An Interview With Larry Fink Concerning the Credit Markets – Just Something to Think About
Some brief comments from Larry Fink concerning the credit markets, from CNNMoney.com.
Before he co-founded money-management firm BlackRock, Larry Fink, 54, was an early pioneer of the mortgage-backed-securities market. Now his firm, which went public in 1999 and merged with Merrill Lynch's investment-management business last year, oversees $1.2 trillion in assets -- and has been advising Wall Street clients reeling from the subprime lending meltdown. He spoke with Fortune's Peter Eavis about the ongoing credit crunch.
Where do you stand on interest rates?
I don't believe the Federal Reserve should ease. It's a foolish, foolish statement for people to make with the economy performing in line with the Fed's current forecast. It's a good thing for regulators to see risk premiums become more appropriate.
How does the current liquidity crisis compare with what you saw in 1998?
Oh, this is much worse. This problem is greater, broader, harder to contain. Without the central banks injecting liquidity, this could have become a big problem.
Are you buying any subprime-mortgage-backed securities right now?
No. We never really trafficked in subprime. Our CDO [collateralized debt obligation] complex has been a historical buyer of subprime, but as a firm we cut back in late 2005.
A lot of the big-name brokerages are highly exposed. If you had been heading one, would you have gone into the subprime business?
Wall Street made tens of millions in the mortgage arena over the past five years. Now we have a setback. But you can't look at the losses that people may incur this year without the context of their profitability in the past four or five years.
So you're saying it was the right call?
Depends on what we learn about the scale of losses. We saw in 2005 that it was getting a little dicey. The better firms should have downsized their role.
How broad are the ripple effects of this subprime crisis, in mortgages and beyond?
The market is struggling with the valuation of even prime mortgages. There are many fine mortgages that may be over $500,000 with good payment history, but the market is questioning the value of all mortgage- and asset-backed products. But you're not seeing as much of an effect in the corporate bond market, and certainly not in the equity markets, apart from homebuilders.
It seems that the U.S. can hardly bear interest rates above 5.5%. What does that say about our level of debt?
We as a country need to liquefy our balance sheets. It's a generational project. It's five years for some people and 20 years for others. It just takes behavior change.
Saturday, September 1, 2007
Friday, August 31, 2007
Ben Bernanke's Speech at the Fed Meeting in Wyoming
The following link gives the full text of Ben Bernanke's speech from the Fed (includes all the references and footnotes) concerning the US housing market. The speech summarizes the current state of affairs, what the Fed is willing to do, and the history of the development of the capital markets supporting the US housing market. I did not think that the speech said anything new, but it seemed to excite the people on Wall Street.
The following paragraph was the most interesting from the speech concerning the "go-forward" perspective.
The incoming data indicate that the economy continued to expand at a moderate pace into the summer, despite the sharp correction in the housing sector. However, in light of recent financial developments, economic data bearing on past months or quarters may be less useful than usual for our forecasts of economic activity and inflation. Consequently, we will pay particularly close attention to the timeliest indicators, as well as information gleaned from our business and banking contacts around the country. Inevitably, the uncertainty surrounding the outlook will be greater than normal, presenting a challenge to policymakers to manage the risks to their growth and price stability objectives. The Committee continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets.
The following link gives the full text of Ben Bernanke's speech from the Fed (includes all the references and footnotes) concerning the US housing market. The speech summarizes the current state of affairs, what the Fed is willing to do, and the history of the development of the capital markets supporting the US housing market. I did not think that the speech said anything new, but it seemed to excite the people on Wall Street.
The following paragraph was the most interesting from the speech concerning the "go-forward" perspective.
