Greed

Every so often you wonder what is going to happen in the future.

Take the credit card business, for example. To my eyes this is nothing more than a naked, greedy grasp at people's inability to do basic math and plan for the future.

This week I received in the mail one of the inevitable flood of pre-approved credit card applications that flow past a homeowner like a river of sludge. And because sometimes I feel like wallowing, I opened this one.

This is a "premium" card, and it offered me such terms as:

• $22,000 credit limit
  
• travel reward miles
  
• other gooey goodness
  

...and for these benefits it was only going to cost me

• $120 per year
  
• ..+$95 for each other card on the account
  
• 19.9% APR on outstanding balances
  
• ... unless I miss some payments, in which case it jumps to 21.9%
  
• 1% transfer fee for any balance transfers in
  
• fees on cash advances plus a higher interest rate of 22.9% on outstanding cash advance balances
  
• ... unless I miss some payments, in which case it jumps to 24.9%
  

I was looking at all these fees and rates, and it occurs to me: this bank shows absolutely no qualms about demanding 20% interest from me when the prime rate is 1% (let's assume the bank didn't see last week's surprise rate cut coming). And back in 1990, a different bank gave me, a university student with no visible means of support, a credit card with an interest rate of 16.9%.

And what was the interest rate when they did that?

Look at 1990

Yeah, between 10 and 14%.

(Graph from here.)

Now I may be the only non-economist alive who remembers in 1988 that the econonomic world was slowly coming to a halt and everyone was hoping for a so-called "soft landing" that would let everyone catch their breath and then let everything move along again -- and by 1991 it was clear that while the landing was "soft", it kept happening ever deeper (picture an ocean liner piling into an iceberg as opposed to a plane hitting a cliff). So while there are larger economic indicators at play behind this picture, the fact remains that a credit card was willing to accept only 6% as a premium for lending to probably one of the biggest credit risks of the time.

Today? For a premium customer, with verifiable assets, measurably low debt levels, and a solid income stream?

18%.

What is going to happen when interest rates go back up to their historical average of 7%? And make no mistake, eventually they will go up. The current economic "emergency" can't last forever.

Will this same credit card company want to charge me a 18% differential? ie: 25% on the best debt you can have?

(Well probably, initially. I'm sure what they'll do is jack the rates and those who stay will keep paying it, while those who bail will be lured to other lower rate products. Why stop people paying for your ridiculously over-priced service if they are willing to?*)

But it all just smacks of naked greed to me.

*== This is why Rogers and Bell jack your rates by $2 to $5 every year, slowly boiling the frog until you snap and they offer you a "special deal" at a lower rate.