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November 25, 2008 3:21 PM   Subscribe

Have we jumped over all the hurdles in our ongoing economic fiasco? Probably not, the next hurdle is Credit Cards.

"More is coming, I’m sorry to say. Layoffs are being announced nationwide in the tens of thousands. As people begin to lose their jobs, they will not be able to pay their credit card bills either. And the banks will be back for more handouts."
posted by Xurando (99 comments total) 12 users marked this as a favorite

 
Priceless.
posted by gman at 3:30 PM on November 25, 2008 [9 favorites]


Ugh. Paulson is funneling money though the same usurious companies who do shit like retroactively increase interest rates 29% based on what happens on other cards. What the fed should be doing is offering consumers debt consolidation directly loans consumers. The money would flow back to the banks who could use the payments to shore up their own cash reserves.

Instead, they want to create new usurious loans and let the banks take a chunk of profit for themselves in the process.

If I were in charge of the economy, I would be encouraging people to buy government bonds so that the federal government borrow money cheaply to fund infrastructure spending for all the stimulus. Rather then consumers borrowing money from credit card companies at absurd rates to pay for useless junk, we should see citizens buying bonds for the betterment of the country, and pocketing the profits themselves.
posted by delmoi at 3:39 PM on November 25, 2008 [12 favorites]


Socialism rocks!

Sorry to be so flip, but this crap is getting ridiculous.
posted by Ron Thanagar at 3:43 PM on November 25, 2008 [1 favorite]


lend up to $200 billion to investors who've bought securities backed by consumer loans such as credit cards
They gambled and lost. Can I get some more money to put in the fruit machine?
posted by tellurian at 3:48 PM on November 25, 2008 [1 favorite]


No. We have to draw the line somewhere, and guaranteeing unsecured debt is about seven steps past it. Am I really supposed to believe that a credit card issuer can't absorb a few extra bankruptcies with the average household in debt for what, $8000 at 20%?

Of course, maybe I'm just being naive -- maybe it's time to Amex a car, drive away from the bill, and let Barry pick up the tab...
posted by darkwing at 3:52 PM on November 25, 2008


What, then, have we learned or are learning?

1. You must be very big. Then you have to be helped out to avert a disaster (we are told).
2. Both the Dems and the GOP consistently peeled away regulations so that greed and excess might generate more and more profits...Carter,Clinton, Rubin, Sen P. Graham et al (and of course Greenspan) all did this and were proud of it.
3. Whatever constraints may (they are not yet put back) are put up, you can be sure that "free marketeers" will shout about too much govt regulation.
posted by Postroad at 3:59 PM on November 25, 2008


Actually, what I've heard is happening is that the credit card companies are cutting credit lines. So you person with good credit that had $10k with a $1000 rotating balance (paid off every month) is getting cut back to a $1500 limit. And I've heard of issuers closing cards that haven't been used in 24 months. Seems pretty smart and responsible, actually.
posted by smackfu at 4:02 PM on November 25, 2008


Present Economy worse than Depression
posted by gman at 4:03 PM on November 25, 2008 [4 favorites]


In Canada, customers who take 30 days beyond the payment due date to make the minimum payment will pay interest at 24.75 per cent, a five percentage point jump.
posted by gman at 4:07 PM on November 25, 2008


so instead of debtors paying back credit card debt individually the American public will pay it back socially. genius. we loan... everyone pays.
posted by Glibpaxman at 4:09 PM on November 25, 2008


I note that credit card companies are apparently seeing this coming and raising their rates in order to build a hedge against hard times.

Well, if any tax money is going to go to help the poor suffering credit card industry, I want a huge proviso tacked-on...Namely, re-instatement of Federal usery laws that cover credit card interest. Oh, and a cap on interest.
posted by Thorzdad at 4:09 PM on November 25, 2008 [1 favorite]


And I've heard of issuers closing cards that haven't been used in 24 months.

True. Happened to me with HSBC with a card I hadn't used in 11 months. The accompanying letter blamed it all on security concerns and said that their policy was to do this with cards that hadn't been used in 3 months.

So I closed out my savings account with them, which had something like 10x the credit limit on my little emergency card. They didn't really care.
posted by dilettante at 4:10 PM on November 25, 2008


Seriously, somebody needs to explain why it's unacceptable for me to be saved from my poor credit decisions by having my credit card bill annulled, but it's a great idea for the credit card companies to be given money to save them from, uh, both our poor credit decisions *and* still get to come round asking me for the cash.
posted by bonaldi at 4:20 PM on November 25, 2008 [10 favorites]


gman, nice link. did you see the mandelbrot thread and pbs video earlier this month?
posted by Glibpaxman at 4:22 PM on November 25, 2008


Tyler Durden had it right.
posted by gman at 4:25 PM on November 25, 2008 [9 favorites]


So are we to believe that credit card companies are also too big to fail? Also, why do people need credit? If you can convince me that it's for necessities, I will happily agree to this bailout. My guess is that most people use credit cards for luxury items. They knew the risks, it's not our burden if they are unable to manage them. Same goes for the card companies. That's what they do. It's not like they're financing payrolls. They're making it possible for Joe No Budget to buy his $5000 1080p HD Dolby 7.1 Super-Ultra-Magna American Dream Television (made in China) for a mere 200/month for 27 years.

The idea that consumer credit (which is just a polite way of saying "Morons leveraging themselves into a lifestyle they can't afford") should get a bailout is absolutely insane.
posted by einer at 4:28 PM on November 25, 2008


Seriously, somebody needs to explain why it's unacceptable for me to be saved from my poor credit decisions by having my credit card bill annulled, but it's a great idea for the credit card companies to be given money to save them from, uh, both our poor credit decisions *and* still get to come round asking me for the cash.

