I have two insightful questions for you concerning consumer credit...
1. Will you lend me $1,000 for a year, if I promise to repay you in full and buy you a Grande Pumpkin Spiced Latte at Starbucks for being so considerate?
That's about what an average one-year $1,000 bank CD paying current rates will earn folks like us after 12 months - $4.20.
2. Will you lend me $1,000 for a year, if I promise to repay you in full and tack on $148.80 for being so considerate?
That's about what an average bank-issued credit card currently charges us in annual interest - 14.88%. At that rate, we can treat our families, friends and colleagues to 35 Grande Lattes.
With a margin like that - pay $4.20 on deposits/earn $148.80 or more on consumer loans - you don't have to be Warren Buffett to see the value in owning and operating a consumer bank or finance company. Last week, Buffett and his Berkshire Hathaway agreed to invest $5 billion in preferred Bank of America shares, more than enough to guarantee him unlimited lattes for life.
Buffett's move won't help the millions of average American consumers who are struggling to keep ahead of their expenses, nor will it do anything to jumpstart our nation's decaying economy.
As I detailed in my column last week, What's Great for the American Consumer is Bad for Our Nation's Economy, consumers are shying away from fresh debt in favor of paying off the pile of obligations they've already accumulated.
Americans are sick and tired of debt and high interest rates, as well they should be. The problem is, when consumers borrow less they also spend less. And when they spend less, they consume less.
This so called "deleveraging" - underway for the past 2 ½ years - creates a serious damper on our economy, job creation, corporate profits and tax revenue.
Thus far, Washington has found few workable solutions. That's because before we can fix the problem, we have to correctly identify the actual causes of the deleveraging phenomenon.
Most politicians and economic pundits point to the 2008 crash on Wall Street and the decline in home prices. Others attribute it to lenders who are gun shy about offering consumers - especially those without perfect credit scores - any loans whatsoever.
I think the real culprit is a lot easier to pinpoint than all that...
It's plain, old-fashioned greed
When banks and other financial institutions can borrow virtually unlimited amounts from Santa Ben Bernake and the elves at the Federal Reserve -- while paying almost zero interest -- they have no business charging consumers nearly 15% and higher on the money we borrow.
Yes, this is the free enterprise system, and banks are certainly entitled to charge whatever the market will bear. If we don't like it, we don't have to keep borrowing.
Which is exactly what is happening.
America's banks and Wall Street have badly miscalculated. Ours is not an "us versus them economy" - where the banks win and we consumers lose; rather it is an "us and them economy" - where banks must realize if they bloody their customers too often, they'll have few of us around to exploit for next quarter's profits.
"The free market economy and fairness to consumers are not mutually exclusive concepts." I don't know whether Nobel Prize-winning American economist Milton Friedman ever said as much, but if he didn't, he should have.
For-profit companies can earn healthy returns while still being fair and considerate to their customers.
By setting aside the "winner-take-all" mentality that drove us straight into this current deleveraging mess, the financial institutions stand to earn more, consumers stand to receive a fair shake - whether as borrowers or depositors - and the moribund U.S. economy has its best opportunity to pick itself up off the mat.
Without any doubt, banks would stem the tide of credit card payoffs if their interest rates weren't so darn high. Likewise, consumers choked out of the market for new cars, home remodeling, luxury vacations and other big ticket items would return if consumer credit companies offered them reasonable financing options.
One great example is Apple Inc. The company is incredibly profitable - even in this economy - and an undisputed product innovator. It is also a financing innovator, offering many of its current and prospective customers one-year interest-free financing.
So don't tell me it can't be done...
Apple is doing it very successfully week in and week out.
Apple sells lots more computers, iPhones and iPads because it makes it affordable for many of its customers to finance them - at least for one year.*
Banks should take close note: What you may lose in profit per individual borrower and credit card holder, you'll surely make up for in the volume of customers and their consumption.
It's lattes for everyone.
Next: In the last of three columns on the topic of consumer debt, I'll reveal how hundreds of thousands of consumers are kissing bank and finance company debt goodbye forever. These savvy folks have become their own source of financing - bypassing banks altogether - using a safe and proven method that's actually better than debt free.
*Apple's one-year, interest-free financing catch - isn't there always a catch even from the best companies - is that if you don't pay off the product loan in full at the end of one year, you'll get hit with interest fees retroactive to day one - and they're astronomically high-rate fees at that.
New York Times bestselling author Pamela Yellen is the founder of www.BankOnYourselfNation.com, a website dedicated to helping people achieve lifetime financial security and self-reliance. As president of www.BankOnYourself.com, she's helped hundreds of thousands grow their wealth safely and predictably.