By Evelyn Black, on October 10th, 2008
On October 7, American Express revealed that they will begin limiting their customers’ access to credit based on both where they shop and which bank holds their primary mortgage. While there is nothing in the law that prevents American Express (or any other credit card company) from doing this, the announcement is noteworthy coming from what many assume to be the creme de la creme of unsecured personal credit lines.
The credit crunch is about to hit the consumer pocketbook in a big and personal way, starting with credit card companies looking for ways to limit or freeze personal credit lines. The reasons for the lowered limits are not always obvious, and they may or may not have anything to do with the customer’s financial balance sheet. American Express would not reveal the stores or banks that they considered “risky,” but if you happen to have an association with one of them, however tenuous, look to see your credit limit lowered or arbitrarily frozen very soon.
According to the consulting firm Innovest StrategicValue Advisors, banks will charge off nearly $96 billion in delinquent credit card debit in 2009, nearly twice the amount charged off in 2008. Many customers who very recently had access to home equity lines of credit, business lines of credit, or unsecured bank loans are now seeing these sources dry up due to the credit crunch. As a result, they are leaning on the option of last resort: credit cards. Credit card issuers are falling all over themselves trying to get ahead of the problem.
In a worst case scenario, a good customer (as in, a customer who pays on time and has been doing so for years) could see his or her credit limit arbitrarily lowered and then exceeded before even realizing that had happened. Sometimes, just the interest accruing on a large balance will exceed a lowered credit limit before a customer has any time to do anything about it. Once the limit is exceeded, the credit card issuer can and will hike the interest to 32%, charge over-limit fees, and push the customer even closer to default.
Why would credit card companies do this?
Because credit card companies can’t just close an open line and demand payment in full; what they are doing instead is encouraging customers to transfer their large balances elsewhere. Look for balance transfer fees to jump dramatically as well in coming months (or weeks) as banks and other financial firms look to discourage these balances from hopping aboard their own sinking ships.
According to Carol Kaplan of the American Bankers Association,
(Banks) have suffered a lot of losses and they are doing whatever they can to reduce risk. They have people that work all day and all night who try to come up with new formulas to assess risk.
These risk assessment formulas are getting much stiffer and much more conservative almost overnight. Anyone with a credit card balance that is in excess of 30% of the limit will likely see changes to the limit itself and the rate and fee structure in the very near future, and some analysts are recommending that customers carry a balance of no more that 10% of the limit in order to avoid punitive fees and rate hikes.
What this means for consumers who, since 2006, have had to rely ever more on their credit cards to pay for basic services, food, and taxes is that the last well of credit is about to run dry, leaving them with only their inadequate incomes to cover costs this winter and Christmas season. Add this to the fact that home heating oil and natural gas are expected to increase by double digits this winter and the fact that many people still haven’t paid off last year’s heating bills yet, and you have a recipe for disaster.
The Federal Reserve, Congress, and the U.S. Treasury are still intently focused on simply stabilizing Wall Street right now. The $700 billion bail-out package is looking ever more anemic in the face of a world market crisis, the credit crunch has not abated at all at the interbank level (the LIBOR rate is still rising, and commercial paper is still impossible). Understandably, the systemic cardiac arrest is getting the first response, inadequate though it may be at the moment.
But not too far down the road, the same financial credit stroke is about to hit American households one by one, right at the beginning of winter and the start of a holiday season that promises to be one of the most dismal on record.
Let’s hope something works. Soon.
By G.L.C., on October 9th, 2008
The Federal Reserve was created 95 years ago to prevent banking crises as an independent agency whose Washington-based governors are appointed by the president of the United States and confirmed by the Senate. Its officials usually steer clear of the most heated political debates in a bid to protect their freedom to make the tough decisions required to keep inflation under control. There’s a good reason for giving the Federal Reserve so much independence. Decisions about the stability of the financial system often require quick decisions in times of crisis.
Ever since the credit crisis started in August 2007, the Federal Reserve has been engaged in a few political actions involving tax payer risks: asking Congress to approve Treasury Secretary Hank Paulson’s $700 billion bailout plan, agreeing to lend $85 billion to American International Group, taking on $30 billion in illiquid Bear Stearns assets to facilitate its take over by J.P.Morgan Chase, and helping engineer the federal takeover of Freddie Mac and Fannie Mae, which could cost the Treasury over $200 billion.
