CR, thank you for this post - sadly the "beat goes on" - I want to thank you for all you have done and continue to do, even in what must be a tough time for you personally.
The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle
Over reliance on credit scores and not human judgement allowed bad loans to happen that shouldn't. Now the same methods will cut people off that shouldn't get cut off. We were only supposed to use credit cards "for emergencies". Now when emergencies start to happen, they will probably yank them.
"CR, thank you for this post - sadly the "beat goes on" - I want to thank you for all you have done and continue to do, even in what must be a tough time for you personally."
Over reliance on credit scores and not human judgement allowed bad loans to happen that shouldn't. Now the same methods will cut people off that shouldn't get cut off. We were only supposed to use credit cards "for emergencies". Now when emergencies start to happen, they will probably yank them.
Doc at the Radar Station | 12.01.08 - 9:35 am
Once again they will rely on computer models that say the unusual usage patterns are risky. The Goldilocks problem. Use it too much and they will probably pull your credit, use it too little and they will pull your credit, you have to use it JUST RIGHT to stay in their good graces.
It is written in the Tao Tae Ching: "Under heaven, all can see beauty as beauty, only because there is ugliness. All can know good as good, only because there is evil. Therefore, having and not having arise together, difficult and easy compliment each other. High and low rest upon each other. Front and back follow one another. Be like the sun, and what is within you will warm the earth."
Tanta's brillance and warmth shall be missed by us mere humans.
Are violent down days (like today is looking) necessary to cure the ills in this economy? Shake out some of the traders, hedge funds, and speculative pumpers? Those looking for a continuation of a momentum rally?
I've been thinking about this for a while. They are one of the largest problems in my estimation. Though I suppose I fit into the trader/ speculator bucket. I just don't support the momentum trade.
Now the same methods will cut people off that shouldn't get cut off. We were only supposed to use credit cards "for emergencies". Now when emergencies start to happen, they will probably yank them.
Well, HELOC used to be "only for emergencies" (or home maintenance) but then it somehow became something people bought cars, vacations and bling with. Now HELOC is gone. Did anyone really think credit cards would escape the same trend?
The contraction has begun. Citi and GE Money have both cut credit lines on cards that I hold in the past 2 weeks. I don't carry balances and FICO is over 800.
This is a snip from the same analyst who actually tells the truth:
America must keep consumer liquidity flowing
By Meredith Whitney
Published: November 30 2008 18:42 | Last updated: November 30 2008 18:42
As an analyst, it is my job to do fundamental research and call it as I see it, and my bailiwick is financials. My outlook has been negative for over a year and, technically, I have been right on my calls. Seeing massive capital destruction has brought me no pleasure, but unfortunately I see little on the horizon that would change my outlook. In fact, after observing the US economy so derailed, I feel that I must act as a citizen of this great country to attempt to offer solutions to this economic train wreck we are all involved in.
First, I am more bearish today than I have been in the past 18 months. In so far as the market has impacted on the economy, capital destruction has been so intense that multi-trillions in capital raised by institutions through both private and public capital has gone to plug holes and not stabilise the effects of shrinking liquidity to corporations and consumers. More than $3,000bn (2,365bn, £1,955bn) of available credit has been expunged from the markets and therefore corporate and consumer borrowers so far this year.
The number of unsolicited cc offers I receive is down from 12+ a week to 4 or so. This saves me some time as I don't have nearly as many empty return envelopes to send back to the banks.
AT&T made a call to me when I was 3 days past due on a $65 cell phone bill. Been a customer of theirs for 6 years with no problems. I have been over a month late a few times in past years and I just paid in full when the next bill arrived. They never called before to "remind" me I was late and that I owe them. Just anecdotal, but things must be getting tight if they are focusing on receivables 3 days late.
Use it too much and they will probably pull your credit, use it too little and they will pull your credit, you have to use it JUST RIGHT to stay in their good graces.
I received a letter a few days ago informing me that my chase credit card had been canceled because I hadn't used it in 2 years. I don't remember ever getting it. My wife probably got it so she could get 10% off something and that was the only time it was ever used. No biggee. They're doing me a favor.
Whereas: Taxpayers loan money to businesses owned by rich people -- OK, we've done that.
NOW, the new terms:
You bought it, you own it, you fix it.
No escape from responsibility by hiding behind corporate veils, that's over.
IF you're a day late, the interest rate goes to 30 percent.
IF you're a day late on any debt you owe to anyone anywhere, the interest rate goes to 50 percent.
IF any event occurs that is, or could become, reason for bankruptcy, the interest rate goes to 70 percent.
Fair is fair.
We the taxpayers reserve the right to change the terms of our agreement with you the protected rich at any point. Check our website regularly for any such notices.
Funny that this came up today. I received a notice from Citi this weekend that they were changing the terms on my card, a card I pay in full every month. I was given the right to opt out, which I did. Of course, opting out means that they will close the account when the term expires. That's fine with me. Citi can go to hell. Not only do they want to screw me as a taxpayer, they want to screw me as a customer too. Screw Citi. This is real simple for me. I don't need your F-ing credit card. You hear me Pandit, you pussy!
Sorry there is little comfort in views as high level as that - by your method, there was little problem with the positive GDP number we ran over the last several years - yet the actual distribution is critical to understanding the impact.
