Tuesday, Oct 30, 2007
You really should see this
CNN Business: The $915B bomb in consumers' wallets
"Americans have record credit-card debt and banks are starting to sweat an uptick in default rates, reports Fortune's Peter Gumbel. Why some fear this could be the next subprime."
You just couldn't make this stuff up, everyone thinks the credit crunch is blowing over, au contraire, it has just begun folks....!!!
Posted by bingo @ 04:29 PM (1233 views) Add Comment
15 Comments
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1. Sag3000 said...
"It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. That's suicidal, of course, given that credit card interest rates are more than double even the heftiest mortgage."
2. enuii said...
Two most interesting barometer snippets:-
'Citi's credit card holders were beginning to increase the balance on their cards or take cash advances on those cards for the first time'
'Just like CDOs and other asset-backed securities, credit card debt is sliced, diced, and sold off again as packages of securities.'
3. whiteknight said...
Rolling the limit higher seems to have been a strategy to avoid causing a default for quite some time?
Remind you of anything.
The depth of this problem due to "rolling the day of reckoning" is quite breathtaking.
.. and they are still doing it now. problem with the "clever" strategy is that its going to be coming from all angles at an increasing rate.
4. bingo said...
You got it enuii, they are starting to increase their balances and are starting to take cash... What I think is slightly unusual (and I am trying not to get too excited over it) is that it is already happening here. It has been widely reported recently that people are using their credit cards to pay the mortgage in this country, so there is none of the usual lag behind the US in this situation, we are probably ahead of the curve on this one.
Just a snippet from me; I was in the bank today, I heard a mom bring her son in and they sat down, the guy had to be in his mid twenties, she was baling him out of his overdraught and lending him money to buy a car. I thought 'awwww, how nice'... Actually no I didn't, I thought 'get a life you mooching piece of crap'. The best thing you can do for your kids is to bring them up right and try to get them a good education, there are too many kids these days are thinking; 'when I am 50 my parents will croak and I will get their house, so I don't need to do anything with my life'. I know this because I have a family member who just like that....
5. uncle tom said...
This is consistent with what I term 'phase two' kicking in in the US. This is when those who have been raiding their home equity piggy banks to make ends meet find that falling house prices have left them with no more equity to raid. Unable or unwilling to reign in their lifestyles, they are starting to hit the plastic. It should be evident to the card issuers that there is a very serious risk of these people going bankrupt. The party, for the purveyors of plastic - looks to be over.
Expect 'phase two' to hit the UK next summer. It would not surprise me if the UK card issuers look across the pond, and start profiling their customers to identify those who might cause problems later - they are already flagging those who draw cash from a credit card to be potentially in trouble. Expect a tightening of terms for those who don't pay off a significant amount each month..
6. drewster said...
@bingo: Sadly I agree, there does seem to be an increasingly defeatist attitude amongst the young these days. However it's partly due to the high house prices: people's attitude seems to be "what's the point in working hard, I'll never be able to afford a house anyway". Little do they know their parents have probably been SKIing through their retirement and MEWing to pay the gas bill. As for those kids not in line to receive a massive house, well one can't help but feel sorry for them....
7. yorkshireman said...
I am intrigued by the line "This is absolutely not the next one to blow," says Meredith Whitney, banking analyst at CIBC. OK Meredith, what is next to blow ? What a crazy system we have when you remortgage the house to pay for Christmas or pay 20% APR on your Bernard Matthews and 2 veg on for Sunday lunch. I agree that we are ahead of the USA on this one. There will be a day of reckoning in more ways than one.
8. shipbuilder said...
It takes a minute to get into debt and years to pay it off - this is why lowering interest rates will make no difference whatsoever - the public will not be able to spend us out of a recession like last time. You cannot squeeze water from a towel that's dried out.
9. little professor said...
Drewster - what is SKI?
10. enuii said...
Strangely enough the 48 year old bloke over the road from my mate is selling his house because he can't afford the mortgage, bought it 2 years ago for £180K and has a £160K mortgage. Needless to say his new Mitsibitsi L200 was sold 6 months ago and his wife's Jag X-type has as well 2 weeks ago to be replaced by a 5 y/o mondeo. Guess what they are all equitied out and are trying to flog the place for £250K asap.
It is over here and happening NOW!
11. geed said...
SKI = Spending the Kids Inheritence
12. planning4acrash said...
How many people, shifting 0% balances between credit cards will be refused new ones and shift to standard variable rate of, say, 25%?!?!?!?! Heaps with 50 to 100k debts which will be written off, we have been talking about mortgage based CDO's, the credit card situation will lag behind because there is nothing to reposess, but catch up it will. Fascinating. Who is holding credit card CDO's? Are they jumbled up with mortgages? Where will the hits go, come from, who will pick up the pieces? How do you assess the risk? The uncertainty alone will close credit gates and form a new self reinforcing credit crunch. What after credit cards? Well, consumer credit for cars, sofa's TV's, its all in the line of fire, all packaged into neat CDO's, since when did a car sales person ask for in depth credit checks!! I was thinking this would last a couple of yrs, the hangover will last at least 5 me thinks.
13. Drewster said...
@yorkshireman - It could be car loans that blow up first, not credit cards. As enuii's comment shows, people would sell their cars (possibly to downsize, possibly to start taking the bus) before selling their houses. Most cars are still bought on credit: all my colleagues and friends bought theirs on some kind of finance deal (Hire Purchase, Personal Contract Plan, Personal Loan, MEWing, etc.). Over the next few years we can expect to see fewer shiny new cars and more dirty old ones on our streets. Britain may even start to resemble one of those foreign countries where tourists look quizzically at the cars at the airport and think "oh yes, I remember those, my dad had one once".
Meanwhile I'm learning Chinese...
14. No More Room In The Inn said...
If there is an international precedent the U.S. should be watching, it's actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they're about 18 months ahead in the credit cycle. Since the last quarter of 2005, credit card delinquencies and charge-off rates in Britain have risen as much as 50%, forcing banks to take huge write-offs.
It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. That's suicidal, of course, given that credit card interest rates are more than double even the heftiest mortgage. Keep your fingers crossed that it's not a trend that crosses the Atlantic.
15. trough2010 said...
"Total secured lending on homes at the end of August 2007 stood at £1,148bn [...] Total consumer credit lending to individuals in August 2007 was £215bn." (Source: http://www.creditaction.org.uk/debtstats.htm)
Whilst I'm not suggesting that credit card defaults may not pose a risk to the banking system, let's put this into perspective using the above figures. The big one still remains mortgage debt.