Читать книгу Maxed Out: Hard Times, Easy Credit - James Scurlock D. - Страница 8

“In the land of the blind, the one-eyed man is king.”

- Anonymous

Dee Hock didn’t invent the credit card. He did something far more important: He believed in it. Really believed. Believed that it had the potential to free human beings from rules and regulations (Hock’s definition of hell). Believed that it would thwart the ability of large financial institutions to impose uniform standards because every bank, no matter how small or how large, would have access to the most powerful brand ever created. Believed that a tiny plastic card with a magnetic stripe could become the store of value, linking every human being with his or her wealth instantly. Believed that, in doing so with nothing but electronic signals racing through his computers from one bank to another, the credit card would create its own currency so universal that the dollar, the yen, and the British pound would all be made obsolete. Finally, he believed that the organization he created, Visa International, would save the world. How? By, in a typically new-agey rhetorical flourish, “allowing spontaneous interconnection into an equitable, enduring, twenty-first-century society in harmony with the human spirit and the biosphere.”

Of course, none of these beliefs came true. The credit card has shackled individuals, imposed uniformity, destroyed value (i.e., savings) at an unprecedented rate, and, so far at least, has replaced neither the pound, the yen, or the dollar. And credit cards (with Visa at the forefront) have arguably been the most powerful force behind a massive redistribution of wealth that has left this country less equal than at any time since the Great Depression. If anyone besides Hock believes that credit cards have contributed to the harmony of their spirit and the biosphere, I have yet to meet them.

So what does Hock think of the credit industry he helped to create? That’s a difficult question to answer, because Hock does not wish to discuss the past with me. When I requested an interview, he declined with a succinct note: something about no longer doing those kinds of things. Today Hock lives on a small farm in Northern California where he spends his time tilling the soil, discussing philosophy with his tractor (which he has named “Thee Ancient One”) and his subconscious (which he has named “Old Monkey Mind.”) He is a grand philosopher, the kind of guy who can write something like “Until our consciousness of the relational aspect of the world and all life therein shall change, the problems that crush the young and make grown people cry will get progressively worse,” as though it were self-evident. Like Ross Perot, he likes to state his beliefs as facts. And, also like Perot, Hock never thinks small. His latest hobby is leading a movement he calls “chaordism,”¹ which will remake corporate America in the image of Visa International, and, by doing so, save the planet from rigid, hierarchical, oppressive, and bureaucratic organizations. This is not a joke.

For all of his eccentricities, one cannot deny that Hock was a great visionary, and, like all great visionaries, Hock found himself surrounded by doubters at a time when he himself felt absolute conviction. The year was 1968 and Hock, who had been fired from several jobs and was facing an increasingly desperate financial situation, talked his way into a job at Seafirst Bank in Seattle, Washington. For some time the bank’s president shuffled him from department to department, because there was simply no work to be done and no job for which Hock was particularly qualified. He recalls one task—digging through the garbage of a branch, looking for a lost deposit—with particular bitterness. So when the bank decided to become a licensee of the “BankAmericard,” the country’s first bank-issued credit card, Hock was tapped as one half of a two-man team overseeing its rollout. It was a job that no one, including Hock, wanted. Banking was then about servicing large corporations. Consumer credit was left to the loan sharks and pawnbrokers. Yet, as Hock rolled up his sleeves, there was something about credit cards that instantly seduced him. Perhaps it was the magnitude of the task (which roughly matched the size of his ego), or maybe it was the new technology, which fascinated Old Monkey Mind, or perhaps it was the fact that Bank of America, the card’s creator, was the embodiment of everything he hated and the antithesis of everything he stood for. In Hock’s eyes, Bank of America was not just bigness but management charts, uniform standards, titles, stupidity. In his new role working with this organization, Hock would get to be an agitator. He would have a platform to try out some of the philosophy he and Old Monkey Mind had been discussing on their long walks in the lush, soggy hills of Seattle. In other words, he would be able to cut the largest bank in the world down to size. David versus Goliath.

