There is a way to help failing banks and jump start the economy, that benefits average americans, rather that the 20% who control 90% of this nation's wealth. And its fairly easy to accomplish -- revamp the credit card industry.
Currently, there is nearly 1 Trillion dollars in consumer credit card debt in America, and the average interest rate on credit cards is well into the double digits. The government should simply give the banks the money owed on these cards, and then sell the debt to credit card servicers who agree to lower interest rates on the cards themselves to 5 points above the Fed rate (which is currently close to zero) with the government guaranteeing that no losses will be sustained by the services in the event of default (i.e. the government guarantees that the servicers 'break even' in the aggregate, rather than guarantee the debt of each consumer).
This would give banks a huge cash infusion, while benefitting consumers who are struggling with their debt.
The government should also create new rules for the use of credit cards.
1) The costs associated with credit card use should be assumed by the credit card user him/herself. Customers who pay cash should not be paying the costs associated with credit cards -- instead, a service fee should be to the cost of goods and services that reflect the cost of using credit cards.
2) Retailers/sellers should bear the burden of credit card fraud -- and should be allowed/required to get photo identification in addition to electronic verification that the card is good.
3) Credit card vendors should be prohibited from offering "cash back" and other incentives for the use of their cards when those incentives add to the costs associated with those cards.
4) Credit card issuers should be required to offer "secured" credit cards (i.e. credit cards backed with assets like CDs or other bank deposits) that offer interest rates that are only 1 or 2 points above the cost of money from the Federal reserve.
5) Any late fees that are assessed cannot be punitive, but rather be directly related to the costs associated with a late payment.
6) Interest rates cannot be raised because of late payment -- instead, credit card issuers who are concerned with late payments have the option to simply close the credit card.
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Excellent ideas.
Not to be a broken record, but I've been suggesting taking the bail-out directly to consumers for a couple of months now.
Just think how uplifted we would all feel...rather than the simply sitting on the sidelines and watching the politicians and banksters high five each other and then run off to celebrate, we could/would all breathe a loud, collective sigh of relief.
It would be such a significant sigh, we'd all have to have advance notice to "hold on tight".
Washington does not get it. Plain. And. Simple.
Off topic....but still important: Go see Riverdaughter this AM. She gives Sirota the old "one-two". http://riverdaughter.wordpress.com/2009/...
Shainzona
Unclear
Taking that step clearly relieves consumer of some debt. Can it, however, lower foreclosures substantially and make insolvent banks such as Citibank solvent?
KoshemBos
not designed to forestall foreclosures...
an intensive program of mortgage modification is needed to do that. How that should work is...
1) if it is determined that the current mortgagee can afford to pay a mortgage on the home based on current market prices and the "prime rate, then the mortgage should be adjusted
a) reduction of principle to reflect current market value
b) reduction of rates to current prime rate, regardless of the "creditworthiness" of the mortgagee
c) the government insures that the mortgage will be paid off at this rate
2) if/when the house is sold for a price higher than the current market value, the balance goes to those who now hold the mortgage until they receive the full original purchase price of the home
3) If it is determined that the mortgagee cannot afford the home under these terms, foreclosure on the property should be done as soon as possible.
This would prevent most foreclosures, while stabilizing the real estate market.
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the "credit card modification" won't make disaster areas like citibank solvent; what it will do it provide cash to banks that they can use to meet their obligations to the fed, as well provide banks with additional liquidity.
Appears banks are trying to make up their losses by ever more
punitive, capricious, and draconian fees and gotchas. I like your idea--send it to Timmy. And Harry and Nancy. Maybe Barney?
Given a choice, I'd rather Obama would go for single payer and let people into the Federal employees' insurance program immediately. Both would be better.
And ditch that tax credit on house purchases. The Flip Your House to Your Brother plan, as Dean Baker called it. Can't sell to your wife or immediate family, but can to others and claim the credit. Unless you earn too little to pay much in Federal income taxes. But the Repubs figure you can't afford a house anyway, so tough luck.
Think of the stimulus of many people paying substantially less to the executive compensation packages of Big Insurance!
Timid Timmy and Timid Obama. Not a good combination in this time.
How do you figure costs associated with credit card use?
I've had charities request donation by credit card because it costs them less than handling checks, and very few people recommend sending cash through the mail. What credit cards permit is purchase when you don't have cash on you. Sometimes that's a bad thing for the consumer, since it facilitates impulse buying. That's a reason that most retailers like credit cards -- they're a cost of doing business just as advertising is, because they increase sales. Sometimes purchases when you don't have the cash on you is a good thing, since you can take advantage when you find something you've been looking for at a good price.
I'm not sure that government-minted cash is more efficient than plastic, although one could perhaps come up with government-produced plastic. In any case, I've gotten generally grouchy about extra fees popping up all over the purchases of goods and particularly of services, and I see extra charges to consumers really taking off if this is attempted.
I do believe very strongly in anti-usury laws, limiting interest.