The big business of reselling securitized credit card debt

Why have credit card interest rates stayed so high over the last year or two even as the Fed cut interest rates? Why have credit card companies increased penalties for late payments, changed billing cycles to try to increase the number of late payments and more?

To generate more debt that can be securitized.

Now, because so much consumer debt is packaged into securities and sold to investors, repayment of the loans takes on less importance to those lenders than the fees and charges generated when loans are made.

Yep, MBNA, Capital One, et al, have been looking for their seats on the CDO gravy train.

And, loyal Democrats, don’t forget to thank Sen. MBNA, Joe Biden, for his part in this:

Not surprisingly, such practices generated dazzling profits for the nation’s financial companies. And since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent, according to a new study by Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School.

The “2005 bankruptcy reform benefited credit card companies and hurt their customers,” Mr. Simkovic concluded in his study. He said that even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.

The complete story is eye-opening as well as scary. And, loyal Dems, folks like Chuck Schumer will join folks like Joe Biden in protecting the financiers of our country.