Thursday, April 03, 2008
The long (and maybe not-so-slow-anymore) unwinding of the credit excess of recent years is starting to show up as missed payments in all the usual places - mortgages, credit cards, and auto loans.
Maybe someday they'll look back at this period in history and think that we all should have seen what was coming - to think that asset prices would rise indefinitely, forever masking the amount of credit and debt that was being created, seemed like an awfully stupid way to run an economy.
Bloomberg reports that late payments just hit a high not seen since 1992:
Consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years, another sign the U.S. economy is slowing, according to the American Bankers Association's quarterly survey.Last year, former Fed Chairman Alan Greenspan noted that many of the developing economic problems would be alleviated if home prices went up by ten percent.
Payments at least 30 days past due increased across all eight categories of loans tracked during the fourth quarter, the Washington-based group said today in a statement. Late loans in the quarter climbed 21 basis points to 2.65 percent of all accounts in a consumer-loan index created by the group.
"It's an indication of the degree of stress consumers are facing right now," said Nigel Gault, director of U.S. research at Lexington, Massachusetts-based Global Insight Inc. "People overextended themselves, they took out loans they thought weren't a problem as long as house prices kept rising."
From today's levels, that would be more than a twenty percent increase, but, from the sound of what's coming out of Washington, don't be surprised if they bring The Maestro out of retirement to try to engineer such a feat.
As Angelo Mozilo once noted, you have to get to the root of the problem and that is that home prices are falling (see Angelo Mozilo is a moron).
Meanwhile, writing in The New Yorker, James Surowiecki laments the bankruptcy reform that was passed a couple years ago:
In recent months, a lot of people have been handed financial get-out-of-jail-free cards. C.E.O.s who presided over billions in losses have walked away with tens of millions in compensation. The Federal Reserve has showered cheap money on banks and brokerages. Even Bear Stearns caught a break when, last week, J. P. Morgan agreed to quintuple the price it will pay to take over the firm. But there’s one group for whom forgiveness has not been forthcoming: ordinary consumers struggling with piles of credit-card debt. For them, escaping the burden of their bad decisions and their bad luck has become much harder.The little guy, it seems, sometimes has a different set of consequences at the end of the credit and debt party. That's why it's not a good idea to be the little guy.
That’s because of a law that Congress passed in 2005 which has made it more difficult for people to write off their debts. Filing for bankruptcy has become much more expensive. More important, while lower-income people can still declare Chapter 7, which takes away your assets but then discharges your debts, most middle- and higher-income people now have to declare Chapter 13. That means they have to pay their creditors monthly for five years before they’re free.
Not coincidentally (perhaps), just the other day, PBS re-ran their excellent Frontline documentary on The Secret History of the Credit Card. You can watch the whole thing online now and, maybe after living through the mortgage mess for almost a year now, this will make a little more sense to a few more people.
On more than one occasion in these pages you've read that the "Reagan Revolution" was thought to have more to do with the expansion of credit than anything else.
Now this is something new - a link to Web of Debt was left in the comments section the other day and, though, nothing is known about this book, it certainly is in keeping with the general theme around here and has one heck of an image on the cover.
Shouldn't someone be sending me a copy of this in the mail?
Of course the title of this post was stolen from Credit Card Nation (this was not realized until after the fact and, at this point, it is far too late to think of a new title).
Does anyone know how that documentary did? You'd think that someday, people would take an interest in this stuff.