Credit Card Industry

[fishsticks]

Here’s a question for you smart Piggingtons: To what degree will the current liquidity crisis effect the credit card industry, which, in essence, has been providing sub-prime credit (with no real fixed rate) to high school students, the unemployed, and bankrupt dead people. Clearly those loans will now be impossible to sell as securities. In other words, consumption has not only been fueled by the house equity ATM, but by the availability of these credit cards, as well as by pay day loans, unbelievably low car loans, and so on. From my vantage point, this drying up of consumer credit = an eventual and inevitable prolonged global recession. Am I right on this? What will credit card offers look like in 5 years?

[(former)FormerSanDiegan]

I don’t think it affects the credit card industry much. Rates may change as the economy changes. However, credit cards have always been unsecured credit. There was no illusion of AAA-rated safety and asset-backing built into the market on these.

[(former)FormerSanDiegan]

I don’t think it affects the credit card industry much. Rates may change as the economy changes. However, credit cards have always been unsecured credit. There was no illusion of AAA-rated safety and asset-backing built into the market on these.

[(former)FormerSanDiegan]

I don’t think it affects the credit card industry much. Rates may change as the economy changes. However, credit cards have always been unsecured credit. There was no illusion of AAA-rated safety and asset-backing built into the market on these.

[bsrsharma]

Just like the illiquidity of CMOs is drying up non-conforming mortgage availability, illiquidity of CDOs will dry up credit card business by non-depository institutions. I am not sure if the CDO market is as stuck up right now as the CMO market. I think the consumers are not (yet) defaulting on their CC debt as much as on mortgages – may be they are thinking that foreclosure is a slow process compared to not being able to buy groceries. Also, I don’t think there is this huge exploding debt scenario like ARM resets. That should keep CC debt a bit more manageable.

FormerSD: Yes, at least some CC debt gets recycled via CDOs. Otherwise, non-depository institutions can’t issue consumer debt.

[bsrsharma]

Just like the illiquidity of CMOs is drying up non-conforming mortgage availability, illiquidity of CDOs will dry up credit card business by non-depository institutions. I am not sure if the CDO market is as stuck up right now as the CMO market. I think the consumers are not (yet) defaulting on their CC debt as much as on mortgages – may be they are thinking that foreclosure is a slow process compared to not being able to buy groceries. Also, I don’t think there is this huge exploding debt scenario like ARM resets. That should keep CC debt a bit more manageable.

FormerSD: Yes, at least some CC debt gets recycled via CDOs. Otherwise, non-depository institutions can’t issue consumer debt.

[bsrsharma]

Just like the illiquidity of CMOs is drying up non-conforming mortgage availability, illiquidity of CDOs will dry up credit card business by non-depository institutions. I am not sure if the CDO market is as stuck up right now as the CMO market. I think the consumers are not (yet) defaulting on their CC debt as much as on mortgages – may be they are thinking that foreclosure is a slow process compared to not being able to buy groceries. Also, I don’t think there is this huge exploding debt scenario like ARM resets. That should keep CC debt a bit more manageable.

FormerSD: Yes, at least some CC debt gets recycled via CDOs. Otherwise, non-depository institutions can’t issue consumer debt.

[AK]

A co-worker complained recently that the rate on his credit cards had just doubled — to more than 20 percent — for no particular reason. He said he had no late payments or other problems, and that a customer service rep had told him the rate hike was a “business decision.”

My guess was that the rate hike was linked somehow to the liquidity crunch and CDOs. His card carrier does have a consumer banking unit (the “what’s in your wallet” guys) but I doubt their deposits cover more than a tiny fraction of their lending.

[AK]

A co-worker complained recently that the rate on his credit cards had just doubled — to more than 20 percent — for no particular reason. He said he had no late payments or other problems, and that a customer service rep had told him the rate hike was a “business decision.”

My guess was that the rate hike was linked somehow to the liquidity crunch and CDOs. His card carrier does have a consumer banking unit (the “what’s in your wallet” guys) but I doubt their deposits cover more than a tiny fraction of their lending.

[AK]

A co-worker complained recently that the rate on his credit cards had just doubled — to more than 20 percent — for no particular reason. He said he had no late payments or other problems, and that a customer service rep had told him the rate hike was a “business decision.”

My guess was that the rate hike was linked somehow to the liquidity crunch and CDOs. His card carrier does have a consumer banking unit (the “what’s in your wallet” guys) but I doubt their deposits cover more than a tiny fraction of their lending.

[CMcG]

I just find it odd that up till about two-three weeks ago, I was getting four or five credit card offers every week. Not a one has arrived in the last couple of weeks.

[CMcG]

I just find it odd that up till about two-three weeks ago, I was getting four or five credit card offers every week. Not a one has arrived in the last couple of weeks.

[CMcG]

I just find it odd that up till about two-three weeks ago, I was getting four or five credit card offers every week. Not a one has arrived in the last couple of weeks.

[bsrsharma]

Same with me; I might have received one or two solicitations in about 2 weeks compared to the usual 6 or 8. But I did recieve an offer to refinance my mortgage, no questions asked. There will be lot less paper in the recycle bin in the future!

[bsrsharma]

Same with me; I might have received one or two solicitations in about 2 weeks compared to the usual 6 or 8. But I did recieve an offer to refinance my mortgage, no questions asked. There will be lot less paper in the recycle bin in the future!

[Author]

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