I doubt anyone can know how much it might help, but the desperation apparent in this move should be obvious. From Bloomberg:
The U.S. Treasury and Federal Reserve will unveil as soon as today a lending program to shore up the consumer-finance market, using money from the government’s $700 billion rescue, two people familiar with the effort said.
The Treasury and the Fed will help fund new loans packaged into securities for sale to investors, the people said. Treasury Secretary Henry Paulson, who scheduled a press conference for 10 a.m. New York time, said two weeks ago that he wants to spur lending for automobile purchases and college education while also reducing the cost of credit-card debt.
If we really need something like a half trillion dollar (or more) in stimulus spending per year, as learned economists seem to be suggesting everywhere, taking some of the leftover $700 billion and using it to provide cheap loans sounds pretty much like a Band-Aid. Consumer confidence is completely shattered. Hard to see how it improves auto sales much. Maybe people pay off some credit cards and take some classes.
But, it is something. The Fed can’t lower interest rates to any effect, so what the heck.
i was told there’d be no math.
remember iraq?
http://english.aljazeera.net/n.....88966.html
One point re: “confidence” is that people are reeling from watching how many jobs are going down the tubes, seeing friends and family suddenly left floundering and scraping by wondering if the unemployment check will cover the basics. Difficult times in landing a new job. Feeling insecure (if they still HAVE a job) as to whether they might have a ‘pink slip’ in their future.
So people aren’t so eager to go out and commit to buying a new car or a new house, if they are able to survive with existing arrangements. They would be crazy to jump into that kettle of fish.
Just driving down Aurora (Hwy 99) this evening, I was remarking at how many businesses have been closed, places that have survived for the 20+yrs I’ve lived in the area.
If they want to save credit card companies, they should make them stop gouging their customers through various sharp practices.
As for hyping consumer spending, it can’t be done. Not short term, anyway. Consumers have been on a credit buying binge for 30 years and have hit the wall. To boost consumer spending in the future, we’ll have to raise wages and increase employment. The seeds of the current economic collapse were planted when CHEAP LABOR CONSERVATIVES imposed their wrongheaded policy of wage destruction on our country. Those damned fools didn’t realize that sapping the incomes of workers would undercut the buying power of their customers. Now the chickens are coming home to roost from this idiocy.
Bunny Man is right. They have been working to destroy the middle class for decades, and send ALL manufacturing overseas. The small farms are history too.
We got nuthin’ left to recover from.
That’s what you get when 22% of your GDP is “financial services” folks.
Charging fees to move money around actually sucks capitol out of the system at every point.
I am waiting for the “Reaganomics” and the “Free / Not Fair Trade” asshats to admit they were dead wrong.
(crickets chirping)
I got chickens roosting everywhere I look….. What’s that? Another dark cloud of chickens coming home to roost blotting out the sun? And you think 3 trillion wasted in Iraq is bad? Wait till we get the bill for all these bank bailouts.
Game over… Dammit.
No wait! I have an idea!
Asset tax!!!!!!!!!!!!!!!
Tax the people that have been plundering our treasury for the last 30 years. 1% of their net worth every year, until the national debt is reduced to what it was when the Bush Crime Family took over.
I think we could have a 95% tax on all bonuses, and a 50% tax on all wages, paid to all bank executives of any company who needs bail out money for starters. If we did this the last time (Reagans Bailout) we wouldn’t have this problem this time. Most of them walked with the cash then too.
Sounds fair to me!!!
The apparent plan to fix the economy: print greenbacks to bail out a failed consumer debt bubble system. And pray real hard.
Shit almighty. We can’t lose Paulson soon enough. The economy can’t handle another big package yet. It needs a rest. Shoving this fiscal stimulus in now would make the economy gag and projectile vomit. It’s like when you’re pegging your boyfriend: you have to work it and lube it up first. This is the same problem Sound Transit faces. We are so tight now the agency would cause injuries if it tried pumping in the new billions all at once. We need the jobs, but slow and steady always is best. The agency needs to massage our local economy for a while first.
