Government Plans Ownership of Your Credit Card Debt
My post yesterday on the bailout of credit card companies through the use of TARP funds couldn’t have been better timed. Today, Treasury Secretary Henry Paulson announced that the Treasury and the Federal Reserve are considering a plan to purchase securities backed by, among other things, credit card debt. That’s right.
The government has already forgotten the misleading and deceptive practices of the credit card companies that it condemned in April and May and it now wants to join forces with the credit card companies to benefit from your credit problems.
Why would the government be interested in owning your credit card debt? Well it’s not because they believe that you are an excellent credit risk. According to Bloomberg, October was the first month in more than 15 years that the credit card companies couldn’t sell bonds backed by your credit card payments to investors.
While I don’t believe that the government should invest in credit card debt facilitated by practices which the House of Representatives condemned when it passed the Credit Cardholders’ Bill of Rights (though it wasn’t passed by the Senate). There is, obviously, one real benefit and one possible benefit to this plan.
- The real benefit is that credit card companies won’t have to cut back on your credit line because they simply don’t have the funds in the bank to cover your transactions. Of course, they can continue to shrink your credit line because they have toughened lending standards - but that’s beside the point.
- The possible benefit is that the government could condition the purchase of consumer asset backed securities on the modification of credit card issuer practices. Also, It may be easier to modify debt obligations if the government owns the securities backed by your debt payments - at least that was part of the theory behind the original bailout funding of the TARP. Those are two big advantages to the government purchase of consumer asset backed securities … IF the government takes advantage of them.
So, the next time you pay your credit card bill, you may actually be paying Uncle Sam.
