From sub-prime to credit card
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Subprime, the U.S. Dollar & a Recession in 2008
Posted by Bill Bonner on Dec 5th, 2007
So far, credit card debt is holding up remarkably well, The Economist tells us. Goldman Sachs (NYSE:GS) says losses from credit card debt could reach US$99 billion - if the problems in subprime leak over to the credit card industry.
No problem so farÂ…customers are still payingÂ…which is a bit surprising, since youÂ’d expect the consumer to be getting a little behind.
From the housing market comes this little note from an Australian reporter:
“The last one out of Cleveland, please turn out the lights,” writes Paul Barry. Says Barry of the Ohio city:
“…the streets are lined with empty houses, dead gardens and demolition notices pinned to the front doors. One in 20 homes are now in foreclosure.”
Turning to the dollar, The Economist quotes an unreliable source, your editor:
“The long term value of all paper currencies is zero. That is the fond saying of Bill Bonner, goldbug and publisher of the Daily Reckoning, a contrarian financial newsletter.”
Readers take note: we are talking about all paper currencies, not just the dollar. We guessed that the dollar would fall to US$1.50 to the euro. So far, itÂ’s gotten about a penny short of the milestone. But it looks to us as though the dollar may want to correctÂ…meaning, go up. In the long run, it is worthless trash. But so are the others. Which of them becomes trash firstÂ…well, we wish we could say. At this point, we donÂ’t have an opinion. Will the dollar go upÂ…or down? We donÂ’t know. But we certainly wouldnÂ’t want to keep our wealth in it.
The dollarÂ’s value comes in some measure from the fact that it is the worldÂ’s leading brand. That seems to be changing. The greenback seems to be going out of style. Already, in the film American Gangster hip- hop musician Jay-Z flashes a wad of cash. The cash is 500-euro notes, not dollars. The big euro bills are already a favorite of drug dealers. Soon, they will probably be everyone elseÂ’s favorite too.
Meanwhile, as predicted here…corporate profits are falling. Bloomberg says there’s a recession in corporate earnings, and “the economy might be next,” continues the report.
“The earnings recession has already arrived,” says a Merrill economist, “We are going to see an economic recession in ‘08.”
Bill Bonner
The Daily Reckoning Australia
Australians Get Deeper into Credit Card Debt
Posted by Dan Denning on Sep 24th, 2007
“Crisis on cards as credit rates tipped to soar,” reports Frank Walker in The Age. “Australia’s love affair with credit cards has reached a crisis, with debt hitting record levels, more and more Australians using cards to meet mortgage payments and warnings that card interest rates are about to soar.”
Your typical Aussie has AU$3,000 in credit card debt. Aussies took out AU$1 billion in cash advances on their credit cards in July, according to Reserve Bank figures. July spending was AU$16.4 billion total. Meanwhile, “Financial experts are predicting the average credit card interest rate of 16 per cent will increase by two to three percentage points over the next eighteen months.”
Such an increase would be a disaster. “I have been doing this for 17 years and it is the worst I have ever seen, “ says Wendy Luckett, a financial counsellor at Credit Line. “I am seeing people who are contemplating suicide, marriages are breaking up under the strain and the human cost is enormous. It is not just poorer people getting too far into debt. I am seeing professional people with big homes, private schools and AU$40,000 credit limits where something has gone wrong and they can’t meet repayments.”
Dan Denning
The Daily Reckoning Australia -
Why are credit card rates still out of control?
Despite congressional hearings, headlines, lenders push up rates and fees
http://www.msnbc.msn.com/id/20811184/
Banks could recover their sub prime losses by charging higher fees in credit cards, performing mortgages etc. -
Big surprise
http://www.gutenberg.org/etext/2134
Welcome to the Utopia of Usurers. A Paradise of Fools and Immoral Money Lenders. -
Hello, US economy is in STAGFLATION. Expect higher interest rates and a recession in the US. Expect higher interest rates and growth in Asia.
