Having "Fixed" Mortgages, Congress Moves On

By conceding the true causes of the Panic of '08 -- thanks to our populist Presidential candidate -- Republicans block the road to repairing the real problems, while paving the road to repetition. The same, damn, week.

A WSJ editorial points out that they will now do for credit cards what they did for home mortgages:

The freedom to manage risk has resulted in an unprecedented expansion of the credit card market. According to a Government Accountability Office study, 75% of the population possessed a credit card in 2005, up from only 30% in the 1980s. "The movement towards risk-based pricing for cards," said the report, "has allowed issuers to offer better terms to some cardholders and more credit cards to others."

Under the Maloney bill, such risk-sensitive pricing would be severely curbed. With few exceptions, companies would be prevented from raising interest rates on existing balances, even if the cardholder has become less creditworthy. This is anathema to responsible lending, which is about making sound assessments about the ability to repay a loan. It's also a major reason mortgage lenders are in their current predicament -- think subprime and "liar loans." So it's ironic that Democrats want to punish credit card companies for taking into account the changing risk of the borrower.

The Maloney bill would also dictate how creditors allocate payments against balances. Where credit balances are subject to different interest rates -- e.g., zero-percent interest for a balance transfer, but 12% for new purchases -- the legislation would ban the current common practice of directing payments toward the lower interest rate balance first.

I think of Dr. Zhivago: "Yes, Comrade that is much more...fair." It's fair to make me pay the same interest rate as an unemployed jazz guitarist who's just come home from bankruptcy court (guitar players, sheesh!) It's not fair to allow a credit card company to entice me with a 0% balance transfer, because some idiot doesn't understand it.

Actually, it's not Dr. Zhivago, it's Santayana: those who cannot learn form history are doomed to repeat it. But in the same week?

We're from the government, and here to help. Posted by jk at October 6, 2008 11:20 AM