The $915 Billion Dollar Bomb in Consumers' Wallets »
Posted by: engineer 10 months agoThis past summer's subprime meltdown involved about $900 billion in now-suspect securitized debt, reckless lending, and consumers who buckled under the weight of loans they couldn't afford. Now another link in the consumer debt chain - credit cards - is starting to show signs of strain.
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engineer10 months ago
And the fear that the $915 billion in U.S. credit card debt (an uncannily similar figure) may blow up has major financial institutions like Citigroup, American Express, and Bank of America strapping on their Kevlar vests.
Last month, as banks reported their worst quarterly results since 2001, concerns about rising credit card delinquencies began to make their way onto earnings announcements alongside mentions of subprime woes.
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Candida10 months ago
To a large extent, this is the fault of the banks that systematically train people to live beyond their means. If I had accepted all the credit cards that have been offered to me (repeatedly some of them), then I could now have a spending limit of a few hundred thousand dollars. For some people that might be hard to resist.
I also received my first statement from American Express today. It has all the purchase details, of course, but the part that one submits with the payment doesn't even have the balance on it, only the minimum payment. They are almost telling you, don't bother with the rest, just pay the minimum possible. They also offer a 0.5% bonus cash rebate on all new purchases if you carry a balance. In other words, if you are willing to pay 18% or so interest on what you owe, then you can get 0.5% back on the new purchases.
It's sad that so many people don't think through what they are getting into.
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lestparker10 months ago
The only ones to blame are the people who take on the debt. I dont feel bad for the banks who have let people be over extended, but to blame the banks lets the people who have lived beyond their means for so long off the hook. When this bubble bursts, the banks will loose money, the people who are overextended will suffer, and guess who will end up paying??? you got it, the people who have done things right all along. Just like the stupid sub-prime fiasco!
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texangelwings10 months ago
The amount of money banks can loan out is based on the deposit amounts received by the bank. The higher the deposits the more the bank can loan out. Most banks do not have the money in the bank to back the amounts of loans they have granted.
The Federal Reserve regulates and monitors the banks closely.
I took some law courses a few years back and the Federal Reserve and Bank finances was part of the classes.
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protoham10 months ago
Actually Banks can lend out 10 times what they have on deposit. It is an absolute ripoff. Also the Fed Reserve is a private bank, not related to the government at all. They control the money.
It is time to go back to the government backed greenback and go on the silver standard.
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cowboygrandpa10 months ago
Well the Bushies and others will not be happy. This happened on their watch. I watched in abject disbelief as housing in CA rose to a level that only 17% of the populace could actually afford. This figure came from my sister in law who is a realtor here. Still people were running around trying snap up the available homes. They are now defaulting on. Of course credit cards will follow. Watch for car loans to be next as those who believe they needed a new a car to show off their affluence. Are caught in the descending spiral of to much debt and not enough real income to finance it. I take no joy in the misery here. For I think this fall will be hard. Looks like a bleak picture for retailers during the Christmas season. Maybe we will all have something else to be thankful for. A roof over our heads and food in our stomachs. Thanks to the greedy ones who fueled this chaotic run up of debt. You got yours during the pyramid scam. Hope you get yours later as well. Thanks enginneer.
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jovial10 months ago
These greedy SOB's won't take the hit. Believe me! They'll find some way to squeeze that money they lost out of consumers. I don't think this is the last we heard of this.
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Bruedaddy10 months ago
Hey Gramps,
Each year/holiday season I am more inclined NOT TO BUY ANYTHING.
maybe "little" things for the wife, y'know what I mean...
We should all just boycott Christmas, show OUR real power but that has other far reaching implications so I don't know what the heck I'm talkin about........
All I know is I ain't buying 1 single toy made in China - ionstead, the kids in my world will get a BOOK.
frustrated with "the system"
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cowboygrandpa10 months ago
Bruedaddy: I hear you on that one. Between us the wife and I have 40 people to buy for. I think we are going to just give little things this year. I have told my children the only thing I want from them is for them not to go into debt for anything for us. Nothing is neede except to spend some time together and appreciate the fact we can still give thanks for all we have. Our health, freedoms, families and sanity. Everything else is just gravy on the top. Peace.
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simple0110 months ago
This is really scary sounds like "Black Thursday" October 24, 1929, the start of the Wall Street Crash of 1929 at the New York Stock Exchange.
http://www.credit-collection-agency.com
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Natureboy10 months ago
"Wonder if FDIC has enough money to cover all the banks?"
They will. The Reserve will print it up for them. The Fed has already been printing money like its going out of style, "injecting liquidity" into the system to prevent its collapse. And further devaluing the dollar as they do so.
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not2needy10 months ago
That's an unimaginable amount of money.
Step by step this admin has taken this country to it's knees, and it's not over yet.
Why would ANYONE want to pick up where W left off. IMO, anyone who wants it has their own agenda.
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cosmogenium10 months ago
Definitely like the S&L scandals of the 80's. Jeb Bush was on the board of Silverado then. The big bail-out cost taxpayers about $250 Billion. It was the biggest snatch-and-grab heist in history at the time. Nothing compared to Haliburton and the other war profiteers or the credit crisis still coming to a peak now.
Any way you look at it, that's a whole lotta' dog biscuits!
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Francisca10 months ago
America shivers and it's Europe who coughs!!! See what happened in Great Britain at Newcastle with the Bank of Northen Rock. It's terrifying because it's world!
