New "sub prime" worry

[Serotta PETE]

AniedaRide - have you seen this??? from CNNFN :confused:


$915B bomb in consumers' wallets
1:15pm: Americans have record credit-card debt and banks are starting to sweat an uptick in default rates, reports Fortune's Peter Gumbel. Why some fear this could be the next subprime.

[Climb01742]

funny what charging loan-shark rates on credit cards will do.

yes, the primary culprit in credit card debt is the card holder themselves but if default rates on cards start to soar, there will be a cry for putting a cap on card interest rates... which the industry wants like a hole in the head.

the credit card industry has gone out of its way -- like the subprime market -- to extend credit to folks who don't have the record to earn it. chickens coming home to roost.

[znfdl]

Hmmm non-collateralized debt, could be interesting.......

I wonder what is the subprime credit card debt to total credit card debt ratio?

The subprime credit card market is intersting, as the credit cards usually have a low limit and when a person is late with their payment, the associated fees will boost the companies return on the sub-prime credit card account to about 33%.

[SadieKate]

Anyone else seeing double? :)

[sg8357]

funny what charging loan-shark rates on credit cards will do..

I checked with the guys on the corner, they'll beat Bank O' Americas rate,
no problem. Loan sharks are upstanding citizens providing a community service. Unlike the CC companies and those check cashing joints.


Scott G.

[zap]

WSJ reported this week that a number of folks are using cc's to make mortgage payments.

OhEight is going to be an interesting year.

Hey fly, whats it going to be tomorrow :rolleyes:

[Ray]

My wife and I were victims of the sub-prime debacle. Not because we borrowed or loaned money stupidly, but because of the repercussions for the whole real estate market. We're fine - not victims in the sense of losing everything, but we lost a chunk because of it. We pay off our credit cards so we're not DIRECTLY threatened by this latest credit problem, but if its really bad, it will ripple through the whole economy and everyone will pay one way or another. It helps to keep your own house in order, but it doesn't insulate you from *****.

-Ray

[J.Greene]

It helps to keep your own house in order, but it doesn't insulate you from *****.
-Ray

It's times like these that allow people who have their own house in order to make wise investments. Maybe we have a few years to go till all this is fully sorted out, but opportunities will be present before that happens. I'm always amazed at the number of people who have heard the cliche "buy low sell high" but always suceed in doing the opposite. There is always a lot of money to be made in the mis pricing of assets, and it might as well be us atmo.

"a fool and his money are easily parted"

JG

[Pete Serotta]

yes wanting all what the "folks next door" have for a monthly payment is going to hurt lots of folks directly and indirectly, as well as create financial opportunity for those who have not fallen for the "free" credit

The ole saying "there is no free lunch" is really ringing loud.

In any time of excess, there is always a hangover when the party comes to an end. Banks and financial instruments have created a great party....now it is time to clean up as the party comes to an end.

Many of the folks that are going to be hurt were caught up in the "free lunch" pitch of the banks. whether it be a low mortgage rate (that goes up) or low introduction credit card rates.

Naturally there will be some "great" ideas floated by the financial lobbies that the "tax payer" should come to the rescue. :no: :no:

[Tobias]

I agree that banks made borrowing much too easy to the point that many are tempted to live above their means.
That behavior is not sustainable and eventually will come to a sudden halt accompanied with a lot of suffering.

What scares me more than sub-prime is when countries borrow to live above their means; also not sustainable.
If or when that comes to a head, sub-prime will seem like a little bump on the road IMO. I hope I'm wrong on this.

[soulspinner]

Its all bike related charges,sir, Ill gladly give you a creamic bearing crank as good faith....

[jimcav]

our government lives above its means. as do i really. but being on active duty i have complete job (if not physical) security and so routinely run what to me is enormous credit card debt. i keep a rough track of what my stuff is worth second hand, and am willing to sell anything i "own" if i need to. My money could certainly be better invested--but the first thing i do after the mortgage is put some money in a college fund for the boys, after that i spend it on bikes because that is my passion and gets me through my days at a job i dislike. I'd rather enjoy bikes now, than hope nothing happens to me between now and retirement--when i could hopefully pick a job i want/like and then start enjoying bikes without debt.
but for me, i'll enjoy it now, pay for it later; and scramble a bit when the navy moves me early or whetever (twice now).

but the advice above is sound--keep your house in order, have realistic expectations, and have a plan of what you will do just in case the less secure your job or health the more critical that is...

