Credit Card Delinquencies Reach Record Level « naked capitalism

Thursday, February 5, 2009

Credit Card Delinquencies Reach Record Level

Like sports achievements, I have no doubt this so-called record will be broken soon, and in short order.

From the Financial Times:

US credit card delinquencies hit a record high in January, and further deterioration is likely as the economy slows down and unemployment rises, Fitch Ratings says.

Payments at least 60 days late rose almost half a percentage point last month to a record 3.75 per cent, said Fitch. Credit card lenders also wrote off loans to delinquent borrowers at close to record levels, and such “charge-offs” were expected to breach records in the coming months…

Late payments on credit cards crept higher throughout 2008, said Fitch, but signs of borrower stress rose in the fourth quarter as late payments surged by 18 per cent. Charge-off rates in January were 40 per cent higher than a year ago at 7.5 per cent and were expected to approach 9 per cent during the second half of 2009.

Late payments and defaults on credit cards have been closely linked with levels of unemployment, which have risen dramatically…

Rising late payments and defaults on credit card loans would hurt the performance of securities backed by credit card receivables, Fitch said, but downgrades would be limited in the near-term because of lower funding costs. Securities backed by credit card receivables have rallied in recent weeks, in part because of such lower cost funds, and as investors look forward to the launch of a new Federal Reserve programme to lend against such asset-backed securities.

However, analysts at Barclays Capital warn the rally could be short-lived amid continued economic deterioration and proposed bankruptcy legislation that could boost charge-off levels….

Credit card lending has historically accounted for between 15 and 25 per cent of pre-tax income at JPMorgan, Bank of America and Citigroup, according to Moody’s. Analysts expect these businesses to shrink as lenders tighten credit standards and cut credit lines.

30 Comments:

Anonymous says:

February 5, 2009 at 9:48 am

Hey Yves:

Would it be possible for you to select a slightly different font, one that is bolder and easier to read?

Thanks

D

DownSouth says:

February 5, 2009 at 10:05 am

Geez, Ken Stremsky.

Do you enjoy playing on a piano that has only one key on the keyboard.

Most of us prefer playing on a piano that has 88.

FairEconomist says:

February 5, 2009 at 10:09 am

I’m curious what portion of the default is by people who at least could BK out of their CC debt and what portion is by people chained as debt slaves by the 2005 bankruptcy deform (if you make more than the median income, you can’t get a discharge in bankruptcy).

joebhed says:

February 5, 2009 at 10:23 am

Sorry to repeat this, but….from the FT -

“”Fitch said…. downgrades would be limited in the near-term because of lower funding costs. Securities backed by credit card receivables have rallied in recent weeks, in part because of such lower cost funds, and as investors look forward to the launch of a new Federal Reserve programme to lend against such asset-backed securities.”"

OK, American taxpayers – there you have it.
LOWER-COST FUNDS.
Backed by US.

The FED’s interest-rate policies, and the FED’s taxpayer guarantees on the taxpayers own credit card obligations are EVERYTHING that is keeping this ship afloat.

WE are EVERYTHING to this transaction.

WHY do the taxpayers need to support the credit card companies and their banking partners?

We can provide economic stability to the whole economy by eliminating the risk of high-interest cost to cardholders, and reduce the risk of non-payment to the banks by restructuring ALL credit card debt balances to straightforward unsecured bank loans, made affordable to borrowers via the repayment term, and financed at THAT taxpayer-backed lower rate of interest plus two percent.

We bail ourselves out.
We put more money onto Main Street.
We reduce non-payment risk to the CC bankers.

It’s OUR money.

DownSouth says:

February 5, 2009 at 10:49 am

But joebhed, if we followed your suggestion the banks couldn’t borrow money for 2% and loan it out at 30%. We can’t have that:

Credit card lending has historically accounted for between 15 and 25 per cent of pre-tax income at JPMorgan, Bank of America and Citigroup, according to Moody’s.

Anonymous says:

February 5, 2009 at 11:18 am

We need to figure out how to FORCE Obama to fix this mess….and not follow Ken Stremsky’s strategies.

Ideas?

hIGHcastle says:

February 5, 2009 at 11:23 am

Anonymous 9:48,

I’m not sure what browser you use, but Firefox has the ability to import or change your own CSS files to customize the way you view websites. There you can change fonts.

You can probably find various tutorials if you google for them, but here is one.

CSS files enable the blind (and other handicap) to surf the web in a different presentation format.

