I mentioned the Elizabeth Warren presentation on consumer protection at the Make Markets Be Markets.

She was on Charlie Rose last week — here is a small excerpt of the appearance, with a related graphic:

“Credit cards, mortgages, car loans, check overdraft fees. This is all the stuff that you have to do in your daily life to survive economically.

And what’s happened is this is an industry where the business model itself has fundamentally changed. The way the game used to work — let’s start with credit cards. It’s the easiest way to see it. Back in 1980, the credit card agreement for Bank of America, 700 words, would have fit on that one sheet of paper that you’ve got in front of you.

Terms are clear. They kind of figure out well here’s your creditworthiness and here’s how much we have to charge, we’re a little worried about inflation, how much it will cost us to monitor it, we’ll make a little profit. It works. Mortgages are set up pretty much the same way, car loans set up pretty much the same way.

And what happened over time — we got rid of usury laws right at this same point in time — is that the credit card folks, they were the real innovators here. They said we could hold up one or two things in front of you — low, low financing, 7.9 percent. We could hold up free gifts. We could hold up a warm and fuzzy relationship. We’re just the people to do business with.

And then put what are called in the trade “revenue enhancers” back in the fine print, and we can make a lot of money because you won’t figure out what this product costs.

So that one page credit card agreement in 1980 has now grown to about 30 pages. And it’s not just 30 pages, it’s 30 pages of incomprehensible text. The fine print, the “whereas,” the heretofores.”


Comparison between 1980 and 2010 Credit Card Applications

Category: Credit, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “The Complexity Machine”

  1. flipspiceland says:

    Used wisely, credit cards or lines of credit that go with them, are a profit center for people with a calendar, and a suspension of cyincism.

    For years I maxed out over 15 lines of credit from periods of 6 to 13 months, over $200,000. ALL offering no interest for those periods.

    Invested the proceeds in closed end funds yielding anywhere from 10 to19% and paid off the balance a month before the interest rate kicked up. I Still do it but with the bank consoldations the total credit has been more than halved, and only two now offer zero interest.

    I know I’m not alone in doing this and I got burned a couple times with late payment fees and immediate increase in interest rates to ususrious levels, but promptly paid the entire balance off when that happened. All in all it was Money for a little something.

  2. flipspiceland says:

    …that’s cynicism and usurious….

  3. Taliesyn says:

    1st of all was so glad to see BR site this *great* interview with one of my personal heroes as well , Liz Warren. I can’t recommend viewing this too short interview enough , *but* then Charlie Rose saved me the trouble of advocating that he give Warren the honor of a flat-on full hour by saying that he wanted her back for a “full hour” when her schedule allowed to which she agreed. ( Can;t wait for *her* book along with Madoff whistleblower Harry Markopolous , “No One Would Listen”
    With that said the interview that BR sites was about so much more than just the credit card issue touched upon.
    case in point:
    CRose: ” Commercial Real, what are we looking at?”
    Warren ” 2,988 that , by the terms of their own regulators, are too concentrated in commercial real estate. These are the medium sized banks…..
    ….By the end of of this year *half* of all real estate loans will be underwater and they are coming up for reset in 11, 12, and 13…..”
    “…It’s the very banks that do small business lending who are about to get socked in the nose on real estate , commercial real estate losses ( 3,000 out of the 8,000 banks_her quote )…”
    “…We’re seeing banks that *don’t want to lend because they see *every* dollar that comes in the door and say I got to hold onto it to fill my commercial real estate holes or I will be going under …”.

