Banks' $180 Billion Credit Card Time Bomb

[marmar]

from Dollars & Sense:



Banks' $180 Billion Credit Card Time Bomb
by Dollars and Sense


If the economy stays on its present dismal course, banks can expect to lose $180 billion, according to analysts quoted in the New York Times. The figure is much higher than the government's so-called "stress test" scenario of $82.4 billion in losses because the Fed presumed no increase from current unemployment rates, and because they didn't count the losses from securitization of credit card debt. Yes, the banks bundled up credit card debt just like it did bad mortgages, selling and reselling it to investors and creating liabilities far in excess of value of the underlying loans.

The average US household has over $8,400 in credit card and other revolving debt. With unemployment rising, housing prices unlikely to climb back to bubble elevations, and consumers saving more, and Congress considering curbing the most egregious predatory practices of the industry, the glory days of credit card profits for banks appears to be over.

The banks are also slashing the credit available to consumers. According to Meredith Whitney, lenders are cutting back credit lines by $2.7 trillion over the next year, a 57% reduction of available credit from just two years ago. As consumers cut back their spending, the negative feedback loop will only accelerate.

--d.f.


http://www.dollarsandsense.org/blog/2009/05/banks-180-billion-credit-card-time-bomb.html

[w4rma]

1. Let them fail! (nt)

[regnaD kciN]

2. Hard to feel too sorry for the banks...

...when one of the reasons people are having such an impossible time paying off their debts is that the banks, as soon as they sensed one of their cardholders might be in trouble, immediately doubled or tripled their interest rate, raising their minimum monthly payment (sometimes by hundreds of dollars) without any of it going to help pay down their debt -- merely straight into the bank's pocket.

[CatholicEdHead]

3. What's scary is that does not sound like a large amount anymore

Not with TARP, TARP2, etc... :scared:

[FarCenter]

4. I thought that securitization reduced bank losses

and because they didn't count the losses from securitization of credit card debt. Yes, the banks bundled up credit card debt just like it did bad mortgages, selling and reselling it to investors and creating liabilities far in excess of value of the underlying loans.

So by selling the debt to hedge funds, pension funds, mutual funds, insurance companies, etc., the bank are no longer responsible for the losses. They just pass the losses on to those other entities.