The incoming data indicate that the economy continued to expand at a moderate pace into the summer, despite the sharp correction in the housing sector. However, in light of recent financial developments, economic data bearing on past months or quarters may be less useful than usual for our forecasts of economic activity and inflation. Consequently, we will pay particularly close attention to the timeliest indicators, as well as information gleaned from our business and banking contacts around the country. Inevitably, the uncertainty surrounding the outlook will be greater than normal, presenting a challenge to policymakers to manage the risks to their growth and price stability objectives. The Committee continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets.
A Couple of Quotes to Think About on a Three-Day Weekend
The two quotes below came from a list of quotes at Financial Sense. It is worth visiting the site to go through all 25 quotes. I don't agree with all the quotes, but some of the political cartoons are pretty amusing.
The first quote is from Jim Rogers, always one of my favorite people to read about
The Federal Reserve was not founded to bail out Bear Stearns or a few hedge funds. It was founded to keep a stable currency and maintain its value. - Jim Rogers, Rogers Commodity Fund
The second quote comes from a quote (earlier post) made in the midst of the recent credit crunch
So perhaps the most worrying single remark made by a responsible banking official during the current crisis came from Jochen Sanio, the head of Germany's banking regulator BaFin. He warned on Aug. 1 that his country could be facing the worst banking crisis since 1931 -- a reference to the collapse of Austria's Kredit Anstalt, which provoked a wave of bank failures across Europe. - Martin Walker, United Press International
The two quotes below came from a list of quotes at Financial Sense. It is worth visiting the site to go through all 25 quotes. I don't agree with all the quotes, but some of the political cartoons are pretty amusing.
The first quote is from Jim Rogers, always one of my favorite people to read about
The Federal Reserve was not founded to bail out Bear Stearns or a few hedge funds. It was founded to keep a stable currency and maintain its value. - Jim Rogers, Rogers Commodity Fund
The second quote comes from a quote (earlier post) made in the midst of the recent credit crunch
So perhaps the most worrying single remark made by a responsible banking official during the current crisis came from Jochen Sanio, the head of Germany's banking regulator BaFin. He warned on Aug. 1 that his country could be facing the worst banking crisis since 1931 -- a reference to the collapse of Austria's Kredit Anstalt, which provoked a wave of bank failures across Europe. - Martin Walker, United Press International
Still Optimistic About a Turnaround in the Housing Market in the Next Six Months?
My friends at Calculated Risk obtained a housing sales forecast from Goldman Sachs that is beginning to look a little more realistic. GS is predicting a Case-Shiller housing price index decline in 2007 and 2008 of 7% each year. Also they are forecasting a decline in sales 13% in 2007 and 15% in 2008. Too bad the forecast did not contain some type of inventory forecast as well.
One thing I was confused about was the difference between new home sales and new housing starts. It looks like starts can be twice as much as sales in some quarters.
They did not forecast out past 2008. Probably because the crystal ball starts getting pretty cloudy out that far because other factors come into play such as economic growth, income growth, interest rates, conition of the capital markets, etc. Or maybe they stopped at 2008 because there is a limit to the amount of depressing news one can take at a time.
My friends at Calculated Risk obtained a housing sales forecast from Goldman Sachs that is beginning to look a little more realistic. GS is predicting a Case-Shiller housing price index decline in 2007 and 2008 of 7% each year. Also they are forecasting a decline in sales 13% in 2007 and 15% in 2008. Too bad the forecast did not contain some type of inventory forecast as well.
One thing I was confused about was the difference between new home sales and new housing starts. It looks like starts can be twice as much as sales in some quarters.
They did not forecast out past 2008. Probably because the crystal ball starts getting pretty cloudy out that far because other factors come into play such as economic growth, income growth, interest rates, conition of the capital markets, etc. Or maybe they stopped at 2008 because there is a limit to the amount of depressing news one can take at a time.
The Bush Administration Steps Into the Sub-Prime Mortgage Mess
According to an article in at Yahoo the Bush Administration is going to ask the FHA and the IRS to help sub-prime borrowers that are close to default. This is the first action the Bush Administration has taken toward the sub-prime market.
