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The Next Crisis: Credit Cards

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posted on Mar, 17 2009 @ 12:54 PM
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I think some of the most important numbers to concider here and now are the unemployment rate and the credit card default rate.

You saw yesterday that Amex showed a big increase in delinquent accounts. They are the most careful credit card when it comes to giving out credit. As more people loss their jobs - people who are already in the hole with credit card and mortgage debt - we will see a huge increase in credit card defaults. It will make the Lehman collapse look like a day in the park.

"Total U.S. consumer debt (which includes credit card debt and noncredit-card debt but not mortgage debt) reached $2.56 trillion at the end of 2008, up from $2.52 trillion at the end of 2007. (Source: Federal Reserve's G.19 report, February 2009)"

If ten percent defaults on their consumer debt, that equals 256,000,000,000. Thats right 256 Billon!!! But lets be realistic. The people who are more likely to default are the ones carrying a lot of debt. People using credit cards to make ends meet after getting laid off and the such. That probably makes the above number much higher.

Banks like Citi and BofA have barely enough money to opperate after we already gave them billions of dollars.

Top 10 issuers of general purpose credit cards for 2008 based on outstandings
1. Chase - $183.32 billion
2. Bank of America - $166.32 billion
3. Citi - $106.74 billion
4. American Express - $88.02 billion
5. Capital One - $60.08 billion
6. Discover - $49.69 billion
7. Wells Fargo - $36.36 billion
8. HSBC - $29.36 billion*
9. US Bank - $18.53 billion
10. USAA - $16.61 billion*
(Original source: Nilson Report, February 2009)
NOTE: The outstanding dollar values listed for HSBC and USAA are slightly lower than the actual outstandings for that bank because they do not include their American Express business. However, the discrepancy does not have an impact on the overall rankings as listed above.

Look, Chase, the only bank that seems to have been weathering this storm is extremely exposed to a credit card collapse.

Source

edit to add:

Also, don't forget that mortgages are backed by assests, credit cards are completely unsecured debt!!! There is nothing to foreclose on.

[edit on 17-3-2009 by finemanm]




posted on Mar, 17 2009 @ 01:20 PM
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Credit cards are a prime suspect, but there are a lot of possibilities for the next crisis. Don't forget that the fate of GM and Chrysler is very much up in the air. I don't know if they'll be able to jam another automaker bailout down our throats. If they can't, there's a good chance that one or both of them are going to fail. That's got to be a couple hundred thousand jobs when you consider the assembly, corporate, dealerships, suppliers, maintenance, etc. And how 'bout the commercial real estate bubble? Commercial real estate is majorly overbuilt, and with companies cutting back, there's only going to be more empty space. Something's gotta give.

Ain't it fun to speculate?



posted on Mar, 17 2009 @ 01:23 PM
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Yes, I too see the coming crisis.

It's unfortunate, either to people living 'high on the hog' or those who have used their credit cards to support basic living such as food, utilities, house payments. Their days are coming to a close. Markets tightening up. Credit limits lowered, interet rates increasing.

As with the housing crisis, I don't think a lot of debtors are educated in what they truly can afford. How many of you, even in todays market, get invites from credit cards everyday? Now, that's not to negate personal responsibility.

Next stop, you'll be seeing personal bankrupcies skyrocket. It's going to happen. Who smells another bailout?



posted on Mar, 17 2009 @ 01:25 PM
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Comercial real estate is something I am really worried about, but I think the credit card situation is a bit more rapid. The rate of layoffs is stagering. I think that companies - large and small - are more willing to dump employees before they default on their real estate.

Employee = liability

Real estate = asset.