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agentX10 months ago
when gas hits 4.00 a gallon, how do you think truckers and suburban/rural people are going to pay their gas bill?
Bingo...credit.
Will they be able to pay those bills along with their old credit bills and exploding mortgage? Probably not.
I say let the companies collapse. Serves them right for foolishly charging 29.99% interest.
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not2needy10 months ago
I have excellent credit. Both my husband and i get 4 or 5 credit card offers a day, pre-approved of course. Almost everyone of them have a 29.99 interest rate.
I know poor people are apt to accept this because they are grasping at straws, but if there is any other way, take it over those credit card offers.
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Beeboppin7110 months ago
When gas hits $4.00 a gallon the truckers are going to charge companies more to haul those products. Those companies will in turn raise the cost of goods. Inflation. We're heading into very uncertain and dangerous times.
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Natureboy10 months ago
There will be a tipping point.
When Joe sixpack can't afford to drive his Ford Expedition an hour to work each day AND pay the bloated mortgage on his "bedroom community" tract home, he will end up losing the home, the car, the job.
Multiply it by a few million, and imagine these hungry, desperate, p!ssed off people coming to YOUR little town. It's not going to be a good day.
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Charlson10 months ago
Banks: making money with consumer's money.
Credit Card Companies: making money by lending money to consumers who bank.
Consumer: cash cows.
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unorthodoxic10 months ago
When banks break the law, the law is changed. Ergo, banks hardly ever break the law. How did we get to the point where banks can charge interest rates that would be criminal usury on the street? How did it come to pass that banks redefine the term "deadbeat" to mean someone who pays off the credit card balance every month? How long did banks think they could continue collecting exorbitant interest from people whose income is insufficient to support their debt? Are banks stupid or greedy? Are they both? What does that make us? We continue to elect "leaders" who kowtow to the banks instead of fulfilling their duty to their constituency. When the crushing blow to our economy falls, who will bear the brunt? Wanna bet it ain't the banks?
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Bruedaddy10 months ago
right, just like when the bush administration fixed...uhhh. re worked the bankruptcy laws in favor of "the company"....
THEN, I say THEN as in STEP 2:
made law that sent the minimum payments up to nearly double....too bad you can't afford the payments now, too bad you're going to get late fees and 29.99% interest.... forever
too bad now you're ruined...you can't file for bankruptcy protection...we already fixed that.
have a good day.
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joeblowe10 months ago
All correct. the thing to remember is this: Credit card debt is UNSECURED debt. If they have 34.99í you to the poor house, you can just -- NOT PAY. Your credit is already ruined, you have little or nothing to lose. I will agree/reinforce that notion: It is absolutely INSANE for a bank to try to charge a customer MORE of what they already suspect they don't have enough of. It's so stupid as to TOTALLY defy logic. If someone is having trouble, they should probably LOWER the interest, not raise it. (which is what some shysters recommend - just don't pay your bill for a few months, then negotiate a lower rate in exchange for making payments. Screws up your credit, but again , at that point does it really matter?)
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engineer10 months ago
The thieves (banks) were deregulated in 1981 and Bush fixed the rest for them.
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Justice4All10 months ago
If a person buys a house they can't afford then they are responsible for their misfortune and I do not want to pay for their poor planning.
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pongping10 months ago
So the CEO asks the division head, 'what the hell happened?' The Division Head lies and replies nobody expected this to happen (stole that line from Condi Rice and airplanes being flown into buildings), but what he really wants to say is, "We frigging knew buying all these ARM's bundled together was a bad bet. We knew they would explode and we would be left smoldering in our own burning detritus. We just didn't have the balls to tell you, chief, because you wouldn't have had the balls to tell the board which didn't have the balls to tell the major stockholders that sometimes choosing profit over common sense surks."
Back at the Acme Subprime Lending Company we hear a different line from the CEO. "Way to go, Mortimer! You unloaded all those loans nicely. Can you believe how stupid people running supposedly legitimate financial institutions are?"
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ecotourusa10 months ago
this is very bad. I have not gotten a good feel that any one of the dems has a resolve to this mounting disaster. who on the dem side has an effective business plan?
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willottica10 months ago
Do any republicans? I think not. Is there a good plan? Short of making a time machine and changing the past???
Lowering interest rates on existing loans and raising them on new loans is probably the best solution to the crisis... "but that might cause a recession". Just because you deny being in recession doesn't make the recession go away.
I would say there's a choice. Accept a recession now, by raising interest rates on new loans (discourage the kind of borrowing that put people in these predicaments in the first place) and at the same time, lowering the rates on existing loans/credit cards/mortgages to a level that can actually be paid off.
Continuing to deny it, and continuing to lower the overnight rate set by the Fed encourages reckless borrowing, and will eventually cause a depression, as people start going to the banks and find that there's no money there... or as inflation spirals out of control much as it did in post-war Germany.
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willottica10 months ago
If you want to see evidence of a recession and inflation, look no further than the value of USD compared to world currencies... $1 CAD = $1.08 USD today, it was at $0.61 5 years ago. American pennies aren't a (Canadian) dime a dozen yet, but they're getting there quickly.
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willottica10 months ago
...and the slide continues... we just got to $1.09
That's a 22% fall in the USD in 9 months...
(Or a 29% rise in CAD, but I think it's mostly a USD fall..)
More significantly, it's almost ? in the last 6 weeks!
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