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The Masked Tulip

Uk Faces Credit Card Crisis On Us Scale

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Lenders in Europe bracing themselves for a rising wave of consumer debt defaults as the credit card crisis that has caused billions of dollars in losses among US banks spreads across the Atlantic.

The International Monetary Fund estimates that of US consumer debt totalling $1,914bn, about 14 per cent will turn sour.

It expects that 7 per cent of the $2,467bn of consumer debt in Europe will be lost, with much of that falling in the UK, the continent’s biggest nation of credit card borrowers.

National Debtline of the UK said that the number of calls it had received from UK consumers worried about loans, credit cards and mortgage arrears had reached 41,000 in May – double the 20,000 calls it had received in May 2008. It added that the number of calls showed no sign of abating.

In the US, credit card defaults have been rising for months as a spike in unemployment and the most severe economic downturn since the Great Depression took their toll on overstretched consumers.

Banks such as Citigroup, Bank of America, JPMorgan Chase and Wells Fargo and credit card issuers such as American Express have suffered billions of dollars in losses in their credit card portfolios and have warned of more to come.

The rate of US credit card losses has overtaken the rate of unemployment in recent months – a highly unusual occurrence that makes it more difficult for card issuers to forecast future losses.

In the UK, the latest credit card indices from Moody’s, the ratings agency, show that annualised charge-off rates have risen from 6.4 per cent of loans in May 2008 to 9.37 per cent in May 2009. In the US, that rate is above 10 per cent.

Analysts expect further defaults as UK unemployment rises and personal insolvencies, which reached 29,774 in the first quarter of the year, continue to increase.

The falling UK housing market and more stringent lending requirements by banks has also meant that indebted consumers can now no longer rely on withdrawing equity from their homes to pay off other debts such as credit cards or unsecured loans.

Jonathan Pierce, analyst at Credit Suisse, said in a recent note that UK credit card securitisation had suffered “a very sharp rise in arrears to a level well beyond the previous peak seen in 2006â€.

UK banks, which begin reporting their first-half results next week, have already warned that they faced a sharp increase in credit card debts, although this is relatively small in the context of writedowns in other areas such as commercial lending.

Barclays, the UK’s biggest credit card lender with 11.7m UK customers through Barclaycard, said in May that UK credit card delinquencies had increased in the first quarter of the year, reflecting adverse economic conditions and rising unemployment.

As a result it had been reducing credit limits and tightening approval rates for new credit cards which were running at less than 50 per cent in March.

Lloyds Banking Group also said in May it had seen impairments rise in both secured and unsecured lending. Lloyds will have to absorb any future losses on credit cards itself as it has not been able to include credit card loans among the £260bn of toxic assets it has insured with the UK government.

With UK trends tending to trail the US by six months, analysts will be in particular watching the reporting season closely for any signs that default rates on UK securitised credit card debt is rising.

The severity of the financial crisis coupled with rising unemployment on both sides of the Atlantic have stoked fears of a substantially higher default rate in the coming months.

Copyright The Financial Times Limited 2009

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Do we really find any of this surprising?

With house "prices" still at an absurd level --- WELL OVER 6 x ACTUAL, TRUTHFUL, REAL salaries -- what do we expect?

Most people want to buy somewhere to live: They want proper, reasonable - and NON-RIP OFF prices........... They spend more of their income on the roof over their head than anything else....

BUT -- as all intelligent, normal, sensible people know --- Once the cost of the roof over the head starts to exceed ONE THIRD of their REAL, NON-LIAR income, things become more and more difficult, and once they go over 40% of their income, it becomes ludicrous.

WHEN are the powers that be going to LEARN that, UNLESS AND UNTIL property prices go back to ONE THIRD of income - with NO BULLSH1T - this country is NEVER, EVER going to get back on its feet again.

It ain't rocket science. It is INCREDIBLY SIMPLE to understand this.

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The falling UK housing market and more stringent lending requirements by banks has also meant that indebted consumers can now no longer rely on withdrawing equity from their homes to pay off other debts such as credit cards or unsecured loans.

Oh dear.

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Do we really find any of this surprising?

With house "prices" still at an absurd level --- WELL OVER 6 x ACTUAL, TRUTHFUL, REAL salaries -- what do we expect?

Most people want to buy somewhere to live: They want proper, reasonable - and NON-RIP OFF prices........... They spend more of their income on the roof over their head than anything else....

BUT -- as all intelligent, normal, sensible people know --- Once the cost of the roof over the head starts to exceed ONE THIRD of their REAL, NON-LIAR income, things become more and more difficult, and once they go over 40% of their income, it becomes ludicrous.

