Monday, April 20, 2009

Credit Card Crackdown

I've long argued on this site that increased regulation of banks will likely only hurt the long term situation in the US, because the reason for this crisis was far more about incompetence than greed or lack of regulation. The latter two played a part, certainly, especially lack of regulation in the derivatives arena (a major reason why Lehman's collapse hurt everyone else so badly). But ultimately, incompetence was the problem.

Not so in the credit card arena. Credit cards charge ludicrously high interest rates that only barely avoid usury laws on technicalities. They are absolutely deceptive in getting people to sign up, which is why so many student cards are available. I understand the importance of easy credit for a growing economy, but easy credit at real risk-adjusted interest rates far above the long term real growth rate of the country trades off future consumption for a lesser present value of current consumption.

So while I generally distrust banking regulation because it has the potential to do more harm than good, this one would be good.

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