What the credit crunch means to you

By Jennifer J. Foster

Published: September 30, 2008

GOP columnist and pundit Rich Galen takes a stab at explaining in his most recent piece why the $700 billion bill being debated in Congress is “A buy-in, not a bail-out.“ Here’s an excerpt:

Banks and other issuers have to have the funds to pay the merchant (less a fee) when you charge something. In order to do that, THEY have to borrow money. And they use your credit card debt is their collateral.

If the credit market remains frozen, then the banks can’t borrow money to cover the $4 you put on your credit card at McDonalds this morning. They have no choice but to get you to pay your debt back faster.

Let’s say that issuers raise the minimum payment from about 4% per month to 6% per month. Just two percentage points. But on your $10,000 debt your monthly payment just went from $400 per month to $600 per month.

I’m going to go out on a limb and say that if the Bush Administration had defined this legislation in these terms before the press had a chance to label it a “bailout,“ calls wouldn’t be coming in to Congress at a 10-to-1 ratio—or worse—against the bill.

Read the rest of Rich’s column here.