Friday, January 22, 2010

Paved With Good Intentions

Heralded as a win for the consumer, the new federal rules governing credit cards will no doubt have many unintended consequences. Lenders have already begun to raise introductory rates. With other rates capped, it stands to reason that yearly fees for more consumers will be implemented or increased to offset risk. Those who are deemed less creditworthy can certainly expect to have less credit extended in their direction. I would think the individual would like to make the determination if he is charged 25% or unable to get credit at all, not to have that determination made for him. This, along with extra regulation on payday lenders, leads me to believe more people will be driven to even more unscrupulous lenders - perhaps the local loanshark can still fulfill their needs.

Covered here at

But our governments — instead of viewing the supposed consumer crisis in terms of the question of why such potential card holders are, in fact, a risk, or from the reference point of moral hazard (via Federal Reserve protection) — have become duped into thinking that they can change market fundamentals.

The fact remains that deserving creditors demand to be rewarded for such reliability, and competition (via low interest rates, cash-back rewards, etc.) is the vehicle that delivers these rewards. Likewise, uncreditworthy recipients carry with them a liability that can only be compensated by higher yearly fees or rates of interest.

There is no hidden racial agenda or vast conspiracy on the behalf of the bourgeoisie. There are simply lenders and borrowers engaging in what they deem to be mutually beneficial transactions. Whether these transactions are, in actuality, beneficial or not is not a political question at all. Instead, it is an educational question, and a function of time.

1 comment:

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