Cent21 says:

February 5, 2009 at 11:53 am

Boy, it sure is a good thing we passed a tougher bankrupcy bill a while back, or otherwise, whoa man, the floodgates would be opened!

Ken, if cutting taxes was such a good thing, by now I think we should be seeing some long term benefits from the tax cuts of the past 30 years.

In particular, cutting taxes in this deflationary environment characterized by excess global savings and significant imbalances between the USA and the rest of the world on trade and debt is unlikely to have much bang for the buck.

Two years of block grants to states would have a lot of bang for the buck, if not in adding new employment, at least in keeping a fairly large employment sector from shrinking dramatically. Many states are engaging in mid-fiscal-year cuts right now, with cuts 3X as large on the preliminary budgets for next year.

I’d personally temper the excess add-ons to the bill sweeping through the halls in Washington and shift some of the current year emphasis to long term planning. The markets will react better, I think, to a plan that really sets out to concieve of a 22nd century infrastructure than to one that simply lards on as much spending as possible right now while leaving debt to pay with no matching asset for the future. Even if it means some of the spending doesn’t happen for 25 years.

We just haven’t had a government where long term planning has been viewed as attracive for the past 30 or so years, and it will take some time to even concieve of one.

Waldo says:

February 5, 2009 at 12:46 pm

“The federal government and state governments should stop taxing interest from savings accounts, dividends, capital gains, and estates to encourage more investment in our country by Americans and foreigners. Businesses especially small businesses may have an easier time obtaining loans and investments. Businesses may not have to fire as many employees.”

Ken, that is such bull sh*t. Cutting those taxes enriches the rich and punches “holes” through the IRS’s ability to add economic muscle to this mess.

If I am not mistaken if you earn at a certain level you pay no social security tax. But if you get dividends and little payroll income you will get a social security check to pay for the fuel for your Masarati?????

The rich got us into this mess (oil thugs, Midland, Texas felons [they found Jesus in the 80's and 90's, they found Satan in Bush - blood money]) and want a better position. You want stimulus build more sh*t and quit thinking “free money” to the working class is a good idea – only good for “burning” cash.

Americans are not good with money. WE KNOW THAT. If we can cut the military and intellence community in America could save hundreds of billions.

Ken Stremsky says:

February 5, 2009 at 1:27 pm

Businesses need capital to stay in businesses. Businesses need capital to pay their employees. This is especially true for small businesses. Businesses especially small businesses create the jobs. The more businesses that fire people the more businesses that may fire people. What do you think needs to be done to deal with high unemployment? Where do you think capital comes from? Do you want to reduce our need for capital from China? Do you want our country to have a better manufacturing base? I discuss manufacturing on newgeography.com.

What I wrote on this website is a very small part of what I have written on newgeography.com. I graduated from the University of New Hampshire in 1992 with a BA Degree in Political Science and a minor in Economics.

If you read what I posted on http://www.newgeography.com/users/kenstremsky, you might benefit. I have links to many articles on it. I discuss how reducing social security taxes on wages below $30,000 a year for the next 2 years for individuals and businesses would benefit people and businesses. You may see it by clicking on my name on my previous post.

I mentioned increasing sales taxes. Sales taxes are paid by wealthy people, middle class people, and poor people.

Middle class people, union members, and government employees who have mutual funds may benefit from capital gains and dividends not being taxed.

I recommend people read

“A 545 Billion Private Stimulus Plan

Let’s bring home foreign earnings without tax penalty.” by Allen Sinai

I posted it on my newgeography.com profile. You may see it by clicking on my name on this post.

It is found at http://online.wsj.com/article/SB123310439653922291.html

Anonymous says:

February 5, 2009 at 1:37 pm

So, let’s see… banks borrow money from the Fed at 1% and lend it out at 30% plus fees. The idiot who uses his credit card instead of hard, cold cash then pays the credit card bills religiously in fear of having his credit ruined by the credit bureau Gestapo. Does that sound like slavery, or what?

I say we need to get these banker parasites off our back. I hereby call for a revolution. On count to three, we all pull a MOWA on them. Yes, a MOWA – “Max Out, Walk Away.” Let them ruin our credit. In seven years, if this evil system will still be around by then, we’ll all have perfect credit once again.

One… Two… Three… Jackpot!

Billy

Anonymous says:

February 5, 2009 at 1:40 pm

@ K. Stremsky……

“I mentioned increasing sales taxes. Sales taxes are paid by wealthy people, middle class people, and poor people.”

