Ga Young (Gina) Jeon
Blog Post: 2005 Bankruptcy Law Changes Have Worked to Detriment of Credit Card Companies
Author: Yves Smith
The ongoing battle was coming to reach its stretch point. Smith addresses some of the many reasons for the credit industry and its suffering debtors.
Seemingly, the monstrous banks and its partner, politics have learned to function in any way possible to keep themselves alive, while the rest of the citizens suffered helplessly at the cost of their luxuries. The law passed in October, 2005 proves my hypothesis to be true. After months of effective lobbying, the result of this law became largely favorable to the credit card issuers.
“MBNA estimated that passage of the bill would enable it to collect an additional $100 per month per bankrupt, which would increase its profits $85 million a year (Smith, 1).”
Smith expresses that the credit card companies took these “newly enhanced rights (1)” to lend more money (fictitious capital) to the ones who were bound for bankruptcy as a means to extract every last penny out of them, and to increase their own profits.
This was the very seagway into the credit card’s deterioration process; and most certainly, the credit crisis we see today. Smith states the following reasons:
1. Credit cards lenders expanded their business with hope to somehow make fictitious capital become real in their favor, despite the foreseen crisis.
2. Irresponsible borrowers continued to engage in conspicuous consumption in hope of fulfilling the American Dream, which ultimately shackled them into invisible enslavement to the banks and work.
3. Credit Card companies “milked every dollar out of their preferred customers,” ( the ones who carried some balance, and make some payments) while raising their fees and interest rates.
4. Some banks, like Amex, use methods to clear out their risky customers; ofcourse, in favor of their status and safety.
Smith constructs a conclusion that the crisis was foreseeable. Smith says that:
“Credit card companies have purposely dumped layers of fees and excessive interest rates on their borrowers. Instead of addressing the consequences of high, complex, poorly understood credit card costs, though, the high default rates were simply explained away by declaring defaulting borrowers as deadbeats. Now that there won’t be another round of bankruptcy reform that could be sold as salvation, credit card lenders will have to come to terms with the fact that their practices were actually detrimental to their own financial health (Smith, 3).”
My analysis:
Metaphorically, we can think of it as the environmental deterioration we are experiencing today. We’ve abused and exhausted so much of nature’s ecosystem that we are now experiencing its downfall. Similarly, in attempt to win in this market field, credit card companies have exhausted the consumer’s wallet, and literally pushed them to their limits. Now, the whole market is trapped as a consequence of everyone’s mistakes.