    So much for the market prediction being *up* by end of 2010 if you loved what the home mortgage financial tsunami did for the economy. Here comes that other shoe dropping which , unlike dead cats , won’t bounce.
    All in all *great interview worth anyone’s 21:30 mins online at
    ( just click on *Recent Shows* and scroll down about 12 of the thumbnail images of the recent guests and watch for yourself and se if it doesn’t leave you wanting more )

  4. Taliesyn says:

    Further *sobering*quote from Elizabeth Warren interview”
    CRose:”…fear about this economy?”
    Warren: ” I *am* afraid. I afraid because of what i see in the *real* economy.
    I’m afraid because I don’t see books that are clean , balance sheets that have been cleaned up.
    I’m afraid because in Oct. of 2008 sect. Paulson came to the american people and said the problem is toxic assets on the books of the banks…*They’re Still There*…
    CRose ” although they’re worth worth more than they were…”
    Warren : ” Lucky Us…..I’m afraid because Sect. Paulson said there’s too much concentration in the banking industry and there’s even *more* concentration today than there was…before….”
    CRose” So bigness is bad?”
    Warren: ” It’s not that bigness is bad it’s that we’ve got *concentrated risk* and that’s was creates *too big to fail* and that’s creating distortions throughout our economy…..
    ..We haven’t yet put our feet on solid grate and begun to rebuild an economy we can believe in”.

    I leave you with that sobering evaluation from some one who job it is to dig down into all the info and report without any need to *cheerlead* the marketplace. No spin here.
    Have a good morning gentlemen.

  5. torrie-amos says:

    U could put in, the world for credit and it would be similar imho, complexity theory and efficiency

  6. philipat says:

    She should be persuaded to head up an independent CPA. Her message is so clear and incisive that it is difficult to understand how any rational person could not agree with her. But then rationality ceased to be of any relevance in Washington many years ago it would seem.

  7. constantnormal says:

    “It’s just bidnuss, folks … just bidnuss. Now pay up, or else.”

  8. constantnormal says:

    @philipat 8:19 am

    Having Elizabeth Warren at the helm of an independent CPA is the absolute last thing in Eternity that the banksters (and thus their lackies, the Congress and White House) want or will accept.

    Ain’t gonna happen so long as we continue to have the sort of co-opted, suborned goobermint that we have today.

    And THAT’s a Fact You Can Believe In.

    Wake me up when we get public financing of all federal elections, lobbyist contributions of any sort to anyone in government being a capital crime, and we have term limits for all elected federal offices of no more than 2 terms.

    I’d like to add barring from “serving” in federal office by relatives within two generations of serving public officials, making it illegal for siblings, children, parents, nephews & nieces, etc to follow in a relative’s footsteps into public office, but I know that busting up the traditions of hereditary “leadership” in Bananamerica would be a battle to the death, and one that we sheeple would lose.

    I’m pretty sure that political corruption is inextricably a part of the fabric of our Bananamerican nation. And the essence of a functioning CPA would go against corruption in government.

  9. cognos says:

    Eilizabeth Warren would be GREAT as a head of a CPA-type agency. She’s built for that.

    The problem is, she know little to nothing about institutional banking / trading and yet she talks like she does, with high-worry and high-conviction. Its Rick Santelli wrapped up in a female Harvard professor and govt employee. But the substance and brain-power aint any different. So sad. For those transgressions — fear-mongering with little knowledge — she must exit back to academia.

  10. markd says:

    @cognos Troll on buddy, troll on.

  11. Thor says:

    This is nothin’ – I’d love to see the difference in signing documents from 1960 to now in buying a house!

  12. philipat says:


    I’ll drink to all of that (But then, I’ll drink to almost anything!) It’s so obvious to all but the sheeple?


    As if anyone in Congress/Government actually understands anything? Like business, it’s nine parts common sense. I rest my case.

  13. ATH says:

    Elizabeth Warren’s presentation cited above is definitely worth watching. Now here’s someone who is very smart, very knowledgeable on contract law, incredibly insightful, and can dissect complex material into something the general public can understand. And, perhaps most important of all, she CARES. Summers, Geithner, Paulson — all very smart — but are their priorities our (the bulk of the American people) priorities?! I’m not so sure. Personally, I don’t really trust the lot of them. But as for Elizabeth Warren, I can readily see where her priorities lay and I like them.