Yes, sure. And if you take a state like California all the majority legislative idiots do after raising taxes is then increase spending an equal amount and beyond.

There is no fiscal restraint with politicians in general. That’s the problem. Until there is a sea-change in that mentality raising taxes is highly counterproductive at both national and state levels.

AM

Anonymous says:

February 5, 2009 at 1:52 pm

It is in every way shape and form in the best interest of credit card companies to have their card holders enter into delinquency.

1. The card company gets to charge 30% interest.

2. The card company gets to use free TARP money to pay off the debt if you can’t pay 30% interest.

That’s why JPM upped their minimum payment to 5%!!

Push as many people as you can into
default, use free taxpayer money to get all your money back.

Fraud Guy says:

February 5, 2009 at 1:52 pm

Waldo,

What happens is that you contributions to SS et al cap out at a certain income level, which, IIRC, is just over $100K. So if you earn $150K, your contribution is the same as someone who earns $1,000,000 or $10,000,000.

Now if they did not cap off contribution, but payout (as it is supposed to be a safety net only)….

Waldo says:

February 5, 2009 at 1:58 pm

“Businesses need capital to stay in businesses. Businesses need capital to pay their employees. This is especially true for small businesses. Businesses especially small businesses create the jobs. The more businesses that fire people the more businesses that may fire people. What do you think needs to be done to deal with high unemployment? Where do you think capital comes from? Do you want to reduce our need for capital from China? Do you want our country to have a better manufacturing base? I discuss manufacturing on newgeography.com.”

I am a small business owner. We have about $20k a week in payroll.

Now my M.O. is to produce as much profit as I can to strengthen our retained earnings to basically self insure our future.

Now the idea of increasing the retained earnings of my business by tax savings is like saying Uncle Sam is better at running my business than I am. This is so because he is directly involved in putting money back into our coffers. That is b.s. It is like thinking Uncle Sam can run those banks. Bullsh*t.

I am willing to do more (off my brains and balls – business acumen) to push us out of this mess now. We have a good tax rate now so work hard to get tax power into the rich to increase the extraction of much needed capital to stabilize this mess.

I am also a capitalist (personal wealth greater than $1million in liquid assets (not real estate)).

I am only 42. I can bring allot to this economy in the next 10 years or so. But do not tell me how to earn profit and do not give me free anything. I want to earn my fair share as it correlates to my abilities.

Tax cuts is economics “gone mad” at this juncture in our economy.

One more note: Understand this point about successful entrepreneurship – when I hire a professional she had better earn me at least 3.1 times what I pay her or I will do it myself. Hiring a professional is not about social responsibility it is about earning more profit. That is why this capitalistic system works.

So say I earn $850k in 2009. If I hire a project manager at say $95k my income will increase to $1.05 million or I will not hire. That is the reality of business.

In 2002 I earned $7k (no bullsh*t). That is post UChicago MBA.

I am damn good at what I do. I can and would defeat an Aussie, Maple Leaf, German, etc. one-on-one. Very competitive spirit. My “secret sauce”.

Conscience says:

February 5, 2009 at 2:27 pm

“I can and would defeat an Aussie, Maple Leaf, German, etc. one-on-one. Very competitive spirit. My “secret sauce”.”

So why don’t you move to Israel and rip off your own people instead of continuing to vampirize all of the good lil gullible goyim…in Israel maybe your conscience would have a little twitch fit as you continue to rip off your own kind; you may also realize how the more you greedily take and hoard for yourself the less there is to go around for everyone else.

“That is why this capitalistic system works.”

Predatory capitalism only works in America because it has unfortunately become an inhumane and highly inequitable hellhole in the past few decades – if you haven’t noticed, in the most civilized and advanced countries on Earth they’ve largely abandoned hypercapitalism for far more humane forms of social organization and they and their people are much better for it.

Waldo says:

February 5, 2009 at 2:35 pm

“Predatory capitalism only works in America because it has unfortunately become an inhumane and highly inequitable hellhole in the past few decades – if you haven’t noticed, in the most civilized and advanced countries on Earth they’ve largely abandoned hypercapitalism for far more humane forms of social organization and they and their people are much better for it.”

That is naive.

Predatory capitalism- silly notion. Preying on the week is not “unnatural”. That is the real success behind America. Economically speaking it is never “at peace”. Creative destruction.