As Hock tells it, the Bank of America turned out to be even more incompetent than he could have dreamed. Thanks to the mess they’d created, Seafirst, like the other BankAmericard licensees, was losing vast sums of money on the credit card business. Why? The banks were being defrauded by customers, merchants, and criminals alike. The technology was primitive and the accounting was, by all accounts, a nightmare. This was back in the days when every transaction was recorded by hand on extremely thin strips of carbon paper, which were then sent to a warehouse to be sorted and reconciled. Inevitably the warehouse became a paper jungle, many of the receipts were lost or illegible to begin with, and reconciliation was wishful thinking. Bank of America had promised its licensees access to the future of banking, but most of them—like Hock’s boss at Seafirst—had signed up mainly to preempt their competitors. Now they had simply saved their competitors a huge amount of money and time. Credit cards had become their albatross.

Within a year of rolling out the credit card for Seafirst, Hock was dispatched to a BankAmericard convention in Ohio, where two Bank of America executives were supposed to give a pep talk to their disillusioned—and angry—licensees. Or so thought the licensees. Not only did the Bank of America execs on the stage offer no insights as to how they might fix the crisis, they wouldn’t even acknowledge a problem existed. The situation came as close to a riot as bankers get—that is, until one of their own, Hock, took to the stage and, with the now terrified B of A executives’ blessing, promised to clean up shop.

Hock created an advisory committee composed of his fellow licensees on the spot. Within a few years he had formed a cooperative owned by all of the banks that issued BankAmericards, which became the organization that would blossom into Visa International, which would become the most ubiquitous organization in the history of capitalism. It was a brilliant idea, a company devoted to issuing credit as quickly and as efficiently as possible: instantly was the ultimate goal. This company would be composed of its members, the banks, so that there would be no infighting or other conflicts to slow Hock’s grand plan. Finally, Visa would exist not for profit but ultimately to fulfill Hock’s vision of a world where tangible currency (Hock was one of the first to see paper money going the way of stones and beads) was replaced by trillions of electronic signals moving through his mainframe computers. In theory, Visa would become the ultimate store of value. In practice, it was nothing more than a massive marketing campaign and an electronic switch that routed money from the bank of the payer to the bank of the payee. For practical purposes, Hock had two main priorities: one, that Visa would truly be ubiquitous (“everywhere you want to be” “life takes Visa”); and two, that transactions would occur with lightning speed (“faster than cash”).

Looking back in his memoir, Hock professed feelings of reluctance and even fear that day in Ohio, but he was clearly the man for the job. Hock wasn’t a bureaucrat, like the banking guys. He wasn’t scared of challenges. He was obsessed with the technology that would be needed to process small transactions on a grand scale. But, most of all, he truly believed that the credit card would empower the masses, that it would give them a freedom they had never known. They could reserve hotel rooms and rental cars without sending a check in advance! They could buy things instantly without waiting for funds to clear! They could hand over a card and get something in return and get their card back to use again! Best of all, they would no longer be forced to interact with nosy, judgmental bankers! Credit cards could indeed create a new currency—an abstract currency of numbers that only existed on statements, a currency that flowed through computers without ever being touched or felt, a currency that no government or central bank could control. Dee Hock saw the big picture.

In other words, Hock was the industry’s Moses—and he knew it. He would lead the trembling bankers, so comfortable in their suits and corner offices, to the Promised Land, a place of infinite possibilities and untold progress. He would not waver or compromise, but he was bad at compromise anyway. His vision was absolute, his conviction was absolutely convincing—if misplaced. Visa International, would, as his mission statement put it, become “the premier store of value in the world,” even though Visa never stored anything: It simply routed transactions from one bank to another. Had the bankers known that Hock’s vision was about creating a twenty-first-century society in harmony with the human spirit and the biosphere rather than about making them boatloads of cash, they might have balked. Luckily for Hock, and for them, he kept that grandest of notions between himself and Old Monkey Mind. If the bankers ever wondered if the guy was a little different from them, they kept their mouths shut.