This problem all started by mortgage companies writing bad mortgages (no income verification, zero down, suspect appraisals, etc.) which were then immediately re-sold and bundled with good mortgages, so you couldn’t tell easily how many bad mortgages were included in the good ones. Then the mortgages were sold as a package of good mortgages among banks and investment firms, raising money to write more bad mortgages. The paper being bought and sold among the banks and investment firms then had an unknown value (although the buyers didn’t know it at the time – they thought it was negotiable paper backed by loans secured by real estate – normally a very safe investment vehicle).
The collapse of the banks and investment houses on Wall Street came because buyers suddenly realized that the papers had an unknown value, so nobody would buy them anymore until the value was measurable. Many of them had recourse against the banks and investment firms, meaning that even if they sold the papers a few months or years ago, they weren’t protected against them coming back in-house by customers with recourse demanding their money back. Now the banks and investment firms – the entire money-lending structure in the U.S., is at risk because everybody is desperately trying to accumulate capital (i.e., no new lending) in order to have a cash reserve to protect against liabilities they can’t measure yet.
So this had a ripple affect in the other sectors. First it was business short-term lending – many long-time business customers found their line of credit “on hold”, making it difficult for them to borrow to buy materials, wholesale goods, or pay wages to produce the products. Those businesses start laying off.
As the rescession spreads, consumers begin to worry that their job may be next. They buckle down to only essential spending, right before the holiday buying season – when most retail stores expect 40% of their annual business to take place. The big-ticket items are most affected – houses and cars, adding to the problem of homeowners who need to sell or refinance their mortgages but find that their 20% equity has disapeared and they are now “under water”.
So the treasury’s solution: the government will get involved in selling credit card debt in the same manner mortgages were sold which caused the whole problem!!!!!
You gotta wonder if, at this point, the Bush administration isn’t doing this for political reasons. Maybe if they really crash the economy and at the same time leave Obama with budget deficits so huge that they can’t be solved in twenty years, they can criticize him for not solving it in two years and try to use that to take back the Congress in 2010, and the Presidency in 2012?
9 Paulson’s a schmuck. An intelligent, well-spoken schmuck, but a schmuck nonetheless. Behind all his talk about saving the republic, he’s doing his real job with ruthless efficiency–siphoning all the dollars he can into the hands of his fellow upper-class degenerates before he leaves office or the printing presses fall apart (really meaning when the Chinese banks and the Arab potentates quit buying US government securities).
What’s really incredible is that the remedy to pump up the credit card industry is exactly the thing they refused to do – even as recently as a few weeks ago – to help resolve the mortgage crisis. At the time it was rejected because they didn’t want to reward the borrowers – in their mind, it was all their fault they took out loans they couldn’t afford to repay.
But now it’s okay to bail out the credit card companies by having them push additional credit card debt, regardless of their ability to repay????
These guys have two basic problems: (a) they assume that the companies are blameless and all the fault lies with the consumer, and (b) they ignore the fundamentals and try to win games with a Hail Mary pass.
I hope the Congress is ready to work really, really, hard. They need to be working 60 hour weeks to solve these problems left behind by the Bush administration, PLUS another 40 hours a week conducting investigations and hearings to determine where to fix the blame.
I spoke to a fellow last night, who really wants to buy a house. He lost his last one in a divorce some ten years ago, and he really wants to buy one now. He agrees that prices look good (compared with two years ago), but he’s worried about his job. He’s afraid that if he buys now, he might lose his job within the next couple of months.
Which is why the mortgage, auto, and other markets are in such trouble now. That’s a perfect example of a “lack of consumer confidence”.
The idea that we’re supposed to do our “civic duty” by going out early and buying a lot of big-ticket crap before the boss walks in and says, “Merry f*ing Christmas…you’re fired” seems about as absurd as….oh, having an attack on American soil planned and executed by some clowns in Afghanistan, and responding by attacking Iraq…or something like that.
4 The way the banks make money on credit cards now is to project what percentage of customers will be late with a couple of payments, kicking in that delightful “penalty” rate, and aggregate it all into derivative instruments based on that. If people don’t use their credit cards, or not enough who do keep making their payments on time and only owe the low rate, those derivatives turn from gold into lead.
So, basically the banks are crying bitter tears because people aren’t being irresponsible enough.
Art @ 15: If you’ve ever looked at the “student credit card market” scam, you would see that the credit card companies are playing with loaded dice. They aren’t gambling that people would be irresponsible, they are making damn sure most of them will be late, regardless of how responsible they are.
