Interest Rates, And How To Survive Them! What Can Change?

As a young and eager banker, 30 years ago with the zeal of preacher, I railed at the sin of over extending debt by the easy use of credit cards. One day, a couple sat in my office, desperate for help. He was a well paid pilot for the Moncrief oil family, jetting them around the country to make their next million and his wife a hard working business owner. Yet they were broke, or near broke, because they were addicted to the use of their credit cards. "What are we going to do? Every penny we make, goes to pay credit card debt, and the rate is horrible. They are charging us 18%." (That is when there was a usury law, that kept banks from overcharging. It was later quietly destroyed by lobby efforts of the giant banks).

Debt Has Become a Burden to Millions, Because of Giant Bank PolicyI said: "Pull out your credit cards, let me see them. Put them on my desk." He pulled out one, two, five, then 8 credit cards. She pulled out 6 more. "Is that all of them?" I said. She averted her glance, so I looked at her, and said: "Is it?"

She pulled out one more and said: "This is my Neiman Marcus card, can I keep this one?" I just looked at her, as she slowly put it on the desk.

I opened my desk drawer, took a pair of scissors, and heard them gasp as I cut their credit cards to pieces.

In those days, bankers could do things like that. We were taught that part of our job was to "protect" our clients from getting into trouble as well as to help them work out of difficult situations.

Then I said: "I am going to make you a loan for $46,000, and consolidate all of your credit card debt into one loan at 7% interest. This is a simple interest loan. Your payments will be about half what you have been paying. It will take a few years, but when you have this loan paid off, you will have saved $24,000 in interest, your credit will be rebuilt and you will be free of this nightmare."

I saw them a few years later. They had paid off their credit cards. They found their cash flow was so much more, that they had remodeled their house, put in a new swimming pool and seemed happy. They thanked me again and again for cutting up their credit cards.

"That day when you cut up those cards, we nearly died. But you saved us financially, and you saved our marriage too! The high rates were killing our lives!"

I became a preacher of destruction. Destruction of credit cards. I was the banker with a pair of scissors. "Credit cards are set up by men, who like drug dealers want to hook you into using. Use more and more, until you are destroyed. Then, when you are hooked, they raise your As they increase fees and interest rates, and they will take everything you have." I said once on a national radio broadcast. In that broadcast I urged people, coast to coast, to cut up their credit cards. "Send me your cut up cards and I will send you an autographed book, free." I got letters for months after that, and sent unnumbered books around the nation. I still have a container full of cut of credit cards in my mementos. 

Frederick NietzscheThere is an old line from Frederick Nietzsche: "He who fights with monsters might take care lest he thereby become a monster. And if you gaze for long into an abyss, the abyss gazes also into you.”

Nietzsche, was that rare human, that forced us to ask the questions about ourselves and see our deepest weaknesses. He was a man who forced us to look into the mirror and recognize the hard truths of existence.

Nietzsche's words always haunted me. I thought about all the things that I believed in and all the things that I hated, and a frightening thought, was the thought that I could become what I hated most. I said out loud, "No that will not happen to me."….but secretly, in my heart Nietzsche's words made me wonder. You know, truth words are like that, they make us uneasy, angry, or even happy. Truth hits nerves.

It has been 38 years since that young, eager banker, cut up those credit cards and smugly preached the message ofthe danger of the credit card system and how it invited, often addictedpeople into dangerous and ruinious situations. And in those years, I must report to you, that Nietzsche's dragons, the abyss looked into me as much as I it. True, many of those things that I hated and preached about with such zeal, even impacted me.The truth of our weakness and failures is the hardest truth of life to admit. But, if it can happen to me, it certainly has happened to tens of millions of others. This I write, as truth, and as good advice for you, your friends, loved ones and associates.

How it happened, I am not sure I can say. But, years of hard work and good fortune, had made me a constant user of credit cards. As a bank executive and bank President for more years of my life, than anything, I gained a habit of taking clients to lunch and working business deals out over breakfast, lunch and dinner. The company paid the bill,because it was an effective way to conduct business. I got into a habit of never carrying cash, only credit cards. When I started a business of my own, the same habits stayed with me. Only now, I was the company paying the bills. One day, I bought an airplane with a credit card. I travelled the world, more than most people, circling the globe for business and pleasure, visiting over 16 nations one year. My credit cards reached higher and higher, but it was OK, because business was good, and from time to time, a good deal would come through, and I would pay $10,000, $20,000, or $30,000 down on the cards. Life was good and I never lacked ability to earn money.

