Once upon a time, there was a land of make believe called "Obama-Land". In "Obama-Land" up was down and down was up and nothing existed unless it existed left of center.
One day there developed in “Obama-Land", a practice known as "Enjoy Today and Pay Tomorrow" the accepted vehicle for which was the all-purpose credit card. For people that had no job or could not pay their bills, the credit card was like a ticket to Candyland. They helped people make ends meet. Of course these people who used their credit cards to make ends meet couldn't hope to repay them (much like the folks who got those Fannie Mae free mortgages) but who cares? Alice certainly didn't.
And so, Alice along with many of the residents of "Obama-Land" became enamored of the practice of borrowing money they could never hope to repay and began to live the "Enjoy Today and Pay Tomorrow" philosophy.
But over time, something happened. This practice of living on borrowed money became malevolent and soon, many "Obama-Land" residents found themselves in dire financial straits with still no money but big credit card balances at high interest rates. And slowly and inexorably they began to fall behind.
Enter the Master of Obama-Land, Barako-Bama. Master Bama determined that what had to be done was that the purveyors of the credit cards had to be prevented from charging so much interest to those who already had balances which they could not pay. Charging these people higher interest rates, reasoned Master Bama, when they had no money to pay was cruel and inhuman since the people living off their credit cards couldn’t pay their loans back so how in the world could they pay higher interest rates too? They couldn't.
And so, the Master decreed that these higher interest rates would be lowered to a more reasonable rate, say that of people who did make their payments on time.
But this new law led to consternation on the part of the credit card industry because the very people who were running the biggest unpaid balances and getting the furthest behind were now protected from being charged the high-risk interest rates that were mandated by their financial condition. It was a lot like what happened with Fannie Mae which almost dissolved the world’s credit markets.
This change of affairs put the credit card companies in the trying circumstance of having to accept less interest revenue from the very people that were their biggest risks - an unsustainable method of running a financial loan business which could only lead to the credit card companies themselves eventually defaulting.
After all, how could you not charge the highest interest to the people carrying the highest unpaid balances over the longest time? But you couldn't. It seemed things were backward in the Magic Mirror.
And then someone close to Master Bama suggested an answer. Find the persons with low balances, people who DID pay on time every month, people who are NO problem and raise the interest rates on them to pay for the loss of interest on those who are always behind.
Brilliant but what, the Master was asked, if those people are not running big enough balances month to month from which interest can be earned sufficient enough to offset what is being lost on the delinquent accounts?
But the Master smiled knowingly. "Then charge them a fee for using your credit cards in the first place," he said.
"Can we also charge a fee to those who are delinquent", asked the stunned officials of the credit card companies?
"No, they have enough to deal with."
The owners of the credit card companies looked at one another. "You mean," they said to the Master, "we lowered the interest rates on the people who run delinquent high balances and then to recoup our losses, we raise the interest rates on those that do not?"
"Exactly. And you can also charge them a fee to offset your losses. After all, which money is more likely to be paid?"
"The interest and fees from those who pay their bills on time, certainly."
"Exactly. And which are less likely to be paid?"
"The fees, interest and balances from those who do not pay their bills on time."
"So there you go. Raise the fees on those that pay and pay on time to cover the losses from the new lower interest rates on the delinquent accounts. It seems clear to me."
"Really? I find that a most amazing concept."
"Exactly but what do you expect. You are now in, "Alice In Obama-Land".
Have a nice day, Alice.
(9 TRILLION dollars in debt? Hell, until a few months ago I never even heard of a trillion let alone nine trillion. Who's going to pay all this money and how? And do you know that nine trillion is half way to Alpha Centauri - the nearest STAR????)
Joey
Where people come to exercise their minds:
http://www.blogger.com/profile/00659050837324784709
