Cannibal Credit Cards Crashing
Well gee, this is certainly a surprise:
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.
The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.
Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.
“If unemployment continues to increase, credit card net charge-offs could exceed historical norms,” Gary L. Crittenden, Citigroup’s chief financial officer, said.
I get so tired of repeating myself, but this was completely predictable. Why?
The credit card industry and its allies in Congress passed laws that not only allowed them to charge any interest rate they wanted, but forced customers to pay back the debt by blocking the path to bankruptcy. The excuse was to weed out bad debts, but really it was a blatant attempt to milk their customers for all they’re worth, as the article above (and several like it) demonstrate, since even people with good credit have seen their rates increase.
Because of the new laws, people have been walking away from their houses instead, causing the housing market to crash
Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.
The largest U.S. savings and loan didn’t count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.
“Be careful what you wish for,” Westbrook said. “They wanted to make sure that people kept paying their credit cards, and what they’re getting is more foreclosures.”
Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.
The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.
Since this article was published a year ago, the economy has gotten far worse. So tell me: if people weren’t able to pay Capital One et al last year, when the housing crash started, what makes Capital One et al think people can pay them off now, now that the economy is well into its downward spiral?
Cry me a river, motherfuckers.
October 29th, 2008 at 10:03 am
dude, what’s that weird trackback thing going on here?
October 29th, 2008 at 8:28 pm
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