We have several financial problems in the United States: the Big Banks control our credit cards and earn substantial interest from them; and the Social Security Administration has a great deal of money but earns only a relatively small amount of interest on it. Well, there's a solution to both of these problems. The Big Banks will hate it, but too bad. Bernie Sanders could both stick it to the Big Banks and help at SSA all at once.
First, let's do a brief comparison. The Big Banks run the credit card industry. Credit cards charge anywhere from around 11.96% (for “low interest” cards) to upwards of 24.15% (for “bad credit” cards). On the other hand, the Social Security Administration has billions of dollars under its control – roughly $2.79 trillion – but only earned 3.6% on those funds.
Second, there's a simple way for the SSA to earn more money. Americans overall carry $793.1 billion in credit card debt. Why not have the SSA issue its own credit card, at an interest rate 1 or 2% below the amount charged by the Big Banks? The low interest rate would either force the Big Banks to lower their rates or drive them out of the credit card business.
You might ask, “How could the SSA afford to issue credit cards at a much lower rate than the Big Banks? Mightn't that put the SSA Trust Fund at some risk?”
Not at all. In fact, the SSA is actually a secured creditor, if it lends money only to people who have a social security account with it. (Which is practically everyone.) Congress could change the law and allow the SSA to set off debt owed to it against the retirement account which it owes to its credit card debtor.
The SSA can make more money on its assets, while at the same time lending out money at lower rates than do the credit card companies.
For instance, if a creditor card debtor owes the SSA $10,000 and the SSA owes the debtor retirement payments of $1,000 a month going forward, the SSA can set off enough future payments to recoup the debt. This is something that the Big Banks are not allowed to do. Congress could also change the bankruptcy laws to provide that money owed to the SSA is not dischargeable in bankruptcy, similar to the provisions which prevent taxes from being dischargeable.
Overall, these provisions would allow the SSA to earn more money on the funds it holds, while at the same time charging less interest than the Big Banks charge. This would probably drive the Big Banks out of the credit card business. The Big Banks charge high rates to maintain their credit card administration, including the cost of advertising and the like. If they were out of that business, our society as a whole would save those costs, because the SSA would not have to advertise or pay the high cost of private administration (not to mention that the SSA does not have to generate profits).
If you figure that the SSA might earn $28.55 billion on $793.1 billion of its money at present (at 3.6%), but that it could instead earn $103.1 billion (at 13%), that's an enormous difference. (The credit card industry as a whole made $155 billion in 2011, so $103.1 billion is a conservative guess). And 3.6% time $2.79 trillion (the SSA's total assets) is only $100.44 billion—$2.64 billion less what the SSA might earn doing credit cards, leaving $2 trillion to invest as it currently does).
So let's start thinking outside the box, shall we? The SSA can make more money on its assets, while at the same time lending out money at lower rates than do the credit card companies. My suggestion that debt owed the SSA be nondischargeable or subject to setoff against SSA retirement is certainly not required and was made in order to placate conservatives. It could be modified in lots of different ways or not adopted at all. But the overall plan is financially sound and would shore up Social Security while at the same time end the credit card industry as we know it. That's a win-win, so far as I'm concerned.
If Bernie Sanders wants to stick it to the Big Banks, have the SSA start its own credit card department would be one way to go. He could do that without Congressional approval, drive a hole in the Big Banks and help Social Security at the same time.
Michael T. Hertz