President George W. Bush will propose reforms on Friday intended to help homeowners with subprime mortgages avoid default, his first public step to address a crisis that has created turmoil in financial markets around the world.
Bush, in a statement scheduled for 11:10 a.m. EDT in the White House Rose Garden, will discuss the need for Congress to pass Federal Housing Administration reform legislation aimed at giving the agency the flexibility to help subprime mortgage borrowers, two administration officials told Reuters.
One move will be an administrative change to allow the Federal Housing Administration to guarantee loans for borrowers at least 90 days behind in mortgage payments to help them avoid foreclosure, the Wall Street Journal reported from a briefing given to a few newspapers.
The Federal Housing Administration was founded in the 1930s Depression years after the U.S. banking system failed and millions of Americans were made homeless. Now its mission is to foster home ownership by insuring mortgage loans, especially for poorer Americans who face difficulty meeting terms for conventional loans.
Bush will urge the Democratic-led Congress to work with him in a bipartisan way to reform the tax code to help troubled borrowers revise their loans, administration officials said.
Specifically, at the present if someone loses their house in foreclosure and the debt is forgiven, the debt must be recognized as ordinary income. The Bush Administration would like this waived temporarily.
According to an article in at Yahoo the Bush Administration is going to ask the FHA and the IRS to help sub-prime borrowers that are close to default. This is the first action the Bush Administration has taken toward the sub-prime market.
President George W. Bush will propose reforms on Friday intended to help homeowners with subprime mortgages avoid default, his first public step to address a crisis that has created turmoil in financial markets around the world.
Bush, in a statement scheduled for 11:10 a.m. EDT in the White House Rose Garden, will discuss the need for Congress to pass Federal Housing Administration reform legislation aimed at giving the agency the flexibility to help subprime mortgage borrowers, two administration officials told Reuters.
One move will be an administrative change to allow the Federal Housing Administration to guarantee loans for borrowers at least 90 days behind in mortgage payments to help them avoid foreclosure, the Wall Street Journal reported from a briefing given to a few newspapers.
The Federal Housing Administration was founded in the 1930s Depression years after the U.S. banking system failed and millions of Americans were made homeless. Now its mission is to foster home ownership by insuring mortgage loans, especially for poorer Americans who face difficulty meeting terms for conventional loans.
Bush will urge the Democratic-led Congress to work with him in a bipartisan way to reform the tax code to help troubled borrowers revise their loans, administration officials said.
Specifically, at the present if someone loses their house in foreclosure and the debt is forgiven, the debt must be recognized as ordinary income. The Bush Administration would like this waived temporarily.
Thursday, August 30, 2007
How Have the Credit Markets Fared Since August 17?
The excerpts below are from the daily article done by Northern Trust concerning various economic issues. This article discusses on the credit markets have fared since the August 17 intervention by various central banks. The article indicates that the markets are better, but not back to what they were before the intervention. The original article gives a very readable summary of the markets with some excellent charts. Also the site is worth looking over every day, their commentary is usually very good and always rational.
It is the ninth market day since the Fed cut the discount rate on August 17 to stabilize financial markets. The effective federal funds rate is trading very close to the target rate of 5.25%
Other market spreads indicate a noticeably less persuasive picture of stability in financial markets. The spread between 3-month Eurodollars and 3-month U. S. Treasury bill narrowed to 107 basis points on August 27 from a recent high of 195 basis points on August 22, but the spread as of this writing has widened to 166 basis points. . . . . .
The excerpts below are from the daily article done by Northern Trust concerning various economic issues. This article discusses on the credit markets have fared since the August 17 intervention by various central banks. The article indicates that the markets are better, but not back to what they were before the intervention. The original article gives a very readable summary of the markets with some excellent charts. Also the site is worth looking over every day, their commentary is usually very good and always rational.
