Investors may have hoped that falling home prices and the mortgage-backed paper that goes with them would be the only big shoe to drop at US financial firms. They should only be so lucky.
Credit cards are likely to be the next Waterloo for the banking system. According to The Wall Street Journal, "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."
It is worth pausing for a moment to think about that. Banks are being recapitalized by the Treasury. There is some hope that earnings at big financial firms will begin to recover by the middle of next year as the housing market becomes more stable. How could future losses at banks rival those seen in the last three quarters?
The fact is that many consumers are having trouble paying for their homes and relatively expensive gas at the same time. The average citizen has gone wild buying plasma TVs and video game consoles for the kids. Most of that is on the plastic sitting in the pockets of those who are already stretched too thin.
Until recently, a home equity line was the easy way to get some cash to pay down those card balances. Housing prices have cut that off.
How much is a stake.? No one knows? But, what if 100 million working Americans have $2,000 each on their plastic? That number is too big to calculate because most calculators do not have than many zeros. Some of it is not going to be paid back.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
10-23-2008 @ 12:28PM
Ken said...
I'm not sure if this post is intentionally left vague at the end or what - $2,000 *100M = $200B. That's only about a quarter of the current bailout plan. No worries.
10-23-2008 @ 12:46PM
di said...
#1--Ken, I agree. This was pretty vague. I was sort of hoping for a few scenarios or something. Pretty disappointing.
10-23-2008 @ 1:50PM
Gary E. Sattler said...
Boy, you tell 'em the whole picture and they ride you for "shouting fire in a theater."
Then, you leave them to draw their own conclusions, and they ride you for being too vague.
It's a blogger's life... gotta love it!
10-23-2008 @ 2:32PM
Kate said...
Banks lured customers in with no interest or low interest credit cards. If you were late one time, your interest went to 30%. Credit Card debt is unsecured and uncollectable by banks. They can write you harrassing letters, ding your credit but they cannot collect on money owed. I have no sympathy for banks experiencing melt downs where mortgages and credit cards are going belly up. They reaped what they sowed. If you have to decide between paying your electric bill, your mortgage payment or a credit card payment, let the credit card payment go.
10-23-2008 @ 6:03PM
Virgil Bierschwale said...
They are forgetting something.
This is 200 billion on top of 700 billion for a bailout, on top of 700 billion for oil, on top of 300 billion, or more for lost wages that we offshore.
Seems like a lot of money to me and as my latest video at http://www.KeepAmericaAtWork.com states, we are running out of sand in the hourglass.
Take a look at it and you will see what I mean.
Virgil
http://www.KeepAmericaAtWork.com
11-10-2008 @ 6:33PM
victorh said...
Agggh, the economic theory here is a litte wrong. Yes some consumers well go belly up, they are the ones with 10-20-30k in credit card debt. Most consumers with 2k credit card debt (20-24% per annum) will at least make the minimum payments. Thus, 200b problem is not a 200b problem unless you are one of the folks not making his or her payments.