Credit Card Crisis Is Here / Derivatives Next

[Rajiv]

Credit Card Crisis Is Here / Derivatives Next

The year long Bush Recession, which Bush still does not acknowledge, has now become a rapidly accelerating Depression fueled by a credit card crisis which is now a reality. Credit card companies are pulling back credit lines by close to 50% and consumers will soon stop shopping as the Retail economy sinks into a severe depression. Derivatives are next : Allen L Roland

The eroding stock market is just beginning to absorb the full impact of our economic nightmare and the current credit card crisis.

On June 30th, 2008 I wrote a column HUGE CREDIT CARD CRISIS NEXT FOR AMERICA in which I said that many Americans are living off their credit cards but be forewarned ~ that bubble is about to burst as more Americans are using high-interest credit card cash to pay at least part of their mortgages. Overall U.S. credit card debt grew by 435% from $211 billion in 2002 to approximately $915 billion year-end 2007. I also shared that the value of credit card accounts at least 30 days late was up 26% from the previous year, to $17.3 billion. Serious delinquencies among some of the biggest lenders rose by 50 percent or more in the value of accounts that were at least 90 days delinquent.

But Making matters worse ~ just as with mortgage debt, credit card debt has been put into pools that are then resold to investment houses, other banks and institutional investors. About 45 percent of the nation’s $900-plus billion in credit card debt has been packaged into these pools, and so many companies, not just a few, are at risk of being forced out of business by credit card debt write-offs.

Why do you think that American Express has become a Bank holding company ~ so they can have access to Hank Paulson's bailout dollars.

It's a badly shaking House of Cards and it's about to come crashing down and many Americans will pay the price as Danny Schechter wrote in June, ~ " While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards. Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy...we are actually face to face with the results of the most massive failure of our political and economic system since the Depression. "
http://www.informationclearinghouse....ticle20196.htm


If you thought the housing crisis was bad ~ You ain’t seen nothing yet compared to the credit card crisis !

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A few videos on consumer credit

Maxed Out on Student Loans

33 min

Maxed Out on Predatory Lending
21 min

From Crackle: Maxed Out

[tsetsefly]

Re: Credit Card Crisis Is Here / Derivatives Next

On June 30th, 2008 I wrote a column HUGE CREDIT CARD CRISIS NEXT FOR AMERICA in which I said that many Americans are living off their credit cards but be forewarned ~ that bubble is about to burst as more Americans are using high-interest credit card cash to pay at least part of their mortgages.

quite a nostradamos this guy...

many other people where warning about the credit card crisis before 08...

[Rajiv]

Re: Credit Card Crisis Is Here / Derivatives Next

quite a nostradamos this guy...

many other people where warning about the credit card crisis before 08...

But of course many people were -- but that is not the issue -- the issue here is that with a reduction in credit card debt lines -- and subsequent defaults, the derivatives based on credit card debt are due to implode -- so the next series of debt deflation downspirals should be about ready to hit.

See also Credit Card Derivatives: Facing Reality, One Step at a Time

The amount of single-minded focus that the media has placed on the mortgage market and the collateralized debt obligations surrounding it is nothing more than a fad. I don't mean that the problem is a fad - far from it. This is part of something bigger that is here to stay for many years. But the media pays attention like an industry with ADD. Journalists have grabbed on this because it was big and bright, essentially as it latches onto a story about a celebrity or the murder of a pretty coed.

But the financial crisis is much more than mortgage-based CDOs and the London inter-bank rates. According to whom you ask, the derivatives market has hit between 1 and 1.25 quadrillion dollars. Yes, a thousand trillions. That is so massively beyond the size of the 50 trillion GDP of the entire world as to be stunning and scary.

We've seen two shoes drop in mortgages and credit default swaps (which is continuing to evolve as more defaults happen and more institutions become liable for the "insurance" they offered). Chances are strong for future rounds of stock market plummets as companies continue to need cash to cover their positions and sell securities to get it.

The next one is likely credit card derivatives. As I've mentioned before, there's an entire bond market created in the bundling of credit card and auto loan debt. I have yet to find a good estimate of the total market size. But consider this: a large part of the quarterly $5.29 billion write-off that AIG took in the last quarter of 2007 was for credit card derivatives exposure, possibly through credit default swaps. And around the end of September, Citi said that it "faced up to $10 billion in credit losses, partly because of rising credit card defaults."

Subprime mortgages got into enormous trouble with, what, a ten percent default rate? Last quarter, U.S. banks charged off 5.47 percent of all credit card loans, or about $50 billion. That was up from 3.85 percent in 2007.

To be sure, credit cards don’t represent a huge portion of assets for most banks. For example, they comprise about 14 percent of all consumer loans and leases at Bank of America, the country’s largest credit card issuer. The main problem, Nishikawa said, is that “everyone is so weak after what happened with mortgages that another blow to a consumer product would be hard to handle.”

Consumer groups have long complained that credit card issuers push cards onto people who don’t need them or can’t afford them. They say rising credit card defaults —- just like mortgage defaults —- are largely the fault of banks who lent to risky borrowers.

Innovest estimates about 30 percent of Bank of America’s credit card loans are to subprime borrowers —- second only to the failed Washington Mutual Inc., which had almost half of its credit card loans held by subprime borrowers.

What that story doesn't say is that in the event of a mortgage default, the bank still owns the property -- probably not longer at the value the bank had assumed when writing the mortgage, but still something. Credit cards? Totally unsecured. And when auto loans go bad, the car has lost enormous value once driven off the lot.

Even if the credit card and auto CDOs are smaller than CDOs based at least in part on subprime mortgages, the impact they'll have has the potential to be far larger.