[benb]

The Odd thing about overspending on bike stuff is biking can be soooo cheap.

You can have a lot of fun on a bicycle for next to nothing.. try that with sports cars, motorcycles, boats, snowmobiles, etc.. most of what "other" people do has a higher minimum expense.

I'm pretty worried about the economy.. I'm not in bad shape, I'm young, I barely carry any credit card debt, I do have a car loan, etc..

But I'm certainly not wealthy enough or wisely invested enough to weather a year long loss of income or something like that if the economy REALLY tanks. It makes me want to get rid of "stuff" and simplify my life as much as possible.

[Pete Serotta]

Jim, you do plan. You know the upside/downside and what you need to do if "shiit" happens. You have priorities and are meeting them (home and family). Sounds like you are way ahead of the curve on responsibility and financial management.

Hell we all could always be tighter BUT we also need to enjoy life and our passions........

I recall my father and sister years ago giving me crap about how much I spent on biking.... THey are/were both heavy smokers, so I showed them how much they spent on "smokes" every year and as a result to match their "smoke" cost, I could go out and spend some more on bikes....Yeah they did not appreciate that. Diplomacy has not been one of my strong suits :confused:

You are not doing that bad with your priorities.


Drive down from VA and visit us in RALEIGH. PETE
our government lives above its means. as do i really. but being on active duty i have complete job (if not physical) security and so routinely run what to me is enormous credit card debt. i keep a rough track of what my stuff is worth second hand, and am willing to sell anything i "own" if i need to. My money could certainly be better invested--but the first thing i do after the mortgage is put some money in a college fund for the boys, after that i spend it on bikes because that is my passion and gets me through my days at a job i dislike. I'd rather enjoy bikes now, than hope nothing happens to me between now and retirement--when i could hopefully pick a job i want/like and then start enjoying bikes without debt.
but for me, i'll enjoy it now, pay for it later; and scramble a bit when the navy moves me early or whetever (twice now).

but the advice above is sound--keep your house in order, have realistic expectations, and have a plan of what you will do just in case the less secure your job or health the more critical that is...

[SPOKE]

Pete's worrying again about the nation's/global financial situation.........time for the Dow to make another run up :beer:

[rounder]

[QUOTE=Serotta_Pete]Jim, you do plan. You know the upside/downside and what you need to do if "shiit" happens. You have priorities and are meeting them (home and family). Sounds like you are way ahead of the curve on responsibility and financial management.

Hell we all could always be tighter BUT we also need to enjoy life and our passions........

I recall my father and sister years ago giving me crap about how much I spent on biking.... THey are/were both heavy smokers, so I showed them how much they spent on "smokes" every year and as a result to match their "smoke" cost, I could go out and spend some more on bikes....Yeah they did not appreciate that. Diplomacy has not been one of my strong suits :confused:

That one struck home with me. My favorite aunt recently found out that she probably has lung cancer. All her life she has been taken care of because she is smart, charming and pretty (i think she is 70). All the guys loved her. She insisted on teaching me how to drive when I was 15... she always drove convertibles. Now she is struggling. One house repair bill after another plus medical bills. Hope she lives forever. Anyway...tell your kids not to smoke.

[nm87710]

Credit card debt/instant gratification is a national addiction - sooner or later we'll face withdrawl pains. Living beyond one's means is not good for an individual, family or society. Contrary to marketing hyperbole the satisfaction of having control over financial affairs and living within your means is much, much more rewarding than any pile of "things" bought as credit vultures circle above.

A simple rule to follow on the demand $ide is always pay cash and only use 15 year mortgages. You can't go wrong and you'll have the ability to focus all energy on maximizing the $upply $ide which is what pays off in the long run.

just my 2 pesos( actual only about 1.83 pesos with the continued devaluation of the dollar :crap: )

[Mshue]

I recently ran across this chart, which is relevant to the thread. It certainly gave me pause. The recent spike in consumer and mortgage debt since about 2000 particularly caught my eye. Greenspan + financial "innovation" =

[znfdl]

MShue:

Interesting graph, did they define Disposable Personal Income?