Now you add stealing to the idea of predatory capitalism then you have something.

I wonder who will create more widgets and contribute more tax capital you or I this year?

Markel says:

February 5, 2009 at 4:00 pm

Yves, if you wanted to delete this entire comment thread, I could certainly see why.

Waldo says:

February 5, 2009 at 4:10 pm

“Yves, if you wanted to delete this entire comment thread, I could certainly see why”

I do understand the initial sinister thoughts with my comments.

But add this to the equation: projects we perform have the potential to lose allot of capital.

Case in point: We entered into a $120k contract 4 years ago or so. It took twice as long as scheduled (2.5 months) and cost us about $202K to perform. We kept our obligation and completed the project to the absolute satisfaction of the client. We have since received more business from that client.

In our business the risks are large. We could easily loose our retained earnings with only a few projects.

Principal of business: Profit begets profit (amelioration). Also I have not had a personal payroll raise in 3 years. All profits are being put into the business to achieve our business goals. No investment money to get us started – boot strapped.

Anonymous says:

February 5, 2009 at 4:36 pm

Conscience,

“Predatory capitalism only works in America because it has unfortunately become an inhumane and highly inequitable hellhole in the past few decades – if you haven’t noticed, in the most civilized and advanced countries on Earth they’ve largely abandoned hypercapitalism for far more humane forms of social organization and they and their people are much better for it.”

So turn the table on them. If everybody pulls a MOWA on these crooks, we’ll have a more humane system here before you can say “Trickle up poverty”.

Billy

Anonymous says:

February 5, 2009 at 4:57 pm

What do the Assholes expect? I had a $15K limit on a card with Citibank for over 15 years and I paid it proptly for 14 of those years and then last year (after I lost my job)I fell behind by 30 days. The next bill I received shows the interest rate has been hiked up to 32%. Not that the 18% rate was redicilas enough the Assholes jumped my rate to 32% after 14 years of paying on time like a machine! I called them and complained and they basically said tough shit, that was their policy! I told them that’s just F–cking Great because my policy is I’m not paying 32% interest so WRITE THE $15k OFF BECAUSE I’M NOT PAYING IT!

I haven’t made a payment since and it doesn’t effect my credit one bit as I don’t live in the U.S. anymore and I have no plans on ever living there again so Citibank can eat shit and die!

Ken Stremsky says:

February 5, 2009 at 4:57 pm

Allowing businesses to keep more of their capital by not taxing interest from savings accounts and dividends may make it easier for them to expand their businesses. This decreases the need for loans and the selling of stock. Many businesses have just the business owner. Many businesses have less than 10 employees.

If capital gains are not taxed, middle class people and others may have more reason to invest in our companies which may help create jobs in our country.

The harder it is for many businesses to obtain loans and investments the more businesses that may go out of business. The more businesses that go out of business the more people who may become unemployed.

The harder it is for people to obtain loans and investments the fewer businesses that may be started.

I am trying to keep people employed. I am trying to make it easier for people to save money to start businesses, pay for college tuitions, and save for their retirements. I am trying to increase the probability that wealthy people will invest money in our country instead of other countries that tax capital less.

Waldo says:

February 5, 2009 at 5:06 pm

“What do the Assholes expect? I had a $15K limit on a card with Citibank for over 15 years and I paid it proptly for 14 of those years and then last year (after I lost my job)I fell behind by 30 days. The next bill I received shows the interest rate has been hiked up to 32%. Not that the 18% rate was redicilas enough the Assholes jumped my rate to 32% after 14 years of paying on time like a machine!”

I can almost top that. Happened to me yesterday at Starbucks. I got a gift card from Starbucks (from niece) at Christmas. I used up the $20 dollar limit to about $1.50. I put another $20 on it a couple of weeks ago. I have only purchased two cafe mocha’s (venti) and have $8.00 left on it!! There must be fine print for the card but since it was a gift I have not paperwork. Now that is predatory capitalism (stealing). Lesson – do not use Starbucks gift cards.

“I am trying to make it easier for people to save money to start businesses…”

Ken – never easy to save money to start business. You make it to easy the firm will fail. Hardship is key to understand and grow profit, natural selection.

“We will go to the moon not because it is easy but because it is hard….” – John F. Kennedy.

Chris says:

February 5, 2009 at 5:14 pm

Should Tarp money be used to fund credit card lending by banks? Why should tax payers pay for this privilege? Because we want to get the credit markets unblocked?

