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In the latest sign that the subprime disaster is not contained -- as Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson have claimed -- Finfacts reports that U.S. credit card defaults are on the rise.
Credit card companies had to write off 4.58% of payments as uncollectable in the first half of 2007, almost 30% higher year-on-year. Late payments also rose, and the quarterly payment rate – a measure of cardholders' willingness and ability to repay their debt – fell for the first time in more than four years.
With the mortgage market melting down, consumers can't use home equity to lower their borrowing rate. Thus, consumers will need to borrow even more than the record $2.459 trillion -- up 6% -- that they took on as of June 2007. With consumers' incomes not keeping up with inflation and two-thirds of economic growth tied to consumer spending, the best hope for economic expansion is more consumer borrowing.
But with credit getting tighter -- from consumers to hedge funds to private equity firms -- the subprime meltdown is not contained as our government leaders have stated. As long as we expect them to be cheerleaders, there's nothing to worry about. It's only when we expect these policymakers to solve problems that the challenges loom large.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
8-28-2007 @ 10:37AM
Richard Newman said...
Right on, Peter. The Government lies about inflation, acts as cheerleaders with cosmetic solutions to real problems and then wonders why the approval ratings are so low. Subprimes should not exist.If the government wants to take action, bar the "flakey" loan schemes, cut taxes and quit spending like drunken sailors. It is a sorry situation we find ourselves in today.
8-28-2007 @ 11:17AM
RWLappraisers said...
O. K. Lets take a test on all these defaulted loans what was the average interest rate on the credit cards that the defaulter had in their wallet.
A. They had no credit cards.
B. 5.6 %
C. 12.9 %
D. 22 %
E. 28%
The answer is none of these. It wasnt the mortgage that brought the house down it was the "the house of plastic credit cards " and the lobbists, and the house banking committee.