Monday, February 2, 2009

Citi - A Personal Tale of Moral Hazard...

I'm fighting the good fight in my tiny little corner of the economy. A simple business transaction between me and Citi is a perfect example of the problem with abandoning free market principles in the age of bailouts. Please read on...

I got a notice about a massive rate hike in my most recent Citi Mastercard statement. My base APR was going from 9.24% to 24.99%. If you are a Citi customer, I encourage you to carefully examine your statement for such a notice. Apparently, this is across the board.

For the record, I've been a cardholder with them for 5+ years, and have never been late on a payment. I carry a modest balance from month to month, and pay just above the minimum balance. In short, I should be their perfect customer.

I can't see the business sense in sticking it to some of their best customers... the kind of customers that a credit lender should love. Don't get me wrong, I'm not asking for some sort of sympathetic good will out of a bank, but why drive the likes of me away? I'm a sure thing!

So, considering how little I use the card (mostly a few big purchases in the form of tuition and books a while back, and the occasional mp3 or book from Amazon), I immediately decide to call them up and "opt-out" of their new terms. This will freeze my current rates, and close the account. So what is the likelihood that those people that didn't notice their rates tripling will be in a better position to make good on their debt to Citi? I can't be the only one closing my account with them, can I?

Being none too happy with the idea of giving Citi interest money on a credit card I can't really use anymore, I call up Capital One, apply for a credit card with 0% APR on balance transfers, get accepted (for twice the credit line I had with Citi... so much for the "credit freeze"), and transfer the entire balance. Sweet Justice. I have left a company whose terms were unacceptable to me, and started a relationship with a company whose are. I have voted with my wallet. Good decisions by a smart company are rewarded, bad decisions by a foolish one punished. Victory is mine. Or is it?

I turn around and catch the news that, in the midst of a $45 Billion bailout of Citi, paid for with our tax money, they're trying to buy a $50 Million French luxury jet. Yet another poor business decision by a foolish company.

So I'm paying Citi anyway, with tax dollars, and (if you live in the United States) so are you, whether you are a customer of theirs or not. A company making poor decisions is not being punished for those poor decisions. Instead, it is being rewarded with a taxpayer handout. This is the very definition of "moral hazard", and it is being repeated many times over right now in Washington.

I sincerely hope that Americans will not let their fear get the better of them, and blindly go along with whatever plans come spilling out of Congress. Regardless of your politics, look at legislators with a critical eye, and don't let their P.R. campaign of fear ramrod bad laws down our throats. (Sounds almost like the Bush administration, doesn't it? Meet the new boss... Same as the old boss...)

The Government has determined that Citi is "too big to fail". I have determined that they are too stupid to succeed. Of course, they have better lobbyists in Washington than I do.

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