December 12, 2008
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News: Charge-Offs Go Charging Off.
Where is the bottom? With unprecedented job losses, it's foregone to expect mounting credit card defaults. Storm-workers are sandbagging everywhere they can: Higher interest rates; Lower credit card limits, Annual Fees coming back; millions of credit card accounts being closed and; stricter credit qualifications are just a few of these. With all that, the problem of historic-level job losses cannot be staved in the near future. Hence, neither can mounting credit card defaults.
Thousands of credit card lenders have been drawn into this. From the telling third-quarter reports, the realization of helplessness came with reports of the dangerous credit card charge-off rates being already at 6%. This, alone, is already very bad news. The scary part was the strong prediction that this was only the beginning, when it should be consider the leveling-off point. But now, it's as if, we're bound for an adventure of "boldly(?) going where no man has gone before". We have no flight operations manual for this trip.
The credit card industry is being bludgeoned on Wall Street and beleaguered with scary innuendos that they will crash if the default rate tracks the unemployment rate (which it usually does). Unemployment is expected to approach 10% by 2010, before finally leveling off. Could the credit card industry prevail against an astronomical 10% default rate? With the governments help, almost certainly. Can they withstand stock declines of 1000%? Who knows? Likely, Wall Street will have to draft a revised operations manual of their own.
With the hope of a more-responsive Congress, we are making some inroads, already. They are finally in a position to regulate some national needs. One key initiative regarding new credit card industry regulation is a change in paradigm. Instead of ‘every man for himself' (twisted as ‘personal responsibility' by the greedy), the industry will be molded into a ‘good for the nation' philosophy approach. Instead of ‘whacking and hacking' to grab quick money, the industry will be compelled to go the extra mile with innovative payback plans. It is known in the industry that "roll-rates" are where the rubber meets the road. "Roll-rates" are the final breaking point where a default borrower finally admits defeat and declines any further hope of ever paying off a debt. There is always this point and this is the critical point between failure and success.