The Credit Crunch Hits Home?
What is going on out in Canada’s wild and woolly financial system? First, the Bank of Canada convinces the Department of Finance and the Conservatives that it “needs” expanded powers to purchase a broader range of securities (see my earlier post for why their arguments are not very convincing). And then, earlier this week, a small notice on my Scotiabank VISA bill advised me of the following:
“Effective on your May’08 statement, the interest-free grace period for new purchases will be reduced from 26 days to 21 days.”
Doesn’t sound like a big deal, especially for people like me who pay off their bill in full every month (and thus avoid the interest charges). But going from 26 to 21 days represents a 19% or so drop, fairly significant especially for those who don’t pay their bills on time. By my reckoning, that’s about 70 days worth of additional interest for these folks; or 70 fewer days of “interest-free” time for people like me. Add these extra costs up over a few thousand customers, and you’re talking some pretty serious money.
Something’s up here. The interest-free period’s been 26 days since Christ was a cowboy. Seems to me the only plausible explanation is that Scotiabank’s trying to fluff up its bottom line to cushion more losses in the future, probably tied either to the asset-backed securities collapse, the weakening Ontario economy, or economic conditions more generally. One way or another, it’s a small sign of how the intangibles of derivative contracts can take a very real bite out of all our standard of living.