[Mshue]

MShue:

Interesting graph, did they define Disposable Personal Income?

Disposable Personal Income was not defined in the piece in which the chart was cited, although I would imagine that one could locate the definition through the source of the chart, the Federal Reserve Board, Bureau of Economic Analysis. If I have some time later today I'll try to track that down.

[nm87710]

I'm pretty sure Disposable Personal Income(DPI) as used by the BEA is the income available to a person for spending or saving. In other words it's basically the net amount on your paycheck. Looking at the graph/numbers that DPI definition certainly fits and is in line with other consumer debt data.

[jimcav]

I recall my father and sister years ago giving me crap about how much I spent on biking.... THey are/were both heavy smokers, so I showed them how much they spent on "smokes" every year and as a result to match their "smoke" cost, I could go out and spend some more on bikes....Yeah they did not appreciate that. Diplomacy has not been one of my strong suits :confused: PETE

but not too crazy i hope. but you make a great point about the oppurtunity costs of smoking. i had a senior chief that worked for me--we sat down and added up his smoking habit--i year was enough for a HARLEY. insane. he alrady had a harley, but he quit and used the cash used to go to Sturgis and another harley rally.

if i get that dam neck job i'll try to make the trip--my son loves going with me to get bikes--he was with my for the 585 and the vanilla. of course, he may go to a state school because of my bike habit :)
i bet if i didn't buy bike stuff, i'd eat out more, doubtful i'd really invest it.
jim

[znfdl]

I'm pretty sure Disposable Personal Income(DPI) as used by the BEA is the income available to a person for spending or saving. In other words it's basically the net amount on your paycheck. Looking at the graph/numbers that DPI definition certainly fits and is in line with other consumer debt data.

That makes sense, especially for high cost areas of the country, where your disposable income could very well be less than than your mortgage + credit card payments.

[jimcav]

i know when i bought my first place--a condo, with a VA loan, there was a strict debt income ratio. it really limited what i could buy. the last 2 times we bought (not VA or FHA laoons) that debt to income number had been really relaxed--suddenly, if we wanted to have over 1/2 of my income go to a mortgage, that was okay. so you start thinking what house can we buy for 200k or whatever, and find there is nothing within a reasonable bike ride of work, then you find the bank will loan you more, so you can get a house you never thought possible--and it will let you bike to work, so you do. and then prices go up, so when you sell, you now have a down payment to repeat the process and get a house you would not have gotten in the old system. (or say you don't sell, but you take a big home equity loan)
works for me just fine, until the market slumps and the navy moves us early--and then...well next spring just watch the classifieds--you'll know it.

jim

[Tobias]

Greenspan + financial "innovation" = :confused:

Weren't interest rates low back in the 50s when people didn’t borrow as much? If so, it seems that "innovative" lending practices should carry more of the blame than Greenspan.

Maybe people take more financial risks today because the consequences of failure are not as great. Or maybe we spend less on necessities like food so we spend more on housing, where there's large debt associated.

I'm not a Greenspan fan -- don't know enough to judge him -- but expect he will get blamed for a lot of stuff outside his control.

[Mshue]

:confused:

Weren't interest rates low back in the 50s when people didn’t borrow as much? If so, it seems that "innovative" lending practices should carry more of the blame than Greenspan.

Maybe people take more financial risks today because the consequences of failure are not as great. Or maybe we spend less on necessities like food so we spend more on housing, where there's large debt associated.

I'm not a Greenspan fan -- don't know enough to judge him -- but expect he will get blamed for a lot of stuff outside his control.

You make a fair point. He will likely receive more than his share of the blame for the housing crisis just as he got too much credit in good times when he was still known as the Maestro. That said, I still believe he is blameworthy. It's certainly hard to argue, with the admitted benefit of hindsight, that the Fed acted appropriately in keeping the Fed Funds rate so low for so long. This is where your emphasis on financial "innovation" certainly applies. I think the pace of such innovation was much greater than Greenspan realized, something I believe even he has acknowledged recently.

[Tobias]

I think the pace of such innovation was much greater than Greenspan realized, something I believe even he has acknowledged recently.Agree. And I'm not sure we learned enough from it.

