The Price of Freedom: 79%
A January 2010 Op-Ed in the Wall Street Journal accused a moderately progressive U.S. Congress of inadvertently creating a loan-sharking credit card interest rate. Congress enacted credit card reform to stop lender abuses. In retaliation, credit companies are finding ways to get around the new law. WSJ Opinion claimed that Congress’ attempt to rein in excessive credit card fees led the First Premier Bank of South Dakota to raise its rates from 9% to 79%.
“The whopping rate increase is First Premier’s way of complying with the Credit Card Accountability, Responsibility and Disclosure Act of 2009. Among other provisions, that law prohibits fees of more than 25% above a card’s credit limit. First Premier has been offering an account with a $250 limit and annual fees of $256. By law the latter figure must come down to $75. To compensate for the lost $181 in fees, the bank is raising the rate by 70% of $250, or $175, a year.”
As the anonymous author points out,
“Banks can’t be expected to give money away, even if Congress is in the habit of doing just that. Unlike lawmakers, banks and other businesses can collect revenues only by offering something of value in return.”
Hmmm…. Whom does Congress habitually give money away to? Certainly not ordinary citizens. Why, banks of course - banks like First Premier. Deposit-taking interest charging banks want their cake and to eat it too. And they won’t stop there - they also want yours.
Money can’t buy you love, but it can buy you food, shelter, clothing, education, and healthcare - all the basics of living a good life that free market capitalism can offer. So what is the price of freedom? 79%.
First Premier, aka “America’s vulture creditor,” is there to help anyone desperate enough for credit to put the final nail in their financial coffin. One consumer states, “The only difference between First Premier Bank and Jesse James was he did it with a gun. They advertise as trying to help people with bad credit, but really they are just taking advantage of the poor people and lining their pockets.”
To be truly “free” in America, you need access to credit for almost everything. The ordinary citizen-borrower is caught in a trap. How free are you when you can’t have your phone turned on, apply for a job, or buy a car without “good credit?”
“Freedom” in America’s credit-trapped economy comes at a very high price. Thus some folks go for the 79% as a last resort. Hungry banks sit in wait, ready to pick at the bones of the economically wounded. For a price, credit card companies will happily devour you alive - legally and with impunity. Like good ole’ WSJ reports, they can’t be expected to do it for nothing - that is strictly the job of the Federal Reserve.
The discount window at the Federal Reserve is “giving money away” for “nothing” - not to you or me, but to banks. The current rate for loans from the Fed is 0%, ZERO, nada, nichts, njet! The same banks that get their money for free lend it to you for 24-79%.
(Riddle #1: What is the difference between banking in 2010 United States and loan sharking? Answer: One is legal and the other is not.)
The Fed lending rate gives you a clue on how Bank of America, Citibank, and Wells Fargo managed to “repay” the government while continuing to swim in billions of dollars of unpaid debt.
In addition to “borrowing” at zero percent, banks are legally allowed to move “toxic assets” (money-losing debts) “off balance sheet.” This would be akin to calculating your net worth by ignoring your entire loan, credit, and mortgage debt and counting only assets. In the dualistic system created since TARP, somehow you are in the red and your bank is in the black.
Oddly enough this arrangement is loosely called the “free market.” Although there is nothing “free” about being forced to pay unlimited interest rates-especially if the scales are tilted unfairly in one direction. Banks don’t have to pay their debts, but they sure as hell expect you to pay yours.
Credit in ancient times, according to historian Paul Millet, began as “a process of neighborly reciprocity in rural societies.” Long before “consumer societies” or money itself was invented, there was credit. Citizens traded their own labor (as well as that of their children and spouses) and their land to have access to credit, becoming enslaved and impoverished in the desperate effort to survive. Sound familiar?
Even Ancient Babylon had more credit laws than we do. The first recorded laws in human history, Hammurabi’s code, stipulated interest rate limits of 20% on silver-based loans and 33% on grain loans.
In 1763 B.C. in the Ancient Mesopotamian city of Ur, only a few years and few miles away from King Hammurabi, Dumuzi-gamil “the grain supplier to the King” acted as an ancient banker.
The Temple under the King Rim-Sin collected rents (modern equivalent of taxes) from all citizens. Clay tablets written in cuneiform reveal that Dumuzi-gamil borrowed 250 grams of silver minas from the Temple and promised to repay 297.3 grams in five years - an annual interest rate of 3.78%. Over the five year period, Dumuzi made a personal fortune by lending at rates as much as 20% per month to distressed farmers and fisherman unable to pay Temple rents or to feed their families.
Very quickly, the situation for ordinary citizens became unbearable and a severe credit crisis ensued as more citizens were shackled under the burden of debt. The King felt there was no way to relieve the crisis other than cancel all debts. Thus King Rim-Sin created the first official act of “debt forgiveness” on record, nearly 1200 years before the Athenian Solon did the same.
The system of gouging blood money out of distressed borrowers is primitive and stealthy, worthy only of those without the moral or creative resources to generate profit in a non-predatory way. There is no honor in the exploitation of the desperate. It is not good business - no matter what the powers that be might claim. Perhaps it was in the second millennium B.C. however, not in the second millennium A.D.
In theory, people are “free to choose” to borrow or not. However, in practice there is really no choice. We are enslaved in a system of credit and debt that has terrorized humanity for 4,000 years.
In this new year of 2010, as the banks that created the credit crisis for ordinary folks continue to rape and pillage the society they feed on, something must be done to turn the tide of vulture credit.
Senator Dick Durbin of Illinois introduced a bill in 2009 to limit interest rates to 36% (3% more than Ancient Babylon). It was shot down. Democrat and Republican Senators, in the pockets of powerful credit card lobbyists like the “Financial Services Roundtable,” wanted no limits on interest rates.
Vermont Senator Bernie Sanders introduced another bill to limit credit card interest to 15%. It was defeated in a landslide of 33 votes for and 60 against. Senator Sanders said, “When banks are charging 30 percent interest rates, they are not making credit available. They are engaged in loan-sharking.”
(Riddle # 2: What is the difference between mafia loan sharks, ancient lenders, and the present state of U.S. banking credit? Answer: The mafia takes your life; the ancients owned your life; modern banks destroy your life.)
The same distorted system of predatory lending that ended in the 2008 financial collapse and echoed in the Ancient world, continues with unlimited interest rates that prey on the poor and desperate. Perhaps 2010 will bring a more enlightened system of credit to modern finance - one that allows debtors the same protections and opportunities given to vulture creditors - true freedom of choice.
Haven’t we waited long enough?
Monika Mitchell is the Executive Director and Editor-in-chief of Good Business International, Inc. (GoodB). She writes regularly for the Good-B Blog.