On Tuesday the stock market rallied and the Dow Jones Industrial Average gained 379 points on the news that Citibank posted a profit for the first two months of 2009. The idiot talking heads practically broke into choruses of “Happy Days are Here Again” and the Obama administration immediately declared its economic plan a success; both parties ignoring the fact that we have the lowest Dow in two decades and the highest unemployment since Jimmy Carter.
What’s not being reported is the reason Citibank was able to post a profit.
Since Citibank is into you, Mr. and Ms. Taxpayer for $350,000,000,000 ($350 billion) – What? You thought it was only $80 billion? Wrongo, Mr. and Ms. Taxpayer, not only did you loan Citibank $80 billion, you also guaranteed $290 billion in other people’s loans to Citibank. People like Saudi Arabia and China. That’s right, not only are we stuck with the bad investment decisions made by Wall Street greed heads and U.S. Government @#$%heads, we’re guaranteeing loans anybody, anywhere invests in our failed financial institutions. The tab is about $8.9 trillion so far.
And you thought those folks buying guns, ammo and freeze dried food were the fools.
So anyway, what did Citibank do to turn a profit?
Did they overhaul their business practices to insure long term stability?
Did they fire the morons who got them where they are and replace them with prudent and cautious managers?
Did they reap the rewards of newly found investment acumen?
They stuck it to their card holders.
It’s called “ratejacking.”. If you examine the fine print on your credit card cardholders agreement you will see that your friendly neighborhood multinational bank can raise your rate to (usually) 32% without any reason whatsoever aside from the fact that they feel like it. In some cases the rate can go as high as 65%. That’s right, 65%.
It doesn’t matter if you have always paid every bill on time and never been over your limit or even close to it, your rate can go as high as the bank feels like raising it. That’s exactly what happened to almost every Citibank cardholder, including a friend of mine. She never missed a payment and has never been halfway to her limit, but her rate went from 12% to 27%. As the nice man from India explained to her in broken English, “read your contract.”
That’s not the end of the story, however. As some credit card holders are unfortunate enough to already know, and tens of millions more are now finding out, When your rate goes up on one credit card, all your other credit cards and revolving accounts will probably follow suit. Their logic works like this: “We know they never made a late payment, we know they never went over their limit, but since that other credit company wouldn’t just arbitrarily raise their rate, they must have done something, therefore, we’ll raise their rate.”
So now my friend is paying $100 more a month even thought she followed all the rules.
We give Citibank $350 billion and they give us the middle finger. Nice.
Congress could have prevented this and could stop it now. All they have to do is tell Citibank and all the others to reverse course and retroactively eliminate the rate hikes or live without government funds and loan guarantees. But they won’t. Congress, as P.J. O’Rourke observed, is a parliament of whores, and I’ll add that the banking industry is John #1.
One final note for the Wall Street geniuses and the Obama administration: When a stock that was at $55 two years ago rises from $1.04 to $1.43 it’s not a rally, it’s a death rattle.