How to cure the current credit crisis quickly

Discussion in 'Economics' started by RiceRocket, Aug 25, 2008.

  1. I've been pondering the credit issue lately in the economy. Since financing for houses has basically collapsed, Ie, no bank will loan money for houses right now; credit cards will be the new way to expand credit.

    Hear me out, if the federal reserve could get credit card interest rates down to 4-6%, we could have a huge expansion in credit, which would alleviate many of the current wall street contraction issues. The federal reserve is recapitalizing this econonomy like the firemen trying to put out the wildfires in Nocal this summer. But, they are not able to get that area of the financial system to channel credit to the rest of the economy.Considering this, also note that the one area that's still expanding credit would be the credit cards. The only problem is that consumers are reluctant to really tap into their full credit lines within their credit cards due to the ridiculously high interest rates.

    I know the argument against this would be: how could you entice the banks to actually lower credit card interest rates? In all honesty, I have no clue. But the federal reserve has absolulte power right now within the american financial system. They could easily persuade congress to pass a regulation setting a cap on interest rates on credit cards. You may object that this would only create a tightening credit within the credit card companies. But, if the fed in all their wisdom were to offer a derivative contract to be created for the credit card companies to bet on or against their risk level, you could provide a solution, a way for the credit card companies to pass on risk, so they could easily expand credit without fear of default.
  2. Most people bought a rope with their credit cards and you want to expand it so they can buy a gun and a bottle of Night Train. It wasn't too many years ago the cap on credit cards was around 12-18%
    The reason the raters are so high is the default rate with no security for the lender, ie risk/reward
    I wonder how many of the sub-prime people used the cards to pay for closing costs.