Who's In Charge of Your Credit Cards?

Congress today is going to be considering legislation that would, in essence, tie the hands of credit card companies in many of their dealings with their customers.

The only reason I could fathom for this, aside from the fact that our government seems tenaciously determined to exert more control over our lives, is that people must want it.

So let's ask: Why?

If you have one or more credit cards, let us consider who might possibly have control over them. There are three possible sources of control:

1. You
2. The credit card company
3. The government
   

Let us also examine what each of these sources might do with the credit card.

1. You. It's "your" credit card. You use it from time to time and pay the bill in full in a timely fashion. In so doing, you avoid any charges, to the likely chagrin of #2. If you are displeased with the customer service or find a better deal elsewhere, you cancel the card and take charge of a new card. Or you simply pay off the bill and walk away from it altogether, bringing a smile to the face of Dave Ramsey.
2. The credit card company. They have every intention of making money from the card. You are, at some level, aware of this; therefore, you should be responding accordingly. They will make money by charging interest—which you knowingly agreed to when you signed the cardholder agreement—and any fees which cardholders allow to fall upon themselves. Credit card companies wish to expand the number of cards in circulation to expand the potential for profit. Ideally, they seek people who can pay their bills but will likely carry balances; this maximizes their profit opportunity.
3. The government. The government, with its recent scorn for signed contracts, wants to tell the credit card companies how much interest to charge, what fees to charge, when and how these can be changed, and how long they must allow for cardholders to pay their bills. The natural response to this (should currently proposed legislation become law) will be the opposite of what some in government desire: Card companies will limit their exposure to loss by denying credit cards to larger numbers of (irresponsible) people. But notice: It is still government exerting control.
   

So it must be time to make up your mind: Who are you going to allow to be in charge of your credit card? You? This can only happen if you pay off your entire balance on time every month when the bill arrives. The credit card company? Even with governmental interference in the way they deal with customers, they will still be able to charge interest and fees if you allow them to. The government? Do you really want that?

Administration May Oust Another CEO?

Foxbusiness.com is reporting that "the government" is considering giving the chairman of Citigroup, Vikram Pandit, "the boot."

The article has this telling nugget:

"According to The New York Post, citing sources, regulators are mulling taking steps to show the government is taking a strong stand on banks, which may include removing Pandit."

I suppose a case can be made that Pandit made some executive mistakes, that he took too much risk upon the company, etc.

But when is it the purpose of our free and republican [type, not party] government to remove heads of companies whom they are (supposedly) helping? No one has yet mentioned Pandit being involved in any illegal activity, or of trying to intentionally damage Citigroup...so why is this happening? So the government can "take a strong stand" and look tough?

This won't be the first time; Rick Wagoner, formerly head of GM, was quietly canned on a Sunday evening a few weekends ago.

We need to be concerned about a government that takes this much power unto itself.

How Bad Is It? One-Month Treasury Bills Go Negative!

I read this shocking nugget at bloomberg.com:

Treasury one-month bill rates turned negative for the first time since December as investors sought the most easily-traded securities to bolster balance sheets at the end of the quarter.

Financial institutions earn interest on funds deposited with the Federal Reserve. At quarter end, banks prefer to carry securities on their balance sheets instead of cash, driving demand for bills, according to Donald Galante, chief investment officer and senior vice president of fixed income at MF Global Ltd. in New York. He expects rates to rise again by mid-April.

“We’re in a funds rate range of between zero and 0.25 percent,” said David Glocke, who manages $65 billion of Treasuries at Vanguard Group Inc. in Valley Forge, Pennsylvania. “If you keep rates this low, you’re going to end up having periods, especially in the Treasury bill market, where the yield goes negative.”

Historical Performance

The rate on the one-month bill dropped to negative 0.04 percent in New York, compared with 0.03 percent yesterday. It was last negative on Dec. 26, when it reached minus 0.05 percent. Three-month bill rates fell four basis points to 0.15 percent, while six-month bill rates fell two basis points to 0.38 percent.

So you're clear on this: If you invested $10,000 in one-month bills, you would lose $4 annually!?! I know the Federal Reserve has lowered the prime rate dramatically, and that other interest rates tend to follow similar trends...but this is disturbing. Disturbing, as in, banks and investors are buying these! On purpose!

What does this say about the state of our economy and financial institutions? In fairness to the discussion, the article gives some reasons why the rates have sunk so low and why, in the short term, some banks might choose to purchase such securities. Furthermore, they are expected to return to positive ground in a few weeks.

On the other hand, it might be a great time to refinance your mortgage.

FDIC Says: Bank is Too Cautious with Customer Money!

The FDIC has criticized a Massachusetts bank, East Bridgewater Savings Bank, by branding it with a "needs to improve" rating under the Community Reinvestment Act. You know, the act that prodded many banks to make risk-heavy loans to people whose ability to repay them was (to put it kindly) suspect.

East Bridgewater Savings Bank's faults include the following:

• Its ratio of loans to deposits was approximately 1/3 the industry average for banks their size.
• They do not have a website.
• They seem to focus on fixed-rate mortgages.
• (And perhaps most egregious of all) They did not make risky loans to people whose ability to repay them was suspect. They seemed to limit their loans only to the credit-worthy.
  

In short, East Bridgewater Savings Bank is one of the most cautious banks in America. One article used the word "paranoid" in the title...and I think that was a complement.

And it should be! This cautious little bank in Massachusetts has demonstrated the lesson that there is wisdom in caution, and there is wisdom is not trying to stick your neck out to maximize a profit that is already adequate. And, yes, the bank made a profit (albeit a small one) last year.

I wish this bank were near my home town. I would put my money there!