This is what I don't get. Surely bailing out joe public helps both the public and the bank wheras bailing out the bank just helps joe dig a deeper hole (if we are lucky) and the banks make a bigger profit?
posted by twistedonion at 4:31 PM on November 25, 2008


From this hideous 2007 news release: We want consumers to associate the benefits of their life experiences, of creating their own life stories, of realizing their dreams with the use of their Citi Card," said Vik Atal, Chief Executive Officer, Citi Cards.

For a year I've been steaming about these Citi advertisements, which lull dim-witted, acquisitive 'Mericans into fulfilling their dreams with borrowed money, knowing that it was all going to come back to haunt us. Bastards.
posted by M.C. Lo-Carb! at 4:35 PM on November 25, 2008


OK, reality check. Credit-card defaults may bring down some banks; that is the natural punishment those banks deserve for pushing inflated lines of credit to people whom they had no reason to think could repay them. But the reason the mortgage crisis threatened the functioning of the whole economy isn't that defaulting mortgages might bankrupt the lenders; it's that the investors had traded massive side bets on those mortgages, and they'd done this secretly so now that the bets are getting called they don't know which of them are busted, so they aren't sure they're going to get their own winnings, so they aren't eager to lend any money to anybody including employers who borrow short-term to buy materials and pay their employees. So, the TARP was supposed to cover all their bets so they would start to lend money again (which hasn't worked any better than a moment's thought would lead you to expect) and American workers would keep getting paid.

And my understanding is that credit card receivables haven't been speculated on in this fashion, so while the damage that credit-card defaults do to that industry may merit government support to either the lenders or the borrowers, they don't pose the kind of apocalyptic threat that requires we postpone all questions of fairness and moral hazard and just throw taxpayer money at the miscreants who profited by causing the problem, which is the argument that was used to get the TARP through Congress.
posted by nicwolff at 4:35 PM on November 25, 2008 [4 favorites]


Well, you get the same objections from the fiscally responsible. "Why are you bailing them out for being stupid? Where's my payoff for being smart?"
posted by smackfu at 4:35 PM on November 25, 2008 [2 favorites]


It seems to me that everyone who is about to go bankrupt (say from a bad mortgage), is probably going to have a maxed out credit card. If you lose your job and are going to lose the house anyway, why starve?
posted by 445supermag at 4:39 PM on November 25, 2008


For a year I've been steaming about these Citi advertisements...

The AmEx commercials. Guy in jewelry store, card is over/at the limit. "Do you have another card?" "Sure, no problemo."
posted by fixedgear at 4:42 PM on November 25, 2008


My guess is that most people use credit cards for luxury items.

einer...You've obviously never been faced with an unexpected, and expensive, emergency. Transmission goes out in the car? Sudden illness requiring hospitalization? Furnace quits and has to be replaced? Those, along with endless others, are times when a credit card is a necessity.

A lot of people don't have the financial wherewithal to simply write a $3500 check for a new transmission, or $800 for the MRI that insurance won't cover, but they can make the minimum monthly payment on the card. You get enough of those emergency moments in a row and you can suddenly find yourself in 5-figure debt and struggling to make even the minimum.

Yeah, I'm sure there are idiots out there who got into a mess because of their uncontrolled consumerism. Of course there are. But, don't for a minute think there aren't thousands, if not millions, of people out there who had to turn to their cards, not out of greed or stupidity, but because it was the only option they had to cope with unforeseen emergencies.
posted by Thorzdad at 4:42 PM on November 25, 2008 [27 favorites]


In the abstract bailing out consumer credit is irresponsible and it breeds a culture of corruption and stupidity. But in all reality it is too big to fail. If the credit cards all go under then the banks fail. If the banks fail then businesses cannot get money to make payroll or purchase inventory and they are forced to layoff workers and go out of business. In the aggregate all of these businesses failing leads to a much worse scenario than Depression 2.0. At least in the 1930s we had a currency that worked and a government powerful enough to restore confidence. In today's globalized world governments are powerless to economic collapses spanning several continents and faith in currencies is based on the strength of markets - markets that are all falling like a house of cards.

If banks start failing en masse, businesses start hemorrhaging employees, or government fails to restore confidence to the market in time for a holiday surge 2009 will lead to complete systemic collapse of the globalized market system.
posted by Glibpaxman at 4:47 PM on November 25, 2008


What happened to good old public works programs like building roads or dams or putting a man on the moon for no reason? Isn't there someone out there who needs a ditch dug or something? Instead of bailing out the banks, why not build a canal, like Jacksonville-San Diego or Portland-Portland? Imagine how much it would improve China-Europe shipping! And the lock fees, reduced piracy... not to mention the wicked water skiing.
posted by GuyZero at 4:57 PM on November 25, 2008 [3 favorites]


But in all reality it is too big to fail. If the credit cards all go under then the banks fail. If the banks fail then businesses ... are forced to layoff workers and go out of business. In the aggregate all of these businesses failing leads to a much worse scenario than Depression 2.0.

Right. So the reason we've been driving around in a car that has a giant spike pointed at us from the centre of the steering wheel and a bomb in the boot is what, exactly? Because it goes 5mph faster to the plasma TV shop? If this stuff is so incredibly hazardous to our continued existence, there better be a damn good reason that fuckwits are allowed to speculate so freely and recklessly with it.

If banks start failing en masse, businesses start hemorrhaging employees, or government fails to restore confidence to the market in time for a holiday surge 2009 will lead to complete systemic collapse of the globalized market system.

