November 19, 2008
-
News: Is Industry Responsible for the Credit Card Crunch?
We always want to blame someone. The easiest target is usually those closest to the problem, in this case the credit card industry. However, in this case we may need to dig a little deeper. Much of the avalanche actually began with the sub-Prime collapse. Very shortly after that, the securitization market fizzled. That initiated the collapse of the revenues for the credit card industry as well. The securitization market buys packaged-up debt from large lenders like the credit card industry, allowing for greater growth of both industries. Over the past several years it been a major source of revenue for both, as well. But all those good times ended with the sub-Prime collapse.
Meanwhile the employment collapse was at the door. More than ever before, our nation was already deeply in debt. After eight years of dwindling paychecks, the boom was about to fall for the consumer, the credit card industry and the economy at large. Job loss had been building since the advent of the Bush administration and, just like cancer, seemed to spread everywhere. As good-paying jobs were farmed out to other countries at a fraction of the wages being paid back home, very few of these windfall profits were ever invested back into our own workforce. Eventually, even the low-paying jobs became the next target and, with almost no government regulation, our nation's workforce found itself scrapping with our high school kids over what were supposed to be their summer jobs. Credit cards started to become a means of survival.
Since the new level of pay could, in no wise, support the average American family, credit cards became one of the few alternatives to provide food, shelter and healthcare for the family. Based on available data, the credit card industry extended credit based on studies from proven historical models. What they couldn't know then, was that the new model, ushered by the cancer of disappearing jobs had no precedent. Our nation's leaders had never been so reckless as to turn a blind eye on the mounting storm.
We've now reached the breaking point and it's to late now to just turn it around. We will have to endure conditions this generation has never known. The credit card industry is as much victim of all this devastation as the rest of us. They need to survive for the sake of us all.