The political role being played by the Federal Reserve is setting a dangerous precedent: unelected officials deciding, without congressional votes, which companies and industries should be aided by its nearly $1 trillion balance sheet and which should be left hanging. The Federal Reserve is committing so much taxpayer money on its own rather than having Congress or the executive branch commit it. Its new roles of overseeing Wall Street investment banks and the AIG loan portfolio, among them, may bring it into conflict with the job of managing monetary policy.
The Federal Reserve has been using government funds and its credibility in its attempts to end the credit crisis. This increasing political role of the Federal Reserve could put its hard won independence at risk. Its independence is crucial to setting the interest rates that guide the economy.
The Federal Reserve probably did not want to be seen in a political role, but it had no choice – charged with maintaining the stability of the financial system and the economy, it had little choice but to take aggressive action in the face of a potentially devastating crisis. It was watching a falling knife and had to grab it before it landed on somebody’s chest.
Any proposals to change the Federal Reserve’s role would face fierce opposition. Because of the actions it has taken so far in trying to save Wall Street firms, if it comes under attack, Wall Street will be among its main supporters. It will also have the support of an army of loyal bankers around the country.
Everything depends on how the economy emerges from the present credit crisis. If it stages a steady recovery, it will increase the credibility of the Federal Reserve and there will be less concern about its political role.
By J.D. Seagraves, on October 9th, 2008
On October 1, 90-year-old Addie Polk, distraught over her home’s impending foreclosure, shot herself twice in an attempted suicide.
Fortunately, Ms. Polk’s attempt was unsuccessful. Even better for her, Fannie Mae – which had taken possession of her mortgage after numerous missed payments – forgave Ms. Polk’s debt and signed the house over to her, free and clear.
What part of this story makes any sense? A woman shoots herself after falling behind on payments she agreed to make, and, as a reward, she gets a free house? Since when did Fannie Mae, now essentially a wholly owned subsidiary of the U.S. government, get into the Extreme Makeover: Home Edition business?
In 2004, Ms. Polk took out a 30-year mortgage for $45,620 at 6.375% interest. That same day, she also took out a line of credit for $11,380. Four years later, her inability to make her payments had reached the point of foreclosure. Police had made 30 attempts to evict her before the October 1 shooting incident.
Now, you can feel sorry for Ms. Polk all you want. But the fact of the matter is that she took money and agreed to pay it back, and she didn’t. Yes, the lenders may have “taken advantage of her” – only because they knew the government would step in and bail them out if Ms. Polk and others like her couldn’t pay – and yes, the Federal Reserve System creates money and credit out of thin air, which is “predatory” by its very nature. But these were the rules of the game when Ms. Polk took out her loans, and if she didn’t know them, she had no business playing.
What message does Fannie Mae’s forgiveness of this loan send to other people facing foreclosure? Attempt suicide, and if you’re lucky enough to survive, you get a free house? This story is a fitting microcosm for a corrupt system in which lenders are criticized for making loans to people who couldn’t repay them and then are rewarded with a $700 billion bailout as “punishment.”
Under a free market, interest rates would be set by savings and investment. No entity would have the power to create money and credit out of thin air and, as a result, no “predatory” lending could take place. When companies made bad loans, they’d suffer the consequences, and when people took secured loans they couldn’t repay, they’d lose the underlying properties.
The free market is self-correcting. But what we have in America is far from a free market. As one Republican congressman put it, we have “capitalism on the way up, and socialism on the way down.” In order to maximize utility and respect individual rights, we must return to a more laissez-faire form of capitalism where the people who take bad risks – both mortgagor and mortgagee – are made to bear the consequences of their actions.
By Evelyn Black, on October 8th, 2008
The U.S. stock market has been nothing if not volatile this year, especially over the course of the past few weeks. As the current credit crisis tightened and the world watched in horror, what most people saw was the stock market spiking and plummeting, often on mere rumor and speculation, and sometimes on the strength of what seemed like nothing at all. We’ve gotten used to this show, and for many people, it has become a source of rage and disgust.
The 777 point plunge in the Dow Jones Industrial Average after the defeat of the House $700 billion rescue package was dramatic and scary. By most accounts, about $1 trillion was lost in a single afternoon. I personally lost a quarter of my 401(k). The very next day, however, more than half of that loss was recouped on the mere hope that some kind of bill would in fact pass by the end of the week, even though it was impossible to know what kind of bill that might be.
