Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

PBS: Secret history of the credit card

pbs.org

Post reply on HN
Print view View original

21–30 of 73 posts

Re: PBS: Secret history of the credit card

#21

Post by iamelgringo »

mynameishere wrote: post #14
iamelgringo wrote: post #8

Earlier quoted context omitted.

What other product can you purchase, and have the price change after you purchase the product? What other form of loans/credit can you purchase and then have the interest rate changed without your knowledge and without informing you because of a missed or late payment on a different loan? What other form of loan can increase your interest rate (cost) based on an increase in the balances on accounts with completely di…

What other product can you purchase, and have the price change after you purchase the product? Money is not purchased when it is loaned. It is rented, and lots of rented goods have rate changes.

If people rented apartments, and every month, the landlord was able to increase or decrease the ammount he charged for rent based on your "risk," people would riot.

And, yes, money is rented via credit cards, but every purchase that I make with a credit card is in effect subject to a variable cost, because the interest rate that I'm being charged varies. So, I might buy a $1000 computer, thinking that I'll pay it off in on year at %10.

If my interest rate suddenly goes up to %29, I'm now paying closer to $1300 for the computer that I was planning on paying $1100 for.

And, furthermore, I have little recourse when my interest rates go up. I say that it's only because of the obscurity of the terms that people put up with this. If the same thing happened to people's car payments or rent payments, they'd be up in arms.

Re: PBS: Secret history of the credit card

#22

Post by helveticaman »

"The industry also got an unintended boost from President Carter. In 1980, as part of a short-lived effort to tame inflation, the White House imposed a freeze on soliciting new credit card accounts. The freeze only lasted for a few months, but it was long enough for credit card companies to introduce a new concept -- the $20 annual fee -- without inciting mass defections."

So this is an oligopoly, and behaves accordingly. Of course it charges sellers extra, charges high interest rates, and all that other shit; they don't allow more entrants into their market.

Re: PBS: Secret history of the credit card

#23

Post by jimbokun »

ph0rque wrote: post #18

This suggests an opportunity for a credit card startup that: * Charges no fees of any kind * Charges a rate that is determined by a publicized equation where the only variables are the amount borrowed, time (in, say, days), and the rate.

Or in the words of Mr. Kahr:

"You know -- 'transparency card,' 'rock solid card' -- whatever it may be. I don't believe that that would succeed."

Re: PBS: Secret history of the credit card

#24

Post by jimbokun »

sokoloff wrote: post #11
iamelgringo wrote: post #8

Earlier quoted context omitted.

What other product can you purchase, and have the price change after you purchase the product? What other form of loans/credit can you purchase and then have the interest rate changed without your knowledge and without informing you because of a missed or late payment on a different loan? What other form of loan can increase your interest rate (cost) based on an increase in the balances on accounts with completely di…

Student loans, personal loans other than credit cards, business loans, preferred stock, corporate, municipal and government bonds (from the issuer's perspective) all change price/rate in response to missed or late payments on other obligations. (In the latter case, often dramatically so.) Why shouldn't a lender be a able to offer a contract that allows them to increase their fees when the borrower shows themselves to…

"Why shouldn't a lender be a able to offer a contract that allows them to increase their fees when the borrower shows themselves to be a less than ideal credit risk at some point in the future?"

Same reason as the Mortgage Industry. The credit card issuers have been irresponsible to the point that the entire system is in danger of failing. They have lent so much money to so many people who can't afford to pay it back that it appears likely that there is going to be a huge cost to society, including those who have behaved responsibly.

In other words, we do not only have to protect consumers from their inherent irrationality. We have to protect society from the inherent irrationality of the financial industry as well. If this is not true, please explain to me how we would not be better off right now if there were regulations in place that could have prevented financial companies from taking on the amount of risk that resulted in the vaporization of Wall Street.