I expect that most of the cut will be on disused or underused accounts and we are not in danger of margin calls on maxed-out people yet.
Maybe. But I suspect that they will yank credit lines from sub-700 FICOs as those puppies get paid down, thereby permanently reducing available credit.
I am finding this to be a bit puzzling. How do banks make money if they aren't lending it to people? Even people who pay off their cards every month provide income to the banks, through the purchase fees.
"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."
From Lubbock Online: "The biggest credit card lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.
Americans are lumbering under about $900 billion in credit card debt, according to the latest available Federal Reserve figures. People who are in credit counseling, on average, carry SEVEN CARDS."
ReThink Capitalism: The average credit card in the US charges a 14.39% daily interest rate. Some credit cards charge rates over 30%. These exorbitant interest rates are legal only because of a 1978 US Supreme court ruling that allowed credit card companies to bypass state anti-usury laws. In Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp, the Supreme Court ruled that credit card companies can charge anyone in the nation whatever interest rate is allowed within the home state of the credit card company. This ruling kicked off a rush to move credit card operations to states such as South Dakota that have no anti-usury laws.
they engage in the practice of Universal Default, a term used by issuers who look at their cardholders history with other creditors, scanning credit files for late payments, maxed out accounts, or payments made to any creditor with a bad check and any liens or judgments against the property and then take an adverse action which result in increased fees.
CC debt is the biggest scam of the twentieth century. The money maker is usury interest payments, late payments, higher interest payments per late payments, and whatever other scams they could devise on the original debt.
Consumers would have very little use for credit cards if wages and wage increases reflected true inflation, not the fantasyland CPI. Daily living costs are deflating except in 2 sectors; education and healthcare that are expotentially increasing. University education and healthcare are out of control.
Yo lama, don't send those envelopes back empty, stuff em full of other peoples (marketers) crap. Been doin it for years, it's a gas and drives em crazy.
Chase pulled my card for lack of use as well. I'm "deadbeat" on my other cards, always pay in full every month.
This thing won't end until old-fashioned common sense is restored.
Chill Bear | 12.01.08 - 10:19 am | #
This is just crazy: Banks are closing inactive cards? So maybe that saves on expenses associated with card renewals, but this is supposed to make a dent in their cash flow?
They clearly aren't up to the task of reformulating their banking business.
1st--Condolences to Tanta's family and friends--I'm a relative latecomer to the CR party (having discovered this site in August), but always enjoyed her insights.
2nd--as scary as it is, a return to credit sanity needs to happen for the long-term health of the economy. While we are debt-free aside from our 30-year fixed mortgage and the last dregs of one student loan (I have no credit card at the moment, my hubby has 1 card he uses for incidentals and pays off monthly), we see our friends our age with much nicer toys, but struggling to stay above water with their card balances. Our 20s were rough living mostly without debt, but we're seeing the fruits of that frugality now.
"I received a notice from Citi this weekend that they were changing the terms on my card, a card I pay in full every month. I was given the right to opt out, which I did. Of course, opting out means that they will close the account when the term expires."
Anyone have any experience "opting out"? i.e. do you pay off in full, are you still open to punitive rate increases if you don't, et. etc. I can't imagine there has been a lot of "opting out" during the life of the CC industry.....
No doubt Whitney was right on, esp. about Citi, for a good 4 or 5 quarters. Question remains whether she's lucky or good or both. Being an successful analyst is mostly about getting noticed by the asset managers so that they reward your firm by using its brokerage.
Anyway, from her report this morning:
"Two of the major bank products,
mortgages and credit cards, are now dominated by 5 players. In a country that offers
hundreds of cereal and soda pop choices, the banking industry has become one that
offers very few choices."
This is a hilarious "analysis." Cereal is an incredibly consolidated industry, where the top three have 73% market share, and when you add the private label producers, you get 87% market share in the top "4." In fact, 99% of the market is those top "4" plus Quaker and Malt-O-Meal.
The number of product choices -- be it in mortgages, credit cards or cereal -- is not typically a function of fragmentation of an industry.
Small point, but just goes to show that she shoots from the hip very frequently...
While I have no doubt that most here are responsible users of credit, the country as a whole has been living beyond it's means for sometime. IMO a little tough love isn't the worst thing that could happen to some people. There's no love lost for the CC companies for certain, but if an individual is digging themselves deeper each month with CC debt, isn't it best to cut them off sooner rather than later?
Before I get flamed, please note that I agree that their methods and timing are flawed and I have absolutely no sympathy for the CC companies.
I have a Citi card which has been inactive for a while. I'd love for them to dump me - it would save me the trouble of jumping through hoops to get my card canceled.
"we're seeing the fruits of that frugality now.
- Mostly Lurker "
congrats! and that's the way it should be. asset price deflation should be the prize to the ones that were responsible while the rest were enjoying the party. otherwise, who will be sane during the next bubble?
asset prices going back to fundamentals is great for many. those that stayed in the sidelines while renting, for ex. those that have cash saved.
i feel weird sometimes celebrating falling home prices. it's great and needed for first time buyers, but somehow it's a politically incorrect thing to do.