Then one day, an unexpected wave washed over me. My executive secretary took a few days off to spend Spring Break with her children. She forgot to mail out the checks to my credit card companies. A few weeks later, I got a note in the mail from Citibank, that they had raised my interest rate on my credit cards to 29.9%.

Now, figure this. At the time most of my credit cards were at 7%. I was effectively paying a moderate amount in interest. I called and told them that there must be some mistake, my credit was perfect, they should lower therate. they said: "Oh you have had perfect credit for 20 years, but our new policy is that you must now re-earn your good credit, for at least 6 or9 months, and we will not lower your rate until you do. If you are good,we may lower your rate, if you qualify.But your credit score has to good. But then I got another letter from Citibank informing me, that they had dropped and lowered all of my credit lines, and suddenly, I had a loan ratio of 90% loan to loan limit. This artificially caused my credit score to drop. They had by two steps, manipulated my credit score so they could charge 29% instead of 7%.

A few weeks later, American Express wrote, and said the $50,000 line of credit, which I had enjoyed for over 20 years had been reduced to $500. Master Card, Visa, Chase, all fell in line, like dominoes wrote and said: "Your credit score has dropped, and so we are raising your rates to 29.9%". Within a matter of 45 days, my annual interest on credit card debt increased from 7% to 29.9%. I had been proud to have perfect credit, superior 'gold and platinum' credit, for 40 years. Suddenly these guys had by a stroke of the pen, artificially made me appear to have bad credit. It was frustrating, depressing, it made me furious. Inow realize it was just a strategy to charge higher rates, in spite of the new "credit card protection" law.

The credit card companies, in spite of the new "consumer protection credit card laws" that had just passed, had artificially, transformed me from a businessman with perfect credit, to a credit score drop of 100 points in less than 60 days.

I mentioned it to my banker friend, Gary Noel, and he said; "The credit card system is an evil system, set up to take advantage of people. More people have been ruined by it than any other system."

American ProblemWhen he said that, it reminded me of that eager young banker, 38 years ago, who said the same words to so many people. But then, the credit card companies could not charge over 18%. There were regulations and laws to limit their service fees. Today, as a result of concentrated political lobbying and manipulation of the system, they charge outrageous rates and fees crop up for a myriad of "services". Rates on credit cards from our biggest banks are now higher than the old sleazy pawn shops once charged. American Express charged me 34% one month. Unbelievably, we got a mailer last week from a credit card company offering new cards, but with an annual interest rate of 54%.

These words are difficult to write, it requires some "eating of crow" to share this hard experience with you. I write them as a gift to you, or anyone you know who is in danger of credit card addiction. Perhaps this is a story that will illustrate the evil and danger of the system.

CitiBank was on the verge of failure a decade or so ago. They created a specific strategy to move into the credit card business, but to also take steps to engage tens of millions of Americans into a web of credit, insurance, investments, and sub credit, that would weave families into an interlaced web of control. This plan was implemented to allow Citi to extract thousands of dollars a month from millions of American families. The first step, was "a taste" of easy credit, by making their credit cards easily available. They then took over the credit systems of national chair retailers, companies such as Home Depot, Circuit City. People might have a dozen or more "Citi" accounts without ever knowing it. But, Citi knew. Indeed no one knows how much about the lives and patterns of family trips, meals, shopping, even recreation and lodging, that big financial institutions have accumulated on millions of Americans.

When the law was passed to prohibit big banks from charging exorbitant interest rates, big banks put their "hired guns" to work. Their lawyers found ways to get around the law. They were changing procedures and tactics to subvert the law, before the ink was dry on the new law.

They created unethical ways to by-pass the intent of Congress and intent of the American people while charging horrific rates. CitiBank, which had taken taxpayer "bail out" money, to avoid failure for poor practices, led the way for other banks, showing how to "addict" people to their credit services. Like a drug pusher on the street, Citi excelled in exploiting ways to extract every dollar they could from their customers. Just like pimps and a prostitutes exploit their clients, or like drug dealers "push drugs" to addicts, with little regard for the lives they destroy. One difference is, that CitiBank isn't called a pimp, or a drug dealer. It is called, a bank.

Banks are required by law and charter and by public expectation to have a fiduciary duty, a responsibility to protect and encourage the financial stability and welfare of their community and their customers. That fiduciary duty, that sacred trust, seems to have been lost (or ignored) by the big boys.