Indeed, the suits whom Hock longed to replace with mainframes worried far less about technology and grand visions of the future (which they probably didn’t understand anyway) than they worried about the past. What they knew (and what Hock’s theory failed to appreciate) is that banking is about selling a single product: debt. That product can be packaged a million different ways—car loans, mortgages, lines of credit, overdraft protection, credit cards, cell phones, etc., etc.—but, in the end, the product is an obligation to be repaid, with interest. And the price of that product is however much interest and fees can be charged on the original amount. The more interest and fees a bank can charge, the more profitable the product. This is a fairly academic concept.

When Hock had taken the job at Seafirst, banks were in the business of borrowing money from individuals (this is back when people actually saved) and lending that money to corporations at a slightly higher rate. Consumer lending was not profitable for two major reasons: one, processing small loans was too time-consuming, mainly because bankers actually reviewed the applicant’s financial situation and thereby determined their ability to repay the loan; and two, the government, acting in its traditional role as consumer protector—a role that had grown out of the massive bank failures in the 1920s and 1930s—regulated how much banks could both pay and charge in interest. So not only was there only one product, but by law every bank had to sell exactly the same product.²

Furthermore, banks were forbidden from crossing state lines and, in some instances, city lines. A bank in New York City, for example, could not open branches outside of the city. A bank in Texas could only operate one branch in the entire state. Accumulating millions of customers was next to impossible, even if they could be managed profitably. All of the conditions that make the modern credit card industry so profitable—high rates, a national market, efficient processing—did not exist.

But the greatest obstacle facing Hock was not regulation or technology: It was tradition. Handing a customer the “noose with which to hang himself financially,” as one of his peers at Seafirst put it, was generally acknowledged to be immoral. More than anyone else, bankers understood a simple truth of human nature that Hock, in his zeal to create a brave new world, never seemed to appreciate: If you give someone credit, they will probably use it. The banks had learned this lesson in the Roaring Twenties, when Americans had overextended themselves buying all of the shiny new trophies of the Industrial Revolution on credit. So had begun the first race to create an American middle class—or at least the appearance of one—and its violent crash in 1929 nearly took down the American banking system. Since then, the role of the government regulators and the banks themselves was primarily to ensure that the Great Depression was not repeated. Indeed, the banker’s most sacred duty was to rein in his customer’s appetite—in other words, to say no.

There are two things that make consumer credit in general and credit cards in particular different from any other product. One, demand is a function of supply. In other words, the more credit you supply, the more demand you create. The more people become dependent on credit, the more they need to keep going. Once Americans began using one credit card, for example, they tended to need another. And then another. And then higher credit limits. And then they needed to refinance their homes to pay off the credit card bills. And so on. No other product creates that cycle (well, crack and heroin come to mind, but …).

The other difference is that a credit card is the only product whose price changes after the purchase has already occurred. Is there any other product for which, after you’ve purchased it, you are suddenly told that you have to pay more? Or that the terms and conditions of the product have changed? Imagine that someone calls you one evening, just as you are sitting down to watch your favorite television show, and tells you they need another twenty bucks for the suit you bought last month or five bucks extra to cover the meal you ate at Red Lobster three years ago. Presumably you’d tell them to go to hell, or maybe you’d be more diplomatic. What you wouldn’t do is pay them. Yet, the cost of credit and its terms are changed constantly. And not very many people protest, by the way. Why? Presumably because they know that agreeing to this bargain is a condition for getting more credit. This became Hock’s greatest weapon.