Greenspan: Give Homeowners Financial Aid
Sunday December 16, 5:30 pm ET
By Kevin Freking, Associated Press Writer
Former Fed Chief Alan Greenspan Calls for Cash Infusion to Help Struggling Homeowners
WASHINGTON (AP) -- Alan Greenspan, former chairman of the Federal Reserve, suggested Sunday that a tax break or other government financial help for homeowners facing the mortgage crunch would be the best political fix for the economy.
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He cautioned against meddling with home prices or interest rates to address the housing problem.
Greenspan did not specifically call for a tax cut. Instead, he called for the government to apply money to the severe housing market slump. Such a cash infusion would typically come through a tax break or a new government spending program.
"Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this," Greenspan said during an appearance on ABC's "This Week."
Separately, Greenspan said he is concerned about signs of a resurgence of inflation.
"Core inflation is up. Wholesale prices had their highest increase I think in a generation. That raises the specter of stagflation again," said Greenspan, referring to a simultaneous stagnant economy and upward pressure on prices.
He said the Federal Reserve should "do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer term period."
Greenspan said a large number of people are in major financial stress, even when they've tried exceptionally hard to make their monthly mortgage payment. But some political solutions would only prolong their agony, he said.
"It's far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it'll drag this process out indefinitely," said Greenspan, referring to his preference for a cash infusion to help homeowners.
Greenspan ran the central bank for more than 18 years. He has been criticized by some for keeping interest rates too low for too long after the 2001 recession.
He said -- as he did earlier in the week in another interview -- that he agrees with some experts who see prospects for a recession at about 50-50.
"Whether it's above or below (50 percent) is really extraordinarily difficult to tell," Greenspan said.
Greenspan said the key lesson the economy has provided lawmakers over the last 20 years is that inflation must be suppressed for sustained economic growth to occur. -
weird nick
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Unpaid Credit Cards Bedevil Americans
Sunday December 23, 11:21 pm ET
By Rachel Konrad and Bob Porterfield, Associated Press Writers
AP Impact: Americans' See Their Debt Woes Expand As Unpaid Credit Card Bills Are on Rise
SAN FRANCISCO (AP) -- Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.
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An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.
Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.
"Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."
The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart.
At the same time, defaults -- when lenders essentially give up hope of ever being repaid and write off the debt -- rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.
Serious delinquencies also are up sharply: Some of the nation's biggest lenders -- including Advanta, GE Money Bank and HSBC -- reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.
The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors -- similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.
Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for the nation's banks, which continue to flood Americans' mailboxes with billions of letters monthly offering easy sign-ups for new plastic.
Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.
But what is coming into sharper focus from the detailed monthly SEC filings from the trusts is a snapshot of the worrisome state of Americans' ability to juggle growing and expensive credit card debt.
The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.
Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.
Many economists expect delinquencies and defaults to rise further after the holiday shopping season.
Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc., cited mounting mortgage problems that began after this summer's subprime financial shock as one of the culprits, as well as a weakening job market in the Midwest, South and parts of the West, where real-estate markets have been particularly hard hit.
"Credit card quality will continue to erode throughout next year," Zandi said.
Economists also cite America's long-standing attitude that debt -- even high-interest credit card debt -- is not a big deal.
"The desires of consumers to want, want, want, spend, spend, spend -- it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."
Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 -- where debts can be wiped out entirely -- except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.
Personal finance coaches say the problem is most grave for individuals who are months delinquent or already in default -- like Kenneth McGuinness, a postal clerk from Flushing, N.Y.
His credit card struggles began nine years ago, when he charged his son's college tuition and books. He thought he was being clever: His credit card's 6 percent "teaser" interest rate was lower than the 8.6 percent interest on a college loan.
McGuinness, 61, soon began using Citibank and Chase cards for food, dental work and copays on doctor visits and minor surgeries. Interest rates surged to 30 percent. Now he's $37,000 in debt and plans to file for bankruptcy in February.
