A historian’s look at credit card reform

Marketplace Staff Feb 19, 2010

A historian’s look at credit card reform

Marketplace Staff Feb 19, 2010


Tess Vigeland: Finally, we’ve explored what the credit card reforms will do, what they won’t, what consumers think about them, what bankers think about them. But there’s still one big question mark out there: Will these changes have any long-term effect on our behavior as consumers? It’s hard to answer that without a crystal ball in front of me, but maybe we can learn about the future by looking backwards.

John Steele Gordon is an author specializing in the history of Wall Street. John, welcome to the show.

John Steele Gordon: I’m glad to be here.

Vigeland: Now your specialty is financial history. So, I wonder looking back, is there any evidence that shows that reforms like this, big changes in how things are done, actually have a lasting effect on people’s behavior?

Gordon: Oh, I think so. I mean, not so much in finance, perhaps, although, the reforms of the 1930s made the American economy very prosperous once the Depression was over for an awfully long time. I mean, before then, we had crashes about every 20 years. Well, the next crash after 1929 was 1987. In other ways, for instance, in New York City and many other cities now, restaurants have to post the calories that each dish has. And they found that it causes people to order fewer calories. It’s actually changed their behavior, so I think it’s a good idea, where every month when you get the bill, it tells you how long it’ll be for you to pay off this debt, if you only pay the minimum.

Vigeland: Right. Because you don’t generally bother to do that math.

Gordon: No, of course not. You know, it’s laid out in front of you. Until then, it’s very easy — you know, you go into the store and you see this neat new gadget, and it’s so easy to just take out your plastic card and hand it over, and you don’t really think through how much that’s going to end up costing you per month or whatever. And now it’ll tell you, and hopefully, people will get a little more self-disciplined.

Vigeland: Less likely to overindulge in your credit, just like overindulging on food.

Gordon: Right. You’ll buy fewer Big Macs.

Vigeland: Right. Now, you have said in various sources that, while there was a lot of blame spread around for the financial crisis, a big part of that blame goes to traders and bankers who forgot that yields are not guaranteed, risk is not eliminated, but I wonder what about consumers. What kinds of things did we forget about money management over the last couple of decades at least?

Gordon: Well, I think one thing is that we were very prosperous for so long that people began to think, as they do at the top of the business cycle, that the sky is blue and everything’s going to be going up forever. And they forget there will, at some point, be another rainy day.

Vigeland: We have, I think, learned a lot of lessons out of this. People are already changing their behavior. I think folks are saving more for that rainy day, having a nest egg; you know, this notion that you can’t spend more than you earn. I wonder do those lessons last right now, because we are in, still, at least the very end of a recession and certainly in somewhat of a down market? If things get better, are we going to forget all that?

Gordon: In time we will. The individuals who were severely burned by this, they’ll never forget it. But those who somehow escaped this time, may forget it, in order to be burned next time.

Vigeland: So when we look at the past and lessons from the past, what can we tell from history about whether this legislation will work and will prompt us to change our habits, or is human nature just too strong to overcome?

Gordon: We get better every time. We learn from our mistakes and that’s a very human trait. No ship has hit an ice berg in the North Atlantic since the Titanic. Disasters repeat, but never the same disaster. We find new ways to screw things up.

Vigeland: And it sounds like you’re fairly confident that that’s going to happen again.

Gordon: As long as humans are humans, it will.

Vigeland: John Steele Gordon has been with us. We’ve been talking about the credit card legislation. Thanks so much for your time.

Gordon: OK, thank you.

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