Meanwhile, radio talk shows were busy interviewing everyone who had ever held any kind of opinion about anything related to finance, and some of it was not just misleading, it was nuts.
For instance, at one point I heard the crisis described as something that would “…make it harder for people to get car loans and would also cause small businesses to have to use their credit cards instead of lines of credit with their banks.” At the other end of the spectrum was a semi-hysterical comment by a cable news pundit who said, “People want to know if they will be able to use their ATMs by the end of the week!”
Both of these remarks are misleading.
First of all, the ATM issue is not an issue. Sometimes ATMs don’t work even when there isn’t a credit crisis. The things actually run out of money sometimes, often on Sundays, and on top of that they are subject to computer software glitches, mechanical breakdowns, and all sorts of other gremlins that are just part of life. Stuff happens with ATMs, and the credit crisis is not the kind of “stuff” that happens to them. It’s not related at all. You have no more reason to worry about your favorite ATM now, this week, than you ever have.
So calm down.
The other remark is just as misleading though. If auto loans are harder to get and business trips are put off, that’s bad for the economy, certainly. But explaining the credit crunch this way gives the impression that it is something that will just make people tighten their belts a bit, and tightening our belts is something that the overwhelming majority of us feel is long overdue and probably a good thing. I have noticed a real effort on the part of the media not to scare people. Fine. But let’s be honest at least.
The real scare with a credit crunch has nothing to do with your purchasing habits and everything to do with the fact that so many businesses, including big banks, run on short term credit. By short term I mean a day, a week, sometimes a month. A business needs this credit to even out cash flow so it can function properly. So, for instance, the garden center where you work as a clerk probably makes about 80% of its money in May and June. The rest of the year, your paycheck is likely written on a line of credit from the bank. This is true of many businesses, especially retail and construction. Profit is not spread evenly over twelve months.
Free flowing credit is good for business because, over the course of a year, if a business still makes lots of money during that May and June flower frenzy, they will turn a profit and stay current on their short term lines. The bank stays happy, the business stays happy, and you stay employed and get paid in checks that don’t bounce. You take those good checks to your bank and spend the money on stuff, and the world goes round and round like it should.
When credit gets too tight, it’s like throwing a wrench into the gears of that whole system, and commerce grinds to a halt. When commerce grinds to a halt we get a recession, or worse.
That is the fear that is behind the current attempt to “rescue” the U.S. financial system fast, but it is just abstract enough to be a non-issue for the average person. We all see that DJIA looping up and down like an out-of-control hang glider, and we think, that’s nuts. Those guys deserve to fail.
What is harder to understand is that, if those guys fail, they will retire to their homes in Martha’s Vineyard and Connecticut and Vale, and we will lose our jobs and wait in line to buy milk because, if you don’t buy it on the day it comes in, you don’t get any.
I believe that the truth is that that might happen anyway, no matter what Congress does or doesn’t do. But I also think part of the problem right now is the complexity of the situation and opaque nature of the mess our economy is currently in. The stock market is only the thermometer, and it seems to be a broken thermometer at that: One that works sometimes and other times seems completely, psychotically detached from any day-to-day reality.
The excesses of the financial world and the real estate bubble have left us with a loss of trust in our leaders and our business, and they in turn have all lost trust in each other. Nothing good happens financially in an environment in which there is no trust, and once lost, trust is a very hard commodity to lay one’s hands on.
So it’s no wonder that the American people are overwhelmingly against any government intervention in this historic economic mess. What is frightening is that by the time people do realize that this mess is going to hit them personally, and hit them hard, it may well be too late.
By Stephan Zimmermann, on October 6th, 2008
Several questions during the last few days pointed out the obvious: lost in the media coverage of the American financial crisis and the tail end of the presidential election seems to be the fact that there really is news beyond Wall Street and Main Street.
I could not agree more.
For example, how much attention has been paid to the fact that our closest neighbor, Canada, is having its 40th parliamentary election on October 14?
Neither the Liberal nor Conservative Party has a majority in the parliamentary system.
The economy, of course, is topmost on the agenda.
