David Rosenthal: belief

Transcript context

…You probably shouldn't apply the assumptions about your loss ratios from secured lending to unsecured lending, but that is exactly what happened. This all comes back to why it really had to be Bank of America to start this program, because they do this. They do the drop in Fresno, 65,000 unsolicited cards go out to unsuspecting consumers. Fraud is out of control, $20 million of fraud within the first pilot program, 22% of the credit that they issued to that initial Fresno cohort ends up being default or delinquent, which I think is five or six times what their delinquency rate was before on traditional lending. It is pretty crazy. It's worth pointing out, we're talking a lot about credit and debt at this point in time. Now in 2023, some of these sounds like bad words. Frankly, it's because of the situation that society has pushed Americans too, but it was a very different time back when credit cards were first getting started and when this practice of installment loans was extremely common in the pre card era. There's a great passage from A Piece of the Action that I mentioned earlier that I just want to read here. "Despite the denunciations, despite the free floating anxiety, Americans have always borrowed money to buy things, if not from a bank, then from somebody, from a finance company, a credit union, a department store, or a loan shark for that matter. There isn't another western country that has relied so heavily on consumer credit. Between 1958 and 1990, there was never a year where the amount of outstanding consumer debt wasn't higher than the year before. Years later, a Bank of America executive could look back on his lifetime and the credit card industry and say proudly, consumer credit built this country. Whatever one's feelings about personal debt, it is difficult to disagree with this assertion." Interestingly, what's basically happening here is people are using debt not because of this bleak, horrible time that they're in. It's actually because of their optimism. They believe that the future is brighter than the present, so they're fine taking on debt. That is what has led us to today, where because the growth of the American economy and the global economy has been so strong, people have always generally been fine, or at least we exist in a system that teaches you that you should be fine. betting that the future is going to be better than today.…

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