November 18, 2008

• News:  Protect Credit Card Industry: Too little, too late.

  They've tried everything. Unfortunately it came too late and wasn't enough. Millions of credit card accounts have been closed, credit lines have been reduced and interest rates have been jacked. All this and more has been implemented by the credit card industry to build up levees against the coming tsunami caused by unemployment and low wages. Unfortunately though, it appears that these measures may not have been enough to shore up the levees against the coming surge of defaulted credit card debts. Some experts go so far as to suggest that the devastation could rival the housing market's collapse.

  What's so scary is the weakened defenses we're relying on, with our floundering sub-Prime recovery. As if the weakened lending defenses weren't enough, the third element of this ‘perfect storm' is the unemployment crises. At no time in history have we experienced the very high unemployment levels coupled with the high amount of credit card debt levels. With unemployment moving past the 8 percent level today, it is full expected to extend into the 9 percent levels before any chance of topping out. The last two times we've experienced similar conditions were in 1994 and 1982. But, even then, credit card debt wasn't anywhere close to where it is today. In 1994 consumer debt was only 50 percent of what it is today. In 1982 consumer debt was only 14 percent of what it is today. We don't have anything to model a condition this extreme because it's never happened before.

  JP Morgan's chief executive, Jamie Dimon, speaking with analysts very recently said: "If you are not fearful, you're crazy." So now, in addition to the tougher measures being implemented for new credit card accounts, even tougher measure are taking place. Massive layoffs – Citigroup reported to be losing 52,000 employees, American Express to lose 7,000 jobs, Capital One putting together an announcement soon and even, Chapter 11 talks among the titans are being considered.
  
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