In the Toronto Star, the paper raised the question whether Canada is likely to experience similar problems in its housing boom. The upsurge in housing lasted for more than ten years, although it has somewhat cooled off even before the Bearn Stearns, Merrill Lynch, Lehman Brothers, and AIG debacles.
According to Jim Adair of Realty Times,
Tighter lending guidelines for developers and a lower level of investor participation have reinforced a more cautious approach among home builders. …Households, for their part, are not over leveraged. Home equity as a share of real estate assets has been steadily building this decade, as price appreciation outpaces the rise in mortgage obligations. Canadian households also have little direct exposure to sub-prime lending, which has accounted for only about five per cent of domestic mortgages in recent years, compared to over 20 per cent in the United States. (www.realitytimes.com)
Reflecting the fears and uncertainties of Wall Street, however, the Toronto stock exchange (TSX) on October 2 saw a fall of more than 800 points, following on the events of Monday, September 29.
Further adding to market malaise,
On October 1, 2008, the United States Securities and Exchange Commission issued Release No. 58703 announcing the extension of the temporary easing of restrictions on issuers repurchasing their securities. Issuers listed on a U.S. national securities exchange (U.S. Exchange) are temporarily exempt from the application of certain share repurchase rules under the Exchange Act Rule 10b-18. TSX has granted and is extending similar temporary relief to TSX listed issuers that are also listed on a U.S. Exchange. (www.tsx.com)
That SEC rule extension virtually encourages Canadian companies to repatriate subsidiaries with U.S. exposure.
Other key items on Canada’s election agenda include the environment, the arts, infrastructure, and the nation’s role in Afghanistan.
Unlike the United States with it two-party political system, Canada’ multi-party parliamentary structure assures that dissident or minority parties’ concerns are widely aired. The dual-language nation also airs its major parties in both French and English debates. Interestingly, while some 30% of Canadians didn’t plan to listen to either the Canadian or the American vice-presidential debates, more than 60% of those polled had planned to watch both. The debates were both aired on October 2.
Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.
By Evelyn Black, on October 1st, 2008
When I was a kid (I’m 55 now), I looked forward to holiday dinners because that was when my parents and my grandparents held their traditional “Was FDR a scoundrel or a savior?” debate. My grandparents, who worked for public utilities and, thus, survived the Great Depression with conservative opinions intact, argued for FDR the scoundrel. My father, who worked for a public utility company on the blue collar side and was a union steward, argued for FDR the savior.
The FDR argument was a traditional debate in our household even though the issue itself was a historical one, and though I already knew what every single participant was going to say, I looked forward to it because it was so exciting to see people I loved all vehemently disagreeing without really hurting each other. That’s the democracy I saw as a kid and the one that I miss today; a democracy that encouraged informed debate and tolerated strongly divergent views.
Watching the wrangling in Washington over the current banking crisis reminded me of that debate. The holidays are approaching, lots of Americans are scraping for turkey money, and, in an effort to maintain calm, the press is trying hard to replace the “D” word (Depression! Run for your lives!) with the more awkward but also more calming phrase “possible severe recession.” Once again we are witnessing an autumnal debate about the role of government in business and financial markets. Once again we are witnessing the spectacle of a televised tag team match between Emergency Socialism and Unfettered Capitalism.
Was FDR a scoundrel or a hero?
I don’t know. I do know that our current economic situation is similar in some ways to the one our grandparents (or in many cases, great-grandparents) survived. The stock market collapse that kicked off the Great Depression in 1929 came at the end of a bubble that included high-rolling, unfettered speculation and wildly indulgent personal lifestyles. The Dust Bowl disaster of the 1930s is parallel in some ways to our current climate change and energy crisis, with the displacement and disenfranchisement of huge numbers of people due to Katrina and now Hurricane Ike, and the promise that these kinds of monster storms will most likely become the norm, not the exception.
Like working Americans during the Great Depression, working Americans today are witnessing a rapid increase in costs concurrent with wage stagnation. Unemployment, while nowhere near Depression era levels of 25%, is rising rapidly and will rise even more rapidly should the current credit crunch continue. Just as in the aftermath of the stock market crash of 1929, we have a Hoover-like presidential candidate and an FDR-like candidate, acting out their respective roles in the holiday FDR debate on the national stage.
But there are real differences between our current situation and the one FDR seized by the horns in the ’30s.
