Comments on: Banks Build Better Mousetrap http://www.senseoncents.com/2009/07/banks-build-better-mousetrap/ Navigating the Economic Landscape Thu, 18 Mar 2010 16:57:50 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Larry Doyle http://www.senseoncents.com/2009/07/banks-build-better-mousetrap/comment-page-1/#comment-3150 Larry Doyle Fri, 10 Jul 2009 10:59:46 +0000 http://www.senseoncents.com/?p=7449#comment-3150 Coe....I appreciate your professional perspectives and lighthearted manner. We need lots of both now and in the future. Thanks for advancing the conversation. Coe….I appreciate your professional perspectives and lighthearted manner. We need lots of both now and in the future.

Thanks for advancing the conversation.

]]> By: coe http://www.senseoncents.com/2009/07/banks-build-better-mousetrap/comment-page-1/#comment-3148 coe Fri, 10 Jul 2009 09:49:04 +0000 http://www.senseoncents.com/?p=7449#comment-3148 Here's my take on these developments. First of all, it seems pretty clear that consumer spending is a huge component of the economy, and that the American dream of homeownership is such a strong cornerstone of our culture and frankly of our personal balance sheets that it would be insane for any industry remotely related to the consumer to ignore focusing on how to milk the human kindness from this relationship. As for the card industry, how many solicitations do we all receive from CapitalOne (just one example of many) in the mail - several every week/one a day? The answer to the burning question, "What's in your wallet?" in this case is simply the greedy hands of bankers looking to create demand and prime the fee pump. Is there really that much of a difference in the behavior of the mortgage originators pushing underqualified borrowers into sub-prime option Arms and the credit card companies spraying offers out to college students, marginal credit risks, and even family pets? Of course there is a legitimate need to adjust fees to compensate them for risks - it's particularly true as those risks are self-selected and where that demand is manufactured. Second, excess consumer leverage, whether created through teaser mortgage rates or by the expensive liquidity afforded by the credit card industry may be a financial trap that is simply too enticing to ignore - especially in time of stress. It's shallow to suggest that the credit card business is repricing their real risk as though that risk was an exogenous variable, and when so much of the profitability of these companies hinges on the forecasts and realized fee income related to the expected bill paying behavior of marginal credits. Lastly, can anyone truly say that they even read, let alone understand the legal mumbo-jumbo that accompanies these cards. Let's make it even simpler...I, the credit card company, have selected you and am offering you two paths to follow - the first is an intelligent way to increase your marginal liquidity and improve your financial management flexibilities if you have the discipline to act prudently; the second path, and frankly one I am hoping many follow, is a way to encourage you to reduce savings, overspend, and get into financial trouble. The more you do that, the more I will charge you...I will transfer your money to my bank - pay (overpay) my management team, maybe kick in a bit for the shareholders, possibly even pay back some of what I owe to the government WITH YOUR MONEY...Please take liberal advantage of this proposal...and if and when the law of large numbers forces many of you to scream for help, I will simply and thoughtfully point you toward the contractual disclosure language, say I told you so, write you off as a bad credit, apply for more federal aid, and restoke the leverage machinery yet again.. congratulations, your credit limit has been raised to $25,000! At the end of the debate, it's hard to enact consumer legislation that meets the objectives of a system where equilibrium is an ideal, but more often there are winners and losers. It's a variation on the "Guns don't kill people, it's the person shooting the gun that is the killer" - and so it is with the credit cards - it's not the manufacturer, it's the abuser...on some levels - absolutely true, on others - so disingenuous! Need to break away and buy some stuff via my 12 credit cards on-line...nice work, LD Here’s my take on these developments. First of all, it seems pretty clear that consumer spending is a huge component of the economy, and that the American dream of homeownership is such a strong cornerstone of our culture and frankly of our personal balance sheets that it would be insane for any industry remotely related to the consumer to ignore focusing on how to milk the human kindness from this relationship. As for the card industry, how many solicitations do we all receive from CapitalOne (just one example of many) in the mail – several every week/one a day? The answer to the burning question, “What’s in your wallet?” in this case is simply the greedy hands of bankers looking to create demand and prime the fee pump. Is there really that much of a difference in the behavior of the mortgage originators pushing underqualified borrowers into sub-prime option Arms and the credit card companies spraying offers out to college students, marginal credit risks, and even family pets? Of course there is a legitimate need to adjust fees to compensate them for risks – it’s particularly true as those risks are self-selected and where that demand is manufactured. Second, excess consumer leverage, whether created through teaser mortgage rates or by the expensive liquidity afforded by the credit card industry may be a financial trap that is simply too enticing to ignore – especially in time of stress. It’s shallow to suggest that the credit card business is repricing their real risk as though that risk was an exogenous variable, and when so much of the profitability of these companies hinges on the forecasts and realized fee income related to the expected bill paying behavior of marginal credits. Lastly, can anyone truly say that they even read, let alone understand the legal mumbo-jumbo that accompanies these cards. Let’s make it even simpler…I, the credit card company, have selected you and am offering you two paths to follow – the first is an intelligent way to increase your marginal liquidity and improve your financial management flexibilities if you have the discipline to act prudently; the second path, and frankly one I am hoping many follow, is a way to encourage you to reduce savings, overspend, and get into financial trouble. The more you do that, the more I will charge you…I will transfer your money to my bank – pay (overpay) my management team, maybe kick in a bit for the shareholders, possibly even pay back some of what I owe to the government WITH YOUR MONEY…Please take liberal advantage of this proposal…and if and when the law of large numbers forces many of you to scream for help, I will simply and thoughtfully point you toward the contractual disclosure language, say I told you so, write you off as a bad credit, apply for more federal aid, and restoke the leverage machinery yet again.. congratulations, your credit limit has been raised to $25,000!

