk," Joong said. But if borrowers default, he doesn't hesitate to turn the accounts over to more than 100 collection agencies.

Joong says fewer than 10% of his bad loans end up in court, but some people have gone to jail. Under Chinese law, a credit card user who intentionally defaults on a sum as little as $3,000 can be sentenced to as much as five years in prison.

http://articles.latimes.com/2008/oct/22/business/fi-chinacredit22

[Moonbox]

I had recently asked an associate in China what she pays for interest on her card.

She told me her credit limit im RMB or Yuan.She has one month to pay without penalty(interest)And if she is late to pay the full amount owing the rate of interest is at 6%

She was not able to tell me who has set this rate however it believe it is safe to assume that this rate is not out of the kindness of the banks there.

WWWTT

No it's probably because she's a good client with a good job and isn't a big credit risk.