Visa was what economists like to call a “natural” monopoly. Its growth was limited only by the reluctance of consumers to spend. In fact, one of Hock’s most daunting challenges in the early days was convincing retailers to pay Visa its 5 percent transaction fee, but that reluctance was overcome by studies showing that customers spent far more—usually 30 percent more—when they used plastic rather than cash. This is the same argument that finally convinced fast-food companies to accept credit cards—a frightening thought in a country already confronting record levels of obesity. (Suze Orman’s favorite guest is a young woman who claims to have accumulated nearly $30,000 in credit card debt by eating at Kentucky Fried Chicken.)

Citigroup Center consumes an entire block of midtown Manhattan between Third and Lexington. Its trophy is a fifty-nine-foot brushed-steel-and-glass tower designed by the late Cambridge architect Hugh Stubbins Jr. The tower’s distinctive angled roof, which has been featured in countless Citibank ads, is supposed to resemble a gigantic number one; however, the building can just as accurately be described as the world’s tallest—and shiniest—erection. When it was built in 1975, a seventy-year-old church had to be destroyed and neighbors tried to block its construction. But Citicorp prevailed, with one director assuring the community that the complex was designed “as a life force … as a source of energy and commitment back to the city and the people.” The day I visited, Citigroup Center was a fortress guarded by dozens of New York police and National Guardsmen toting M16s and Starbucks Caramel Macchiatos. The public spaces had been closed indefinitely due to one of those catch-22s of the war on terror that many Americans find so disconcerting. Although the bank’s largest shareholder, Prince Alwaleed bin Talal bin Abdul Aziz Alsaud, is a Saudi citizen, Middle Eastern terrorists were apparently bent on car-bombing the place as well as several other Citigroup facilities around New York City.

Citigroup Center was the brainchild of Walter Wriston, who retired as Citicorp’s chairman in 1984. Wriston was a gigantic man physically, a man who literally stood out, who had to have his suits specially tailored to his odd and outsized dimensions. He was hyper and always uncomfortable in his skin. But he was also an intellectual, the son of a history professor who became president of both Lawrence College and Brown University. Though Wriston grew up in considerably plusher surroundings than Hock, his parents had raised him with the same frugal sensibility and he’d developed a similar, almost obsessive, hatred of bureaucracy. In other words Wriston, like Hock, saw himself as an outsider and would ultimately become a revolutionary. Unlike Hock, however, Wriston realized that it was very much to his advantage if the rest of the banking world stuck to tradition: It would give him a head start. Wriston was probably the first modern American banker to realize that his job was not to teach his customers how to save but how to spend as much as possible.

In his early years Wriston tried to work within the industry’s framework. He earned his chops at Citibank loaning money to airlines and shipbuilders, forging close friendships with Ari Onassis and several American presidents, nurturing those relationships on private yachts and exclusive golf courses. It got him the CEO job in 1970 but, once installed in the corner office, Wriston’s appetite for growth proved insatiable. He promised his shareholders 15 percent annual increases in profits—unheard-of in the banking business³—just before a perfect economic storm of inflation, war, and technology bust ravaged the economy in the midseventies. Wriston weathered the storm by reaching out to smaller and riskier customers.

While, because of banking laws, Wriston could not expand beyond the boroughs of New York City, he could expand everywhere else in the world with few to no restrictions. Indeed, other countries were delighted to receive his credit. They were used to being treated with condescension and caution by the ivory towers of American banking. Which made a lot of sense: After all, the countries that needed the most tended to be the poorest. Who wanted to lend to a bunch of peasants? Wriston stepped up to the plate and smaller banks followed him. If he felt any of the traditional banker’s intuitive sense of caution, he purged it by endlessly repeating his new mantra: Countries can’t go broke. The mantra seemed to satisfy Wriston’s conscience, attracted a devoted circle of shareholders and dictators, and, most important, allowed Citi and the rest to lend more and more money to countries that could afford it less and less. Pretty soon, the “less-developed countries,” as Wriston was fond of calling them,⁴ were using new money to pay off old debt. The trouble was that a large chunk of the money was coming from the same source: Citibank and its partner banks. The familiar term for what Wriston’s strategy became in practice is a “reverse pyramid scheme”, so named because larger and larger liabilities must be piled on top of the original debt in order to avoid default. Eventually the amount of new cash needed to service the old debts and the new debts becomes too burdensome and the whole thing collapses beneath its own weight. The only exception is where the player prints the currency with which the game is played, which makes the United States government unique among debtors.

