http://www.bloomberg.com/apps/news?pid=20601109&sid=alqIrcJYUnP8
How for the cost of 400 jobs, changed the course of our lives
-- William “Wild Bill” Janklow’s law office in Sioux Falls, South Dakota, is crowded with mementos from his 16 years as a Republican governor. On a low, wooden bookcase, near bottles of hot sauce custom labeled for his annual Buffalo Roundup, he keeps a 4-foot length of red ribbon festooned with Citibank credit cards.
Janklow is the politician who, in 1981, brought Citibank to South Dakota. When he cut that ribbon to welcome the New York- based bank, he blew the lid off the U.S. credit card business, Bloomberg Markets reports in its June Issue.
The law inviting Citibank to South Dakota threw out limits on how much interest the state’s banks could charge borrowers -- rules known as usury caps.
“Citi wanted the invitation, and they knew what we were doing with rates,” Janklow says. In a secret meeting at the governor’s residence with Walter Wriston, chief executive officer of Citicorp, the bank’s parent, Janklow agreed to drive through the legislation in a swap for 400 jobs.
“That was the deal,” Janklow says. “You have no idea, in a state of 750,000, how many 400 jobs is, all in one place.”
The business Janklow and Wriston set in motion with a handshake that evening transformed U.S. consumer lending. Once interest rates were allowed to rise as high as banks could push them, credit cards became a ticket to enormous profit. In the decade ended on Dec. 31, 2007, credit card issuers together earned more than $50 billion, mostly on the difference between their own cost of money and consumer rates of as much as 30 percent. So-called subprime lenders pitched rates as high as 80 percent. At JPMorgan Chase & Co., cards accounted for 20 percent of both revenue and profits in 2007.
Profit Driver
