My Glimpse Into America on the Skids
Margin trading takes on a whole new dimension in the hand-to-mouth U.S. of A.
A little break from Russia’s economic crisis and adventures in Syria…
I called one of my credit cards for some routine matter.
Before letting me go, the company’s representative on the phone made a pitch, evidently reading from some kind of script or talking points.
It went as follows:
Me: Oh yeah? What’s the interest on that?
Phone rep: Well, it’s zero interest for thirteen months. It’s a really great offer we’re able to make. Also there’s a four percent transaction fee, minimum of ten dollars.
Me: OK, and after that?
Phone rep: Well that would be 14.35 percent annually. But you can pay if off within 13 months and not pay any interest. It’s a great way that a lot of customers have been using to pay taxes or make investments.
Me: So basically, my investment that I’m funding with your money... If I want to pay you in full after 13 months plus let's say one year, paying just interest during that year... Given your transaction fee, I'd have to find something that returns 18.35 percent within 25 months just to break even. I dunno. Thanks anyway.
Phone rep: I understand. Well, just keep it in mind. It’s something that a lot of our customers have been using. Is there anything else I can do for you?
I haven’t named the credit card brand or servicer because, who knows, there could be a non-disparagement clause in the fine print somewhere. I’ve even changed the interest rate by a few hundredths of a percent. (You can’t be too careful.)
Suffice to say, someone up in management is a vampire.
I just hope that some of these “lot of customers”, if they exist (few people would tell the credit card company what they need the money for), can at least break even on their half-assed investments.
(Also note, that 18.35 percent does not include any transaction costs on the investment side. So the hypothetical break-even could be closer to 20 percent.)
Of course, for Americans, cash offers from credit cards are nothing new.
But this is the first time I've heard them trying to convince you to gamble with their money.
It's a landmark of sorts.
So what's the take-away?
Nothing too original. Only that the sheep are always fleeced, and Wall Street always comes out ahead.
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