Thats why I think then next mess will be credit cards, probably followed by commercial real estate shortly there after.



posted on Mar, 17 2009 @ 01:26 PM
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Have you forgotten the recent legislation passed to eliminate defaulting on credit cards? You can no longer default on credit card bills. Bankruptcy is no longer an option. The banks realized the situation they were in some time ago and introduced legislation to stop this possibility. It goes to show just how much greed and deception is going on in business and government. To say that they did not know what was going to happen is an outright lie. We the people are about to get it again. BOHICA![bend over here it comes again]

respectfully

reluctantpawn



posted on Mar, 17 2009 @ 01:29 PM
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What do you mean bankruptcy is not an option?
Banks cant change laws like that



posted on Mar, 17 2009 @ 01:31 PM
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The banks didn't change the laws, the legislators did. You know the people that you voted into office. You can no longer declare bankruptcy on credit cards.

reluctantpawn



posted on Mar, 17 2009 @ 01:31 PM
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reply to post by reluctantpawn
 


I don't follow?

Are you saying that if I stop paying my credit cards nothing will happen?

a) I wont get hit by penalties?

b) the bank still gets my money without me sending it to them?

I don't understand what you mean. Can you provide a source?

I think that if 10% or more of current CC holders run out of money and have to choose between food, rent and credit card bills, I think the banks will have another Sh!t storm on their hands.



posted on Mar, 17 2009 @ 01:34 PM
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Originally posted by reluctantpawn
The banks didn't change the laws, the legislators did. You know the people that you voted into office. You can no longer declare bankruptcy on credit cards.

reluctantpawn

Yes you can.
If you declare bankruptcy it doesn't matter what its on.
If you cant pay your debts, you are bankrupt.
Its not just on one thing, its on everything.
No one can change these laws they are an inherit part of all the worlds economy.
All people get bankruptcy protection.
If they remove it from some they have to remove it from all.



posted on Mar, 17 2009 @ 01:34 PM
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reply to post by reluctantpawn
 


Me not being able to write off CC debt in bankruptcy doesn't change the equation. If I can't send them money, and several million other Americans also can't (not wont, but can't) send them money, what happens to the banks expecting that money on their balence sheets?



posted on Mar, 17 2009 @ 01:34 PM
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I hope the idiot american finally wises up and cancels their credit cards. In fact we need a law that says nothing can be bought on credit unless it's for a health emergency. You want a house? Rent right now and save your money for 20 years and then buy a house outright.

I've never used credit in my life.



posted on Mar, 17 2009 @ 01:37 PM
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Originally posted by reluctantpawn
Have you forgotten the recent legislation passed to eliminate defaulting on credit cards? You can no longer default on credit card bills.


I think you're wrong about that, but it's a good idea anyway. Credit cards are just used for buying junk you don't need and i say make them pay for it.



posted on Mar, 17 2009 @ 01:43 PM
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You can declare credit cards in bankruptcy. If your gross income is below a certain amount the debt is written off. If you make above that certain mark then you have to repay a certain percentage of it.



posted on Mar, 17 2009 @ 01:43 PM
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It means the banks now have the necessary tools in place to take everything you own on an unsecured dept, like a credit card. You cannot clear it with bankruptcy. This was discussed here on ATS some time ago. Pleas research the threads yourself. I am a little computer illiterate and have difficulty with linking


respectfully

reluctantpawn



posted on Mar, 17 2009 @ 01:55 PM
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reply to post by Make Speed Limit 45
 


Good for you. I did not start this thread to insult Americans. Go talk about highway fatilities if you have nothing to add to the discussion.

In 2006, UK alone have over $400(US) billion (or 319 euro) in unsecured credit card debt. In 2000, total UK unsecured debt was 186.2 euros. As you can see, the British alone doubled their unsecured debt between 2000 and 2006. source

In the year 2000, Germany, Belguim, France, Italy, Spain and UK had a total combined 617 billion EURO's in unsecured debt. By TODAY's exchange rate, that equals 800 Billion US. That was nine years ago!

If Germany, Belguim, France, Italy, and Spain followed the trend in UK, then in 2006, their number would be 1.6 trillion.