Holiday surge 2009? Are you nuts? We're going to be giving one another oranges and wooden toys in 2009. People's memories are short, but they aren't that short. A generation of savers has been created, overnight. Uh, just as soon as we have cash to save again, that is.
posted by bonaldi at 4:59 PM on November 25, 2008 [4 favorites]


A generation of savers has been created, overnight

We'll see. People have pretty short memories about this kind of stuff, and to sustain savings long term requires a discipline most Americans haven't had for a long time. The Panic! mentality right now may be temporarily having the effect of making people save, but as soon as the Panic! is over I think people will go back to overspending.
posted by wildcrdj at 5:07 PM on November 25, 2008 [1 favorite]


It's funny you should mention that GuyZero. I happened upon this site yesterday and was quite surprised that they assisted artists as well as road and dam builders. "During the 1930s, there was catastrophic unemployment in the country. A federal project was put in place in 1935, called "Work Projects Administration" which would utilize the skills of out-of-work employees helping them to earn a small wage to survive. Previous efforts had begun in 1933, to assist unemployed artists under the Public Works of Art Project established by the Treasury Department."
posted by tellurian at 5:15 PM on November 25, 2008


If I were in charge of the economy, I would be encouraging people to buy government bonds

Since the October crash, the bond market has gone absolutely nuts. The prices have never been higher, and the returns have never been lower. In fact, the idea that the bond market is the next bubble has gained a lot of traction. When we find a real bottom and buying really starts in the equity markets again, watch bonds tank. It's a good safe harbor, but you'd honestly do better keeping your money in cash and waiting, at least until inflation hits, then go for the bonds when yields are reasonable.
posted by krinklyfig at 5:18 PM on November 25, 2008


GuyZero - Isn't that what Obama's New New Deal is all about?
posted by gman at 5:18 PM on November 25, 2008


The Panic! mentality right now may be temporarily having the effect of making people save, but as soon as the Panic! is over I think people will go back to overspending.

Not with projected 9% unemployment. I think we're in for a generation that learns the hard lessons, which will be good in the long run (savings will grow, people will learn to be self-sufficient, etc.), but rough in the short run for everyone.
posted by krinklyfig at 5:20 PM on November 25, 2008


holiday travelers cutting back
local governments cutting budgets
China feels the crunch

I'm not optimistic. But anything is possible and the biggest thing everything can do is have a good holiday season and hope for the best. go buy an iPod and a new car or something. We wont know how big this mess is until the outlier for the year in terms of sales - Thanksgiving through New Years - is over.
posted by Glibpaxman at 5:21 PM on November 25, 2008


go buy an iPod and a new car or something. We wont know how big this mess is until the outlier for the year in terms of sales - Thanksgiving through New Years - is over.

Just don't buy GM, Ford, or Chrysler. I really don't think many of us need to see Holiday sales to know SHIT'S ABOUT TO GO DOWN.
posted by gman at 5:27 PM on November 25, 2008


WPA and CCC-like projects seem to be the way to go. Our infrastructue is crumbling, so this is a win-win. Buy an iPod? More trade imbalance.
posted by fixedgear at 5:28 PM on November 25, 2008


Glibpaxman, I'm waiting until after Christmas, then I'm doing that sort of shopping. Inventory = taxes for already distressed retailers, so there will be a lot of bargains, particularly high-dollar items. Might as well save some money and help retailers get rid of their excess inventory right before tax time.
posted by krinklyfig at 5:29 PM on November 25, 2008


they assisted artists as well as road and dam builders

That is some dam(n) good thinking right there. You know what the USA needs? A new spate of art deco skyscrapers. If that is not win-win then there's no hope left.

In the meantime, press my smoking jacket Jeeves, I'm off to the club.
posted by GuyZero at 5:29 PM on November 25, 2008


Isn't that what Obama's New New Deal is all about?

All I know is that I've seen better photoshop work on 4chan. That is one painfully bad photo illustration.
posted by GuyZero at 5:31 PM on November 25, 2008


Jumped over the hurdles? I was picturing congress more like Ash crashing about in the windmill. Or Mickey Mouse chopping up broomsticks. Or some kind of blundering blunderer blundering blunderously.
posted by yath at 5:33 PM on November 25, 2008


Actually, what I've heard is happening is that the credit card companies are cutting credit lines. So you person with good credit that had $10k with a $1000 rotating balance (paid off every month) is getting cut back to a $1500 limit. And I've heard of issuers closing cards that haven't been used in 24 months. Seems pretty smart and responsible, actually.
posted by smackfu


This actually just happened to my wife and I. We took out an unsecured loan for $20k to pay for our wedding last year and had paid it down to about $17k as of last month. My wife noticed, since it's through BofA along with our checking and saving and all setup online and what-not, that they'd reduced our credit limit to nearly exactly what we owe. Which is ok, I guess, but it also kind of sucks because we intended to pay it either off completely or nearly off, then pull out the funds again and use it as a down payment on a house.... in a few years. C'est la vi, I guess.
posted by Bageena at 5:34 PM on November 25, 2008


Ah yes, I've heard of them cutting HELOCs too. Which is like a secured line-of-credit. I think it scares the credit card companies to have all that potential debt out there, and they're not sure they can really trust credit scores anymore.
posted by smackfu at 5:38 PM on November 25, 2008


But anything is possible and the biggest thing everything can do is have a good holiday season and hope for the best. go buy an iPod and a new car or something

Right, because with the possibility of financial explosion turning into financial apocalypse looming, the thing I definitely want is less money in my bank and more toys.
posted by bonaldi at 5:38 PM on November 25, 2008


they assisted artists as well as road and dam builders

A former colleague of mine wrote her dissertation on the WPA's employment of out-of-work writers to create an travel literature of various states and their monuments. It was a neat research project.
posted by mrmojoflying at 5:42 PM on November 25, 2008


Just don't buy GM, Ford, or Chrysler. I really don't think many of us need to see Holiday sales to know SHIT'S ABOUT TO GO DOWN.

