Cost of Doing Business
Why do companies have a business plan that hurts their best customers?
by Frank Cagle
Our parents taught us to pay our bills, take care of our families and be responsible. If you do all those things, do you ever get the feeling you're a sucker?
The credit card companies mail thousands of cards every day to random addresses, including dogs, deadbeats and dead people. They sign up college students who don't have jobs and proceed to ruin their credit. In order for these companies to grow and sign up new customers they incur huge losses, foster bankruptcies and write off millions of dollars. In order for this crazy system to work they have to soak the paying customers. They find any excuse they can to raise the interest rate on people who make regular monthly payments. Go on vacation and send in a payment a day late? Let's jump your interest rate from 13 to 26 percent.
The fees and the high interest rates in the credit card system are to offset the losses from the companies extending credit to people who don't or can't pay their bills. It just a cost of doing business; so the people who can pay, pay for the rest.
Your health insurance premium gets jacked every year. If you get your insurance through your employer they get jacked even worse. If you are a small business person you get soaked. Why? Because there are millions of people who don't have insurance and don't pay for their health care--but they still get it.
When you go to the hospital, your insurance company doesn't just pay your bill. You also pay for someone who doesn't have insurance. It's called cost shifting. Those who can, pay for those who can't. Or won't.
The mortgage companies have been busy of late extending mortgages, with no down payments required, to people with shaky credit histories or spotty income. I'm all for home ownership and low mortgage rates. But the mortgage companies have been acting like credit card companies, creating a new "sub-prime" market--more mortgages, more customers, more income...and creating a possible crisis in the home mortgage industry that sooner or later will come back to bite the rest of us in the posterior.
You may or may not remember the Savings & Loan crisis back in the 1980s. You may not even remember those quaint institutions called Savings & Loans. They looked after your savings, paid you interest, and they made real estate loans. But it was really boring just servicing home mortgages for people with down payments and good credit. They had to jump off into lending money for shopping centers, condo developments and malls that went belly up and cost the taxpayers millions. That's not to mention the demise of the Savings & Loans--those that escaped evolved into banks.
The latest practitioners of predatory irresponsible growth are the cell phone companies. They have a kiosk on every campus, street corner and mall, signing up the kids to long term contracts--these would be the same kids without jobs who can't pay credit card bills. There are about as many kids getting their credit ruined by cell phone companies as credit card companies.
So we have a system in which people with credit cards, health insurance, mortgages and cell phones, who pay their bills, subsidize untrammeled growth by these industries who write off millions as just a cost of doing business.
I'm all about market-based solutions. Surely there are some entrepreneurs out there who could devise services for responsible people--and charge them less money.
At present, the easiest way to get a flock of new credit cards in the mail is to emerge from bankruptcy. You don't have any debt!
Sooner or later as a society we have to address the biggest problem in health care. We require that everyone receive it but we don't require everyone to pay for it. You can't have one without the other. We require everyone to have car insurance before they can legally own a car. But we allow people to run around without any form of health insurance or any provision to pay for health care, and when they need medical care we require doctors and hospitals to provide it. This is a debate we need to have in the upcoming presidential election.
In pursuit of growth and to boost the short term stock price, companies seem committed to grabbing market share whatever the cost. The system encourages responsible people to wonder why they should be responsible. It makes employers wonder why they should offer health insurance as a benefit. It encourages people to buy more house than they can afford.
In the process, it violates everything our parents taught us about the rewards of fiscal sanity.
Frank Cagle is a political analyst and the editor of Knoxville Magazine . You can reach him at firstname.lastname@example.org .