Indeed they seem to have little, perhaps no regard for consumers, communities, or even for the United States. Because their practices have resulted in and contributed to the worst recession since the great depression. 9% of Americans are out of work, brought on by the fraudulent and sub standard quality loans and flaky "paper" they used to guarantee and resell these bad loans throughout the world. This is part of the cause of the economic collapse that we have seen in the European Union. The "Big Banks" remind me of playboys, using young girls, after they have thrown away their condoms. They simply don't care about the consequences to those they "use". Indeed, as much trouble as the banks have caused for everyone they touch, they have resorted to charging the American people higher service fees, rates, and charges with inventive and creative abandon. The big banks are putting the burden of repaying all of their sins, on the backs of the American consumer and small business.

Now, understand this. I am not whining. I take responsibility for my actions. But what I am warning you of, from the perspective of one who has founded banks, managed banks and understands the "inner" operations of the system. I have sat in board rooms from Texas to New York, from Frankfurt to Dubai. I understand how these people think and how they work.

As a person with banking in my blood, I am reporting to you, calling out an alarm. This system that is a stacked deck.

It is a table that is already leaning with the odds firmly in favor of the big banks, that have a different concept of integrity, no compassion, no loyalty and do not stress high minded principals. They simply wish to suck every dime they can out of you, the consumer. If they bankrupt you in the process, they do not care. They will do so, because the "process" of the "system" is set up legally in their favor. The system may be (and in my view, is) corrupt.

When laws are proposed to try to control them, they cry out, and pay their political mullets, to sound the alarm, and shake the walls with wails of "Regulation. Dreaded regulation. Evil regulation. Don't regulate us, it is un American"

The American people have forgotten that it took regulation to protect us and break the Monopolies. It was Teddy Roosevelt who said that if big business was not controlled, and regulations were not put in place, TO PROTECT US,that every American would be no better than a slave to giant monopolies, big business.

The giant banks such as CitiBank, are perhaps worse than the monopolies that Roosevelt devoted his life to controlling and regulating. Franklin Roosevelt, Dwight Eisenhower, Harry Truman, Richard Nixon, Robert Kennedy and even Gerald Ford, all supported steps to control and regulate giant business. But the years since we have seen 2 decades of constant and steady deregulation, to allow them to 'get away with murder'. Financial and economic murder. Did you know that hundreds of businesses fail every day. Thousands of people have been forced to file bankruptcy every month. The small business failure rate has increased nationally to 40%. Only 25% of businesses that started in 1992, have survived to the present. And the failure rate in some states, such as California or New Mexico has risen even higher.

According to Professor Bob Lawless of the University of Illinois College of Law, there will be 1,457,787 bankruptcies in 2011. One of the major reasons for bankruptcy is high interest rates and changes in credit and lending policy.

We have read that over 10,000,000 Americans have lost use of their credit cards. Millions more have voluntarily cut theirs up and refuse to do business with the giant banks. The "Occupy Wall Street" group devoted a day to encourage people to withdraw accounts from the "Big Boys" and put it in credit unions and community banks. Reports indicate 600,000 Americans had closed their accounts with the "big banks".

Many people have voluntarily stopped using credit cards, and for the next few years many will work to pay, and pay. But, it might be instructive to consider this. What if millions of American who believe in hard work, and paying their bills, simply said: "I will not pay 29.9%. Charge me a fair and reasonable rate, and I will pay. But, if a law, or system is wrong, is destroying me and my business, why should I play the game?" I suggest that if enough Americans insist on re-negotiating debt, to fair and reasonable terms, perhaps the system will change. Leslie Mota works in loan renegotiation, ( and says: "We are seeing more and more banks willing to renegotiate loans, because they have so many that are in trouble." If the pimps and drug pushers, of finance realize that you will only play a "fair" game, perhaps they will come around to reasonable policies. The suggestion is that if our politicians do not have the courage or power to change the laws to protect us from the top down, perhaps we should, as a body, change it from the bottom up. The goal is to impact the system so that we will never have this problem to happen again. If enough Americans determine that they will not be exploited by 29% rates, or obscene service charges and fees, the big boys would change the system. If enough Americans said, that they simply will not pay until it is renegotiated to a fair and reasonable rate, that there is no profit in "jacking up rates", greed alone would drive the giant companies that issue these credit cards to change their policies.