At the end of the debate, it’s hard to enact consumer legislation that meets the objectives of a system where equilibrium is an ideal, but more often there are winners and losers. It’s a variation on the “Guns don’t kill people, it’s the person shooting the gun that is the killer” – and so it is with the credit cards – it’s not the manufacturer, it’s the abuser…on some levels – absolutely true, on others – so disingenuous!

Need to break away and buy some stuff via my 12 credit cards on-line…nice work, LD

]]> By: Dave from NY http://www.senseoncents.com/2009/07/banks-build-better-mousetrap/comment-page-1/#comment-3138 Dave from NY Thu, 09 Jul 2009 23:42:18 +0000 http://www.senseoncents.com/?p=7449#comment-3138 So the banks are going to try to give the American consumer a finance lesson (prime + X%)? Let's give the banks a math lesson: If I pay off my balance and cut up my credit card, and six million others do the same, how much does 6,000,001 times (prime + X%) times zero equal? There you go! So the banks are going to try to give the American consumer a finance lesson (prime + X%)?

Let’s give the banks a math lesson: If I pay off my balance and cut up my credit card, and six million others do the same, how much does 6,000,001 times (prime + X%) times zero equal? There you go!

]]> By: CJ http://www.senseoncents.com/2009/07/banks-build-better-mousetrap/comment-page-1/#comment-3120 CJ Thu, 09 Jul 2009 15:11:15 +0000 http://www.senseoncents.com/?p=7449#comment-3120 <strong>Squeeze blood out of a stone</strong> is what I will tell them. Squeeze blood out of a stone is what I will tell them.

]]> By: Larry Doyle http://www.senseoncents.com/2009/07/banks-build-better-mousetrap/comment-page-1/#comment-3117 Larry Doyle Thu, 09 Jul 2009 12:33:04 +0000 http://www.senseoncents.com/?p=7449#comment-3117 Phil, Big assumption on whether the consumers know or not...see Ms. Afonina's comments about her ability to even understand what BofA was saying. Phil,

Big assumption on whether the consumers know or not…see Ms. Afonina’s comments about her ability to even understand what BofA was saying.

]]> By: Phil http://www.senseoncents.com/2009/07/banks-build-better-mousetrap/comment-page-1/#comment-3116 Phil Thu, 09 Jul 2009 12:21:03 +0000 http://www.senseoncents.com/?p=7449#comment-3116 As long as the consumer knows the formula (prime + X%), moving to a variable rate seems a viable option. Most HELOC rates are computed the same way. However, rates should not be allowed to be changed unilaterally. If I signed for a fixed rate initially, I should be able to continue with the fixed rate or agree to renegotiate and sign for the variable rate option. As long as the consumer knows the formula (prime + X%), moving to a variable rate seems a viable option. Most HELOC rates are computed the same way.

However, rates should not be allowed to be changed unilaterally. If I signed for a fixed rate initially, I should be able to continue with the fixed rate or agree to renegotiate and sign for the variable rate option.

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