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How the Credit Card Monster Killed Us.
Posted by SoCalDem in General Discussion Sun Sep 28th 2008, 01:23
Human nature, being what it is, had no real chance against the "monster".
There was a time, when there were two "types" of consumers.
1) credit-worthy 2) not credit-worthy
Waaaaay back in the olden days (circa 1960's & 1970's), individual stores handled their own charge/credit departments. These were usually quite stern-looking, bun-wearing ladies, seated at desks, up on the mezzanine level.. They literally looked-down-on the sales floor. Credit was not "given" freely, and sometimes, one did not even know what the "limit" was.. The few who had "charging privileges", knew that they had better pay off that entire bill when it came, or their charging privileges would be yanked..in a heartbeat. The most stomach-flipping experience was when one of them picked up the phone and called down to the clerk ringing you up, after she received the pneumatic tube with the sale information.
Charging privileges gained the stores a loyal customer base of customers they could trust, and they treated that "charge customer" very well. Items were often delivered to their homes "on approval", special orders were never a problem, and even "off-hours" shopping was not unheard of. Most people shopped where they had "charging privileges".
These folks were the doctors, lawyers, local politicians... the professional, moneyed-class..Many times, even employees of the stores did not warrant "charging privileges".. I did have them, from age 16, at most stores, because of who my Aunt was. She was a big shot in our town, and I was on her account, but they always called her before they let me charge anything
Everyone else paid cash... If you wrote a bad check to one of these stores, it would not be surprising to see all future check-writing at their stores, forbidden. Most registers had lists of "no checks from" customers.
It's not hard to see why when credit cards like BankAmericard and MasterCharge came along in the 1970's, they were immediately embraced by all who could get one. It was the great "equalizer", and it said to all who watched you whip one out.."I am a credit-worthy person..I don't HAVE to pay cash like the rest of you peons"..
Remember when the "color" of the card sent a coded message too.. A Gold card said.."I am REALLY a big shot"...but then came Platinum and Titanium (isn't titanium just another shade of "silver".. ..)
When we got our BankAmericard in April of 1970 (I remember when, because we had been married a month, and I thought it was very odd that a bank we did not even have an account with, just sent it to us..out of the blue..like a wedding present), I was afraid to even use it, for fear that we would "reach the limit" and be "in trouble"... The limit? $500
When "things people wanted" started to cost more than what the normal credit limits would allow, the only option was to apply for and get MORE cards, or for the card companies to extend the limits upward...and to encourage revolving credit, with higher interest rates as time went along...
Once you OWE a revolving credit balance, you either have to stop using the card for current purchases, and concentrate on paying it off, or you have gotten on a merry-go-round that only goes faster , and never lets you off.
It's no accident, that just as the Boomers were entering adulthood, that the credit industry took off in a big way. Parents-of-Boomers were taught from childhood that debt was "sinful", and to be avoided at all costs, but Boomers were the children-of-plenty, so why would they suddenly start being frugal as they grew up?
When Boomers started buying houses and putting down roots, they had to alter their buying habits somewhat, as they became responsible parents, but if they had those plastic cards, they could at least "feel rich" when they went shopping, and worry about paying for it ...later.
LATER ALWAYS COMES....
and that's where equity loans come in.
Ronald Reagan did away with the deductibility of interest when he took over. Until that time, you could deduct ALL interest paid, on your income taxes..car loans, charge accounts, ALL interest payments. Before that happened, it almost made sense to charge things and to pay them off slowly, since you could deduct the costs of doing that.
Equity loans must have seemed like a Godsend when they arrived on the market in a big way. Here was finally a way to "get rid of those damned cards", and turn that credit card debt into a "deductible expense". Everyone I know, who did this, said "We're cutting those things up and NEVER using them again"...and then they didn't, and they did ..There's that human nature thing again..
These people had probably put down 20% on their house when they bought it, had a payment they could afford, but that equity they were building, was just too enticing to pass up tapping, if they could "get out of debt". By tapping it, they were only borrowing from themselves..right?? right??..and that extra monthly payment was deductible, so why not just do it?
Multiply that by millions of home-buyers, and you know what happens next..
Credit card companies saw a whole bunch of people who suddenly did not owe them anything, and that just wouldn't do, so knowing human nature, they started offering all kinds of "goodies"...
Some people paid off the cards and never used them again, after the first time, but many more saw their house as the gift that keeps on giving, and turned it into an ATM with 4BR,2BA,2car GAR & a pool.
Eventually, when houses quit appreciating, the banks started saying "no", but the credit card companies still wanted their money.
The only solution then was to get even MORE credit cards to fill the gap..(wages sure weren't keeping pace) and to start the "transfer game". That worked for a while, but as banks started gobbling each other up, transfers stopped "working" too.. Can't transfer that MBNA balance to BofA when BofA buys MBNA..
The Credit Card Industry has been squeezing and squeezing for years now, and now that they have constricted the life out of their customers victims, they are ready to swallow them..
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