Source

So stop with the anti-US nonsense. Europeans are in just as much trouble as we are in this "Global Meltdown"


[edit on 17-3-2009 by finemanm]



posted on Mar, 17 2009 @ 02:06 PM
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reply to post by reluctantpawn
 


The only thing that you cannot be protected from in bankruptcy since the law changes are Student Loans .. due to student graduating and declaring bankruptcy before they even established their credit to dump bad debts.

Credit Cards, Car Loans, Mortgages are all included in bankruptcy restructuring. Usually some consultation with specialist leads to payment options for those with debts, credit cards are by far the most vulnerable for banks.

If you default on a credit card the bank cannot seize a thing from you, not your house, not your car, nothing. It will damage your credit for 3-5 years, Bankruptcy is on your score for 7 years.

The new laws DID make it tougher to go through bankruptcy, but ultimately for those in such dire situations it should be looked at a way to start over if anything.

[edit on 3/17/2009 by Rockpuck]



posted on Mar, 17 2009 @ 02:15 PM
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reply to post by sweetpeanc
 


Hey, don't know if this matters or not, but I found it odd that we just received our new paperwork for our mortgage refinancing (for lower interest), and our bank gave the loan to GMAC. Since when does GMAC do mortgages??? We have good credit, never have been late, and have even paid ahead of time on many things.

Something is going on. I never knew that USAA was associated with GMAC, but with the recent bailout of the big three, why on earth would they need to take on mortgages? I guess they are spreading the wealth a little more. Just took a look at last year's ammoratization schedule, and it nauseated me at how much we paid in interest on our mortgage. Our rate was only 6.3% before we refinanced to 5%. Little do they know that we are paying extra a month from now on....it's disgusting how much they make from interest. How the heck are they (the banks) broke??? And if one of the big three owns a bank and manages mortgages, how the heck are THEY broke?? Something is not adding up in my mind.



posted on Mar, 17 2009 @ 02:20 PM
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Mortgages are essentially securities. They are sold over and over again, especially young mortgages. The company that draws the mortgage initially will sell it for X amount of dollars. The company that buys the mortgage for X either sells it for Y (slightly more then what they paid for) or sit's on it, and collects the interest as a form of investment backed by asset (after paying higher and higher prices a mortgage with a 6% interest rate might return a total of 2%-4% on the investment by the bank -- or they can quickly turn it around for a small profit. Do it millions of times over, and your raking in money.

This is essentially how the "mortgage backed securities" and the "Subprime" market collapsed, deflation tore away at the consumer and defaults cascaded into chaos.

GMAC will purchase the loans strictly for investment purposes, they do not write the loans them selves.



posted on Mar, 17 2009 @ 02:58 PM
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When the credit card meltdown begins, it won't matter what the bankruptcy laws are, because millions will simply stop sending money in.

That will collapse the banks overnight...no bailout will be able to stop it.

We will see credit come to an end for a long time.



posted on Mar, 17 2009 @ 03:34 PM
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Originally posted by reluctantpawn
The banks didn't change the laws, the legislators did. You know the people that you voted into office. You can no longer declare bankruptcy on credit cards.

reluctantpawn


Wrong so wrong it not even funny, I work for a law firm and I specialize in debt consolidation of unsecured debts. While I do believe that the credit card crunch is going to be the next bane of the economy I don't believe it is going to be nearly as bad as what the topic leads you to believe. The economy has undoubtedly has had a huge impact on people's ability to pay for their unsecured debts but.. people are also using the economy as a scapegoat to not pay their debts as well.

Banks budget themselves for losses especially in the Unsecured debt category, they expect to lose a certain portion of their profits. The banking industry did not account for the mass amounts of mortgage defaults, this is what set the economy in motion. Had the lending not extended into the subprime mortgage area the economy and the banks would still be operating business as usual.

Also please do not spread misinformation about bankruptcy and unsecured debts. Yes the laws changed changed in 2005 regarding chapter 7 and a persons ability to pay, but there have also been ammendments. You can still prove to be insolvent and file chapter 7, there are also stipulations and credits so you dont lose your home. Is it harder to file for chapter 7 now? yes but that doesn't mean its not an option.



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