I am finding this to be a bit puzzling. How do banks make money if they aren't lending it to people? Even people who pay off their cards every month provide income to the banks, through the purchase fees.
Emma Anne | 12.01.08 - 10:27 am | #
--
If the government gave you all your money, would you work????
canceling your credit card will reduce your credit score..(many sources incl. suzi you know who).
so if it matters: just don't use 'em. but don't cancel 'em. Me, I only use my debit cards, my credit score sucks and doesn't matter any more ....but I am not buying a new house or car. But it will matter for many corporate jobs. (Suck's don't it that your privately held credit score can rob u of employment!!)
so if you have a credit card...warning. they got u coming and going. Don't cancel them. Ought to be law that'll allow you do that.
Yes, the unused balances are unevenly distributed in the population (mostly reading this blog, probably), but the credit-line cuts are unevenly distributed too. The people near-maxed-out will have the smallest cuts.
People paying off principal might see incremental cuts chase their pay-downs but paying off principal means that they did not need higher limits.
but if an individual is digging themselves deeper each month with CC debt, isn't it best to cut them off sooner rather than later?
I really don't think this is due to a recent realization by the cc companies that customers are in too much debt.
I rather think that they know the massive layoffs and unemployment looming, and the fact that their customers are going to turn to their cards for substitute income.
I doubt you are correct - time will tell - banks are not eleemosynary institutions in the business of extending credit to overleveraged consumers who "need" the higher limit.
Et Tu, Meredith?
"...This is no time for partisanship. The situation is too dire. These changes are ones I would never have imagined endorsing a year ago, but these are extraordinary times..." (M. Whitey)
And with a few keystrokes Meredith Whitney has thrown her weight behind the bailout. She joins an illustrious grouping: Dr. Doom (Roubini), Paul Krugman, even President elect Obama. And I DO understand where she is coming from. She, like many, is terrified at what could happen if the economy is simply cut loose and allowed to de-leverage and readjust on it own (relatively speaking of course). She admit above that she has had a change of heart regarding actions the government must take NOT because she sees such actions as a solution, but rather as a way to make the fall from grace less precipitous. I understand that.
HOWEVER, my take on this capitulation is that such actions will only delay the fall, and this delay will leave people LESS prepared because the overwhelming majority of people cannot see beyond tomorrow. With the Obama team ready to spend TRILLIONS more in economic stimulus programs, there seems to be a belief being proffered by the powers-that-be that this Depression, as it were, can (a) have a recognizable bottom and (b) can be "recovered from" in manners similar to those witnessed in the 1930s. (I'll leave the "war solution" out of this discussion for the time being)
I would posit, however, that where Whitney and Roubini and Obama err is in this very comparison. That the assumption of renewed economic growth based upon a model in which money is debt, in which fiat currency still rules the roost, in which market gamblers are able to make billions whilst the producers of REAL goods and services barely eek out a living, in which the exponential explosion of environmental costs vis-a-vis climate change, in which Peak Oil AND Peak potable water are fast becoming reality---I think that this assumption is simply false.
And so when I hear these folks calling for more spending and drilling and loaning and building and producing and...I wonder, how in the world can we survive this if even the best and the brightest are firmly entrenched in the dark tunnel of denial.
Citizen energycon, I am not sure what you think is incorrect. The anecdotes I heard involve something like a near-maxed-out person with $200 of unused credit getting a $100 reduction in credit limit.
There is a tranche of people who might see a $5k credit card closed and then get laid off but Bernanke, Obama, and Pelosi are ready with helicopters and liquidity bazookas (unemployment extensions, etc.).
I wonder how the credit-line cut relates to Bernanke/Paulson's credit-card guarantees.
You just call the CC company and tell them you don't want your card renewed. Ofcourse, you do need to pay the balance in full by the time the card expires. If you opt out, the new rates will NOT be applicable - at least that was my experience. It wasn't an issue for me as I pay off every month but might not be practical if someone has debt.
Anyone have any experience "opting out"? i.e. do you pay off in full, are you still open to punitive rate increases if you don't, et. etc. I can't imagine there has been a lot of "opting out" during the life of the CC industry.....
JRnBJ | 12.01.08 - 10:47 am | #
I've opted out of a couple of cards before and its not a big deal. You can't charge anything but continue paying the debt under the old terms until the balance is paid in full. I know, slap my hand for carrying a balance. The original terms are still in force so don't miss a payment after opting out or the interest rate will shoot to punitive levels (which were in the initial card agreement).
Surprised I'm not seeing much discussion of a major reason for cutting limits and cancelling cards: most of the money banks are lending to credit card customers is borrowed money, and they are having a harder time borrowing. Credit card receivables were typically bundled up into asset backed securities. Those have been hard to sell recently.
To aggravate things further, the asset backed securities often had shorter maturities than the expiration dates of the cards. This is a similar mistake to how banks and others often funded mortgages: borrow short, lend long.
Over the holiday, the Federal Reserve announced yet another program which included $200 billion toward consumer credit.
If the banks could borrow at the same rates and volumes as a year ago, there would only be mild pressure on credit cards, mostly for people with poor credit scores and payment histories.