Either GM or F might be an interesting - though very high-risk - investment, but personally, I own an 11-year-old Toyota 4Runner with 177K+ miles that runs like a top, and I hold no position on any automaker stock. It's nearly a certainty that the government will not let at least two of the Big Three fail, but even if they bought GM and/or F, there's no guarantee you'd get more than you put in, if anything. Still, it might be cheap to buy 100 shares and see what happens to it in 20 years.
posted by krinklyfig at 5:43 PM on November 25, 2008


Right, because with the possibility of financial explosion turning into financial apocalypse looming, the thing I definitely want is less money in my bank and more toys.

Speaking for myself, I'm planning on spending a small fraction of my income, but I do want an iPod-type music player (never owned one, and they're pretty cheap anymore), and there are a few things I need, not really toys. I'm saving the vast majority of my money, but in tough times, it's best to spend carefully, if you need to.
posted by krinklyfig at 5:48 PM on November 25, 2008


Still, it might be cheap to buy 100 shares and see what happens to it in 20 years.

I don't think you'll have to wait a fraction of that to lose your entire investment.
posted by gman at 5:54 PM on November 25, 2008


on the bright side, investing in GM is quite cheap. its kind of like Vegas, except that the US government will probably guarantee your money.
posted by Glibpaxman at 6:08 PM on November 25, 2008


Dude, the government is not going to guarantee common shares.
posted by gman at 6:11 PM on November 25, 2008


It's exactly like Vegas. Especially since if the company goes bankrupt, you get $0. Given that, I did buy 50 shares of Citibank after the government bailed them out. They probably won't go to $0 anymore, and there's a chance that someday they'll be worth 10x again.
posted by smackfu at 6:12 PM on November 25, 2008


sure the shares arent guarenteed but does anyone think that GM, Ford, or Chrystler is actually going bankrupt? invest now means it can almost only go up. but if they do go bankrupt a few dollars of lost investment money is going to be the least of my worries.
posted by Glibpaxman at 6:22 PM on November 25, 2008


sure the shares arent guarenteed but does anyone think that GM, Ford, or Chrystler is actually going bankrupt?

I think Chrysler might. Or it might be bought for pennies on the dollar. But that's why I suggested 100 shares. It would cost a few hundred dollars. But even at that price, I'm not buying in, that's for sure, but I haven't shorted them, either, because I really don't know what will happen, particularly after seeing what happened the last couple months.
posted by krinklyfig at 6:30 PM on November 25, 2008


I don't think anyone think they'll liquidate via a Chapter 7 bankruptcy. But a Chapter 11 reorg is definitely possible. Virtually every US airline has done it (Delta, NW, United, US Air). They're still flying flights, but I hope you didn't own pre-bankruptcy shares. KMart is another example.
posted by smackfu at 6:38 PM on November 25, 2008


As I noted in another thread, there is no financing available to do a Chapter 11 on any automaker. It would end up being Chapter 7 without government intervention.
posted by krinklyfig at 6:55 PM on November 25, 2008


Chrysler is privately held, but 100 shares of GM will set you back only $354 (+transaction fees)
at today's close. Ford is even more 'special' at $166 per 100 shares (neat--you can get 600 shares for $1000)
posted by hexatron at 7:00 PM on November 25, 2008


Familiar Trio at Heart of Citi Bailout: Rubin, Paulson, Geithner's Shared History Paved Way for $300 Billion Federal Guarantee
posted by ornate insect at 7:00 PM on November 25, 2008


Wow. Should I feel like a sucker for working hard to pay off my credit card before moving abroad?

Actually, please don't answer that.
posted by bardic at 7:05 PM on November 25, 2008


Sovereign wealth funds switch from Western investments (for some background on SWF's, see this thread of mine last June).
posted by ornate insect at 7:09 PM on November 25, 2008


from U.S. Plans $800 Billion in Lending to Ease Crisis:

In the last year, the government has assumed about $7.8 trillion in direct and indirect financial obligations. That is equal to about half the size of the nation’s entire economy and far eclipses the $700 billion that Congress authorized for the Treasury’s financial rescue plan.

Those obligations include about $1.4 trillion that has already been committed to loans, capital infusions to banks and the rescues of firms like Bear Stearns and the American International Group, the troubled insurance conglomerate. But they also include additional trillions in government guarantees on mortgages, bank deposits, commercial loans and money market funds.

posted by ornate insect at 7:15 PM on November 25, 2008 [1 favorite]


100 shares of GM will set you back only $354 (+transaction fees) at today's close. Ford is even more 'special' at $166 per 100 shares (neat--you can get 600 shares for $1000)

That's partly because Ford has 4x the number of shares out.
posted by gman at 7:16 PM on November 25, 2008


Just a suggestion... a FPP on what $266 bought from Woody Guthrie in 1941.
posted by Jumpin Jack Flash at 7:20 PM on November 25, 2008


Whenever the WPA is mentioned, I always think of one place.
It's history. And the amazing artwork. Plus, it weirdly links FDR and Jack Nicholson.
posted by secondhand at 7:28 PM on November 25, 2008


Not with projected 9% unemployment

I suppose. The Euro zone has been at 9% unemployment many times in the past decade (2003, 2004, and basically 2002 and 2005 - here), and they did have higher savings rates then (US was positive at that point, fell below 0 in 2007, and is back up already in 2008), but it's hard to make any direct comparison. Most people will still have jobs in a 9% unemployment economy, and if the credit card companies are willing to give out cards (a big if right now), I suspect people will take them --- but we'll see.
posted by wildcrdj at 7:34 PM on November 25, 2008


Citigroup Peddles Default-Recovery Swaps as Bankruptcies Soar
posted by ornate insect at 7:37 PM on November 25, 2008


on the bright side, investing in GM is quite cheap. its kind of like Vegas...

