Tuesday, June 16, 2009

A sensible and informed outsider on the problems in the credit card industry

In their own interest


The author points out that the beggar thy neighbor strategy of rate hikes has risks that card issuers are ignoring in their desperation to prop up quarterly earnings.

One reason that banks find themselves in this mess is that the "moralization of credit" i've discussed before. Banks are run by transactors (people who pay off their card every month). Their best customers are revolvers (people who carry a balance and pay interest.) Many (perhaps most) transactors view revolvers as stupid and/or immoral.

Thus, the people making the decisions at banks look at their best customers with an arrogant contempt.

That is a bad starting point for making decisions.

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