Saturday, August 30, 2008

Credit Cards, the Big Black Hole (Reprinted)

This is a reprint from April 7, 2007 and still very much a subject of concern.

It was “Fog a mirror,” to qualify for a home loan. Now it’s “Have an address,” to get a credit card (the number of cards you want to apply for is optional). The housing market ran amok so why can’t the credit card market? The credit card fiasco will come to an end, just like real estate.

From our previous model suggesting the collapse of Loan Companies, we figured that they would be working for nothing the minute defaults hit 8%. It only took 6% to take them out. Let’s project that model out for a credit card collapse. Interest charged 20% less interest paid to cash suppliers 7% equals’ 13% interest on the float for the credit card companies. So in theory, 13% of their credit card loans defaulting puts them in a zero earnings scenario. From there it’s a reverse burn.

There is the question on the $9,200 credit card debt owed “per household.” Is that per “card” or per “client?” Does Visa tell Master Card? From a computer point of view; J. Doe, John Doe, and John D. Doe are three different people. How many of these households have the same address?

My dad before he died at the age of 81 (in 2001) had 10 cards and owed over $45,000 which they (you know who) had to write off. How can the banks issue cards to people that old? In 1987 he lost everything in the stock market crash and walked away bankrupt. So he had to wait 10 years to get these cards. These had to of been issued when he was 77 years old. To top it off he was using the cards to buy Florida real estate (he wasn’t doing that bad with it either).

What if the major credit card companies sorted their cards issued by address. I wonder how many cards would pop up with the same address? My Dad’s address would have been good for 20 (his girlfriend also had 10). An acquaintance of mine who is a building contractor would be good for 30.

We are not even discussing fraud. Times were good to us and the party was great. The credit card companies are functional units right now holding 2 trillion of unsecured debt. Once the credit card investor (whoever it is) realizes that he can’t just pick up his toys and walk away, it’s over. The money’s been spent. It’s gone. Whose money was it? That’s a question without an answer for the present.

This is going to be a fun year--- Charge it!! Getting 20 gallons of gasoline is painless with plastic. And if you are over 80, use or abuse the hell out of the card. It gives new meaning to the phrase "You can't take it with you," especially to the bank that issued your card.

4 comments:

watchtower said...

Jim, it's Saturday afternoon, do you know where your government is?

Just kidding but I would like to get your take on the current Fannie/Freddie bailout measure and how you think this affects things long term.

Jim in San Marcos said...

Hi Watchtower

Go forward one article to "The Gilding of Freddie and Fannie" I think I spent 5 hours writting that small piece.

The long term implications are a real Brer Rabbit Tar Baby.

watchtower said...

Sorry about that Jim, I put this page on my favs list (and was only checking it) and hadn't seen your new post yet.

Jim in San Marcos said...

Hi Watchtower

What I said came out wrong. What I meant, was, I was still writing the article you wanted more info on. It took me forever to get that post right. I hadn't even published it until 9 pm, way after you posted.

Sometimes I will write a longer comment and delete half of it because its too long winded. Thats what happened here.

Sorry for the mix up