One of the biggest challenges facing banks today is how to cover the losses from all the foolish mortgage loans they made over the past few years to buyers who really couldn't afford them. Part of the answer is now apparent. They plan to make credit card holders pay for them.

Over the past year, millions of credit card customers have received notifications of coming interest rate hikes on their existing credit card balances. In some cases, credit card interest rates now top 20%, 30%, and even 40% annually. Wow!

What is the justification for these increases? Have interest rates in general skyrocketed? No, not yet. In fact, the Fed's easy credit policy is still flooding the monetary system with new money at extremely low rates. Further, prime lending and mortgage rates have actually fallen. So that can't be it.

Is it that the credit card holders have been late or missing their payments? Undoubtedly, that has happened in some cases. However, by talking with friends, business associates, etc., it's becoming quite apparent to me that most of these interest rate increases happen to people who have done nothing but make their monthly payments on time every month.

This leaves only one other possibility. The banks plan to use credit cards as a way to greatly boost their income toward the goal of paying off the massive losses they incurred by engaging in foolish lending practices to home buyers. In other words, it's not a stretch to say that credit card holders are being held responsible for the banks' foolish lending practices to home buyers.

Some will say that this means that the government should introduce more regulations preventing this kind of interest rate hikes at the whim of bankers. I'm sympathetic to the motivation behind this view, but it would be counter-productive. It also really misses the point, which is: where did the banks get the money to lend to the credit card holders in the first place? They got it from the customers who deposited in their checking, savings, CD, and money market accounts at the bank. This long-standing practice is the basis of fiat money's easy credit system, and it's also the root cause of every financial crisis in modern history. As I mention in The Money Suckers, it's really nothing more than legalized fraud.

Therefore, the real solution to banks that jack up credit card rates is to make it illegal for banks to lend out depositors' money in the first place without the depositors' permission on a loan-by-loan basis. Banks that want to continue to issue credit cards should be lending with their own money, not their depositors' money. This way, the banks would not have nearly as much incentive to offer below-market teaser rates to get people to sign up for credit cards in the first place, which will deter credit card holders from borrowing themselves into a financial hole in the second place, because they'll know up front what they'll be paying in interest.