I have been writing a lot about financial items lately because I see this as our next biggest albatross around the neck of America. While we fight in Iraq for God knows what, we ignore the true security issues. The first, and most obvious, is the illegal and criminal invasion from the South (mostly). The second is our financial situation of this Country. I have written about the deficits and the sub-prime disaster that is occurring (supporting NO BAIL OUT) and now, it is credit cards.
Banks are seeing a huge spike in past dues and delinquencies on their credit card holdings. When you think of this, it makes sense. The average American is strapped for cash and, after blowing through the "equity" in their homes, basically blew through (are are at least going through) the credit on their credit cards which led us to the 401(k) article mentioned earlier. The article states:
"The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks ..."
More scary yet:
"Serious delinquencies also are up sharply: Some of the nation's biggest lenders -- including Advanta, GE Money Bank and HSBC -- reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.
The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors -- similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans."
A simple fact of economics is that the savings rate cannot be sustained at a negative level. Sooner or later the debts have to be paid and they cannot be paid with more debt.
Approximately 2 years ago, the bankruptcy laws were changed to "protect" credit card issuers from what they called "fraudulent" bankruptcies. Really? Interesting. As a result of this:
"Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 -- where debts can be wiped out entirely -- except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13."
Do you think they "foreshadowed" the issues which were developing? I think they did and actually wrote about it when this law was passed.
Because credit card debt is securitized much like the sub-prime mortgages, this securitization and "spreading of risk" has allowed credit card issues to proliferate and many people who should not have them now have them. This will come to an end:
"Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said.
"It's been getting tougher to finance any kind of structured finance -- mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry."
While he blames it on the "overall health" of the economy I cannot help but wonder if investors, having been stung by the sub-prime collateralization and the subsequent US Government bail out are not fearful they may get stuck with bad debts which the Government will essentially force them to "forgive".
And the saga of the Moral Hazard continues...