The first difference is that American industry was still strong in the 1930s, and gearing this industrial base up for WWII arguably helped FDR turn the country around. Now, not only is U.S. infrastructure shot, our industrial base is gone, too, shipped overseas by multinational corporations in the wake of NAFTA for better profit margins.
A second difference is a loss of skills in the general populace. While my grandmother loved to regale me with stories about how she walked six miles for a 20 pound sack of government-issued potatoes once a week and fed her family of six on that and not much else, today’s consumer would be hard pressed to know what to do with a potato if there wasn’t a Wendy’s nearby. While we can relearn these skills (and many are doing just that: agricultural markets are “ripe for picking,” so to speak, and purchase of vegetable seed skyrocketed this year), in the short term, we have lost a lot of self-reliance and capability as individuals.
But maybe the most striking difference between that time and this one is the lack of a unifying political vision. My parents and grandparents argued about FDR at the Thanksgiving dinner table in part because FDR, scoundrel or hero, was able to bring everyone together for the common good, at least for awhile. Today, we have political machines that are still feeding the culture war in America, drawing a line between red and blue and even underhandedly pitching to white – something we all hoped we were past but clearly are not.
Who has the 21st century New Deal for America?
Hank Paulson doesn’t. But between the stock market’s meltdown after the House rejected Paulson’s bailout plan on Monday and tonight’s Senate vote on their version of a financial rescue package, we are finally hurting bad enough to come together to fix the mess wrought by 25 years of free market capitalism. Even then, freeing up U.S. credit markets will not in and of itself stop the free-fall in home values and home sales. It will do nothing to bring back the tax bases of our major cities. It will not encourage energy independence or investment in U.S. industry and infrastructure, and it will not address the problem of declining wages and rising costs.
Finally, helping Wall Street get its credit markets back on track will not bring together a populace split down the middle over issues of religion and personal lifestyle. It will not stop the feckless political pandering that has brought us to this sorry state.
I think we do need a New Deal, a vision of where America wants to go and who America wants to be on the world stage. Until that emerges, we will be seen only in terms of what we once were, and our suffering will continue. Debt cannot be a nation’s only commodity if that nation intends to prosper.
The parallels to our time and the time of the Great Depression are there alright.
But we haven’t seen anything, yet.
By G.L.C., on September 30th, 2008
In the late 1970s, the total compensation of chief executives in large American corporations was 35 times that of the average American worker. In 1993, Congress limited the tax deductibility of executive salaries to $1 million unless it could be demonstrated that the extra pay was linked to performance incentives. This contributed to the practice in later years of very generous grants of stock options, which helped drive executive pay to new heights. According to an estimate by the liberal research organization the Economic Policy Institute, in 2007, an executive’s salary was 275 times that of the average worker.
Wall Street executives, with their eight figure earnings, are at the top of the corporate pay range. Wall Street firms have a bonus system which rewards short-term trading profits. It acts as an incentive for executives to expand their highly profitable businesses in exotic securities and ignore the risks. The present financial crisis is a direct result of the compensation practices at these Wall Street firms, which encouraged executives to maximize profits and ignore risks. The salary levels at some Wall Street firms are appalling, given their performance. After news of the bailout plan spread on September 19, experts felt that it was only reasonable to impose limits on the salaries of executives of firms that would participate in the bailout. It was they who made those risky bets on behalf of their firms.
As Congress and the Bush administration (represented by Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke) deliberated the bailout plan before it was rejected by the House on Monday, lawmakers felt that executives should not be allowed to walk away enriched, especially since many have contributed to the present crisis by taking too many risks. There were calls to impose some limits or approval authority on salaries of executives whose firms seek help.
Presidential candidates Barrak Obama and John McCain have both called for limits on the salaries of such executives. There is a fear among many, including lawmakers, that Wall Street’s tarnished titans might walk away with tens of millions of dollars a year while taxpayers pick up the tab.
A Senate draft document calls for a ban on incentive payments that the Treasury deems “inappropriate or excessive” and a “claw-back” provision requiring an executive to give up pay or severance benefits if the firm’s financial results are later shown to be overstated. Other proposals call for a ban on severance payments and allowing large shareholders, with a stake of 3% or more, to propose alternative slates of board directors. This would be an effort to tackle excessive pay practices by opening up and strengthening corporate governance.
