Posted on 05/15/2009 5:29:05 AM PDT by TigerLikesRooster
The Credit Card Death Spiral
By Ian Cooper | Thursday, May 14th, 2009
The stress tests are done. The results were so-so. Financials are up.
Unfortunately, foreclosures are still climbing, credit card defaults are growing and could out-pace unemployment, and no one knows how to value toxic assets.
But the bank crisis has been solved! Yep, and I'm the king of England.
Just as we called back in July 5, 2008, credit cards have and will continue to take it on the chin.
But not many people listened:
"AXP will be fine," one reader said. "You're blowing the consumer issue out of proportion."
"Ian Cooper has no brain." "I think Ian Cooper is an idiot," said another reader.
But those "smart readers" who listened and shorted American Express did quite well, as the AXP stock plunged from $35 highs to about $10. . . only to rebound on false financial optimism.
However, the recent elevated price levels give us an even better position to go short, as we'll soon be doing in Options Trading Pit. And it's all thanks to consumers who are building up massive amounts of debt without the means to pay it back.
You see, it's far more difficult for millions of Americans to dig their way out of debt now that once-relied-upon options, such as home equity loans, are no longer readily available. And an 8.9% unemployment rate in the U.S. doesn't make the credit card outlook any better.
Why Credit Cards Will Continue to Fall
(Excerpt) Read more at wealthdaily.com ...
Ping!
A curious collection of words, suggesting that one can dig one's way out of debt by going into debt.
“A curious collection of words, suggesting that one can dig one’s way out of debt by going into debt. “
It’s like drinking oneself sober.
I’ve tried that; didn’t end well.
Fun while it lasted, though.
After going 20k or 40k in the hole to credit cards, the frequent “bail out plan” was a home equity loan to lower the monthly payment. Debt consolidation at a lower rate.
Credit card business is no longer benefiting from this option that paid them off.
You are correct ..... The Drunk who makes more frequent trips to the bar is headed for disaster.
Followed by going 20K or 40K back into the hole to credit cards.
HOWEVER, WE HAVE ANOTHER CREDIT STATEMENT WHICH IS MUCH MORE CONFUSING AND IN NEED OF SIMPLIFICATION!
THE TAX CODE.
Instead of thousands of pages of picayune pissant paragraphs we should have a one page contract with a flat tax on ALL citizens.
You are not the only one. Now I have just one bill besides the house payment and it isn’t that big.
With the looming Zero tax cuts ahead of us and the expiration of the Bush tax cuts next year, the 'worst case scenario' will be the norm by the end of 2010. Currently, both Congress and the generic "federal banking regulators" are trying to duck the issue of the negative impact that the approaching tax hikes will have on the economy, but I suspect that that is largely what is driving a lot of this focus on the credit card industry and Geithner's faux "stress test".
The credit card industry is in trouble due to its own foolishness and one of my cards has notified me that I can either agree to them doubling the interest rate (to 26%) or stop using the card. I told them to go pound sand . . . . but that's a different story. Bottom line, the irresponsible people in Congress (on the banking committees) are as much to blame for the credit card and other financial meltdown situations today because of their loose "regulatory" policies that allowed just about anything to go.
And we keep re-electing the same corrupt politicians and sending them back to Washington or the state house because . . . . . . . . . ?????
You have two credit cards you've spent too much money on and are now having trouble paying. If each is charging you 12% which one do you pay off first? Now, let's say one jumps its rate to 30%. Which one do you try to pay off with any money you do have? That's right, the 30% rate convinces you to pay back that bank first, even if that means stiffing the lower rate bank? Although the bank likes the interest, it is worried about getting paid at all and the high interest rate is a way of saying "Pay me first".
It's worse than that. My CC's are current, but I was notified by BofA that they were DOUBLING (to 26%, which i believe exceeds the limits of usury) the interest rate on the CC unless I rejected the rate increase. I told them to go pound sand and to take their financial problems elsewhere; I'm not going to help them buy their way out of trouble. I also advised them if that if they hadn't received two rounds of bailout money that came from funds that were confiscated by the federal government, I wouldn't have their CC in the first place.
Dave Ramsey Ping
All of the sudden our interest rate went from 4.5 % to over 18%.
This is on a Business Credit Card, I called to inquire why and they told me because of a late payment. Which is very strange because we pay all of our business credit card bills the day it shows up on our account AND we pay it electronically.
So after three days of phone tag and moving up the line from phone answerers to supervisors to a manager we finally got to the "truth" which was they apparently had a "glitch" in their system. Our account was reset to low interest rate AND also we were credited an extra 100 dollars for our trouble.
Translation: their "glitch" probably netted them a couple thousand accounts that are now permanently switched from lower interest rates to much higher ones because many people pay no attention and just pay the bills and never look at the entire statement.
Also when you go to bankruptcy court, Principal is usually not negotiable BUT interest is. So if you start having trouble paying the bill by being late its advantageous for the Credit Card company to raise its rates and get as much interest money out of you as it can while you are spiraling down to bankruptcy.
They sense that you are starting to go under and want to be the first one to be paid off.
Someone I know had his due date changed. He never even opened the envelope until the day of the month he usually does, which ended up being past the new due date. He made a fuss until he got a manager and straightened it out. They will try every trick they can. They are competing with one another for our money.
Thanks TAC for the ping.
I am sad for each individual that will get hammered by debt and I wish I could mandate that everyone read “Your Total Money Maker!”
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