The Cycle of Debt

We're here talking about bailouts and economics and the sinking of the Dow, but there is a part of the equation that's being missed. In the middle of all of this, you hear about banks saving other banks so that they don't crumble.

The federal government takes on some of the burden, but the rest falls on their shoulder. Instead of taking that on their own, they bring their customers into it. Here's an example:

You have a credit card from Bank X, you love it. They give you $10,000 in credit at a great rate that my be variable, but you don't care because it's a great rate and the Fed hasn't touched rates lately. You're having problems with your mortgage, so you use you $10,000 in credit to help buy you some time. In fact, Bank X loves you as a customer because they get a hefty finance charge for all of the products you've been buying, so they raise your limit to $20,000.

Bank X, buys Bank Y and in doing so they write down their bad mortages and get the government to help them if more mortgages go bad than they think they'll be. They got Bank Y for a deal, but they're in the business of making money so they have a great idea.

They are going to raise the interest rate on your credit card, they were making a lot off of you before, but they'll make even more on you now. The extra money they'll get from higher interest rates is nothing compared to the money they'll get from the over the limit charges and late fees they'll get from you. It isn't just you, Bank X is doing this to customers all over the country and they don't lose.

They get to write debt down, or scrap it completely and let credit agencies deal with you or you pay it all and they still make the interest off of you. If you are having a problem with your mortgage, this is most likely the straw that breaks the camels back.

All over America, this is going on and in the end banks profit. The commercials make them all appear that they are your friend and goto source for funding but there's a heavy price to pay.