Here’s how the game is played. They get students to “fill out a credit card application” in order to get some free junk – a Husky T-shirt, frisbie, or other cheap crap. The advertise a low initial rate. But they can raise the rate anytime they like, and the fine print says that in case of default they can raise it to the default rate on the entire balance.
Then they make sure there is a default. If the payment is due on the 1st, they print the bill on 15th, and put it in the mail on the 20th. You might recieve it on the 23rd or 25th, if a weekend intervenes. Enough time to make a payment, perhaps, if you open your mail on the same day, get out your checkbook, write the check, and mail it back, right?
Nope. The fine print also says “allow ten days for processing your payment”. If they receive your payment in the mail, it gets put in a bin which isn’t processed until the tenth day. There is NO WAY your payment will be applied in time.
Oh, and payment over the phone, or the internet? Some of the credit card companies have that covered, too. They charge a $10 or $20 “convenience fee” for processing those payments by phone or internet. And then after they take your info and put it into the system, they inform you “allow up to five days for processing for your account to be credited”. They say they need to make sure the money is in your account before they will credit your statement. But, of course, that puts you late anyway.
Now notice – you’ve paid the convenience fee, and the late payment fee, yet you’ve paid the bill within 48 hours of receipt.
But it gets even more devious. They don’t apply the late payment charges right away. They allow several late payments before they start applying the charges, as a “customer accomodation” or “grace period”. But it’s not that they are being nice. They are just waiting for the balance to get high enough so that when they kick in the default interest rate, it can’t be paid off immediately.
So an 18 year old kid, off on his own for the first time, gets his first credit card in his name, uses it for a few months and has about a thousand dollar balance on it, suddenly finds his rate kicked up to 28%, and late fees kick in, and as soon as it gets up to his credit limit (usually $1,000 or $1,500) overlimit fees get added. And then there are the monthly “statement fees” which get added in (sometimes as much as $25.00 per month just for the priviledge of getting a bill in the mail). He’s getting hit with about $150 in fees every month.
Eventually he confesses to his parents about the trouble he’s in, and they end up giving him a chewing out about being so irresponsible, and paying off the debt for him (about $2,500 or so at this point, of which about 60% to 80% is interest and fees). That’s what they are counting on – the parents bailing them out. So the card gets cancelled, eventually (you wouldn’t believe how hard it is to cancel those cards, or even pay off the balance).
Now remember – the guys who came up with this system are the very guys who the Bush administration is trying to protect, first with the Bankruptcy Reform Legislation back in 2005 (I think), which presupposed that if they couldn’t pay back the bills it’s all the consumer’s irresponsibility, and now with a bailout plan designed to put cash directly into the pockets of these credit card merchants.
Of course, most of us don’t see that type of credit card practices, because we aren’t the market that is being targeted. They are targeting young college students who’s parents presumably have money to bail out the students eventually. The rest of us get more reasonable credit card offers, because they assume that with a good credit rating, we might have the political pull behind us to fight the credit card companies if they try to pull that kind of crap on us. But the way it works is the student ends up getting all the blame, both by the credit card companies and the parents.
I know about these practices because I do debt and financial counseling at my church.
17 As a matter of fact, they’re doing everything they possibly can to spread the misery to all of us. Some years back, Nordstrom’s customers were issued credit cards, unsolicited, with no obligation as long as they didn’t use them. We never used ours–it’s locked away, just in case the world ever went so crazy that we had some dire emergency and it was somehow the only source of credit we had.
A couple of weeks ago, we recieved a new “terms and conditions” notice from “Nordstrom Bank” reading very much like what you described above–the two-late-payment astronomical “default penalty rate”, all sorts of stuff about processing times and how the customer takes responsibility for everything, and so on–I did’t spot anything about our kids being sold into slavery, but it’s probably in there.
Remember, this is Nordstrom, the company that’s been lauded at great length by everyone from Tom Peters to your sister-in-law’s labradoodle as the ultimate great shining model of “customer service”. Apparently, “service” now has a whole new definition.
If the Fed lowers the interest it charges the biggies any further, it’ll be paying them to take the money. Oh, wait….shhhh! Nobody tell Bernanke that, or he’ll be likely to try it.