Forgetting maybe that on our "permenant record" credit shams, it says closed by subscriber or closed by guarantor... The closed by guarantor will negatively effect your credit score more than you closing it yourself. Of course so will the reduction in credit limits. The scoring is all automated and will impact negativey on some very credit worthy peeps.... IMHExperience
Chase hosed everyone who took a Life of Balance offer and raised their minimum payment to 5% of the balance (from 2%) and added a $10/month "service fee." If you reject the terms of the change you owe payment in full of the balance by 1/1/2009.
Reading the liberal comments on these blogs it is obvious that many are borrowing on credit cards with no intent to pay back at the slightest hint of difficulty to give them an excuse.
Your critique of Whitney, Roubini, and others who have "thrown their weight behind the bailout" should refer again to Keyne's paradox of thrift. I realize I invoke the "K" word to the Austrian school. But you should remember that the Great Depression represents precisely the market-driven process of de-leveraging "supervised" by the free market. Be careful what you wish for.
This is not a defense of the "bailout" as it has been structured thus far, but it is an endorsement of the reality that the government is likely to be the only big pockets left standing in deflation. Should the "bailout" be redirected to healthy community banks and other likely lenders? Yes. Should Iraq and some bailout money better be spent in energy (high voltage or DC interconnects on the grid to enable wind and solar from the MidWest to population centers) and perhaps transit (bridges) and mass transit (rail) infrastructure? Yes. Has Paulson's TARP and other measures been effective--No, perhaps with the exception of guaranteeing Fannie/Freddie to avoid the dominos toppling in quick succession, a la '29 and ''32/'33.
Interesting to note that the Reuters item was outsourced to India - written and edited in Bangalore. Call your credit card company's customer service line and you end up in India, as well.
I have nothing against India or any other country, but I am concerned that no one is talking about the impact of outsourcing on our economy. We need to have this conversation on a national level. When the federal pipeline opens up to fund the New New Deal, bidding on public works projects needs to be limited to domestic companies using domestic materials and domestic labor.
Consuming more than we produce is what got us into this mess. We can't keep outsourcing production and expect our economy to recover.
Reading the liberal comments on these blogs it is obvious that many are borrowing on credit cards with no intent to pay back at the slightest hint of difficulty to give them an excuse.
Sigh.
The credit card companies pretend to be benevolent lenders, while simultaneously jacking rates at the first sign of payer distress (how noble), in an attempt to recover their costs + nice profit before the payer finally goes TU. It's a race between two parties to see who can destroy who first.
Since available credit makes up part of your credit score, this also means a lowering of everyone's credit score. With lower credit score, higher interest rates and harder to get a loan.
Has this "Whitney" person ever been right about anything?
Sad news about Tanta. Rest in peace.
second at last
Touche Nemo. First, and a witty remark to boot.
So, what percentage of the population now lives on their credit cards...and how many of them will be the first to have their credit revoked?
hey jerry
dont worry.Our banksters cant live without our money.
This shouldn't be much of a news story...the industry has waited until the last minute with everything else.
Ciao
MS
Now that gasoline is cheaper, the cards will take longer to max out.
CR, thank you for this post - sadly the "beat goes on" - I want to thank you for all you have done and continue to do, even in what must be a tough time for you personally.
The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle - Executive Suite Blog - NYTimes.com
The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle
Over reliance on credit scores and not human judgement allowed bad loans to happen that shouldn't. Now the same methods will cut people off that shouldn't get cut off. We were only supposed to use credit cards "for emergencies". Now when emergencies start to happen, they will probably yank them.
If I have my numbers right, that reduction works out to about $18,100 per household.
"Absolutely Missus Whitney, positively Mister Volcker"
Looking forward to the compendium. Thanks for sharing. I am sad, and I will miss Tanta's explanations and wit.
And a 45% cut in "consumer liquidity" would be a stunning development, indeed. This will add salt to the wounds.
"CR, thank you for this post - sadly the "beat goes on" - I want to thank you for all you have done and continue to do, even in what must be a tough time for you personally."
me too!
Over reliance on credit scores and not human judgement allowed bad loans to happen that shouldn't. Now the same methods will cut people off that shouldn't get cut off. We were only supposed to use credit cards "for emergencies". Now when emergencies start to happen, they will probably yank them.
Doc at the Radar Station | 12.01.08 - 9:35 am
Once again they will rely on computer models that say the unusual usage patterns are risky. The Goldilocks problem. Use it too much and they will probably pull your credit, use it too little and they will pull your credit, you have to use it JUST RIGHT to stay in their good graces.
This is outrageous. How are people going to buy their iPhones, Nuvis, and Bravias with this sort of reduction in consumer credit?
Doesn't anybody in Washington care anymore?
It is written in the Tao Tae Ching: "Under heaven, all can see beauty as beauty, only because there is ugliness. All can know good as good, only because there is evil. Therefore, having and not having arise together, difficult and easy compliment each other. High and low rest upon each other. Front and back follow one another. Be like the sun, and what is within you will warm the earth."
Tanta's brillance and warmth shall be missed by us mere humans.
Credit reduction on this scale would not be salt in the wound, it would be a bullet to the back of the head...
December to Remember for Mr. Market not starting out well.
I guess if you have no available credit, you're not going to be shopping.
Credit reduction on this scale would not be salt in the wound, it would be a bullet to the back of the head...
