WSJ: Banks may see record credit card losses

[swag]

Source: Calculated Risk

From David Reilly at the WSJ Heard on the Street: Credit Card Losses May Scale New Peak

... A broader range of consumers now carry cards, and many run consistent credit balances to fund their lifestyles. This has led to successively higher peaks over the years in credit card charge-off rates.</i>

The danger is that the current financial downturn results in a new, far-higher peak charge-off rate that leads to unexpectedly large losses at banks and other card issuers.

<i>The Federal Reserve reported that the credit card charge-off rate was 5.47% at the end of Q2. As Reilly notes, third quarter data hasn't been released yet, but will certainly be higher based on reports from financial institutions...




Read more: http://calculatedrisk.blogspot.com/2008/10/wsj-banks-may-see-record-credit-card.html

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Much more trouble ahead.

[DJ13]

1. Well duh

You cant raise rates to 30% on revolving credit without incurring large numbers of customers no longer able to afford to pay you back.

These guys get paid millions to be that stupid?

[Warren Stupidity]

2. Everytime I look up I see shoes waiting to fall.

I think there is a huge looming ball of shit heading toward a large fan. The fallout from whatever it was that burst last month has hardly started.

For example, I went to a company meeting today where anecdotally it was related that more than a few of their customers are putting off purchases until next quarter or next year. This type of shit cascades and amplifies throughout the global economy. The collapse of Wall Street is just The Silence of the Billionaires, but us sheep out here in the fields are about to find out that our friendly farmer is going out of the wool business.

[CoffeeCat]

4. Yes, Clairese...

I can hear the lambs screaming--from their McMansions that they
can't afford fava beans or a nice Chianti...or heat.

:scared:

[Warren Stupidity]

5. Plus Babe shows up and helps out.

I like talking pigs!

[CoffeeCat]

3. People here probably think I'm...

...like a broken record, but I am really wondering what is going to happen
with the credit card situation.

This article focuses on credit-card charge offs--and how many people are defaulting on their cards.

That's one problem with credit cards.

The other problems are: People using credit cards less frequently because they're worried
about the economy and they're paying off the cards. People who can no longer use their
credit cards because they are maxed out. People who can no longer use their credit cards
because the credit-card companies are cutting them off--without any warning.

Our current economy's success hinges on people buying things with credit cards. It appears that
credit-card usage is being hammered from multiple angles.

This will significantly decrease the demand for EVERYTHING.

For so long, our entire economy has been propped up on people using their credit cards. Now, that
is coming to a close.

Combine this credit-card bubble bust with the housing bubble bursting--and a general contraction
in consumer spending---and I see nothing but financial armageddon.

If someone thinks I'm smoking my socks, I'm ready to be enlightened--because I'd love to be wrong
about this.

[Mari333]

6. add to that the baby boomers retiring right now and in the next 5 years

the perfect storm.

[mike_c]

9. I think you're exactly correct-- and I'm a bit pissed off...

...that I did everything right-- I live within my means, don't use credit cards except in emergencies and carry zero balance, and most importantly, didn't succumb to the temptation to buy a house at an inflated bubble price, no matter how enticing the mortgage sounded-- but even those of us who didn't misuse credit are still going to be stuck with the bail out bill, and the long term economic consequences of an unsustainable economy. :grr:

[Karenina]

10. Bingo!

[customerserviceguy]

11. Absolutely right

and when I was in the title insurance business, I saw people refinancing every six, nine, or twelve months, jacking up the principal each time. They were folding in their credit card debt along with their former mortgage balance, and the declining interest rates meant they could do so at little or no increase in the mortgage payment.

Now that party's been over for about 3-4 years, and the debt's starting to pile up. Additionally, many credit card companies have been lowering credit limits on a regular basis, effectively cancelling the card from further use as principal gets paid down.

I just paid off about $5K in balances this year, I was hoping to pay down another $2K before my job ends this year, including using my severance payment. I won't get that because I'm leaving early to take a part-time job, but it's with the water company, so there will be some stability there.

[Purveyor]

7. Well at least the debt collector/lawyers will benefit. The CC company will sell these 'charged off'

accounts for 10 cents on the dollar to these agencies that will then sue you, hence turning this unsecured debt into secured debt by judgement of the court.

Of course, the CC bank would never offer to 'settle' with you for 10 cents on the dollar, now would they...

[alcibiades_mystery]

8. Maybe if those assholes didn't increase their rates to 29% some people could pay them off

I never saw the 29% horror, but I hear it's pretty bad.