Credit Card Debt is Ready to Blow
October 11th, 2007You already know about the subprime mortgage apocalypse…
Since the lending requirements for mortgages have been tightened up, banks are now issuing more credit cards to the slobs who took out those stupid loans!
Via: Baltimore Sun:
After every financial crisis over the past 10 years, the Federal Reserve has cut interest rates and pumped money into the economy. Each rescue solved the problem – and created a new one.
The next bomb from this chain reaction of bailouts and blowups will be credit-card debt. Hardly anybody is talking about it yet, but banks and consumers are laying the ground for a wave of credit-card defaults, bankruptcies and asset write-offs for 2009 or so.
Regulators and investors have discouraged excessive mortgage lending, so banks are turning to credit cards as the next growth business. They’re starting to raise credit limits, lower lending standards and increase recruitment. And now that they can’t borrow against homes so easily, consumers are borrowing more against plastic – even to meet higher, adjustable mortgage obligations that they can’t handle from their income.
This can end only one way. The only question is how bad it will be.
The percentage of banks tightening credit-card lending standards is hovering near its lowest levels in a decade, according to a Federal Reserve survey.
Junk-mail credit-card solicitations jumped late last year, although they’re still below the levels of 2005, according to the Tower Group, a financial services research firm. But more importantly, the percentage of people responding to credit-card come-ons has risen steadily and nearly tripled since mid-2005.
“It doesn’t mean that banks are giving the store away, but they’ve eased their lending standards to be able to grab [market] share” in credit cards, says Dennis C. Moroney, a senior analyst at Tower.
Increasing market share is often banker-ese for “making lots of loans that won’t get paid back.”
Research Credit: PD
I should be surprised, probably, but I’m not. Is anybody, really?
Just as an experiment, last week I called up AE and asked to increase {double} my cash limit. I only have one card and always pay it off by month’s end. Mostly for when I’m on the road. The lady says, “your cash limit can only be half of your credit limit”. So I asked, “can I double my credit limit?” She asked for my income, and, I’m not kidding, in ten seconds she says, you are approved for _____. I said thanks and hung up. Scary…