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Tom Geoghegheghegan takes a look at how the credit industry has changed:
Think back to the dueling bankers in the Frank Capra movie It's A Wonderful Life. There's mean Mr. Potter and nice George Bailey, and both of them want their loans to be repaid. The professors in our law schools used to wag their fingers and state the golden rule: "Ladies and gentlemen, the loan must be repaid!"So both Mr. Potter and George Bailey wanted to lend only to people of good moral character: After all, in that innocent and regulated era, they could only loan out money at no more than 9 percent. If you can only lend at 9 percent, you want the loan repaid.But when Visa and MasterCard came in, and banks could lend at 17 percent or 18 percent or higher, then only the bankers who still wore morning suits and spats wanted the "loan to be repaid." Suddenly, with deregulation, the banks were no longer subject to interest-rate caps at all. Liberals on the Supreme Court hurried this deregulation along. In the 1978 Marquette Bank ruling, Justice Brennan struck down any state law that tried to regulate the interest rate on a Visa card from a "national" bank, subject to the National Banking Act passed at the time of the Civil War.Today, bankers don't want the loans repaid. After all, if you can charge 700 percent on a $100 loan, do you want the loan repaid? That may be an extreme case, but everyone knows that the big banks offering Visa cards and MasterCards don't screen for moral character. They don't want good moral character. Our way of life depends more and more on people not having good moral character. That's why instead of dressing in our best to ask Mr. Potter for a loan, we get credit cards unsolicited in the mail.Right. We long ago decided it was normal for everyone from the indigent to the underage to get daily credit solicitations, but if you transported a banker from the 50s into the present and asked him to evaluate your credit industry based off no information save that little tidbit, he'd have probably foretold the credit crisis pretty quick.