It is the ninth market day since the Fed cut the discount rate on August 17 to stabilize financial markets. The effective federal funds rate is trading very close to the target rate of 5.25%
Other market spreads indicate a noticeably less persuasive picture of stability in financial markets. The spread between 3-month Eurodollars and 3-month U. S. Treasury bill narrowed to 107 basis points on August 27 from a recent high of 195 basis points on August 22, but the spread as of this writing has widened to 166 basis points. . . . . .
Is Ben Bernanke Different From Alan Greenspan? – You be the Judge
Excerpts below from a WSJ article discuss the possible differences between Ben Bernanke and Alan Greenspan. The original online article is also interesting because you get to vote for whom you think is better.
When Ben Bernanke was nominated to head the Federal Reserve in 2005, he promised to "maintain continuity with the policies and policy strategies established during the Greenspan years." But in handling his first financial crisis, Mr. Bernanke shows signs of a break with Alan Greenspan, the Fed's chairman from 1987 to 2006.
That shift is important in understanding why Mr. Bernanke hasn't cut the Fed's main interest rate yet, and it could alter investors' expectations of how the Bernanke Fed will function.
The Fed historically has had two major economic duties. Maintaining financial stability is one. Controlling inflation while preventing recession is the other.
To Mr. Greenspan, market confidence and the economy's growth prospects were so intertwined as to make the Fed's two duties almost inseparable. He cut rates after the 1987 stock-market crash and the near-collapse of hedge fund Long-Term Capital Management in 1998 to prevent investor reluctance to take risks from undermining the nation's economic growth.
By contrast, Mr. Bernanke distinguishes between the central bank's two functions. So, on Aug. 17, the Fed cut the interest rate and lengthened the term on loans to banks from its little-used discount window in hopes banks would use the window -- or at least the knowledge it was available -- to lend to solid borrowers having trouble getting credit amidst the market turmoil. The action was aimed at restoring the normal functioning of disrupted credit markets, not primarily at boosting growth.
The Fed, meanwhile, hasn't cut the far more economically important federal-funds rate, charged on loans between banks, which is the benchmark for all short-term U.S. borrowing costs.
To be sure, all central bankers see a link between financial and economic stability. Falling prices for assets like stocks, bonds and homes and tighter credit conditions can damp spending and investment. . . . .
. . . . . Mr. Bernanke's approach to the credit crunch is, in part, an effort to undo perceptions fostered by Mr. Greenspan's rate-cutting interventions. Though successful, they drew allegations of "moral hazard" -- that is, of encouraging investors to act more recklessly because they think the Fed will protect them.
Neither Mr. Bernanke nor his closest colleagues, some of whom served under Mr. Greenspan, believe there ever was a "Greenspan put," a reference to a contract that protects an investor from loss.
Yet officials acknowledge the perception that the Fed has bailed out investors in the past. When the stock market crashed in 1987, Mr. Greenspan, then on the job for just two months, used aggressive open-market operations -- buying and selling government securities -- to pump banks full of cash, which caused the federal-funds rate to fall to about 6.75% from 7.25%. His priority was to keep banks well supplied with cash so that strapped securities dealers wouldn't fail for lack of financing.
"We shouldn't really focus on longer-term policy questions until we get beyond this immediate period of chaos," transcripts record him telling colleagues the day after the crash. The Fed kept the funds rate low in ensuing months, and the economy didn't skip a beat.
In 1998, Russia's default on its debt, followed by the near-collapse of Long-Term Capital Management, caused credit markets to freeze up, much as they have recently. Mr. Greenspan's reaction illustrated how much he considered investors' attitudes toward risk as intrinsic to the economy's health.
"It would be wrong to say that the change in psychology is all ephemeral just because we have not seen it in the hard data yet," he told colleagues. "It is the change in value judgments that alters the real world." The Fed cut interest rates three times by a total of three-quarters of a percentage point that fall. The economy accelerated, and the stock market, erasing its losses, went on to more spectacular gains.
