Pages Menu
TwitterRssFacebook
Categories Menu

Posted by on Apr 14, 2009 in At TMV | 0 comments

The Banks’ New Business Model

When I first heard about credit card lending banks hitting their best customers with higher interest rates and new fees it didn’t seem to make sense. These changes were usually billed by banks as needed “risk management,” but clearly they actually increased bank risks. Many good customers currently meeting their card obligations on time would now fall behind because of these new exactions. Many others would simply stop using their cards and pay off existing debt.

Where was the logic here? What sort of business takes steps to lose its best customers in these perilous economic times?

It took awhile for me to understand what was happening here. To recognize the thinking behind this seemingly silly new business model. Then it came to me. Banks really don’t want to lend anymore to anyone because there’s always some risks in doing so. And why should they? They now have a steady source of income with absolutely no risk. Federal bailout funds.

This money keeps pouring in without bothersome lend-it-out-to-consumers-and-businesses strings. A private fund provider handing out trillions of dollars would demand that its money be used in very specific ways. The federal government could demand its own money (our own money, by the way) be loaned out in ways that animated the economy, the purported purpose of bank bailouts. Alas, our Uncle Sam is not that demanding.

The banks new business model is thus a no-brainer—for the banks. Take but don’t give anything in return. The bank equivalent of the no-show job. Boy, would I like to get apiece of that action!

http://www.wallstreetpoet.com