--
definitely a whole new ball of wax, essentially canceling out $2T in stimulus.
Are violent down days (like today is looking) necessary to cure the ills in this economy? Shake out some of the traders, hedge funds, and speculative pumpers? Those looking for a continuation of a momentum rally?
I've been thinking about this for a while. They are one of the largest problems in my estimation. Though I suppose I fit into the trader/ speculator bucket. I just don't support the momentum trade.
Can't wait for the January whining when universal defaults start hitting the holiday indulgences!
Now the same methods will cut people off that shouldn't get cut off. We were only supposed to use credit cards "for emergencies". Now when emergencies start to happen, they will probably yank them.
Well, HELOC used to be "only for emergencies" (or home maintenance) but then it somehow became something people bought cars, vacations and bling with. Now HELOC is gone. Did anyone really think credit cards would escape the same trend?
Defaults will start in Feb. The bill for Xmas only arrives in January.
Ciao
MS
Thank you, CR.
Just thank you.
The contraction has begun. Citi and GE Money have both cut credit lines on cards that I hold in the past 2 weeks. I don't carry balances and FICO is over 800.
This is a snip from the same analyst who actually tells the truth:
America must keep consumer liquidity flowing
By Meredith Whitney
Published: November 30 2008 18:42 | Last updated: November 30 2008 18:42
As an analyst, it is my job to do fundamental research and call it as I see it, and my bailiwick is financials. My outlook has been negative for over a year and, technically, I have been right on my calls. Seeing massive capital destruction has brought me no pleasure, but unfortunately I see little on the horizon that would change my outlook. In fact, after observing the US economy so derailed, I feel that I must act as a citizen of this great country to attempt to offer solutions to this economic train wreck we are all involved in.
First, I am more bearish today than I have been in the past 18 months. In so far as the market has impacted on the economy, capital destruction has been so intense that multi-trillions in capital raised by institutions through both private and public capital has gone to plug holes and not stabilise the effects of shrinking liquidity to corporations and consumers. More than $3,000bn (2,365bn, £1,955bn) of available credit has been expunged from the markets and therefore corporate and consumer borrowers so far this year.
JPM just canceled two cards of mine. I hadn't used either in 2 years but kept the lines open for credit score reasons.
Course I've got a 47K limit on my remaining JPM card, tho I pay every month.
The number of unsolicited cc offers I receive is down from 12+ a week to 4 or so. This saves me some time as I don't have nearly as many empty return envelopes to send back to the banks.
Baltic Dry Index (BDI)
-15
700
Someone is deleverging today.
10y bond 2.81% -0.04 (-1.40%)
AT&T made a call to me when I was 3 days past due on a $65 cell phone bill. Been a customer of theirs for 6 years with no problems. I have been over a month late a few times in past years and I just paid in full when the next bill arrived. They never called before to "remind" me I was late and that I owe them. Just anecdotal, but things must be getting tight if they are focusing on receivables 3 days late.
I wonder how long it will be until Capital One goes away. Needs to happen, IMO.
HOLY SHIT! And CR was outed by the NY Times.Tanta gone,TEOTWAWKI baby
Use it too much and they will probably pull your credit, use it too little and they will pull your credit, you have to use it JUST RIGHT to stay in their good graces.
Coming soon: the return of annual fees.
I received a letter a few days ago informing me that my chase credit card had been canceled because I hadn't used it in 2 years. I don't remember ever getting it. My wife probably got it so she could get 10% off something and that was the only time it was ever used. No biggee. They're doing me a favor.
ISM data PMI at 36.2 New orders at 27.9 Nov vs 32.2 in Oct
How about this:
Whereas: Taxpayers loan money to businesses owned by rich people -- OK, we've done that.
NOW, the new terms:
You bought it, you own it, you fix it.
No escape from responsibility by hiding behind corporate veils, that's over.
IF you're a day late, the interest rate goes to 30 percent.
IF you're a day late on any debt you owe to anyone anywhere, the interest rate goes to 50 percent.
IF any event occurs that is, or could become, reason for bankruptcy, the interest rate goes to 70 percent.
Fair is fair.
We the taxpayers reserve the right to change the terms of our agreement with you the protected rich at any point. Check our website regularly for any such notices.
30-year treasury at 3.3%. Remember when 4% seemed like the end of the world?
Funny that this came up today. I received a notice from Citi this weekend that they were changing the terms on my card, a card I pay in full every month. I was given the right to opt out, which I did. Of course, opting out means that they will close the account when the term expires. That's fine with me. Citi can go to hell. Not only do they want to screw me as a taxpayer, they want to screw me as a customer too. Screw Citi. This is real simple for me. I don't need your F-ing credit card. You hear me Pandit, you pussy!
Chase pulled my card for lack of use as well. I'm "deadbeat" on my other cards, always pay in full every month.
This thing won't end until old-fashioned common sense is restored.
Nocera's anonymous big banker was very good on this a few weeks back; this link is direct into the banker's followup comment.
The game is to eat up the credit union and local bank businesses completely, consolidate them into a few big national banks.
This is spelled out:
Peeking Under the Kimono: A Big Banker Speaks Out - Executive Suite Blog - NYTimes.com
See today's also:
The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle - Executive Suite Blog - NYTimes.com
Sick of playing their game yet?