Mr. Bernanke may yet have to cut rates. But the longer he waits, the more likely he can break investors of the assumption that market convulsions lead to interest-rate cuts. There is evidence he is succeeding. On Aug. 16, with stocks plunging and debt markets in disarray, money manager Bridgewater Associates wrote in its widely read daily commentary: "Credit in the economy is shutting down, and the Fed needs to ease now."
By this past Tuesday, with markets having settled down, the same firm wrote: "If we were in the Fed's shoes, we certainly wouldn't be in a hurry to 'save the system' until there was more evidence that the system needed saving."
Excerpts below from a WSJ article discuss the possible differences between Ben Bernanke and Alan Greenspan. The original online article is also interesting because you get to vote for whom you think is better.
When Ben Bernanke was nominated to head the Federal Reserve in 2005, he promised to "maintain continuity with the policies and policy strategies established during the Greenspan years." But in handling his first financial crisis, Mr. Bernanke shows signs of a break with Alan Greenspan, the Fed's chairman from 1987 to 2006.
That shift is important in understanding why Mr. Bernanke hasn't cut the Fed's main interest rate yet, and it could alter investors' expectations of how the Bernanke Fed will function.
The Fed historically has had two major economic duties. Maintaining financial stability is one. Controlling inflation while preventing recession is the other.
To Mr. Greenspan, market confidence and the economy's growth prospects were so intertwined as to make the Fed's two duties almost inseparable. He cut rates after the 1987 stock-market crash and the near-collapse of hedge fund Long-Term Capital Management in 1998 to prevent investor reluctance to take risks from undermining the nation's economic growth.
By contrast, Mr. Bernanke distinguishes between the central bank's two functions. So, on Aug. 17, the Fed cut the interest rate and lengthened the term on loans to banks from its little-used discount window in hopes banks would use the window -- or at least the knowledge it was available -- to lend to solid borrowers having trouble getting credit amidst the market turmoil. The action was aimed at restoring the normal functioning of disrupted credit markets, not primarily at boosting growth.
The Fed, meanwhile, hasn't cut the far more economically important federal-funds rate, charged on loans between banks, which is the benchmark for all short-term U.S. borrowing costs.
To be sure, all central bankers see a link between financial and economic stability. Falling prices for assets like stocks, bonds and homes and tighter credit conditions can damp spending and investment. . . . .
. . . . . Mr. Bernanke's approach to the credit crunch is, in part, an effort to undo perceptions fostered by Mr. Greenspan's rate-cutting interventions. Though successful, they drew allegations of "moral hazard" -- that is, of encouraging investors to act more recklessly because they think the Fed will protect them.
Neither Mr. Bernanke nor his closest colleagues, some of whom served under Mr. Greenspan, believe there ever was a "Greenspan put," a reference to a contract that protects an investor from loss.
Yet officials acknowledge the perception that the Fed has bailed out investors in the past. When the stock market crashed in 1987, Mr. Greenspan, then on the job for just two months, used aggressive open-market operations -- buying and selling government securities -- to pump banks full of cash, which caused the federal-funds rate to fall to about 6.75% from 7.25%. His priority was to keep banks well supplied with cash so that strapped securities dealers wouldn't fail for lack of financing.
"We shouldn't really focus on longer-term policy questions until we get beyond this immediate period of chaos," transcripts record him telling colleagues the day after the crash. The Fed kept the funds rate low in ensuing months, and the economy didn't skip a beat.
In 1998, Russia's default on its debt, followed by the near-collapse of Long-Term Capital Management, caused credit markets to freeze up, much as they have recently. Mr. Greenspan's reaction illustrated how much he considered investors' attitudes toward risk as intrinsic to the economy's health.
"It would be wrong to say that the change in psychology is all ephemeral just because we have not seen it in the hard data yet," he told colleagues. "It is the change in value judgments that alters the real world." The Fed cut interest rates three times by a total of three-quarters of a percentage point that fall. The economy accelerated, and the stock market, erasing its losses, went on to more spectacular gains.