I have a young friend (serious bike racer) who bought his first house a few years ago and had the opportunity to lock in on a 4-5/8 percent fixed 30-year mortgage. At the coffee shop after a ride the older guys all recommended he jump all over it because it was something like a 30 or 40-year low rate, and that he wouldn’t do much better long-term.

Instead he went with an ARM to save a little for the first couple of years hoping that his salary would climb quickly. It hasn’t to the degree he expected and now he’s worried of getting hurt in the next couple of years. Maybe today’s rate cut will help him, but I’m afraid that floating bad decisions like his will only hurt our economy in the longer term.

IMHO lowering the rates today will also come back to bite us. In some ways it seems like a repeat.

[Avispa]

funny what charging loan-shark rates on credit cards will do....
...the credit card industry has gone out of its way -- like the subprime market -- to extend credit to folks who don't have the record to earn it. chickens coming home to roost.

Hey,

Isn't this what some call freedom and democracy? I guess there are a few little problems associated with unlimited growth, no?

I always wonder why the government rushed to overhauling the bankruptcy laws, yet they didn't bother looking at the lending laws! Did someone know something we didn't know?

..A..

[1centaur]

I always wonder why the government rushed to overhauling the bankruptcy laws, yet they didn't bother looking at the lending laws! Did someone knew something we didn't know?
..A..

Regulators respond to squeaky wheels (that have either votes or lobbying money or both). Nobody was complaining that credit was more easily available but the credit card companies were mad that some people were intentionally going on buying sprees and then declaring personal bankruptcy so they would not have to pay the bill. The major publicized legislative change was to keep that obligation from being so easily wiped out. It was a rational change, though one that has a downside for people who have to declare bankruptcy for less cynical reasons.

As we know, that lender/lendee wheel is turning now. It is always thus.

[djg]

our government lives above its means. as do i really. but being on active duty i have complete job (if not physical) security and so routinely run what to me is enormous credit card debt. i keep a rough track of what my stuff is worth second hand, and am willing to sell anything i "own" if i need to. My money could certainly be better invested--but the first thing i do after the mortgage is put some money in a college fund for the boys, after that i spend it on bikes because that is my passion and gets me through my days at a job i dislike. I'd rather enjoy bikes now, than hope nothing happens to me between now and retirement--when i could hopefully pick a job i want/like and then start enjoying bikes without debt.
but for me, i'll enjoy it now, pay for it later; and scramble a bit when the navy moves me early or whetever (twice now).

but the advice above is sound--keep your house in order, have realistic expectations, and have a plan of what you will do just in case the less secure your job or health the more critical that is...

This sounds like you have a much better perspective on your borrowing than many folks do and that you keep your eye on some things that really matter more than the next bike or gizmo .... but, to play the devil's advocate: this is really just a recipe for a bunch of aggravation and -- over the intermediate term, much less the long term -- getting to keep much less of the stuff that you like. My dad was a very fine labor economist who taught me that there was nothing, in principle, wrong with debt, and no principled way to say exactly how much debt might be useful. He also taught me that there was no such thing as a free lunch and that I should never, ever, carry credit card debt, except in cases of emergency, and then only until I could refinance the debt. If you've been through this buy and sell cycle a few times, what was the cost of servicing the debt and what was the loss in the sell off? If you add up your costs, was the short term consumption pleasure really better than what you could have had at the price of those costs? And what if something goes wrong?

[Tobias]

As we know, that lender/lendee wheel is turning now.Just ask Citigroup, or Merrill Lynch’s fired CEO. ML has written off something like 7.9 billion I think. That’s serious money. And Citigroup led the market down this morning on confirmation that the housing problem is indeed ugly.

Per MSNBC this morning:

“Foreclosure actions were reported on more than 446,000 properties the three months ended Sept. 30, up 30 percent from the second quarter and double last year’s third quarter. That brings the overall foreclosure rate to one in every 196 U.S. households.”

California, Florida, and Nevada were hit hard. The markets that speculated the most are also tumbling the most. :rolleyes:

Ultimately it’s up to the investors to hold some of these financial institutions accountable for insane practices. I think other heads will roll as the problems come to the surface.