It's time:
http://www.pbfcomics.com/archive_b/PBF216-Thwack_Ye_Mole.jpg
A little back-of-the-envelope perspective:
$4.4T = total credit line
$2.4T = reported 45% cut of $2T
$1T = current credit-card balance
People would have to more than double their current debt (140% increase) to hit even the new, lower limit.
I expect that most of the cut will be on disused or underused accounts and we are not in danger of margin calls on maxed-out people yet.
NOC,
Sorry there is little comfort in views as high level as that - by your method, there was little problem with the positive GDP number we ran over the last several years - yet the actual distribution is critical to understanding the impact.
I expect that most of the cut will be on disused or underused accounts and we are not in danger of margin calls on maxed-out people yet.
Maybe. But I suspect that they will yank credit lines from sub-700 FICOs as those puppies get paid down, thereby permanently reducing available credit.
I am finding this to be a bit puzzling. How do banks make money if they aren't lending it to people? Even people who pay off their cards every month provide income to the banks, through the purchase fees.
"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."
From Lubbock Online: "The biggest credit card lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.
Americans are lumbering under about $900 billion in credit card debt, according to the latest available Federal Reserve figures. People who are in credit counseling, on average, carry SEVEN CARDS."
ReThink Capitalism: The average credit card in the US charges a 14.39% daily interest rate. Some credit cards charge rates over 30%. These exorbitant interest rates are legal only because of a 1978 US Supreme court ruling that allowed credit card companies to bypass state anti-usury laws. In Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp, the Supreme Court ruled that credit card companies can charge anyone in the nation whatever interest rate is allowed within the home state of the credit card company. This ruling kicked off a rush to move credit card operations to states such as South Dakota that have no anti-usury laws.
they engage in the practice of Universal Default, a term used by issuers who look at their cardholders history with other creditors, scanning credit files for late payments, maxed out accounts, or payments made to any creditor with a bad check and any liens or judgments against the property and then take an adverse action which result in increased fees.
CC debt is the biggest scam of the twentieth century. The money maker is usury interest payments, late payments, higher interest payments per late payments, and whatever other scams they could devise on the original debt.
Consumers would have very little use for credit cards if wages and wage increases reflected true inflation, not the fantasyland CPI. Daily living costs are deflating except in 2 sectors; education and healthcare that are expotentially increasing. University education and healthcare are out of control.
How much of this is just closing inactive cards to reduce their potential lending obligations?
Yo lama, don't send those envelopes back empty, stuff em full of other peoples (marketers) crap. Been doin it for years, it's a gas and drives em crazy.
Chase pulled my card for lack of use as well. I'm "deadbeat" on my other cards, always pay in full every month.
This thing won't end until old-fashioned common sense is restored.
Chill Bear | 12.01.08 - 10:19 am | #
This is just crazy: Banks are closing inactive cards? So maybe that saves on expenses associated with card renewals, but this is supposed to make a dent in their cash flow?
They clearly aren't up to the task of reformulating their banking business.
1st--Condolences to Tanta's family and friends--I'm a relative latecomer to the CR party (having discovered this site in August), but always enjoyed her insights.
2nd--as scary as it is, a return to credit sanity needs to happen for the long-term health of the economy. While we are debt-free aside from our 30-year fixed mortgage and the last dregs of one student loan (I have no credit card at the moment, my hubby has 1 card he uses for incidentals and pays off monthly), we see our friends our age with much nicer toys, but struggling to stay above water with their card balances. Our 20s were rough living mostly without debt, but we're seeing the fruits of that frugality now.
Not One Cent:
True, but there is a major psychological component to this action.
Re Vinnie upthread
"I received a notice from Citi this weekend that they were changing the terms on my card, a card I pay in full every month. I was given the right to opt out, which I did. Of course, opting out means that they will close the account when the term expires."
Anyone have any experience "opting out"? i.e. do you pay off in full, are you still open to punitive rate increases if you don't, et. etc. I can't imagine there has been a lot of "opting out" during the life of the CC industry.....
No doubt Whitney was right on, esp. about Citi, for a good 4 or 5 quarters. Question remains whether she's lucky or good or both. Being an successful analyst is mostly about getting noticed by the asset managers so that they reward your firm by using its brokerage.
Anyway, from her report this morning:
"Two of the major bank products,
mortgages and credit cards, are now dominated by 5 players. In a country that offers
hundreds of cereal and soda pop choices, the banking industry has become one that
offers very few choices."
This is a hilarious "analysis." Cereal is an incredibly consolidated industry, where the top three have 73% market share, and when you add the private label producers, you get 87% market share in the top "4." In fact, 99% of the market is those top "4" plus Quaker and Malt-O-Meal.
The number of product choices -- be it in mortgages, credit cards or cereal -- is not typically a function of fragmentation of an industry.
Small point, but just goes to show that she shoots from the hip very frequently...
Just a thought...
While I have no doubt that most here are responsible users of credit, the country as a whole has been living beyond it's means for sometime. IMO a little tough love isn't the worst thing that could happen to some people. There's no love lost for the CC companies for certain, but if an individual is digging themselves deeper each month with CC debt, isn't it best to cut them off sooner rather than later?