It's like Vegas, and also Pintos. See Vega + s = Vegas, the plural of Vega...
posted by fixedgear at 7:39 PM on November 25, 2008 [1 favorite]


In the last year, the government has assumed about $7.8 trillion in direct and indirect financial obligations. That is equal to about half the size of the nation’s entire economy and far eclipses the $700 billion that Congress authorized for the Treasury’s financial rescue plan.

It's kind of silly to just add the amounts together, since they are at varying levels of risk. Like putting money into AIG... you may not see that again. But insuring money market funds? That's a safe bet, so it's not a bad thing to insure hundreds of millions of dollars. But then to say, "that's half a trillion dollars that might be marked down to zero" is just ludicrous.
posted by smackfu at 7:58 PM on November 25, 2008


"But insuring money market funds? That's a safe bet, so it's not a bad thing to insure hundreds of millions of dollars."

It's probably a safe bet, but it's also de facto Communism. If I lose my job and go bankrupt, I don't get shit. Why should failed companies be treated any differently?

Also, 24 months ago not many people foresaw the housing market going completely tits-up. I admire your blithe optimism, but the fact is the Federal government is rewarding bad business practice and sheer incompetence with taxpayer-funded parachutes. And frankly, that's fucking bullshit.
posted by bardic at 8:09 PM on November 25, 2008 [1 favorite]


Why are bank deposits insured, but money market funds are not? Is that de facto communism?
posted by smackfu at 8:25 PM on November 25, 2008


And I've heard of issuers closing cards that haven't been used in 24 months. Seems pretty smart and responsible, actually.
posted by smackfu at 7:02 PM on November 25 [+] [!]


Shutting off little used cards is very annoying to the kind of people who carefully don't use credit cards regularly for their own financial security. They pay with cash/debit, until they are out of the country and need to put the hotel on their credit card because they don't have Interac (Canadian debit system) in Europe. Or who just want a large purchase like an airline flight to have the extra security of a major credit card company, just in case there are any shenanigans with the dealer.

Basically, people who have credit cards and rarely use them are just responsible users of credit - not living off credit, but using it occasionally. Sometimes it is an emergency, sometimes its just a matter of not having the right form of cash or wanting something more secure than cash. Please don't penalise us for living within our means.
posted by jb at 8:41 PM on November 25, 2008 [1 favorite]


Kind of, yes. FDIC insuring deposits up to 100,000 seems to me to be a reasonable safe-guard for people's money and an incentive to save (which no Americans seem to do any more, but the idea's still a good one).

Honestly smackfu, I do admire your optimism. If Obama and his team manage to straighten this mess left behind by the sheer idiocy of over-zealous de-regulators, the world will be much better off.

The 7.7 trillion isn't going to evaporate overnight, even in a worst case scenario. But things are definitely going to get a lot worse before they get better, and poorly run companies will be rewarded for their failures with tax-payers' money. And I'd be willing to make a gentleman's bet with you that before this is all over, a fair chunk of that 7.7 trillion will go to the very people who were responsible for this entire mess in the first place.

Call me crazy, but that really bothers and angers me.
posted by bardic at 8:48 PM on November 25, 2008


"Basically, people who have credit cards and rarely use them are just responsible users of credit - not living off credit, but using it occasionally."

I agree but let's face it -- the credit card companies never made money off of these "pay as they go" types. It was all about giving lines of credit to people who you knew couldn't make their payments.

This certainly doesn't absolve people who signed up for cards who shouldn't have (like, say, a 20-something year-old bardic), but IMO the credit card companies have nobody but themselves to blame. And they should be allowed to fail, hard.

The Fed can't possibly bail out every company out their without bankrupting the US. Seems to be the symbolism alone of allowing bad-credit hawkers to die off would be a decent start to a new cycle of thrift, frugality, and living within one's means (both on the personal and the corporate level).
posted by bardic at 8:54 PM on November 25, 2008


*meh, sorry for my typos.
posted by bardic at 8:56 PM on November 25, 2008


My optimism is all that keeps from me from crying over my lost 401k funds.
posted by smackfu at 9:03 PM on November 25, 2008


I prefer whiskey myself. :)
posted by bardic at 9:04 PM on November 25, 2008 [1 favorite]


Long story short, I have a family member facing bankruptcy due to credit card debt combined with legitimate extenuating circumstances. I'm not trying to absolve responsibility, but simply on a pragmatic level, it's a real disappointment to me that the government turned down the credit card debt forgiveness plan that had been proposed by the Financial Services Roundtable -- that is, the banking industry -- in conjunction with the Consumer Federation of America.

Basically, one of the downsides of settling your unsecured debts is that the forgiven debt will normally be 1099ed back to you as nominal income. You might think you were lucky to get $10K off your back, only to owe $3K come next April to a much scarier creditor, the IRS. The banks thought that they would stretch forgiveness over multiple years on an agreed schedule, so that the consumer would face a more manageable tax burden. In essence, this would provide a lightweight Chapter 13, without the stigma and court costs of bankruptcy.

Put simply, the banks were proposing to go right to consumers with offers to write down principal, which is something that had been a major stumbling block to implementing widespread mortgage relief.

