Memo to Jackass, the Credit Card Industry Doesn't Need Anyone Standing Up for It

"Is there any business in the United States more vilified than credit card lending?

The card companies stand accused by Congress and the Federal Reserve of gouging customers with impenetrable fees, enticing innocents to borrow themselves into bankruptcy, and blowing off cardholders who try to correct errors in their accounts.

Attacking these firms is a crowd-pleasing sport for lawmakers, in part because every constituent has a story about being mulcted by a card issuer. Last week the House of Representatives easily passed a credit card holders' bill of rights. The Senate will take up a similar measure soon. President Obama has signaled his approval.

Someone has to stand up for these companies. I guess it'll have to be me…

…The real scandal, according to the common refrain, is that issuers such as American Express, Citigroup and Bank of America have received billions of bailout dollars from taxpayers. How dare they repay the favor by putting the squeeze on us?

This is where populism shades into demagoguery. Critics who argue that it's inappropriate for bailed-out banks to tighten credit terms on taxpayers have it exactly wrong: If we're footing the bill, we should praise these banks for being stingy with credit, not hammer them for it. It won't be any easier for them to pay us back if we hector them into maintaining the loose standards that produced this mess."

-- Michael Hiltzik, Credit card companies as evil villains? It's not that simple, Los Angeles Times.

"Someone needs to stand up" for the credit card companies? Did I hear that right, Michael Hiltzik?

Apparently it is not enough that the credit card companies have spent $15.5 million on lobbying fees in the first quarter of 2009 alone (this according to CREW, the Citizens for Responsibility and Ethics in Washington), while employees of credit card companies spent an additional $14.5 million last year, and credit PACs spent $8.6 million more. It's not enough that when the President even considered making a change to the credit laws, 14 top-ranking credit card company officials got to meet with Obama to plead their case in person; conveniently, none of the 14 was a registered lobbyist, which made them exempt from laws banning lobbyists from influencing officials with responsibility for distribution of stimulus/recovery funds. Apparently despite all that the credit card companies are voiceless yet, and still need Michael Hiltzik of the LA Times to champion their cause.

Of all the truly revolting political developments of the financial crisis age -- and there have been a lot of them -- probably nothing is more disgusting than the weirdly intense media backlash against "populist anger," anger that is inevitably described by media sages like Hiltzik as irrational, unfounded, and pointedly unhelpful. The public is depicted as a great dumb beast lashing out wildly at shadows and hallucinations, with the poor diligent hardworking members of the financial class (slaving away to pump much-needed capital into the bloodstream of international commerce) suffering the collateral damage. And while commentators are always careful to note that much of the anger "may" or "could" be justified, rhetorically these lines always lead to a but clause. Rick Perlstein of Newsweek, for instance, noted that some populist anger is useful, but it can very easily transform into the " 'bad' kind of populism -- the hateful kind; the violent kind; the demagogic kind." Author Robert Frank talked about the public anger over the AIG bonuses being reasonable up to a point, but "if we're not careful, we could end up shooting ourselves in the foot," as "any broader effort to cap executive salaries would do more harm than good."

This is another of the typical features of the anti-populism argument, the false dichotomy. We are constantly being told that we have to stem this populist anger or we'll have communism, hard caps on executive salaries, lynch mobs, pitchforks, etc. Except that in reality the consequences of "populist" anger in this country are somewhat, uh, less severe. Think about it: when in American history has populist outrage ever led to serious punitive measures directed at rich people?

When the financial class nearly destroyed the American economy via the Savings and Loan crisis in the eighties, what was the punishment? Answer: we gave the people who did the fucking up $124 billion in taxpayer money. When currency speculators overbet the peso in 1994, what did we do? We bailed them out, with about $50 billion. Long Term Capital's punishment? A bailout. Emerging-markets speculators who went in the tank in the late eighties? They got bailed out in front and in back, through a variety of bailout programs.

How about the insane exuberance for the internet bubble economy? The same politicians and central bankers who felt that intervention was necessary to correct the market's irrational decision to wipe out Long Term and all those speculators in the economies of Southeast Asia and Russia -- the same people who felt that government intervention was needed to correct "irrational" declines in investment value -- saw no problem at all with the obviously overvalued, far more irrationally exuberant tech market. And when it all blew up, wiping out billions in value, Wall Street was "punished" with sweeping tax cuts, further deregulation, and massive cuts in the staff budgets of enforcement agencies like the SEC and the OTS (which saw its already-miniscule staff of 1200 slashed by 25% between the years 2001 and 2004).