"I tried to pay what I could and go after the high-interest accounts first," McGuinness said. "But it just kept getting higher and higher, and with late charges and surcharges I was going backward."
In the wake of the jump in defaults on subprime mortgage loans made to borrowers with poor credit histories, banks have been less willing to allow consumers to consolidate credit card debt into home equity loans or refinanced mortgages. That is leaving some with no option but to miss payments, economists said.
Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said.
"It's been getting tougher to finance any kind of structured finance -- mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry.
Capital One Financial Corp. reported that delinquencies and defaults are highest in regions where troubled mortgages are concentrated, including California and Florida.
Among the trusts examined, Bank of America Corp. had the highest delinquency volume, with overdue accounts valued at $5 billion. Bank of America defaults in October were almost 200 percent higher than in October 2006.
A spokesman for Charlotte, N.C.-based Bank of America declined to comment.
Other trusts -- including those linked to Capital One, American Express Co., Discover Financial Services Co. and those containing "branded" cards from Wal-Mart Stores Inc., Home Depot Inc., Lowe's Companies Inc., Target Corp. and Circuit City Stores Inc. -- also reported striking increases in year-over-year delinquency and default rates for October. Most banks and other financial institutions holding credit card debt on their own books also reported double-digit increases in delinquencies.
The one exception in October was JPMorgan Chase & Co.'s credit card trust, which reported declines in both delinquencies and defaults. A Chase spokesperson attributed this to its focus on prime borrowers and aggressive account management.
By contrast, Capital One executives told analysts last month that the company projected 2008 write-offs of credit card debt to be at least $4.9 billion. This projection, analysts were told, took into account growing delinquencies and potential effects if the housing market continued its downward slide.
Capital One spokeswoman Julie Rakes said the increase in delinquencies could be due to an accounting change last summer, which shortened the grace period between when statements were issued and the due date.
Capital One also reported that the number of accounts 90 days or more in arrears had increased between October and November. More than 1.2 million of Capital One's 30 million accounts were either delinquent or in default.
Many personal financial coaches expect this trend to accelerate in 2008 -- particularly among people who took out untraditional loans whose interest rate has risen, requiring owners to pay mortgages several hundred dollars more than just a year ago.
"You're looking at more and more distress -- consumers desperately trying to preserve their credit lines, but there's nowhere else to go," said Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. "It's like a game of dominoes." -
Long and short of this whole thread.....
If you spent more than you could repay...... you are in trouble. Pls don't over spent
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Originally posted by hloc:
Just to add on: And if your gonna screw up your finances, pray that everyone else screws up enough to threaten the economy. That way, the feds or the govt will bail you out.
Long and short of this whole thread.....
[b]If you spent more than you could repay...... you are in trouble. Pls don't over spent [/b] -
American Express Warns on 2008
Thursday January 10, 4:29 pm ET
Housing Slump and Decaying Credit Quality Will Hurt American Express' Profit
NEW YORK (AP) -- American Express Co. expects slower spending and more missed payments on credit card bills to hamper its profit throughout 2008, the company said Thursday.
While rich people are still doing fine, American Express said the slumping housing market has begun to take its toll on the American consumer. Charges on the company's roughly 84.7 million cards began to tail off in December, American Express said, and more clients failed to repay their debts.
The company plans to reserve $440 million for the fourth quarter, preparing for loans that are currently overdue.
American Express believes it earned 70 cents per share to 72 cents per share in the fourth quarter, which represents a decline from the fourth quarter of 2006.
The company expects profit growth of 4 percent to 6 percent this year, while analysts polled by Thomson Financial forecast profit growth of 8 percent.
Consumers in the U.S. have felt the most pressure in California and Florida and other areas of the country hit hardest by the housing slump, American Express said.
Late Wednesday night, Capital One Financial Corp., a credit card lender based in McLean, Va., set aside $650 million to prepare for unpaid credit card bills.