Unfortunately the banking regulators in the Bush administration decided -- amid a global crisis of transparency -- that the process was not transparent enough to bank investors. If only they'd said that about the CDS five years ago! So no soup for you, consumers. The excuse was that the banks should not be proportionally allowed to spread out their write-offs of bad debt.

I hope that this could be revived in some form that would satisfy objections, because my relative is a case where it would be a really attractive option. Unfortunately, I'm worried that bankruptcy may indeed have to be pursued, which is a loss for everyone concerned.
posted by dhartung at 9:13 PM on November 25, 2008


We took out an unsecured loan for $20k to pay for our wedding last year and had paid it down to about $17k as of last month. My wife noticed, since it's through BofA along with our checking and saving and all setup online and what-not, that they'd reduced our credit limit to nearly exactly what we owe. Which is ok, I guess, but it also kind of sucks because we intended to pay it either off completely or nearly off, then pull out the funds again and use it as a down payment on a house.... in a few years. C'est la vi, I guess.

Bageena, I recommend you see a good financial planner. You appear to be managing your money very badly (ie. this idea to use an unsecured loan for your down payment).

They can also show you how much your already-expensive $20k wedding is going to end up costing you by the time you pay it off.
posted by magic curl at 9:14 PM on November 25, 2008 [3 favorites]


I had a collection agency come after me by mistake this year. A $1000 debt. Which had indeed been paid, but reported as unpaid by a local business this year. The whole thing took weeks to straighten out, but finally I received a letter from the collection agency telling me my account had been "canceled" and blaming the problem on the biz which had reported me.

I was surprised by the, ah, rigor with which the agency pursued my $1K. Several threatening letters, each one harsher than the last. Dozens of phone calls, always via robot, at first only on weekdays, then on weekends too.

I couldn't help but wonder how many debt-serfs out there were similarly entangled with aggressive collection agencies for piddly-ass amounts like mine and how they felt about all the gigantic bailouts they saw news of daily on their TV's.
posted by telstar at 11:47 PM on November 25, 2008 [3 favorites]


"In the abstract bailing out consumer credit is irresponsible and it breeds a culture of corruption and stupidity. But in all reality it is too big to fail."
That's what they said about the Titanic.
posted by MaxK at 12:44 AM on November 26, 2008


"Actually, what I've heard is happening is that the credit card companies are cutting credit lines. So you person with good credit that had $10k with a $1000 rotating balance (paid off every month) is getting cut back to a $1500 limit. And I've heard of issuers closing cards that haven't been used in 24 months. Seems pretty smart and responsible, actually."
Smart and responsible??

"Yes, let's take credit away from the people who have demonstrated they are not risks to reduce the liquidity of the entire economy and accelerate the collapse into depression."

Very farking responsible indeed!

The responsible thing would have been to create government-backed ultra-low interest consumer debt consolidation loans with that money, which people facing bankruptcy could use to pay off / consolidate their debts, putting cash directly back into the banking system, saving people's livlihoods, increasing the liquidity of the entire economy, and generating revenue for the federal government.

But then corrupt politicians wouldn't have been able to line their pockets as quickly!

Credit card companies will need to raise interest rates, tighten credit requirements, and lend more to individuals and businesses that have demonstrated they are safe risks consistently in order to prevent this crisis from getting worse. If any of my credit cards is canceled for having no balance / usage for any period of time, I will sever all ties with that company and short their stock.
posted by MaxK at 12:57 AM on November 26, 2008


Not to sound like a broken record here, but when have credit card companies ever made money off of responsible people? The entire concept of making money off of credit it to give it to people who can't afford to pay all of it back. It's like the financial equivalent of planned obsolescence.

Offering credit cards to people who can responsibly handle the burden makes no money for the credit card companies. Seriously, let them fail. They only serve the purpose of making things worse for everyone. As mentioned, the Fed can help with low interest debt consolidation loans directly to Americans. Giving any money at all to credit card issuing banks, etc., is throwing money into a bonfire.
posted by bardic at 1:05 AM on November 26, 2008


For all of you asking: “Why all these bailouts?” Below is why.
posted by telstar at 1:07 AM on November 26, 2008


Not to sound like a broken record here, but when have credit card companies ever made money off of responsible people? The entire concept of making money off of credit it to give it to people who can't afford to pay all of it back.

They make a modest amount off the customers who pay in full each month (mainly through the cut they take from merchants). These customers, I think, really get the better end of the deal. 55 day interest free terms, plus purchase protection and whatnot, for a small annual fee. Cards are a great convenience for these people.

The people who don't pay in full each month ("revolvers") are a cash cow, as you rightly say. Perhaps 25% of this chunk will seriously struggle with their debt at some point.

Where I live, banks have been half-prodded into adopting more responsible lending standards. Not offering unsolicited limit increases, for example. And if their card portfolios go as bad as the article predicts, it should burn some extra prudence into their memories for maybe a couple of years.

In conclusion, people should learn about compound interest in high school.
posted by magic curl at 2:53 AM on November 26, 2008


People work and make money, they pay for their basic expenses to live/exist, and what's left over they save, spend on non-essentials, whatever.

It seems to me that an economy based on credit, where commerce does not happen without huge institutions brokering the cash (and taking their cut) to fuel that commerce, is simply a charade to hide the fact that there are fewer and fewer avenues for people to make money.

Maybe we should look at the basics of the economy- the fact that we consume cheap goods made elsewhere, based on fast-food salaries that don't begin to cover living expenses, while told we "need" all these non-essential things- and oh don't worry if you can't actually afford them, here's a credit line so you can pay for them- forever.

