November 27, 2008
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News: How Will Bailout Help CC Industry?
Before the bailout can help the credit card industry, everyone agrees that some new ground rules will need to be put into effect. This new initiative will be backed by the government also, before they are going to release any moneys. Because this is an unsecured and inherently risky market, the administration, coupled with the Treasury Department, are segmenting debt sectors and establishing safety provisions. After this measure, they will be able to provide some measure of added security to the credit card market, as well as auto loans and student loans. This has been received so well that investors are already getting on board and the stock market has risen for three days in a row. Our nation's largest credit card lender, Citigroup, has almost doubled their deplorably-low stock value in that time.
The main purpose of the initiative is to shore up our economy with cash flow by allowing consumers to purchase cars and homes, secure student loans and shop for the Christmas holidays with credit cards. One of the largest contributors to this recent collapse was the dwindling securitization market which, has all but dried up. With the tremendous loss of revenues and risk sharing, credit card lenders were forced to take strong measures on the lending side to shore up their balance sheets. As a result, the consumers were caught short and no longer able to finance small business expansion and the average consumer was squeezed into reducing their shopping habits even more. The effect was an even greater devastation to our economy.
Not only has the credit card industry been hammered, the crunch has affected other industries across the board. Right now, car dealers are toughing it out with the worst sales market they've seen since 1991. So they were fairly pleased with the federal aid and the projections of better car loan rates in the near future. It is expected that these initiatives will accelerate the thaw of the frozen market.