[Ken Robb]

ATMO:
Good debt (sensible borrowing):
1-student loans, but are you sure that a less expensive school wouldn't give you an education just as good? Should you really own a car if you have to borrow for tuition?

2-Mortgage-everyone has to live somewhere and over 30 years I've never heard of anyone who was better off renting than owning.

3-Medical bills--sad but true.

4-Auto loan- but not for more car than you really need

Stupid Debt:

1- Credit cards for dining out/drinking.

2-Credit cards to finance vacations and TOYS and that includes pricey bicycles.

3-Refinancing your real estate to buy stuff you don't need.

I was often bemused listening to some of our office staff complaining about how strapped they were for cash while they drank their twice-a-day $4-5 Starbucks beverages= $200 a month on coffee when we had a wonderful Coffee Ambassador system that brewed a wide selection of coffee and tea drinks all paid by the company. At least none of these folks xsmoked. :)

[Avispa]

....the credit card companies were mad that some people were intentionally going on buying sprees and then declaring personal bankruptcy so they would not have to pay the bill....

Hum, I have a hard time believing this one 100%, the people I know that had to file for BK, had done it because they were out of a job (a decent paying job) for a long period of time.

I can't possibly think someone with a sound credit history and a family, would intentionally get credit cards and then blow them off, without thinking what the consequences would be.

But then again, where are in a time where living out of appearance is valued more than living within one's means!

..A..

[Pete Serotta]

Avispa - from what I read, most of the folks that filed were not ones of sound credit history. Many banks became greedy for fees and high interest so they issued credit cards to less qualified folks. Their thought process was that the higher fees and rates would more than offset the % defaulting.

Unfortunately too many folks get caught up in job losses, illness, divorce, etc and all there debts add up and bring them to a point of desperation.

Additionally some folks got bad advice on "nothing wrong with declaring bankruptcy".

BKs cost all of us!

I am watching with interest how certain large banks are trying to get the taxpayer to cover some of their mistakes in SIVS and sub-prime. (They will probably succeed if history is any indicator.)

WE can only educate our young in financial awareness and responsibility and set an example for them. THis does not mean being a spend thrift and not living BUT does mean " not leaving beyond your means. "



Hum, I have a hard time believing this one 100%, the people I know that had to file for BK, had done it because they were out of a job (a decent paying job) for a long period of time.

I can't possibly think someone with a sound credit history and a family, would intentionally get credit cards and then blow them of, without thinking what the consequences would be.

But then again, where are in a time where living out of appearance is valued more than living within ones means!

..A..

[Tobias]

I heard this morning that the original estimates for the Thrift Crisis was about $10 billion. It ended up close to $200 billion and as I understand it taxpayers ended up funding a large part of the liability.

The mortgage crisis was originally estimated at between $30 and $50 billion; then moved up to $100 to $200 billion, and now it’s about $250 billion. Some private estimates have it in the $300 billion range. I don’t recall a problem or project ever being estimated at $200 billion and then revised down to $10 billion. It's always worse than originally expected (except for maybe Y2000).

It shows me that it’s human nature to be optimistic; which is at the core of the problem when a safety net is in place. As long as some know that the world won’t come to an end they will keep buying fancy cars and big-screen HDTVs instead of saving for a rainy day.I can't possibly think someone with a sound credit history and a family, would intentionally get credit cards and then blow them of, without thinking what the consequences would be.I can. Intentionally may be a little harsh. It’s more like minimal consequences affect financial risk taking. In my experience some that I know personally didn’t learn from their mistakes and after bankruptcy are going down the very same road. Not to be critical, it's just life.

[1centaur]

Hum, I have a hard time believing this one 100%, the people I know that had to file for BK, had done it because they were out of a job (a decent paying job) for a long period of time.
..A..

I am only going on passive memory of press reports from the time. There were some alarming anecdotes. That does not mean that many fine folks in bad circumstances were not caught up by the changes.

I am also assuming that, after a great deal of congressional testimony on the need for the bankruptcy law changes over a long period, the fact that a partisan government came to agreement on a bill with obvious implications for the poor suggests it was not a one-sided hatchet job to prop up credit card profits.

I am with you on the implications of filing for BK. Not something to ever take lightly. I believe the law changes encouraged more people to develop payments over time rather than file (I also recall a rush of filings before the law changed).