Instead of addressing the real problem- few good-paying jobs in the U.S.- we continue to construct ways for under-employed people to pay for what they really can't afford. And the money streams out of the U.S. economy, and is lent back to the U.S. ...with interest.

Meanwhile the government bails out all these institutions whose house of cards is collapsing, while the workers stand by and get nothing more than the satisfaction that as the government prints more and more money, what little cash we have ends up being worth less and less.
posted by GreyFoxVT at 4:12 AM on November 26, 2008 [7 favorites]


Well, I'm not personally seeing much in the way of credit contraction; in the last two weeks, I received solicitations to accept an unsecured $50k credit line from two different banks, for a total of $100k in unsecured debt. Not bad terms either, like 8.99 APR, around there. Obviously, I don't really want $50k or $100k in debt at this point in time, so I didn't accept either offer, but still, it was nice to see the credit offers flowing. My primary bank also raised my overdraft limit by a thousand bucks too, last week, unsolicited. (Glad they did too, as I tapped that line very temporarily for some short-term time-sensitive needs.)

I see all the horrifying news on TV each day, including one layoff announcement after another from major employers, but I'm not seeing much affect on my daily life, at least not yet. I'm neither rich nor poor, so perhaps the middle isn't being all that greatly affected so far?
posted by jamstigator at 4:13 AM on November 26, 2008



Well, I'm not personally seeing much in the way of credit contraction...Obviously, I don't really want $50k or $100k in debt at this point in time, so I didn't accept either offer,


Wouldn't that be your credit contraction right there?
posted by telstar at 5:22 AM on November 26, 2008


I was surprised by the, ah, rigor with which the agency pursued my $1K. Several threatening letters, each one harsher than the last. Dozens of phone calls, always via robot, at first only on weekdays, then on weekends too.

My dad does collection for restaurants on the side, and the reason is simple: Most (most, not all...also consider this is for restaurants, which granted is a whole different story than the general public) people/businesses who don't pay their bills are deadbeats and simply calling every day to remind them, "you owe use x amount of money," takes very little capital to pull off and works quite well. Consider that collections agency typically pull in 25-40% of a collected bill, and it is not hard to see why they're persistent. All it takes are personalities who don't take NO for an answer.
posted by jmd82 at 6:27 AM on November 26, 2008


Not with projected 9% unemployment.

Heh. Projected.
posted by lunit at 7:20 AM on November 26, 2008


So last year when coming home from a business trip to Atlanta, I'm waiting in the airport and AirTran had a kiosk set up where you could sign up for an AirTran Visa card AND get a free t-shirt! Hell, I love t-shirts, plus I had an hour to kill, so why not?

So I did, and I got my t-shirt, eventually got on my plane and came home. About a week later, I get a shiny new AirTran Visa card. I never used it. I didn't even activate it, or take it out of it's original envelope, just kept it in my file drawer with my other bank stuff. The only time I considered activating it is when my bank cards were frozen (I'd lost my wallet) and I was stuck without access to my money for about a week, but I didn't.

About a week ago, I got a letter in the mail saying that due to inactivity and security and this and that, they'd cancelled my card and account. I shrugged, dug out the old card (still in the original envelope with activation sticker on it) and destroyed it.

But I still got to keep my t-shirt! Ha ha ha suckers!

...

My t-shirt says "Atlanta" on it.
posted by Uther Bentrazor at 7:48 AM on November 26, 2008 [1 favorite]


Wells Fargo CEO on the future of banking.
posted by Bitter soylent at 8:04 AM on November 26, 2008


An older couple I know pride themselves on not being in debt to anyone for anything. Penny's offered a 10% discount to anyone who applied for a store charge card. None of those credit card companies really want someone who can and does pay their bills so they were rejected. Dorothy just reapplied every time she went to the store and accepted their 10% discount.
posted by Bitter soylent at 8:13 AM on November 26, 2008


at this moment in time, i am glad that a)i haven't used credit cards in over 15 years and b)i am a renter.

all my friends/family members who looked down on me for living a frugal life, not buying into the "american dream" (as envisioned by fannie may) of buying a home, etc. are in some level of distress. a few have lost millions on paper. i am sorry for them, but not too sorry.

live according to need, not want. if you buy a home, but can't afford to fix that emergency busted furnace, you're living according to want, not need. everyone needs a place to live. few *need* the expansive, unsustainable homes they've bought. if you can't afford to put a sizeable downpayment down, and don't simultaneously have *at least* as much as the downpayment in the bank for emergencies, you don't have any business buying a home. if you want to buy something, but don't have the cash-in-hand to do so, you have no business buying it -- and CERTAINLY no business getting a credit card so you can have what you want right now.
posted by CitizenD at 9:05 AM on November 26, 2008


Government bailout hits $8.5 trillion
Kathleen Pender, SF Chronicle
Wednesday, November 26, 2008
The federal government committed an additional $800 billion to two new loan programs on Tuesday, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion, according to Bloomberg News. That sum represents almost 60 percent of the nation's estimated gross domestic product.

Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it's impossible to predict how much they will cost taxpayers. The final cost won't be known for many years.

The money has been committed to a wide array of programs, including loans and loan guarantees, asset purchases, equity investments in financial companies, tax breaks for banks, help for struggling homeowners and a currency stabilization fund.

Most of the money, about $5.5 trillion, comes from the Federal Reserve, which as an independent entity does not need congressional approval to lend money to banks or, in "unusual and exigent circumstances," to other financial institutions.

posted by ornate insect at 9:42 AM on November 26, 2008


if you want to buy something, but don't have the cash-in-hand to do so, you have no business buying it -- and CERTAINLY no business getting a credit card so you can have what you want right now.

