Having read that credit card companies are increasing interest rates, I began to wonder: What separates our financial institutions from the Sicilian Mafia, the Chinese Tongs or anyone else imprisoned for loan-sharking? They all charge outrageous interest rates on loans. They all have aggressive collection tactics. And many of them have politicians in their pockets.
The main difference, of course, is that the banks have incorporated as financial institutions. This allows the banks and credit card companies to borrow money from the Federal Reserve at a discount rate thats currently .05 percent. Then they lend it at interest rates ranging from 20 to more than 45 percent! Not even casinos enjoy that kind of return. But, then, casinos are regulated.
For those of you under age of 50, you might be interested to learn that all financial institutions used to be governed by usury laws designed to prevent the lending of money at unreasonably high interest rates. State banks still are. Unfortunately, usury laws no longer apply to banks that label themselves national. The result is that large banks such as Bank of America, Wells Fargo and Chase can charge pretty much any interest rate they want.
And they want a lot.
Of course, they justify their rates by claiming that consumer default is on the rise.
There are several problems with that claim. One, the managers of these companies pay themselves 6- or 7-figure bonuses. Two, it was their greed that led to an economy that has forced consumer defaults. And three, it was the government, financed by you and I, that kept these companies from going bankrupt.
If our Congress ever decides to put the interests of taxpayers above corporations, the corporate officers that run national banks might have even more in common with the Mafia and the Tongs a prison cell.