Hmm. What a concept. It might be called, "Free enterprise". Making financial choices to negotiate the best rates. Of course the above suggests that you have something that our politicians in the Senate and Congress do not have. Courage and Strength to stand up. Can you say, "I do not care, and have the strength to let them ruin my credit score for a while." But I have an idea, that there will be legislation and laws that will help Americans to repair broken credit coming soon. Too many millions have been destroyed. Too much consumer spending, from cars, houses, even retail shopping has been lost, due to the credit destroyed, largely because of the tactics of the big boys. Their biggest hammer, is the threat of removing or destroying your credit. "If you don't play our game, we will take your credit cards away and ruin your ability to borrow money." Well, so what!? That might not be such a bad thing after all!

The next time I decide to buy an airplane, or a boat or a new gun or toy, I will wait until I have cash to pay for it. I have a work ethic, enjoy working, and will pay my bills. I have done that for all of my 64 years. My reputation is a matter of pride. Of course I will negotiate the best deal I can negotiate, and then when it is all done, I will rebuild my credit, in spite of unscrupulous banking practices and in spite of regulations that are inadequate to protect us from greedy giant banks. I may go back to my glass piggy bank, that my father gave me as a child. That piggy bank was something I understood, a tangible reminder of hard work, money saved, and rewards of industry. I don't feel kindly, and neither to the American people feel friendly to the tactics of the 6 tor 7 giant banks that have turned banking into a scam that smells more like loan sharking than respectable banking. You know, where I find respectable bankers. Community banks and credit unions. These people live, work and play with us, in our communities on a day to day basis. If I were seeking out the best bankers in the country, I would look to organizations like Prosper Bank, or Woodhaven National Bank, Ridglea Bank, in Texas or bankers like Ray Litherland (now in his 80's but still running his bank) with his "Community 1st" in Las Vegas, New Mexico. These are real banks with real bankers. They understand fiduciary responsibility and loyalty to their communities. Mike Melton, EVP of the Las Vegas Bank told me recently, "We monitor our customers and try to help them." A bank that helps! Now, that in my mind, is real banking.


But from that piggy bank, it is my goal, when I get through this poor economy, to see the day, when I have no debt.

People are upset with banksThere is one redeeming thought. I was in Washington D.C. recently. While there, I heard reports that management officers of a giant bank were trying to sell all their stock as fast as they could. I heard stories about internal conflicts and arrogant management. We have seen stories of the millions, perhaps billions of dollars of bad loans they have on the books, and perhaps in the "trillion or trillions" of exposure that banks, including CitiBank have in loans that they had made to European banks. Consider this, American big banks took American taxpayer bail out money and apparently part of that money went to European banks that are in trouble.

If Europe goes down, and many think that Greece, Portugal, Ireland, Italy and Spain are in trouble. The national systems are in trouble, and their banks are in trouble because of poor banking practices. CitiBank was recently fined, over $250,000,000 for fraudulent, or "inappropriate" bank practices, creating and selling pools of rotten investment portfolios which cost Citi's customers $700,000,000.00 in losses. This a pool of bad loans that Citi knew were bad, was largely sold to European investor groups. Now "interest free" loans of American money from our Federal Reserve have been made to Citi, to help them out. Interest free. (and consumers are being charged 29%????)

Now all of this takes us to the one good thought of this article. Years ago, I had a friend who owed a lot of money to a big bank in Texas. I asked him, how he felt about it. He said: "Well, I will last, and be around longer than that big bank will." And you know, he was right. That giant bank that he owed millions to, went broke, and my friend ended up settling his debt for a fraction, 40 cents on the dollar. I have an idea, that people in the United States, that have obligations to the banks, if they work hard, and do not give up, will exist longer than many of the giants. Because reports keep bubbling up, that the big boys (like we have seen above) are in trouble. Some have liquidity problems. Some have capital problems. Some have management problems and some have legal problems. And all of them, if they have to recognize and absorb all of the bad loans that they have made, may find that they aren't as big and powerful as they once were.

Certainly of the 'big boys", the largest banks in America, at least two of these will not exist as we now know them in a few years. I hate to say it, but the demise of some of them may not be all bad, because while it might cause a temporary jolt during transition, it might cause those banking offices, branches, and assets, to be taken over by community banks, and diversify the action back to heartland America, where bankers and investors who still do have a sense of loyalty to customers and community can take over. I haven't heard of any community bankers taking all of their bank money and putting it in exotic pools of crappie loans, and then selling the trash to others, have you?

Community bankers tend to take deposits from local people and lend back to local people. Local people that they know, live and work with. That is a true ideal of banking. One that we have gotten away from, but one that we desperately need in this United States. That scenario would create jobs, grow towns, and rebuild small business and the entrepreneurial spirit in America.