When the inevitable happened, there were only two solutions: one, squeeze the working classes of these countries harder (the wealthy made sure that their own assets were not available when the bills came due, which seems to happen a lot in “developing” countries); and, two, swallow your pride and allow a larger entity—say, the United States Treasury—to bail you out. Ultimately, both happened. There were the expected outcries from competitors, consumer advocates, and even some members of Congress, but most Americans accepted the wisdom that Citibank was too large to fail. Wriston kept his job and his company treaded a little more carefully—at least for a couple of decades.⁵

Wriston had been humbled, but he never abandoned his audacious growth ambitions. Indeed, failure seems to have sharpened his sense of focus. Now there was only one market that could approach the scale he needed to produce that double-digit growth he’d promised, but that market, the American middle class, was unavailable by virtue of regulation. The solution was obvious: Get rid of the laws. For that to happen, both the banking industry and its customers would have to be radically reprogrammed.

Wriston hired Robert Kennedy’s Harvard roommate to head up a new lobbying effort designed to obliterate any law which restricted his bank’s activities. He couched his new crusade in terms of personal frustration and a fervent patriotism. Sears, JCPenney, and a host of other large retailers, he pointed out, were charging 18 percent a month on their store credit cards, while Citibank was restricted to charging roughly half that amount. Why should retailers be allowed to act like banks and charge pawnshop rates, while banks were prevented from acting like banks? It didn’t make any sense. Armed with considerable moral influence as the world’s leading banker (these were the days before financial executive equaled scandal) as well as an unflagging and convenient belief that banks should be allowed to do whatever they wanted (this was America, by God, let freedom ring!) and, most important, a remarkably limited deference to history, Wriston set out to conquer the American middle class.

Over the previous ten years Hock had stayed busy popularizing the means to Wriston’s end: a tiny plastic card that was already being used by millions and that would soon be ubiquitous. For all of the problems Hock had encountered, getting people to use the card had never been one of them. There was something seductive—addictive, even—about instant credit. The challenges were technological in nature: making transactions faster, processing more efficient, and the brand more recognizable. But Hock had made impressive progress on all of these fronts. Computers were becoming more and more powerful. Telecommunications had reduced the time needed for an authorization from minutes to seconds. Hock had convinced the stodgy old guys to rename their BankAmericard “Visa” because it was one of the only words whose definition and pronunciation were the same everywhere in the civilized world. The Promised Land was in sight.

Wriston, meanwhile, laid out his own vision of the Promised Land—a land in which millions of customers charged all of their purchases to a Citibank credit card and paid high, unregulated interest rates and fees for the privilege. A land where the same government that had indirectly bailed out his company was told that any oversight was equivalent to socialism. A land where he could operate anywhere he damned well pleased. Wriston attacked a half century of tradition from his phallic bully pulpit in midtown Manhattan, agitating and cajoling his way out of the straitjacket of regulation that constrained his grand ambitions.

Wriston’s and Hock’s separate visions were on a collision course, yet they turned out to be a brilliant tag team. At no time was this more evident than when Hock decided to re-brand the BankAmericard as Visa in the mid-1970s—a giant step toward universality. Millions of BankAmericard customers were sent letters explaining that their “new” Visa card would soon arrive in the mail and instructing them to destroy their “old” BankAmericard, even though the two cards were identical in every aspect except the artwork. Back then, an outsized Visa logo occupied the front of the card while the name of the customer’s bank—the institution that issued the card—was printed in very small letters on the back. Not very many people bothered to look at the fine print on the back, and it didn’t take a genius to realize that customers would rush to use the first shiny new Visa card that arrived.