Comments on: WTF?

By: Mike

Mike — Mon, 27 Apr 2009 17:33:52 +0000

Whoops: I, being a ranty lefty, was, of course, saying that consumers are particularly _not_ well positioned to negotiate Universal Default risk modeling.

I really want to see (conduct?) some high-end credit card IO stuff. Once you pull back the first curtain, the industry is a very crazy place to research. You are definitely right about PCs in that example – I’m not sure if credit card companies offer better features to the businesses that swipe their cards now relative to 10 years ago for the increased fees. Arguably better frequent-flyer miles type stuff?

By: pushmedia1

pushmedia1 — Mon, 27 Apr 2009 06:20:27 +0000

“I think that interchange fees are increasing while the scale and technology is increasing/improving is almost de facto evidence of price fixing.”

I’m not an IO guy, but this doesn’t have to be evidence of price fixing. If quality of interchange is improving (whatever that is, but it would mean consumers are getting “more” product) then you’d expect a broken link between marginal cost and price. People are just selling better products. The example I know more about is PCs. The average PC sold hasn’t gone down in price that much (relative to Moore’s law) but quality (e.g. CPU cycles per second or whatever) has skyrocketed. On a per-quality unit basis, prices have gone waaaay down. I don’t know the equivalent metric for cc interchange (in fact, I don’t even know what interchange is!).

I think the typical measure of competitiveness is the Herfindahl index. Calculating one for this group of companies (which, no doubt, is the wrong set of companies as I know nothing about this industry) shows only very mild concentration.

By: Mike

Mike — Mon, 27 Apr 2009 04:22:16 +0000

Credit card stocks profit off the interchange fees, not the consumer balances, so even if Obama was dropping a hammer I wouldn’t expect to see cc stocks down. Those are the banks which collect that, and given that writedowns are leading unemployment figures, I think they have other cc issues to deal with. I think that interchange fees are increasing while the scale and technology is increasing/improving is almost de facto evidence of price fixing. (I also think businesses aren’t allowed to broadcast their interchange rates by contract, killing the Hayekian information arguments – but I need to see how true that argument still is.)

On the consumer end, I think Universal Default, which that conference was talking about, is the grossest example of cartel building. And I do actually think consumers are well positioned to handle this, if only because arbitrary actions can effect FICO in a manner that shoves them, in a manner they feel is arbitrary, into higher risk categories – and cause their rates/limits to change in a stochastic manner.

By: swong

swong — Fri, 24 Apr 2009 17:47:26 +0000

I was just declined on a simple credit card application, so I’m getting a kick out of this post.

I think the issue is how your interest rate can spike under certain conditions with many credit cards. These conditions are often buried in small print and camouflaged in complex financial terms. National consumer debt is on the high side, and it’s not always because people are ringing up plasma TVs on their Mastercards.

On the one hand: It’s easy to pull in new customers by advertising 11% interest rates (rising to 24% during periods when Neptune is approaching apehelion if the remuneration schedule exceeds deadline by .03% of 10 fiscal years starting in FY2006). Maybe there’s cause to push for clearer terms, if that’s the direction they are pushing in.

On the other hand: caveat fracking emptor.