This is incorrect. In the majority of US states mortgages are recourse loans.

1) The US is definitely in a worse position than the UK as far as credit cards go. For a start, in the UK the credit card bubble was burst back in 2004 when the bankruptcy laws were eased, forcing lenders to tighten their criteria. Second, the US consumer is more stressed than in the UK (at the moment, anyway).

2) That said, US credit card ABS should be better positioned than mortgage debt, although by how much I can’t say. While charge-offs have been increasing, so have portfolio yields, so there is still a fair amount of excess spread in the securitisations. Credit card companies themselves are likely to suffer as they find themselves less able to refinance maturing debt and early amortisation triggers are threatened, however.

But this is just a hunch and the countervailing arguments are also pretty obvious.

Anyone have any data on the relative COF for AMEX?

Thanks!

Matt Dubuque

I think some of our coming difficulties will need to be worked out on a local basis as our national institutions are clearly in decline and help delivered locally can be very effective.

To that end, absent some compelling arguments to the contrary, I’m in favor of legislation allowing individual bankruptcy judges to renegotiate mortgage terms in bankruptcy court.

One key point is never mentioned in discussion of this legislation. People who fear that debtors in possession will take undue advantage of this legislation never discuss the following objective fact:

Most bankruptcy judges started off as bankruptcy lawyers and the best way for a bankruptcy lawyer to make the big bucks sufficient to make the political donations that can open minds to possible appointments to the bankruptcy bench is through representing CREDITORS.

The only real money to be made in bankruptcy law is by representing creditors.

So most bankruptcy judges have a decisive tilt toward creditor rights and have a well-developed sense of smell for debtor fraud.

So I’m personally in favor of providing BK judges the right to renegotiate mortgage terms.

I think this would have a non-trivial impact on the accelerant to the conflagration engulfing the USA, namely the gasoline on the fire of PREVENTABLE foreclosures.

Solve the problem of preventable foreclosures and you begin to contain the fire.

Fail to do so and we are all doomed.

Matt Dubuque

El-Erian Says Raising Bank Capital Is Harder
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aj5aVaGzxA0E

We heard yesterday, Mohamed, from Nassim Taleb and Peter Fisher of BlackRock, and certainly they both spoke of this idea of correlations of co-movements, as we've heard from David Goldman of Asteri Capital, this linkages within the noise. Do you see an increased set of linkages, or co- movements, within the noise now? Or, is it abating a bit?

EL-ERIAN: I think the dynamics are increasing, and that's because we are now having three balance sheets delevered at the same time. So the noise, if you like, has started to contaminate the technicals, and the technicals are impacting more balance sheets.

So, we understand the financial balance sheet, which is deleveraging. Housing is clearly another big balance sheet that is deleveraging and now the consumer's balance sheet is in play.

So, I think it's too early to expect the noise, if you like, to be reduced. But it is morphing, and one has to be open to the fact that the signals are starting to come from many different places.

KEENE: Yes. And you've got a wonderful quote here from Keynes, page 96, folks, of “When Markets Collide,'' Keynes saying, “Markets can remain irrational longer than you can remain solvent.''

Is that what the banking system of the United States faces right now is a solvency issue within this irrationality?

EL-ERIAN: I think solvency is strong for the banking system as a whole. I think there may be a few institutions that have it. The banking system as a whole faces an adjustment process, one that has to recognize that the system is being forced to derisk and delever, first by the market and soon by the regulators.

So, we are in the process of a major adjustment of the banking system, which is made harder by the fact that you don't have the capital to lubricate it. But, I think the system as a whole is solvent. There are certain institutions that may face problems, but the system as a whole is solvent.

KEENE: Can you get business done at Pimco? Is there such a liquidity issue that even the giant of Pimco is struggling? Can you get transactional business done?

EL-ERIAN: We can. In fact, this is a situation that plays to our strength, because we can be the provider of liquidity in size, but also capture the liquidity premium.

EENE: We heard from Professor Feldstein of Harvard, Martin Feldstein, and Allan Meltzer Carnegie Mellon, both agreeing the dollar must go down, in the words of Feldstein.

Does Pimco have a changed view on the U.S. dollar? Or could you restate that for us right now?

EL-ERIAN: Sure. We think that we are in the midst of a cyclical retracement of the dollar, which has made us stronger. However, the outlook for the dollar is to resume its depreciation. And in our mind, the big difference is not going to be whether the dollar depreciates again but who appreciates against the dollar.

KEENE: Yes.

EL-ERIAN: And that's where we're likely to see the change is which currencies are going to carry the burden of appreciation.