WHEN are the powers that be going to LEARN that, UNLESS AND UNTIL property prices go back to ONE THIRD of income - with NO BULLSH1T - this country is NEVER, EVER going to get back on its feet again.

It ain't rocket science. It is INCREDIBLY SIMPLE to understand this.

I think your maths are a bit off there Eric, though I know what you meant.

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Double whammy: the losses caused by defaults themselves, and the lost card-fuelled demand that was previously assumed to exist (and that I bet is still being pencilled in as "normality" for economic projections).

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Those old enough to remember Not the Nine O'Clock News may live long enough to see many people "Put your head in between them and go blubble, blubble, blubble with American Express", but perhaps not in the manner envisioned by Rowan Atkinson.

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billions of dollars in losses among US banks spreads across the Atlantic

What like a virus, spreading across the atlantic causing UK credit card borrowers to default? Ah yes, the "started in America" spin! <_<

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Double whammy: the losses caused by defaults themselves, and the lost card-fuelled demand that was previously assumed to exist (and that I bet is still being pencilled in as "normality" for economic projections).

I think young man you'll find it was all real because the models predicted it, it's your reality that doesn't exist. :ph34r:

Debt is wealth.

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Now, amid the recession, those lenders want their money back. �€�"The bank just closed down our overdraft. That was the killer blow,�€� says Mr Longfellow. But with the family�€™s debts running to £30,000 ($49,200, �‚�34,600), far more than their annual disposable income, repayment is going to take a very long time.
'My other piece of advice, Copperfield,' said Mr. Micawber, 'you

know. Annual income twenty pounds, annual expenditure nineteen

nineteen and six, result happiness. Annual income twenty pounds,

annual expenditure twenty pounds ought and six, result misery. The

blossom is blighted, the leaf is withered, the god of day goes down

upon the dreary scene, and - and in short you are for ever floored.

As I am!'

plus ça change, plus c'est la même chose. :(

Question. Does anybody know the source of the picture in Eric Pebble's avatar ? It looks like an extract from a larger painting.

Edited by cbucket

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I think your maths are a bit off there Eric, though I know what you meant.

No he mean the repayments as a proportion of net income I think. And is bang on if so.

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I think young man you'll find it was all real because the models predicted it, it's your reality that doesn't exist. :ph34r:

On that subject, from the article:

" recent months, what started as a debacle has turned into a nightmare. As unemployment continued to rise and house prices kept falling, the rate of defaults has surpassed historic norms, rendering many of the computer models used by US banks to predict losses useless. In this phase of the crisis, lenders are flying blind."

Same old same old

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I think your maths are a bit off there Eric, though I know what you meant.

Yup --- I mean mortgages at 3 x salary. All liars -- 30 year prison sentence.

Edited by eric pebble

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rendering many of the computer models used by US banks to calculate bonuses useless.

corrected.

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Credit card crisis to grip Britain, IMF warns

Britain’s credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults, the International Monetary Fund has warned.

The organisation expects £1.5bn of consumer debt across Europe will not be repaid, much of it in Britain which has the highest number of credit card borrowers on the continent.

Analysts say failure to pay credit card bills is likely to increase as unemployment rises and the number of personal insolvencies, which reached 29,774 in the first quarter of the year, continues to rise.

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plus ça change, plus c'est la même chose. :(

Question. Does anybody know the source of the picture in Eric Pebble's avatar ? It looks like an extract from a larger painting.

C18th/19th satire cartoons - eg from 'Punch' (subversive) magazines are very similar.

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Credit card crisis to grip Britain, IMF warns

Britain’s credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults, the International Monetary Fund has warned.

The organisation expects £1.5bn of consumer debt across Europe will not be repaid, much of it in Britain which has the highest number of credit card borrowers on the continent.

Analysts say failure to pay credit card bills is likely to increase as unemployment rises and the number of personal insolvencies, which reached 29,774 in the first quarter of the year, continues to rise.

No big surprise there then. ;)

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plus ça change, plus c'est la même chose. :(

Question. Does anybody know the source of the picture in Eric Pebble's avatar ? It looks like an extract from a larger painting.

It's an 18th Century satirical print -- can't remember what or where...

The 18th Century satirical prints were far superior in every way to those of the 19th Century.... Mass production and hurried slopiness killed the good stuff. Gilray, Rowlandson, & a few others ---- can't be beaten.

http://images.google.co.uk/images?hl=en&am...mp;aq=f&oq=

http://images.google.co.uk/images?gbv=2&am...mp;aq=f&oq=

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