Re: PBS: Secret history of the credit card

#25

Post by ph0rque »

jimbokun wrote: post #23
ph0rque wrote: post #18

This suggests an opportunity for a credit card startup that: * Charges no fees of any kind * Charges a rate that is determined by a publicized equation where the only variables are the amount borrowed, time (in, say, days), and the rate.

Or in the words of Mr. Kahr: "You know -- 'transparency card,' 'rock solid card' -- whatever it may be. I don't believe that that would succeed."

That's great validation, to paraphrase Arthur C. Clarke:

> If an elderly but distinguished expert says that something will be successful he is almost certainly right, but if he says that it won't, he is very probably wrong.

Re: PBS: Secret history of the credit card

#26

Post by jimbokun »

sokoloff wrote: post #12
awt wrote: post #5

Earlier quoted context omitted.

Wouldn't you agree though that if enough people screw themselves, people who haven't screwed themselves start getting screwed, too?

In the long run, I do not. In the short run, I think you are confusing the end of the artificially high good times substantially fueled by these people "screwing themselves" with an absolute reduction in relative purchasing power (or other measure of "goodness") for people who didn't participate. Honestly, even though I bought a house in summer 2007 (which is now worth somewhat less than I paid), I've been made vastl…

"In the short run, I think you are confusing the end of the artificially high good times substantially fueled by these people "screwing themselves" with an absolute reduction in relative purchasing power (or other measure of "goodness") for people who didn't participate."

The entire U.S. financial industry and the entire U.S. auto industry have, for all intents and purposes, been vaporized out of existence. To me, that seems a pretty high price to pay for "artificially high good times." Enough so that regulations that would have kept the good times from being quite so good in exchange for the down times not being disastrous, are more than a fair exchange.

Do you disagree?

Re: PBS: Secret history of the credit card

#27

Post by sokoloff »

Retric wrote: post #16
sokoloff wrote: post #11

Earlier quoted context omitted.

Student loans, personal loans other than credit cards, business loans, preferred stock, corporate, municipal and government bonds (from the issuer's perspective) all change price/rate in response to missed or late payments on other obligations. (In the latter case, often dramatically so.) Why shouldn't a lender be a able to offer a contract that allows them to increase their fees when the borrower shows themselves to…

Bond's don't change rate when the company get's into trouble the cost of new bonds goes up. Student loans are normally fixed interest rate loans and they only charge penalty's when your late in paying them. The problem with increasing rates when people get into trouble is it tends to force more people over the cliff. Let's say you owe 20k at 10% and make 50k/year. You get hospitalized for 5k and your old and new rate…

Concede the point on bonds held to maturity; you're right.

Private student loans are variable interest rate loans, many at the whim of the providing company. (I'd agree that private student loans are much closer to evil than revolving credit, and that more education is due on both topics to consumers of both types of debt. But I'm still not in favor of restricting the availability of a financial product that might not be in any given consumer's best interest, so long as it is in the best interest of some consumer.) Govt-backed student loans are as you describe.

As to the over the edge "problem", that's a problem of the consumer's making+, and a creditor acting in their own best interest probably OUGHT to tighten credit for borrowers that it identifies, even on an acturial basis using information unrelated to the direct consumercreditor interaction, as being a higher risk.

+ - Debtors who are not in over their head generally don't face these problems.

Re: PBS: Secret history of the credit card

#28

Post by Retric »

sokoloff wrote: post #27
Retric wrote: post #16

Earlier quoted context omitted.

Bond's don't change rate when the company get's into trouble the cost of new bonds goes up. Student loans are normally fixed interest rate loans and they only charge penalty's when your late in paying them. The problem with increasing rates when people get into trouble is it tends to force more people over the cliff. Let's say you owe 20k at 10% and make 50k/year. You get hospitalized for 5k and your old and new rate…

Concede the point on bonds held to maturity; you're right. Private student loans are variable interest rate loans, many at the whim of the providing company. (I'd agree that private student loans are much closer to evil than revolving credit, and that more education is due on both topics to consumers of both types of debt. But I'm still not in favor of restricting the availability of a financial product that might no…

My point is I am not in debt over my head in part because I am considered a low risk. My car loan is at 4.9% and my CC debt is at 9%. If my interest rate where to grow to 12+ on the car and 33% on my credit card I would have far less slack.