Before I get flamed, please note that I agree that their methods and timing are flawed and I have absolutely no sympathy for the CC companies.
I have a Citi card which has been inactive for a while. I'd love for them to dump me - it would save me the trouble of jumping through hoops to get my card canceled.
you may need that card someday
I think haloscan just deleted all my posts!
Something about horses and barn doors. I forget.
University education and healthcare are out of control.
The reason: the government is the largest purchaser/financer in both sectors.
"we're seeing the fruits of that frugality now.
- Mostly Lurker "
congrats! and that's the way it should be. asset price deflation should be the prize to the ones that were responsible while the rest were enjoying the party. otherwise, who will be sane during the next bubble?
asset prices going back to fundamentals is great for many. those that stayed in the sidelines while renting, for ex. those that have cash saved.
i feel weird sometimes celebrating falling home prices. it's great and needed for first time buyers, but somehow it's a politically incorrect thing to do.
I am finding this to be a bit puzzling. How do banks make money if they aren't lending it to people? Even people who pay off their cards every month provide income to the banks, through the purchase fees.
Emma Anne | 12.01.08 - 10:27 am | #
--
If the government gave you all your money, would you work????
btw,
canceling your credit card will reduce your credit score..(many sources incl. suzi you know who).
so if it matters: just don't use 'em. but don't cancel 'em. Me, I only use my debit cards, my credit score sucks and doesn't matter any more ....but I am not buying a new house or car. But it will matter for many corporate jobs. (Suck's don't it that your privately held credit score can rob u of employment!!)
so if you have a credit card...warning. they got u coming and going. Don't cancel them. Ought to be law that'll allow you do that.
Yes, the unused balances are unevenly distributed in the population (mostly reading this blog, probably), but the credit-line cuts are unevenly distributed too. The people near-maxed-out will have the smallest cuts.
People paying off principal might see incremental cuts chase their pay-downs but paying off principal means that they did not need higher limits.
"This is a hilarious "analysis." Cereal is an incredibly consolidated industry,"
She apples-oranges confused companies with products (do you want your credit card with air miles or cash back, Snoopy picture or mountain landscape?).
but if an individual is digging themselves deeper each month with CC debt, isn't it best to cut them off sooner rather than later?
I really don't think this is due to a recent realization by the cc companies that customers are in too much debt.
I rather think that they know the massive layoffs and unemployment looming, and the fact that their customers are going to turn to their cards for substitute income.
They pulled back my credit and erased my Citi card, thank you very much.
Perfect, we were looking for an effective use of the other $350 billion.
Time to Releverage
NOC,
I doubt you are correct - time will tell - banks are not eleemosynary institutions in the business of extending credit to overleveraged consumers who "need" the higher limit.
eleemosynary?
Are you gonna make me look that up?
Okay, "charitable" for those of you who, like me, aren't vocab elite.
Max out now or be tapped out forever!
Et Tu, Meredith?
"...This is no time for partisanship. The situation is too dire. These changes are ones I would never have imagined endorsing a year ago, but these are extraordinary times..." (M. Whitey)
FT.com / Registration / Sign-up
11344d06-befb-11dd-ae63-0000779fd18c.html
And with a few keystrokes Meredith Whitney has thrown her weight behind the bailout. She joins an illustrious grouping: Dr. Doom (Roubini), Paul Krugman, even President elect Obama. And I DO understand where she is coming from. She, like many, is terrified at what could happen if the economy is simply cut loose and allowed to de-leverage and readjust on it own (relatively speaking of course). She admit above that she has had a change of heart regarding actions the government must take NOT because she sees such actions as a solution, but rather as a way to make the fall from grace less precipitous. I understand that.
HOWEVER, my take on this capitulation is that such actions will only delay the fall, and this delay will leave people LESS prepared because the overwhelming majority of people cannot see beyond tomorrow. With the Obama team ready to spend TRILLIONS more in economic stimulus programs, there seems to be a belief being proffered by the powers-that-be that this Depression, as it were, can (a) have a recognizable bottom and (b) can be "recovered from" in manners similar to those witnessed in the 1930s. (I'll leave the "war solution" out of this discussion for the time being)
I would posit, however, that where Whitney and Roubini and Obama err is in this very comparison. That the assumption of renewed economic growth based upon a model in which money is debt, in which fiat currency still rules the roost, in which market gamblers are able to make billions whilst the producers of REAL goods and services barely eek out a living, in which the exponential explosion of environmental costs vis-a-vis climate change, in which Peak Oil AND Peak potable water are fast becoming reality---I think that this assumption is simply false.
And so when I hear these folks calling for more spending and drilling and loaning and building and producing and...I wonder, how in the world can we survive this if even the best and the brightest are firmly entrenched in the dark tunnel of denial.
I received modification from AmExp. they increased everyone's rates from 13.99%+ Prime to 17.99%+ prime.
Citizen energycon, I am not sure what you think is incorrect. The anecdotes I heard involve something like a near-maxed-out person with $200 of unused credit getting a $100 reduction in credit limit.
There is a tranche of people who might see a $5k credit card closed and then get laid off but Bernanke, Obama, and Pelosi are ready with helicopters and liquidity bazookas (unemployment extensions, etc.).