Opponents of the proposals say that pay restrictions will discourage hard work and innovation. It would have an overall impact on the financial sector and the economy. Some feel that it would be best to stretch out payments for several years, encouraging executives to pursue the long-term health and stability of the firms they head. However, the salaries are bound to fall. With consolidation, more people would be competing for fewer jobs, leading to lower salaries.
By Evelyn Black, on September 29th, 2008
“OK, everyone, stay calm. Hand over the $700 billion right now, and no one gets hurt. Make a wrong move, and the whole economy goes down! Make it quick, or you can all kiss your retirements good-bye!”
Dialog from an old-fashioned “stick-em-up” Western? No, actually, this drama was playing out in real-time Congress last week as Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and President George W. Bush promoted a $700 billion financial bailout plan to Congress and, I might add, a mob of very angry constituents. The drama ended today with the House of Representatives voting to reject the plan.
Paulson’s bailout plan has forced Main Street and Wall Street into a really ugly confrontation, and if you think I’m overstating this, read the comment sections attached to the New York Times editorials. Those comments are running at around a thousand or more each day. Wading through them, I found not one that said anything remotely resembling, “Thanks Hank! What a great idea! Thank goodness we have a smart guy like you in charge at a terrible scary time like this!”
Before rejecting it, Congress had managed to negotiate some governmental oversight to be added to the plan (the original bailout deal specified no oversight allowed and complete immunity from prosecution) and also negotiated the addition of some provisions for helping homeowners in foreclosure refinance and stay in their homes. Still at issue were CEO salaries and consequences for banks and lending institutions that avail themselves of the Paulson plan to buy up the worst junk on their books: mostly dubious and impossible-to-value mortgage-backed securities, credit default swaps, and other weird, overly creative investment vehicles that threaten to bring the U.S. economy to a catastrophic halt.
What was emerging, as Paulson’s request sunk in, was an incredible amount of public outrage. Initially, the request was for Congress to push the bailout plan through in a day, if not sooner, or suffer dire consequences. It didn’t take long for the American public to start calling their representatives nonstop to let them know that they would, personally, rather suffer dire consequences than hand over $700 billion in taxpayer money to a Wall Street investment banker on the strength of two words: “Trust me.”
Putting dire warnings and assurances of fiduciary responsibility aside, there was no guarantee that this plan (which was literally cobbled together overnight) would work. Comparisons have been made between Paulson’s plan, or, as NYT columnist and Princeton economist Paul Krugman calls it, the “Cash for Trash” plan, and the Resolution Trust Corporation of 1989. The RTC took home mortgages seized during the savings and loan crisis of the late 1980s and sold the homes attached to those mortgages, eventually recouping some of the money lost in the S&L failures. The markets stabilized, and the RTC was widely credited for helping to get the economy back on track.
The original RTC took in $225 billion worth of bad assets and sold them for $140 billion over time, reducing the actual taxpayer cost of that bailout to around $85 billion. But the Paulson plan was widely expected to top $1 trillion for the initial purchases, and there is a big difference between the assets seized then, which were backed by real property, and the assets clogging the books today, which are so complex and poorly constructed that decoding what backs them and where that property might be has become a nightmare in its own right.
No one knows the actual value of these assets, or if they even are assets, and whether they will ever have any resale value. If they are purchased too cheaply, banks will have to declare large losses and may fail anyway. If they are purchased at too great a cost, it amounts to handing over taxpayer money to the very institutions that created the problems in the first place.
Acknowledging the difficulty in valuing and purchasing these junky securities, Paulson’s solution was to hire investment analysts from the private sector to broker the deals and to protect the brokers and the buyers under a cloak of immunity from scrutiny and prosecution. The appeal of such an approach for Wall Street is obvious. On September 19, stocks rebounded insanely, causing even sympathetic investors (the few that remained) to recoil in disgust. But what was the appeal to taxpayers?
The appeal was, “This will stop The Great Depression II from happening.”
Whether it will or won’t, Congress has killed the chance to find out. For now.
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years) could see his or her credit limit arbitrarily lowered and then exceeded before even realizing that had happened. Sometimes, just the interest accruing on a large balance will exceed a lowered credit limit before a customer has any time to do anything about it. Once the limit is exceeded, the credit card issuer can and will hike the interest to 32%, charge over-limit fees, and push the customer even closer to default.
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