May
4
Where do you think they will get money from?
May 4, 2008 | 2 Comments
Banks have not been doing well lately. They got caught into a sub-prime mess of their own co-creation (the American Consumer, and overseas mortgage backed investors being their accomplices). They have also co-created a secondary mess: credit cards.
In the Old Days banks got money from charging Interest. In the 90’s and 2000’s they got money by charging fees. Closing fees in the case of mortgages, and credit card fees in the case of consumer credit. Interests where extremely low during those years, and they continue to be low now.
Congress has decided to grant a double whammy to the banks: now they want to take away their remaining steady source of income, the fees to unsuspecting customers who borrow more than they should. (Thanks to Five Cent Nickel for pointing out.) All of this is very well intentioned, but in the end I do not think it will help people as much as Congress thinks.
You see, taking away a source of income to banks at a time when they have not done so well can only make them act in desperation. They need to save themselves. One thing they could do is raise interests: not necessarily helping the American Consumer either. Maybe even slowing down the economy in the process.
Some people imagine big corporations as an evil thing. Government intervention hurts corporations. What they do not see is that hurting them hurts four groups of people:
- Investors: Who get discouraged to invest in the company and sell.
- Executives: Who get fired when Investors get discouraged.
- Employees: Who also get fired when company does not do well, or in an effort to calm Investor’s wrath.
- Consumers: Who need to be charged more or in different ways to be able to cover the extra expenses (or lack of revenue) caused by government intervention.
Which group do you think suffers the most of the government action consequences?
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