November 13, 2008
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News: CC default at 40%, Just Another Bailout Contender?
Amid all the chaos and collapses of the Bush economy, we have a new contender. The credit card industry is in trouble. Perhaps Bush's advice last year to help America by ‘just going out shopping' wasn't such a good idea after all. Now we're faced with a situation where 40% of those people who just ‘went out shopping' can't pay back their credit and have fallen into hopeless default on their credit cards. So the banks and major securities alliances are asking the Government to bail them out, as they are faced with writing off this 40% of credit card debt from people who can't pay.Something that particularly caught the attention of the governing Office of the Comptroller of the Currency was the clause to defer the bank's responsibility of paying income tax on the credit card debt they would be forgiving until the banks got their money back. The Office of the Comptroller of the Currency regulates national banks, including credit card lending.
The Office of the Comptroller of the Currency's to this plea was a direct ‘No.' Timothy Long is the senior deputy comptroller for bank supervision policy. The alliance heading this effort to save the credit card industry presented their plea to the agency last week. On Monday, Mr. Long responded to this group in a letter with the agency's response. Part of it read that the Office of the Comptroller of the Currency "does not consider any plan that defers the timely recognition of loss as prudent, and any such proposal cannot be viewed favorably by us." The reasoning Long gave for this was that public confidence would be seriously compromised if the government simply overlooked the grave mis-management on the part of the banks. They failed to identify serious problems and report them early on. They should have exercised better management and retained adequate reserves for possible loan-losses. Banking institutions need to maintain adequate capitals in order to provide public confidence.