The Ever Wise Boonton

Those who use credit scores the most are usually in the business of loaning money. People who loan out money like to get it back with as little trouble as possible. The two biggest problems they fact are deadbeats who won't pay their bills and those who go for bankruptcy so they don't have to.

Now I oppose the 'bankruptcy reform' that Bush & many other Republicans advocate because I view it as an unjust windfall for the credit card industry. It is common sense that if you make riskier loans you will incur higher defaults. That comes with the game. I also view it as a violation of the implicit contract entered into by debtor and creditor. The creditor (credit card companies) made their loans knowing the debtor could declare bankruptcy.

However, why not form a coalition of creditors and credit ranking agencies and allow people to buy points on their credit reports? The way it could work is that people seeking to improve their credit could make payments to the credit agencies who would raise their scores. The funds raised would be placed into a fund and distributed to creditors who agreed to abide by the new system. The distribution could be weighted by losses experienced by creditors due to bankruptcy. In other words, if Fleet Bank suffered 50% of the credit card losses caused by bankruptcy and Chase Manhatten Bank 25% then Fleet would receive 50% of the payout and Chase only 25%.

The advantages I see:

1. There would be less financial incentive for banks and financial firms to push for harsher bankruptcy laws.
2. Credit card companies would have a mechanism to recover a portion of their losses thereby allowing savings to be passed onto those with good credit.
3. Individuals seeking to improve their credit could do so provided they considered it worth the price. There might have to be some element of fraud protection here. Think a sliding scale where the cost of each point increases dramatically above a certain level.
4. This would increase saving in the economy since old debts would be (partially) paid off by those seeking to be rewarded with a better credit score.

So let's take a never ending problem like spam. More than a few ideas are around for attacking spam, including mandatory labeling with bounties for catching offenders (see Alex Tabarrok's post at Marginal Revolution http://www.marginalrevolution.com/marginalrevolution/2004/09/spam_bounty.html. Here's my take:


Why not work with the existing Pay Per Click system that has delievered billions to Overture, Google and other big name portals? Here is how it could work. The big mail clients (Outlook, Yahoo Mail, Google etc.) would filter their mail for spam. However, advertisers could opt to pay a bounty to go through the filter. The user would set a bounty on receiving spam.

For example, at my old job I was hit with up to 300 spams per day. It didn't bother me much at all but when my IT dept. set up a good filter that number dropped to 25 a day. So imagine I set my spam bounty at $0.001 per spam. A spammer, on the other hand, offers to pay $0.002 per spam delivered. The difference would go to the email client (Microsoft, Yahoo, or whoever). If I received 300 spams per day I would earn $3 and the email client would earn $3 while the spammers would pay $6. Of course, if I had more value for a clean inbox I could set a higher price. Some spammers, of course, would be willing to pay a premium to reach users who are not flooded with spam.


Now for this to work the spam filter has to be pretty good but the email client has a good incentive for creating a good filter. After all, every spam that gets through the filter represents lost revenue to both the user and email client.

Here is my first post everyone.