November 14, 2008

• News:  Credit-Card Meltdown Looming?

  Sub-prime mortgage debt vs. credit card debt, what's the difference? The dollar figure could be more than one hundred times greater for a mortgage debt than for a credit card debt. One hundred times as many people may have credit cards then have sub-prime mortgages. Both are victims of Bush's ‘topple-down economics' scheme – the paycheck fell woefully behind the cost of living. Debt is debt, after all, and desperation drives debt. Just like the sub-prime meltdown, which didn't make front-page news until the explosion was already under way, tremors in the credit card industry still are not front-page news (Time Magazine excepted).

  How serious are the credit card tremors? The good news is that the credit card lending industry is much more complicated than the mortgage lending industry. The bad news is that the credit card lending industry is much more complicated than the mortgage lending industry.

  Better explain this further. The credit card industry has more flexibility and is more resilient than the mortgage industry. This is good. The credit card industry has become the life-blood conduit of the American economy. If it shuts down, our economy ceases (consider the pre-credit card days of 1939). This is bad.

  Both industries have been devastated by securitization woes. Securitization is the packaging of loans (debt) into securities, which are sold to investors in secondary markets. This has been both the boon and the bane of both industries. So ‘seize' up this tremor…Citigroup is, perhaps, the largest credit card lender in the world. They, like all the other large lenders, both mortgage and credit card, have gotten their bread and butter from securitization. Last year Citigroup's third quarter netted a $169 million gain from securitization. This year securitization is collapsing because of the sub-prime meltdown. So, instead of a $169 million gain, this year's third quarter for Citigroup reflected a $1.4 billion loss for lack of securitization.

  The Richter measurement of these tremors may come down to one of critical functionality. The $970 billion credit card industry may seem moot compared to the $14 trillion U.S. mortgage industry. But, on the other hand, consider the great depression. People still had their homes at first. But the cash flow dried up when most of America had no money and no credit cards. They lost their homes anyway.
  
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