Wednesday, August 13, 2008


(Week 3 - Wednesday Aug. 13)

I recently watched the Frontline report on PBS titled "Secret History of the Credit Card" (available online). I found it to be a well produced piece that presented the story of this new fixture in our financial lives from its corporate beginnings in South Dakota, to the plastic phenomenon that has spread to every level and niche in society. It was a balanced and well-researched presentation that, as far as I could see, strove to include voices from all sides of the credit card question.

That said, there was one factor that was, to my mind, conspicuously missing. That is that nowhere was it mentioned that when a consumer uses a credit card, he is, in conjunction with a bank, causing new money to come into existence. Nor did I detect any indication that such a thought was even a glimmer in the minds of the producer, or any of the people in the film.

There were experts that offered sober advice about how to use credit cards responsibly. We do live in a time when they appear to be part of our financial lives (for better or worse), so how could one argue against being prudent in their use? I certainly could not. There seemed to be an underlying assumption, however, that if only we could use them "responsibly" we could keep them under control. This seems reasonable if one takes a short term view of the matter. It is problematic if one takes the longer view.

The truth is that any level of usage (assuming one does not pay off one's balance each month before charges apply) unleashes, given enough time, financial pressures into the lives of people (both the cardholders and others) that tend to drive them ever deeper into "debt." This is true especially given the astronomical rates of "interest," fees and penalties that credit card companies tend to charge.

The source of this pressure is, as for all bank loans (which a credit card transaction is), that the money to pay back the principal of the loan is issued with the loan and retired with the payback, but the money dedicated to "interest," fees and penalty payments is recycled through the financial markets and reemerges as yet more consumer "debt." If we are to think through to the end the full implications of credit card use, this is a factor that must be fully taken account of.

None of this is meant as a criticism of the Frontline producers or their show. On the contrary, I thought it was an excellent, informative and entertaining presentation, and I would not hesitate to recommend it to others. I say this despite the fact that this most central element of the credit card transaction went completely unmentioned in the report, and as far as I could tell, unnoticed.

My remarks are intended, rather, as a commentary on the irony of a culture that is utterly immersed in money and "debt," and yet does not see the private-bank-loan elephant in the room. Viewed with fuller awareness, this Frontline documentary can serve, not only as an excellent chance to learn more about the credit card phenomenon, but also as an object lesson for what our culture has become blind to in our financial lives. When we integrate the two, we will start to come to answers about the credit card dilemma.

Richard Kotlarz

The complete set of columns from this series is posted at the following websites.