Money for old rope and stuff, user fees, nuisance fees, all that stuff from the last thirty years, if we pay the tune, these guys should cut out all their crap.

It ought to be a privilege to look after someone’s money. Something a bank should pay to do.

Castro is Cool Again says:

February 5, 2009 at 5:58 pm

yves a snip of just published. i did a squirrel on aig. 2 of your stories are in the squirrel from late 2008.

“It’s been 18 weeks since taxpayers rescued AIG to save Goldman Sachs, a few large hedge funds and several European banks, who all utilized the unhedged luddites of AIG to protect their own weakening portfolios. It’s simple. In late 2007 and early 2008 the brainiacs at Goldman hedged their porfolio of shit assets with a shit insurer, because well, they’re Goldman Sachs, Lord of Idiots. Turns out Euro banks had been hedging their exposure to the mortgage pile on their books for years as a means to skirt regulations on capital ratios. Rule Bending Banking Bastards 101.

The problem was AIG didn’t hedge their own exposure. They couldn’t. They were the ‘safe’ place to buy protection. And the shitkeepers in control of AIG allowed their exposure to other people’s shitpiles to grow so large that there was no one left to de-odorize. Please take a moment to consider just how stupid you have to be to lose $150 billion selling insurance on other people’s shit. Thank you for that collective moment.”

you should see the aig photo. it’s been doctored.

click my name. it will take you to the story.

Waldo says:

February 5, 2009 at 5:59 pm

“The more businesses that get started the more innovations that may take place.”

Spot on. But it must be understood that it is very very difficult to do it and very very rewarding.

One last note: I attended a top flight engineering school (undergrad) and a top flight business school but the real intrinsic knowledge and instincts I learned from a “mentor” in the work place. This is the most important aspect for success; above education and investment capital.

I was such a good student under him in the mid 1990′s that he fired me. Have always wanted my own business, this did not serve his interest. Though he spent his valuable time at the office proofing my empirical binders of knowledge to track my progress. Very important period in my business maturation, very important.

Markel says:

February 5, 2009 at 6:10 pm

Not only is he a spammer, but he sounds like a subway panhandler in a stained trenchcoat. Yes, one-person businesses could explode if they could only stop paying tax on the interest on their bank accounts. Yes, and also stop paying protection to the Lizard People, that would be great, too.

Anonymous says:

February 5, 2009 at 7:06 pm

“I told them that’s just F–cking Great because my policy is I’m not paying 32% interest so WRITE THE $15k OFF BECAUSE I’M NOT PAYING IT! I haven’t made a payment since and it doesn’t effect my credit one bit as I don’t live in the U.S. anymore and I have no plans on ever living there again so Citibank can eat shit and die!”

Dude, I like the way you think.

But don’t worry, you can always return to the US, and live like a king with a ruined credit. There’s nothing they can do except call you, so just change your phone number. And, don’t forget, after 7 years, all those bad marks on your credit magically drop off. Noboby cares about credit anymore. Mine is in the 375 range, and I still get offers for unsecured credit cards, and the other day I bought a brand spanking new beemer and a $15K Breitling watch on credit. Next week I’m getting a mansion down in Palm Beach… on credit too. Subprime, of course. Don’t you just love America!

Like I said, if everybody would pull a MOWA on these crooks, they’d go bust, and we’d make America into a proletarian paradise. They are like leaches, like vampires, sucking the blood out of unsuspecting working people. But I think we’re shaking that off now.

Billy

Anonymous says:

February 5, 2009 at 7:24 pm

Billy,

I like your concept of a MOWA (Max Out, Walk Away). I am not sure you have solid research to support it, but I propose we research and publish a scholarly article about it. Instinctively I sense this may be the new (and improved) model for the US economy over the next few years, and I want us to partner in order to improve the lives of the downtrodden of this nation. Just think about that mother of 14, and how much better her and her children’s lives could be if she suddenly had a cash infusion (shall we call it a Personal TARP, or PERTARP) of $25k cash. Think of all the booze and drugs she could buy.

I hereby propose we begin our research immediately.

Vinny Goldberg,
Maverick Economisto Extraordinaire, and Biz Wiz Kid Spectacular

Anonymous says:

March 23, 2009 at 10:50 am

Obama needs to step up to bat. Those of us who are self employed are being crippled. I shopped at Publix today and was asked for a donation for "Bunny Bucks"? I told her i was in need of Obama bucks>

Subscribe to: Post Comments