Even after Enron and WorldCom and Tyco and a rash of similar accounting scandals that clearly indicated a widespread, endemic problem, the would-be dreaded response was the Sarbanes-Oxley Act, an incremental step toward greater financial disclosure so unfrightening to Wall Street that even Alan Greenspan loved it. Sarbanes-Oxley was supposed to inspire corporate responsibility, transparency, and stricter bookkeeping, but half a decade after its inception what Wall Street actually made of it was perhaps the most ineffectual and lax accounting environment the civilized world has ever seen, with one giganto-firm after another capsizing and sinking to the ocean floor under the weight of spiralling debts that often came as a complete surprise to shareholders, regulators, and sometimes even senior management as well.

We simply do not have a real functioning mechanism in American politics for converting public anger into tough government policy. The closest thing we have in that regard is the relationship between elected officials and the media: when TV news decides to flip out about something like the AIG bonuses for more than a day or two, we might sometimes see public officials do something about… something like the AIG bonuses. But that's about it. In point of fact the only significant "reforms" to date, even in the face of this most extreme financial crisis, have been moves instituted to restrict short-selling and a relaxation of mark-to-market accounting rules, both measures on the deregulatory wish list of the big firms.

More significantly, there has been almost nothing in the way of punishment of the major figures responsible for this crisis. If there were a real correlation between public anger and government policy, we'd have seen at least something in that area. Maybe there wouldn't have been public floggings, but there would have been some serious frog-marching of unscrupulous assholes to prison.

And this isn't about vengeance, it's about policy: if the "consequence" for blowing a $4 trillion hole in the economy is seeing masses of government officials line up to hurl billions of taxpayer dollars at you, that doesn't provide much of an incentive to fix your behavior. This is one area where there should have been a seamless melding of public outrage and government policy: we should have swooped in, rounded up 200 of the most guilty executives, hauled them before congress in a public trial, and packed them all off to a Supermax in Florence, Colorado to do real time with murderers, rapists and terrorists. Reality shows should have been quickly greenlighted to track their progress in the hole (can you imagine the ratings for a show called Project D-Block starring John Thain, Angelo Mozilo and Dick Fuld?).

All joking aside, this would have been an incredibly healthy step for our society to take -- just as it would have been healthy (and still might be) for someone to go to jail for torture during the Bush years, or for contracting fraud in Iraq, or for any of the other countless crimes committed this past decade that will almost certainly go unpunished. The social contract has to be considered broken when some dumb schmuck can go to jail for five real years for selling a bag of weed while a guy who went to Harvard and Wharton and had all possible advantages gets nothing but a bailout and a temporarily lowered bonus regime for destroying billions of dollars of public wealth.

As for the credit card companies, fuck them. The biggest of them are engaged in one of the all-time great scams right now, gorging themselves on cheap money lent to them by the Fed or the government via bailout programs and then turning right around and further widening their spread by increasing prices to the ordinary consumer. Imagine an oil company that got to buy government crude from the Strategic Petroleum Reserve at a discount during the Katrina crisis and then turned around and gouged consumers during the shortage.

Think there would be public anger then? Maybe. This is close to the same thing, and let's not forget who these motherfuckers are: they are the people who spent most of the last decade and a half showering congressmen with cash in order to get the Bankruptcy Bill passed. That bill made it significantly harder for people to declare bankruptcy to get out from credit card debt so that they could keep their homes. A study by the New York Federal Reserve last year concluded that there are roughly 32,000 more foreclosures per quarter because of this bill than there would have been had the old bankruptcy laws remained in place. The study estimated that the bill resulted in about 400,000 additional foreclosures total since its inception.

Gee, you think that played a role in the financial crisis at all? Forgetting all the predatory practices that these people are known for, they were a major accomplice in the financial disaster -- and now they're fighting tooth and nail to keep Congress from forcing them to stop arbitrarily jacking up fees on consumers. In other words the same banks (like Citi, for instance) that got a hot sexy multi-billion-dollar massage from the Fed and TARP when they pushed their debt-to-equity ratios to insane levels, borrowing 30 and 40 dollars for every dollar they had and investing them in the housing casino and the derivatives market, now are arguing that ordinary losers like you and me who might have $5000 or $10000 in revolving credit card debt shouldn't get a break on their fees just because times are tough (or because they're too stupid to hire a $500-an-hour lawyer to decipher their insane consumer contracts). In other words, when you borrow $500 billion against $20 billion and blow all of it at the roulette table, you should get a bailout; but when you take out a $10,000 credit card to pay for gas and groceries, you should pay whatever freight the company deems fit.

I'm tired of hearing about how dangerous it is when the public gets angry about this stuff. You know what? Let's let it be dangerous, and see what happens. It'd be a nice change.


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