Here we go again: Washington pols are sticking their noses into lenders’ businesses — in this case, those of credit-card companies — just as they pushed banks in the 1990s to make riskier mortgages.
Will the results be any less disastrous this time around?
For starters, President Obama and his chief economic adviser, Lawrence Summers, will meet with heads of top credit-card companies tomorrow to discuss plans for new rules for the industry.
Meanwhile, a bill from Rep. Carolyn Maloney (D-Manhattan) would create ratings for credit-card offers and require labels, like for food products.
Ostensibly, the White House summit is meant to curb credit-card abuses and focus on “the way people have been deceived into paying extraordinarily high [interest] rates,” Summers says.
But he and Obama also want to forbid firms like American Express and banks that issue MasterCard and Visa cards from considering a customer’s bad credit when setting interest rates.
The consequences of that move alone could set the economy on a risky path: As industry officials warn, interest rates on plastic overall could skyrocket, credit could be severely limited or both — as lenders are forced to issue cards to non-credit-worthy customers.
Firms may be left holding even riskier debt, resulting in yet new shock waves to the nation’s economy. (Guess who’d be asked to fund bailouts.)
Even worse, it seems only a matter of time before pols’ creeping entanglement with the financial sector leads them to take up populist pandering whole-hog and dictate interest rates outright.
Now, if all this sounds familiar, it should: During the ’90s, pols set the stage for the subprime mortgages mess when they pushed lenders to make loans to folks that really couldn’t afford them.
All Americans are paying the price big-time for that one.
Plus, the new push comes at a time when the industry itself is hurting — as hard-hit consumers fall behind on their payments. Bank of America’s credit-card division, for example, posted a $1.8 billion first-quarter loss for 2009; during the same period last year, the bank reported a profit of $867 million.
If the subprime-mortgage fiasco proved anything, it’s that Washington bureaucrats should keep their noses out of private-sector business decisions, particularly regarding financial markets.
But Congress and Team Obama are only likely to be tempted more by their new powers, as they move to take bigger stakes in the private sector: One idea calls for converting government holdings in banking companies into equity shares, a roundabout way of nationalizing banks.
Everyone’s heard the warnings about ignoring history — and repeating it.
But who knew Washington would do so this soon?