http://www.businessweek.com/magazine/content/08_42/b4104024799703.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis The troubles sound familiar. Borrowers falling behind on their payments. Defaults rising. Huge swaths of loans souring. Investors getting burned. But forget the now-familiar tales of mortgages gone bad. The next horror for beaten-down financial firms is the $950 billion worth of outstanding credit-card debt—much of it toxic. That’s bad news for players like JPMorgan Chase (JPM) and Bank of America (BAC) that have largely sidestepped—and even benefited from—the mortgage mess but have major credit-card operations. They’re hardly alone. The consumer debt bomb is already beginning to spray shrapnel throughout the financial markets, further weakening the U.S. economy. “The next meltdown will be in credit cards,” says Gregory Larkin, senior analyst at research firm Innovest Strategic Value Advisors. Adds William Black, senior vice-president of Moody’s Investors Service’s structured finance team: “We still haven’t hit the post-recessionary peaks [in credit-card losses], so things will get worse before they get better.” What’s more, the U.S. Treasury Dept.‘s $700 billion mortgage bailout won’t be a lifeline for credit-card issuers. The big firms say they’re prepared for the storm. Early last year JPMorgan started reaching out to troubled borrowers, setting up payment programs and making other adjustments to accounts. “We have seen higher credit-card losses,” acknowledges JPMorgan spokeswoman Tanya M. Madison. “We are concerned about [it] but believe we are taking the right steps to help our customers and manage our risk.” But some banks and credit-card companies may be exacerbating their problems. To boost profits and get ahead of coming regulation, they’re hiking interest rates. But that’s making it harder for consumers to keep up. That’ll only make tomorrow’s pain worse. Innovest estimates that credit-card issuers will take a $41 billion hit from rotten debt this year and a $96 billion blow in 2009. Those losses, in turn, will wend their way through the $365 billion market for securities backed by credit-card debt. As with mortgages, banks bundle groups of so-called credit-card receivables, essentially consumers’ outstanding balances, and sell them to big investors such as hedge funds and pension funds. Big issuers offload roughly 70% of their credit-card debt. But it’s getting harder for banks to find buyers for that debt. Interest rates have been rising on credit-card securities, a sign that investor appetite is waning. To help entice buyers, credit-card companies are having to put up more money as collateral, a guarantee in case something goes wrong with the securities. Mortgage lenders, in sharp contrast, typically aren’t asked to do this—at least not yet. With consumers so shaky, now isn’t a good time to put more skin in the game. “Costs will go up for issuers,” warns Dennis Moroney of the consultancy Tower Group. Sure, the credit-card market is just a fraction of the $11.9 trillion mortgage market. But sometimes the losses can be more painful. That’s because most credit-card debt is unsecured, meaning consumers don’t have to make down payments when opening up their accounts. If they stop making monthly payments and the account goes bad, there are no underlying assets for credit-card companies to recoup. With mortgages, in contrast, some banks are protected both by down payments and by the ability to recover at least some of the money by selling the property. THE BIG BOYS’ BURDEN Making matters worse, the subprime threat is also greater in credit-card land. Risky borrowers with low credit scores account for roughly 30% of outstanding credit-card debt, compared with 11% of mortgage debt. More than 45% of Washington Mutual’s credit-card portfolio is subprime, according to Innovest. That could become a headache for JPMorgan Chase, which agreed on Sept. 25 to buy the troubled thrift’s credit-card business and other assets for $1.9 billion. Says a JPMorgan spokeswoman: "
easy fella, you’re beginning to sound as arrogant as me : ) -
When did you call this? This has been obvious for over a year now.
But what makes you think it’s same as the mortgage problems? There is no CDS’s issue to deal with,in the credit card world, no securitization of CC debt, etc. Is there?
CC debt is securitised… But the numbers we are looking at here are not large in the scheme of things… per the article theres $950b of credit card debt of which $365b is securitised… Given all the stuff we have seen so far…these numbers aren’t exactly MASSIVE in terms of systemic risk… But yes…agree that rising interest rates and falling credit limits will hurt consumer spending and the real economy quite hard
Any securitized product is going to be problem. CC, Student loans, auto payments, etc… anything that has a cash flow can be securitized.
C’mon. You are taking credit for Business Week acknowledging a credit card debt problem you foresaw after the stocks of all the credit card companies had dropped by half?
Not exactly a brilliant prediction. What is your next prediction… Christmas retail sales going to be light?
Guys can anyone here predict when it will be the end of the world? I just want to plan my trips before it!
I’ve got a prediction - markets rebound a lot - everyone tells us this crisis was way overblown - then France defaults - then they shut-up.
JoeyDVivre Wrote: ------------------------------------------------------- > I’ve got a prediction - markets rebound a lot - > everyone tells us this crisis was way overblown - > then France defaults - then they shut-up. I hope this prection will be 100% true!!!
JoeyDVivre Wrote: ------------------------------------------------------- > I’ve got a prediction - markets rebound a lot - > everyone tells us this crisis was way overblown - > then France defaults - then they shut-up. If France defaults, its time to short Big Tobacco. French babies are given cigarettes even before they cut the cord. True story.
I actually don’t think France will default - I just like to pick on France because a) I love Paris b) In times of bailouts, I am constantly reminded of how many times we bailed out France and all we got was this stupid statue.
JoeyDVivre Wrote: ------------------------------------------------------- > I actually don’t think France will default - I > just like to pick on France because > a) I love Paris > b) In times of bailouts, I am constantly reminded > of how many times we bailed out France and all we > got was this stupid statue. me…because I am Italian and of course our wine is better than their wine…no dubt about the food
I certainly like Italian wine better than French wine (Amarone is about my favorite style of wine). On a price basis, the French suck because it’s hard to find a really good French wine that someone who doesn’t know anything about wine thinks is worth >$60.
JoeyDVivre Wrote: ------------------------------------------------------- > I certainly like Italian wine better than French > wine (Amarone is about my favorite style of wine). > On a price basis, the French suck because it’s > hard to find a really good French wine that > someone who doesn’t know anything about wine > thinks is worth >$60. You should try Aglianico del Vulture DOC…it is one of the greatest red wines
Ordered… < $30
JoeyDVivre Wrote: ------------------------------------------------------- > Ordered… < $30 Very good deal 
JoeyDVivre Wrote: ------------------------------------------------------- > b) In times of bailouts, I am constantly reminded > of how many times we bailed out France and all we > got was this stupid statue. The French entered into war against the British during the American independence war in 1778, and GREATLY assisted in the victory of the Americans seeking independence from Britain… I think you guys owe the French a stupid statue…
we will give them a statue of Bush