If you have discipline and the cash on hand, there's many good reasons to use a credit card. It's a bit dramatic to damn the whole concept.
posted by smackfu at 10:07 AM on November 26, 2008


smackfu, this is a genuine question (and not snark, which i feel the need to state since my last comment came off as more snarky than i intended...)

if one isn't interested in having/developing a strong credit rating (which, as i understand it, is largely so that one can acquire more credit in the future), what are some of the many good reasons for using a credit card?

personally, i *don't* have a lot of discipline, which is why i stopped using credit cards a long time ago (well, that and my general durden-esque view on consumption). i stopped paying attention to things like credit ratings a while ago, so i could use some schoolin'.
posted by CitizenD at 11:12 AM on November 26, 2008


magic curl, both my wife and I are in collections - she works at Citi, which is where I worked until about two months ago. Now I'm over at Chase because I was laid off. We're both pretty sure she will be too.
Trust me, the idea of leaping into marriage with a shared $20k worth of debt wasn't an idea either of us liked much, but we wanted the wedding we wanted and that's what it cost. We don't own a house, we rent, and we own our vehicles, so besides a few credit cards we use for gas/groceries and then pay off each month, we don't have any serious bills. Anywho, we both work with credit every day, all day, and know our way around credit scores, credit reports, and managing debt. I know that if we really wanted to wait, we could pay off the line of credit and then just save up for a down payment on a house, and that's most likely what we'll do now, but everything changes every day here in the Phoenix, Arizona market when it comes to homes, so who even knows where we'll be by the time we feel it's right to buy a house?
We will see a financial counselor at some point though, if for nothing else than to start planning out a retirement. Thank you for the advice!
posted by Bageena at 11:25 AM on November 26, 2008


if one isn't interested in having/developing a strong credit rating (which, as i understand it, is largely so that one can acquire more credit in the future), what are some of the many good reasons for using a credit card?

A few practical benefits, in order from most to least significant:

1) I get at least 1% of my spending refunded, and some spending categories get 3-5% back. When you add up all your expenses for a year, that's not a trivial amount. Not taking advantage is like passing up free money.

2) My money that I would have spent in cash earns another 30-50 days of interest in my bank account until I need to pay the bill. Maybe that's only 0.5% gain, but why not?

3) Better fraud protection than a debit card. If someone steals my card and runs up the bill, it's isolated from my "real" money. A doctor who accidentally bills my card for $5k instead of $500 (true story!) is a minor annoyance and not a panic.

(And I stay away from the real crazy stuff, like borrowing $10K at 0% for a promotional period, and putting it in a bank account at 5% so you earn $500.)

But it obviously helps that I'm not living close to the edge, and I'm naturally cheap/thrifty. My "natural" level of spending is less than my paycheck, so I don't worry too much. I'm not saying this is a good idea for everyone, but there are reasons to use credit cards that are not evil.
posted by smackfu at 12:15 PM on November 26, 2008


Bageena, my wedding cost $10, and I got a free bottle of Champagne, courtesy of the City of Chicago. My wife and I paid off our student loans, then saved up for a down payment on a house that we can afford. Not saying I'm better than you, but I'm definitely in better financial shape thanks to my frugal ways.

As for these bail outs, the rationale I keep hearing is that it will make the inevitable disaster a little less disastrous. Maybe. We hope.
posted by Outlawyr at 1:41 PM on November 26, 2008


smackfu lists some very important reasons to use credit cards - especially the protection side. I live in the US, but don't have an American credit card, only a debit card, and I'm always a bit freaked when I have to use it to pay online. You can stop a credit card payment if your goods don't arrive or if there is some other problem (worst of all, of course, being fraud) - but you can't stop a debit card payment.
posted by jb at 4:05 PM on November 26, 2008


Oh man, $20K on a party. (Which is what a "wedding" is.) I am SO glad I ignore all the social directives of this culture.
posted by telstar at 4:38 PM on November 26, 2008


A party where you pledge undying, neverending affection, love and devotion to someone for the rest of your life. Cars cost $20k. Houses normally cost 10x that. There'll be lots of stuff in my life I spend money on, sometimes wastefully. Shit, I'll bet I've spend at least $10k on video games and video game-related accessories in my lifetime. As long as I never default on paying the loan and pay it off, I don't really see it hurting anyone. I don't think it's a social directive to have an expensive wedding either - nearly every person I'm friends with spent much, much less, more often than not just taking the 3 hour car ride up to Vegas. Which is what her father offered to actually pay for. *laughs* We could have done that, we could have gotten married down at the Justice of the Court or whatever, but we both wanted something more. I believe as long as we're responsible about the debt and pay it off, no harm no foul. It was a beautiful party, but seeing as we're all looking fearfully around at the economy crashing down around us, I don't expect many to agree that spending a large amount of money on anything, let alone a wedding, is prudent.
Anyways, I only mentioned the wedding loan to confirm what the post and what other mefites had said - credit card companies are unnecessarily, without reason given by the debter, cutting lines of credit. My wife and my credit scores have actually gone UP since we took the loan out and we've never been late and always paid more than the minimum payment and they lowered our limit anyways.
posted by Bageena at 5:13 PM on November 26, 2008


I think it's a bit off to critique individual people's wedding plans, guys. You only do it once in theory, so spend what you want, is what I say.

Back on topic, I liked this take on the approach taken to the crisis in the UK - Darling is the Chancellor of the Exchequer who is proposing a huge fiscal stimulus, Osborne the Conservative shadow Chancellor who is suggesting (more or less) that we shouldn't increase borrowing now.
posted by athenian at 3:37 PM on November 27, 2008


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