Edit: Ok, running the numbers it would not be that bad but I would become far more focused on having zero debt.

Re: PBS: Secret history of the credit card

#29

Post by sokoloff »

jimbokun wrote: post #26
sokoloff wrote: post #12

Earlier quoted context omitted.

In the long run, I do not. In the short run, I think you are confusing the end of the artificially high good times substantially fueled by these people "screwing themselves" with an absolute reduction in relative purchasing power (or other measure of "goodness") for people who didn't participate. Honestly, even though I bought a house in summer 2007 (which is now worth somewhat less than I paid), I've been made vastl…

"In the short run, I think you are confusing the end of the artificially high good times substantially fueled by these people "screwing themselves" with an absolute reduction in relative purchasing power (or other measure of "goodness") for people who didn't participate." The entire U.S. financial industry and the entire U.S. auto industry have, for all intents and purposes, been vaporized out of existence. To me, th…

First of all: IMO, the US auto industry woes have not one damn thing to do with credit boom/bust, and if anything, their run (the companies and the UAW) was extended by the credit freedom, but in any free market, if your costs are 1.5x your competitors and the desirability of their product is 1.5x yours, you're in for a world of hurt. (I own three American cars: one Jeep and two sixties Mustangs, and if I had to do it over again, I probably wouldn't have bought the Jeep.)

The US financial industry, I'd agree with you IF I thought we could effectively modulate without introducing deadweight losses for no net gain. (Historically, I don't think we have a good track record at this, in this or any other country.)

What do I mean by that? The minute you introduce legislation to try to modulate something, a substantial result of that is to take smart people and apply them to figuring out how to comply with and/or work within/around the new regulations. So instead of building something people want or that makes the world better/more efficient, they're instead working on regulatory compliance.

Then the most powerful institutions bid up the prices of the services of those people who are the very best at working around the regulation, or at lobbying for their activities to be exempted, and the cycle continues. If we could come up with a means to instanteously generate perfect regulation, I would indeed agree with your proposal. I'm not holding my breath for it...

Re: PBS: Secret history of the credit card

#30

Post by iamelgringo »

sokoloff wrote: post #13
netcan wrote: post #4

Mr. Kahr, for one, makes no apologies. "If someone is riskier, he should be paying a higher rate,'' he said. "It's more economically sound. It's fairer for riskier people to pay a higher interest rate, higher fees, whatever it is, than less risky people. Interesting. What he is really saying is 'what's fair got to do with it? Free markets dissolve the concept. "If there was a demand for a credit card product that nev…

"What he is really saying is 'what's fair got to do with it?" Huh? People who are "riskier" paying higher rates and fees IS fair. Would you lend your (presumably hypothetical) deadbeat, drug-addled uncle your entire $100,000 retirement nest egg at the same rate and terms that you'd lend the US government? Why the hell not?! He's family, and these big mean credit card companies are profit-seeking arms-length lenders,…

I'm sure that paying a premium to borrow money once you are a credit risk would be considered "fair" by many. But, the example that you've posed is a straw man. Of course you'd charge a drug addict higher interest than the the US government.

The problem with credit card companies is that they loan the initial money at one price, and then adjust the price dependent on changing credit scores, insurance claims or whims.

And, a large percentage of a credit card companies, profit isn't in the initial interest rate. The profit is made in late fees, over limit fees and credit rate increases. So, they have a vested interest in the customer defaulting, being late in their payments or in going over their limit. And, when those fees are assessed, the customer generally has little recourse.

Post reply on HN