I wonder how the credit-line cut relates to Bernanke/Paulson's credit-card guarantees.
You just call the CC company and tell them you don't want your card renewed. Ofcourse, you do need to pay the balance in full by the time the card expires. If you opt out, the new rates will NOT be applicable - at least that was my experience. It wasn't an issue for me as I pay off every month but might not be practical if someone has debt.
Anyone have any experience "opting out"? i.e. do you pay off in full, are you still open to punitive rate increases if you don't, et. etc. I can't imagine there has been a lot of "opting out" during the life of the CC industry.....
JRnBJ | 12.01.08 - 10:47 am | #
Perhaps the banks are lowering credit limits to lower FICO scores to raise interest rates to increase profits.
I've opted out of a couple of cards before and its not a big deal. You can't charge anything but continue paying the debt under the old terms until the balance is paid in full. I know, slap my hand for carrying a balance. The original terms are still in force so don't miss a payment after opting out or the interest rate will shoot to punitive levels (which were in the initial card agreement).
MM - I am in a similar boat, and I'm surprised that my lines haven't been trimmed...yet.
Bill had it right a year ago - if only the NBER were talking to him!!
From CNBC.com:
It's Official: US Tumbled Into Recession a Year Ago
"Peak Oil AND Peak potable water are fast becoming reality"
true! one of the positives of the global recession is the break that the planet gets in terms of commodity extraction.
Surprised I'm not seeing much discussion of a major reason for cutting limits and cancelling cards: most of the money banks are lending to credit card customers is borrowed money, and they are having a harder time borrowing. Credit card receivables were typically bundled up into asset backed securities. Those have been hard to sell recently.
To aggravate things further, the asset backed securities often had shorter maturities than the expiration dates of the cards. This is a similar mistake to how banks and others often funded mortgages: borrow short, lend long.
Over the holiday, the Federal Reserve announced yet another program which included $200 billion toward consumer credit.
If the banks could borrow at the same rates and volumes as a year ago, there would only be mild pressure on credit cards, mostly for people with poor credit scores and payment histories.
Forgetting maybe that on our "permenant record" credit shams, it says closed by subscriber or closed by guarantor... The closed by guarantor will negatively effect your credit score more than you closing it yourself. Of course so will the reduction in credit limits. The scoring is all automated and will impact negativey on some very credit worthy peeps.... IMHExperience
...."the beatings will continue, until morale improves".
I assist an older person who has one credit card, used only to make paying bills easier.
Last week his credit limit was lowered to $3.00 above his current balance.
Chase hosed everyone who took a Life of Balance offer and raised their minimum payment to 5% of the balance (from 2%) and added a $10/month "service fee." If you reject the terms of the change you owe payment in full of the balance by 1/1/2009.
What took them so long?
Reading the liberal comments on these blogs it is obvious that many are borrowing on credit cards with no intent to pay back at the slightest hint of difficulty to give them an excuse.
Dan,
Your critique of Whitney, Roubini, and others who have "thrown their weight behind the bailout" should refer again to Keyne's paradox of thrift. I realize I invoke the "K" word to the Austrian school. But you should remember that the Great Depression represents precisely the market-driven process of de-leveraging "supervised" by the free market. Be careful what you wish for.
This is not a defense of the "bailout" as it has been structured thus far, but it is an endorsement of the reality that the government is likely to be the only big pockets left standing in deflation. Should the "bailout" be redirected to healthy community banks and other likely lenders? Yes. Should Iraq and some bailout money better be spent in energy (high voltage or DC interconnects on the grid to enable wind and solar from the MidWest to population centers) and perhaps transit (bridges) and mass transit (rail) infrastructure? Yes. Has Paulson's TARP and other measures been effective--No, perhaps with the exception of guaranteeing Fannie/Freddie to avoid the dominos toppling in quick succession, a la '29 and ''32/'33.
Be careful what you wish for. It could come.
Interesting to note that the Reuters item was outsourced to India - written and edited in Bangalore. Call your credit card company's customer service line and you end up in India, as well.
I have nothing against India or any other country, but I am concerned that no one is talking about the impact of outsourcing on our economy. We need to have this conversation on a national level. When the federal pipeline opens up to fund the New New Deal, bidding on public works projects needs to be limited to domestic companies using domestic materials and domestic labor.
Consuming more than we produce is what got us into this mess. We can't keep outsourcing production and expect our economy to recover.
Sigh.
The credit card companies pretend to be benevolent lenders, while simultaneously jacking rates at the first sign of payer distress (how noble), in an attempt to recover their costs + nice profit before the payer finally goes TU. It's a race between two parties to see who can destroy who first.
Pot meet kettle.
Since available credit makes up part of your credit score, this also means a lowering of everyone's credit score. With lower credit score, higher interest rates and harder to get a loan.
She was a wonderful teacher. I'll miss anticipating and reading her words.
Testing
I am very surprised and saddened.
I new Doris in High School and am so proud to know she had contributed so much to this world.
Wouldn't it be nice if we could be aware of promise when we see it?
She was a warm yet discerning person .
I am happy to have known her and sad to to have not known her better.
J
that's a sad news to hear that