Show Notes
To respond to “affordability issues,” the Trump administration floated 50-year mortgages for buying homes. Last week, Donald Trump also suggested capping credit card interest rates at 10 percent. Financial writer and two-time New York Times bestselling author Carol Roth thinks each is a “terrible idea.”
“I hate this topic so much because it makes me have to defend people that I don’t like,” says Roth on the latest episode of the Drill Down podcast. “This is a Bernie Sanders/AOC proposal that they have proposed a million times. And every time they propose any sort of price control, whether it’s a hard price control or a soft one that comes in the form of capping interest rates, the Republicans, and independents all come together and say, ‘Go home, commies. Don’t propose your stupid socialist ideas here,’” she tells host Eric Eggers.
Eggers asks what role government should play in the credit markets?
“I basically tell everybody that unless you can pay something down in full every month, you should not run a credit card balance,” says Roth, whose most recent book is called You Will Own Nothing. “I think credit is not for spending, it’s for investing,” Roth adds. But she realizes many Americans do run up credit card balances and would love relief from the high interest rates card issuers charge.
Eggers notes that “families paid more than $30 billion in credit card fees in 2024, which was a 25 percent jump from three years ago and the highest volume of fees ever recorded… It’s crazy how much banks make on transaction fees.”
Roth worries about the unintended effects if Trump’s 10 percent cap were to become law. “Some people, even with decent credit scores, are now not going to be able to access credit anymore. You’re going to have higher fees just to own a credit card,” she says, pointing out that card issuing banks will just shift the interest payment into a guaranteed upfront fee.
“And the people who are really desperate, who have the bad credit, who don’t want to be paying 30 percent, well, now what are they going to do? They’re not going to be able to get credit. So, they’re going to have to go to the black market and they’re going to have to go to “Big Vito” and “Little Vito,” loan sharks who probably charge 70 percent,” she says. “And I guarantee you, if you don’t like the payback plan at 30 percent, if you miss a payment to “Big Vito” and “Little Vito,” you’re going to like it even less.”
The politics of Trump’s proposals are interesting, even contradictory, Eggers points out. The 50-year mortgage is an idea that the big banks love, as it will generate more mortgages and much higher interest fees for them. At the same time, they hate the idea of credit card interest caps, which will cut their business. Bank stocks are up an average of 29 percent in the past year, and they have been doing very well. Meanwhile, the gap between the interest rate charged to the best customers and credit card interest rates has never been wider.
“If you want to make sure the bank executives don’t get paid well, then don’t use your credit card. You can use cash. You can not buy things. You could have some personal austerity,” Roth counsels. “There’s a whole slew of behaviors that I think are terrible that I don’t think the government should be involved in. But if it’s your personal financial situation, then it is up to you. That’s an affordability crisis that you are creating on your own.”
Where Roth sees room for government action is in the problem of student loans (“a massive wealth transfer from teenagers to college administrators”) and most importantly, health care costs.
“The government is the largest predatory lender in the entire country,” Roth says. “They give loans to teenagers or people who are barely out of high school… who really haven’t learned what ‘ROI’ (return on investment) is.”
Health care is the big question. She sees little coming from the Republicans to address the issues that are driving costs much higher than inflation but agrees that encouraging greater use of health savings accounts is a sound idea.
Even on mortgages, Roth sees room for the government to help. In the past mortgages were very often assumable, meaning the buyer of a home could pick up the payments of the seller, at least initially and after including the cost of buying out the seller’s equity. That is seldom done today, and the government could encourage that practice.
“Currently, about 20 percent of mortgages are assumable, most related to veteran mortgages done through the government. But obviously, Fannie Mae and Freddie Mac are going to continue to play a bigger role,” she says. “But with the banks doing so well and by putting pressure on them, it would create an opportunity for them to win at the same time. I think that that’s the route that can be
followed.”
