THE CASE FOR STATE REGULATED MAXIMUM INTEREST RATES FOR CREDIT CARDS.
Bankers and governments might take heed and read the signs on the wall: a largely young segment of the population, who demonstrated and occupied public spaces, are activists with a message. They attracted much national and international media attention and seem to have become a global movement. The often-quoted reason for the participants is a feeling of inequity and mistrust that their governments are doing something about it. The gap between the top earners and the rest in our industrialized nations is rapidly widening; this is of course true even more so for our youth.
Yes, I think that it’s about time we get shaken out of our lethargy. We have become used to just paying off our credit cards, or for the younger ones, their student loans. We worked without raises in the last decade or so, or work for minimum wage that is hardly keeping pace with the costs of living, while affordable housing is out of reach, or non-existent. As a nation, we now owe more than we earn, we can’t ever pay off the collective debt within our lifetime.
Are you just paying your credit card interest rate, unable to pay off the whole amount each month – as is highly recommended? Have you ever thought about how unreasonably high the interest rates for credit cards are? In fact, if we had lived in other times, those interest rates would have been considered criminal.
In one courageous moment US president Obama promised to introduce legislation for the banks to lower the credit card interest rate, I seem to remember. Or did I just dream that?
It is a brilliant idea whose time has come. Alas, Obama has other fish to fry. The response in his country to many of his proposals for more social responsibility that would set limitations for the banks and their practices, has been to discredit him as being a socialist – the fear for socialism in the US so irrational and extreme, similar to the term communist in the period of the cold war. Otherwise capable and rational people loose their mind when the term socialist is uttered.
From a little research on the Internet one can discover that the issue of interest rates dates back as far as 325 AD. From that year to the year 1545 interest rates were not allowed and were considered a sin and criminal. The first government law to allow the limited charging of interest rate for lending money in England was instated under the reign of Henry the Eight; interest was then called usury.
Under the Romans, some lending practices existed, but strictly between private parties and no government or business institutions were involved. With the decline of the Roman Empire in progress, the government of the day demanded higher taxes from its citizens, to finance the government expenses of the day. But most citizens could not pay more taxes, so they borrowed the money from the rich, to pay the taxman. At increasingly higher interest rates, they soon defaulted on their loans, unable to pay the interest or the capital: the lenders – the rich – became even richer, by taking their debtors’ property or lands. The class of serfs was born: those farmers, ranchers and crafts people who were deeply indebted and worked as free labour for the landowners.
This dynamic is not exclusive to that time and is seen in other times and in other parts of the world. It was very clear that usury (which came to mean extremely high interest rates) was the bane of that society.
After the unavoidable collapse of the Roman Empire (might this history be used as a metaphor for the US?), the newly emerging religion of the Christian church made usury illegal at the First Council in Nicaea in the year 325: it forbade charging any and all interest, and even forbade administering the sacraments of the church to all who paid interest, in fact condemning them to hell. The papal prohibition on usury meant that it was a sin to charge interest on a loan (Wikipedia).
The Muslim religion spread to other parts of the world and its holy book, the Qu’ran, also forbids usury.
The Jewish religion as well forbids charging interest from other believers.
How far have we strayed….
Most Christians know some of the history of Jesus as described in the Bible. There’s a scene where Jesus turned out the traders and lenders from the Jewish temple grounds. That intervention seems in hindsight more significant when you know that the practice of making money from money and was “deemed Roman” and not Jewish, and in the end, we know that the commerce of the day with high interest rates led to serfdom then.
One has to wonder why we do not learn from history?
Today, the banks and the corporate world are already determining on a global level which countries will be invaded by military forces and “saved” for our western, industrialized lifestyle. The flow of resources, such as oil and gas, is to be ensured for our markets — if needed by violence.
On a local level, global industries and trans-national banks and stock markets determine what we can earn, what we can eat, what products are available to us and from what institutions we can borrow money for our businesses or housing, and how much money at what rates. We try to maintain a certain standard of living, or so we thought, and borrowed money encouraged by the banks’ advertising and promises of a growing economy.
Successive, previous administrations in the US had given the banks free reign these last decades. Nobody pursued the perpetrators of the anti-racketeering laws, called RICO statute in that country, originally aimed at controlling organized crime, which would include charging unfair interest rates, or fraudulent trading, in my view.
Many citizens in the US have already lost their homes because of the banks unethical, unrestricted trading and lending practices, that caused the economic downturn of 2008.
After it was revealed they traded non-existing properties and derivatives (such as insurance policies on non-properties) on the trading floor, the world’s economy collapsed and many small time investors lost their savings, in the US, as well as in Canada to some extent. The US administration had to bail out banks and businesses to prevent massive unemployment and further losses. Unsavoury mortgage practices by banks led to repossessions, when many homeowners could not pay their increasing interest rates, as many lost their jobs in the crisis.
Not so much in Canada, where the banking world is stricter regulated and government is not as impotent. The damage was contained to loss of equity from the US shares and stock trading. Our banks took the hit fairly well. Luckily, our own Mark Carney, governor of the Bank of Canada—the government bank that among other roles, sets the prime lending rate for other, commercial banks to loan funds from the government – is a level headed and intelligent leader.
Mark Carney has kept Canada’s central bank’s interest rate low, and even lowered it further twice since the economic crisis, in anticipation of the economic downturn lasting a few years longer. (Globe & Mail article on Mark Carney in Saturday’s paper). His decisions prevented an increase of debt and facilitated spending of our citizens by protecting their current levels of income with low mortgage rates – the lowest, possibly in 50 years. Of course, commercial business was also able to continue, pretty much as usual.
Mark Carney is on the list of candidates to become the new leader on a global stage: chair of the Financial Stability Board, a forum sponsored by the 20 most important global nations called G20. The board replaced the Forum with the same name from 1999 and was instated to recommend policies and regulations to prevent another global financial disaster that led us into the 2008 recession.
When government leaders will drop the rhetoric and understand that the national budget (in the way of taxes raised) comes from mostly the middle class—the largest segment of the population–they will have to acknowledge that preservation of income levels for the middle class is of utmost ECONOMIC importance for a nation.
Now, if only we could convince our government to adopt legislation for banks to drop the maximum interest rates on credit cards! I so hope that Mr. Carney can convince the other nations’ financial leaders of the need to recommend to their governments to cut commercial banks’ ability to maintain the criminally high interest rates for credit cards and to outlaw the sharks that provide payday loans for outrageous rates. As well, ridiculously high bonus payments and wages for top executives must be curtailed, in my view.
What do you think?