Mr. Bernanke may yet have to cut rates. But the longer he waits, the more likely he can break investors of the assumption that market convulsions lead to interest-rate cuts. There is evidence he is succeeding. On Aug. 16, with stocks plunging and debt markets in disarray, money manager Bridgewater Associates wrote in its widely read daily commentary: "Credit in the economy is shutting down, and the Fed needs to ease now."
By this past Tuesday, with markets having settled down, the same firm wrote: "If we were in the Fed's shoes, we certainly wouldn't be in a hurry to 'save the system' until there was more evidence that the system needed saving."
Wednesday, August 29, 2007
Credit Card Defaults Increase
This is an extension of the post below addressing the issue of increasing levels of credit card losses, from the WSJ. According to the article a lot of the increase is due to higher levels of bankruptcy in recent quarters. Looks like the effect of the 2005 law have already worn off.
With more Americans filing for bankruptcy again after last year's hiatus, credit-card-default rates are rising.
Though the percentage of payments being written off as uncollectible isn't as high as it was a couple years ago, the conditions are ripe for it to catch up. Bankruptcy filings keep pouring in, home prices continue to fall and energy prices remain high.
According to data from Moody's Investors Service, credit-card companies wrote off 4.58% of payments between January and May, up nearly 30% from the same period in 2006.
"In 2007, we expected an increase, as bankruptcy filings returned to more normal levels," said Jay Eisbruck, managing director in Moody's Investors Service Asset-Backed Finance Group. He called this year's resurgence in bankruptcy filings the primary reason credit-card default rates have soared.
In mid-2005, when home prices were still on the rise, the default rate was around 6%, and in 2004, it was even higher. What ended up bringing the default rate down to about 3% in late 2005 and early 2006 were changes in U.S. law that made it more expensive and more difficult for individuals to file and qualify for bankruptcy. Bankruptcy filings surged in late 2005 before the law took hold, and then dropped off.
Now, bankruptcy filings are flooding back in. According to the Administrative Office of the U.S. Courts, the nation's bankruptcy filings jumped 66% in the first quarter. That's causing default rates to soar, because getting bankruptcy protection usually means you're released of your credit-card obligations.
Part of the reason more people are filing for bankruptcy is falling home prices. When home prices depreciate, it makes it harder for many homeowners to access cash through refinancing their mortgages. Some homeowners, especially those who got stuck with high rate loans, can't make their mortgage payments.
This is an extension of the post below addressing the issue of increasing levels of credit card losses, from the WSJ. According to the article a lot of the increase is due to higher levels of bankruptcy in recent quarters. Looks like the effect of the 2005 law have already worn off.
With more Americans filing for bankruptcy again after last year's hiatus, credit-card-default rates are rising.
Though the percentage of payments being written off as uncollectible isn't as high as it was a couple years ago, the conditions are ripe for it to catch up. Bankruptcy filings keep pouring in, home prices continue to fall and energy prices remain high.
According to data from Moody's Investors Service, credit-card companies wrote off 4.58% of payments between January and May, up nearly 30% from the same period in 2006.
"In 2007, we expected an increase, as bankruptcy filings returned to more normal levels," said Jay Eisbruck, managing director in Moody's Investors Service Asset-Backed Finance Group. He called this year's resurgence in bankruptcy filings the primary reason credit-card default rates have soared.
In mid-2005, when home prices were still on the rise, the default rate was around 6%, and in 2004, it was even higher. What ended up bringing the default rate down to about 3% in late 2005 and early 2006 were changes in U.S. law that made it more expensive and more difficult for individuals to file and qualify for bankruptcy. Bankruptcy filings surged in late 2005 before the law took hold, and then dropped off.
