Is greed still good?

If you close one door, another one opens. A recent article in the NYTimes on credit card companies and credit unions going to desperate lows to make money, was appalling and gut-wrenching.

Several of these banks were bailed-out by the federal government’s TARP program. For many of them, it was greed and an unapologetic willingness to rip-off the customer at any cost that brought them to that stage. You’d think they learned something from that. You’d be wrong.

Not only are they charging exhorbitant fees (3250% in one case), they do other things that any reasonable individual would consider unethical – re-arranging transactions so the highest charge is paid first, leaving the customer with no balance, and therefore triggering an overdraft fee.

From an “economic thinking” perspective, regulating this would be bad. Supply-side economists would say that by regulating this industry, consumers who have a need for this overdraft with ridiculous fees would not be able to get them. But are the customers really asking for this? Or are they simply opted-in by default?

Which brings me to a bigger point – why are default opt-ins even allowed? In you look at any industry – travel, credit cards, phone companies, advertising – an optional opt-out is always a ploy used to sucker somebody into giving up something that they may not be willing to do so if asked. It’s just as bad as those other scourges of commerce – mail-in rebates and “new & improved” products that hold less but cost the same. If you really want to give me a discount, just give it.

When this topic came up for discussion recently in class, it was interesting to watch how most students reacted. The general feeling was that it was the consumer’s responsibility to watch out. Companies had absolutely no responsibility to be transparent about unit costs.

Made me wonder – if the MBA students from Gecko’s generation brought us to this recession, where will this generation take us?