CHESSNOID

First of all, the rumors I read on the Internet are just that, rumors.  We have had the Wall Street bailouts, bank bail outs, foreclosure bailouts, possibly automaker bailout, and now the credit card bailout.  This is what the latest plan looks like:

Banks want credit card bailout next

The proposal was pitched to federal regulators by the Financial Services Roundtable, which represents more than 100 big banks and other financial companies, and the Consumer Federation of America. The pilot program could involve as many as 50,000 people and would allow lenders to reduce by as much as 40 percent the amount of credit card debt those people owe.

Banks and other mortgage lenders have been agreeing to modify loans of distressed homeowners to help them avoid foreclosure. Now, banks making credit card loans have reached a point where they can lose less by forgiving part of the debt than seeing the consumer walk away entirely.

“There are some critical problems with credit card debt,” Bert Ely, a banking industry consultant based in Alexandria, Va., said Wednesday. “We’re going to see more of these efforts to try to minimize the situation.”

Consumer groups applauded the effort. “There’s obviously a financial benefit to the financial institutions to step up to the plate right now,” said Susan Keating, president and chief executive of the National Foundation for Credit Counseling, which has 108 member organizations around the country. “We absolutely support the proposal.”

U.S. Comptroller of the Currency John Dugan runs the Treasury Department agency overseeing national banks. That agency would decide whether to approve the pilot program. Kevin Mukri, a spokesman for the comptroller’s office, had no immediate comment Thursday.

If they are talking about it, then it will probably happen. Even though it looks like it favors consumers, I think it really benefits the companies. This is more like a smoke and mirrors trick. It doesn’t really make sense, that if you default on your credit cards, then you have the option of having 60% forgiven to be paid back at 0% over 5 years. While if you paid your credit cards on time, you continue to pay the full balance at a higher rate over many more years. I bet if you go on the plan, the incentive is they won’t report the negative item.

This sounds the same as the housing crisis or bailout we are pushing through right now. Customers in default are being allowed to have their mortgage balance reduced and interest rates reduced. While customers on time will have to pay on the original balance at a higher rate.

I think if the banks and government want to reward the people who default that is fine. Moral hazards are morally acceptable now. I think they should take it one step further and let the rules apply to everyone, regardless if they are in default or not. Bailouts for everyone. Yippee!