Now, bankruptcy filings are flooding back in. According to the Administrative Office of the U.S. Courts, the nation's bankruptcy filings jumped 66% in the first quarter. That's causing default rates to soar, because getting bankruptcy protection usually means you're released of your credit-card obligations.
Part of the reason more people are filing for bankruptcy is falling home prices. When home prices depreciate, it makes it harder for many homeowners to access cash through refinancing their mortgages. Some homeowners, especially those who got stuck with high rate loans, can't make their mortgage payments.
Tuesday, August 28, 2007
Credit Market Fall-Out #24 – The Downgrading of the Banks
The excerpts below from a Market Watch article shows that the investment banks are beginning to downgrade one another. Let’s face it was going to happen sooner or later.
U.S. stock indexes tumbled more than 2 percent on Tuesday after Merrill Lynch warned that ailing credit markets will hurt bank profits, while reports showing eroding consumer confidence and falling home prices added to concerns about the economy.
Merrill Lynch downgraded Bear Stearns Cos, Lehman Brothers, and Citigroup to "neutral" from "buy" and lowered estimates for the banks' earnings due to turbulence in the debt markets, slowing takeover activity and upheaval in the mortgage sector.
Merrill's move came a day after Goldman Sachs slashed its earnings forecasts on Bear Stearns, Lehman Brothers and Morgan Stanley.
"All the brokers are downgrading each other, which was a long time coming, but obviously, the market is a little jittery surrounding anything related to that stuff these days," said Michael Church, senior portfolio manager at Church Capital Management, in Philadelphia.
The excerpts below from a Market Watch article shows that the investment banks are beginning to downgrade one another. Let’s face it was going to happen sooner or later.
U.S. stock indexes tumbled more than 2 percent on Tuesday after Merrill Lynch warned that ailing credit markets will hurt bank profits, while reports showing eroding consumer confidence and falling home prices added to concerns about the economy.
Merrill Lynch downgraded Bear Stearns Cos, Lehman Brothers, and Citigroup to "neutral" from "buy" and lowered estimates for the banks' earnings due to turbulence in the debt markets, slowing takeover activity and upheaval in the mortgage sector.
Merrill's move came a day after Goldman Sachs slashed its earnings forecasts on Bear Stearns, Lehman Brothers and Morgan Stanley.
"All the brokers are downgrading each other, which was a long time coming, but obviously, the market is a little jittery surrounding anything related to that stuff these days," said Michael Church, senior portfolio manager at Church Capital Management, in Philadelphia.
Credit Card Losses in the US Up Almost 30% From Last Year
According to Market Watch credit card losses in the US are up compared to last year. Many in the financial business use credit card losses as an indicator of where consumer debt is headed. Usually higher credit card losses indicates that the consumer is having problems and losses in other debt categories could follow (i.e. auto loans, mortgages, etc.)
U.S. consumers are defaulting on credit-card payments at a significantly higher rate than last year, according to a Financial Times report citing Moody's data. Credit-card companies were forced to write off 4.58% of payments as uncollectable in the first half of 2007, almost 30% higher year-on-year, the report said. But Moody's said the rate of losses remained well below the 6.29% average seen in 2004, a year before the US enacted a new law that made filing for personal bankruptcy more onerous, the report said.
According to Market Watch credit card losses in the US are up compared to last year. Many in the financial business use credit card losses as an indicator of where consumer debt is headed. Usually higher credit card losses indicates that the consumer is having problems and losses in other debt categories could follow (i.e. auto loans, mortgages, etc.)
U.S. consumers are defaulting on credit-card payments at a significantly higher rate than last year, according to a Financial Times report citing Moody's data. Credit-card companies were forced to write off 4.58% of payments as uncollectable in the first half of 2007, almost 30% higher year-on-year, the report said. But Moody's said the rate of losses remained well below the 6.29% average seen in 2004, a year before the US enacted a new law that made filing for personal bankruptcy more onerous, the report said.
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