Where Fun Comes to Die

President Obama has plans to further regulate the credit card industry by restricting their ability to collect money on delinquent accounts:

President Barack Obama warned credit-card issuers they will face new regulations and scrutiny to keep consumers from being hit by “unfair” rate increases and abusive fees and penalties.

. . .

Card issuers are under fire for policies that impose large late fees and boost interest rates on delinquent customers amid higher unemployment and a recession.

I sympathize with the bankers.  If I had loaned a bunch of money to people who were suddenly unemployed, I would also try to collect as much money as possible before my debtors went bankrupt.  Why?  Because it is was their money in the first place.  Bankers are not running a charity organization.  They don’t care how you spend the money as long as you pay them back, which is a good option to have in a free market.

I understand Obama’s calls for “transparency” in credit card contracts, which are notoriously long and unread.  But to the extent these new regulations restrict the companies’ ability to collect debts, I would expect there to be a decreased willingness from banks to extend credit to high-risk people in the first place.  Which is what the bankers association warns:

The bankers association has warned the requirements may raise costs and limit the credit availability as banks already are reeling from the recession and the credit crunch.

At Bank of America, the largest U.S. lender by assets, 7.8 percent of credit-card accounts were delinquent in February by more than 30 days, according to Bloomberg data. That’s up from 5.9 percent last August. Delinquencies are jumping throughout the industry in tandem with unemployment, which reached a 25- year high of 8.5 percent in March.

Charge-offs, which are loans that banks don’t expect to be repaid, increased to an average of 8.02 percent in February from 4.53 percent a year earlier.

With Obama’s new regulations, I worry that the total bank losses from delinquencies will expand, increasing the pressure on an already unstable industry.  How will the banks make up for these losses?  More bailout money?  Charging their solvent customers more in interest rates and fees?  Either way, the money always comes from somewhere.  Although I understand why Obama would choose to extend relief in this political sleight-of-hand, indirect way (similar to the way he “handled” the mortgage crisis by cramming mortgage modifications down the throats of lenders), his calls for transparency in government ring all the more hollow to my ears.

After being accosted by Greenpeace enthusiasts yesterday, I was surprised to hear how they too have joined the bandwagon and caboosed all of their arguments with “and it will be good for the economy,” presumably because researching alternative energy sources will sponge up all of the unemployed physicists that are sapping the resources of the country.   Assuming the Greenpeacers were right about everything, why would they be in favor of such a measure?  The best thing that has happened to the environment in the past decade has arguably been the global recession and accompanying scale back on production and consumerism.   If we create new jobs, one result is that we enable our current national lifestyle to the detriment of the planet.  This would be a trickier issue if it was a choice between us or the planet.  Luckily Americans are not faced with the possibility of starvation and total lack of medical care so much as the possibility of crippling amounts of debt and its accompanying hardships at worst, and at best a reduced work week allowing them to spend more time with their family or pursuing the joys of life in a more environmentally friendly way. The Europeans seem to do it without too much angst.  We’ve already made the switch (almost?) to European-style small cars, let’s adopt the 35 hour week/2 month vacation lifestyle as well.

update: check out this new yorker article along the same lines.