Churning’s Children

Churning’s Children

Photographer: Finlay MacKay via Bloomberg Businessweek

Recently, churning has been pushed into the limelight a lot more than most in the community would like. The Wall Street Journal has had a series of peculiarly positioned articles on the subject. B In the past six months, WSJ has published no fewer than nine articles relating to the subject. The most recent, If You Have 29 Credit Cards, You’re Probably a Millennialtook a rather critical view of the whole activity. Bloomberg even made a churning-related article their cover. The comment section shows the level of ignorant malice that still exists towards those that take advantage of the credit system even among a highly educated audience.

Adam Hendricks – “If you have 29 credit cards, then you’re a darn fool.”

Or very intelligent. Most people who can’t keep up with their payments would not be able to make it to 15 cards, let alone 29.

Carroll Melton – “If these people ever manage to accumulate any real assets, they probably would let Bernie Madoff manage it for them.”

If you look at the annual survey statistics run on /r/churning or FlyerTalk, the majority of churners fall into higher income brackets, presumably with correspondingly larger amounts of assets. They are doing just fine.

Pauline Plast – “Gaming the system.  As noble a way to earn a lifestyle as being an investment banker, I guess.”

The game isn’t the game. The rules are the game. This applies to anything in life. Also, I’m touched. You just confirmed that I am pursuing the right career.

James Stewart – “This articles appears to substantiate my personal view that millennials are not going to be very positive for the future of the USA as a soundly-managed country.

Besides all these credit card end-arounds, a many millennials abuse drugs, don’t they?”

Ok. Ok. The Greatest Generation made Social Security and Medicare insolvent, spent trillions in debt, and burdened us for generations, but having too many credit cards is going to be our downfall? Drugs. Where in the hell did drugs come into this? I don’t think it’s possible to violate Grice’s Maxim of Relevance more than this.

Now that we know these commenters were clueless, we have to ask the question: Are these opinions really bad? Churning basically works on the principle that the vast majority of consumers do not have the time, will, or knowledge to profitably take advantage of the rewards system. Those “average” consumers transfer wealth to the financial institutions, often lured in by the promise of free vacations or cash back, but never achieve it. They are the revenue positive individuals that banks want to lure in with these offers. They make the hobby possible.

Churning is essentially a vampiric transfer of wealth gleaned from those less savvy individuals through the financial institutions, and finally to churners. So long as it remains overall profitable to offer such steep rewards, the system will continue. This requires that the vast majority of consumers are profitable customers. Successful churning cannot become a hugely widespread activity. Rewards will be lowered until it is no longer profitable to churn. This is a fundamental principle of economics. Wherever there is an arbitrage opportunity in a market, money will flow there until the opportunity ceases to exist, and an equilibrium is found. This one of the main principles of floating exchange rates. The only moat keeping this arbitrage opportunity open is the sheer effort, time, and knowledge required to profitably churn.

 The next conundrum that the churning community, and people like me need to answer is about the dissemination of knowledge. When we broadcast and spread the knowledge that makes it easier for people to take advantage of offers, we are inevitably shortening the life of the hobby. Churning exists because of ignorance. Without it, the opportunity ends, or becomes infinitely more difficult.
The simple solution would be to close the open groups and reduce the amount of information available to the general public as much as possible. That would not solve all the problems, largely because blogging about churning has become highly profitable (i.e. Million Mile Secrets, ThePointsGuy) and a community shift would not deter their writing. They might even increase their earnings ability by becoming the only game in town for the masses. (And God knows we don’t want that.) Additionally, willfully suppressing information is fairly unethical. Many of the people whose losses we are benefiting from are those who can least afford the losses.
The information should be available to those that want it. Maybe not as highly publicized as being featured in the Wall Street Journal, but still open. Many will continue to miss out on the possible benefits, but they deserve to have the chance to learn and improve their finances. That is the least that we can do. More than that, though, is likely impossible. All the open knowledge in the world cannot help some. After all, you can bring a horse to water, but you can’t make it drink.

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