Banks May Pull Back $2 Trillion in Credit Lines
By Alan Stewart Carl | Related entries in Business, Economy
I wonder what the consequences of this will be:
The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.
The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.
“In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent.”
In my darker moments, I worry that our economy is a house of cards built with easy credit. If that credit collapses, so does our prosperity. After recent excesses, American’s could certainly use more wisdom when it comes to buying goods on credit — I just hope it doesn’t take a long, deep recession for us to attain that wisdom. We’ll see.
This entry was posted on Monday, December 1st, 2008 and is filed under Business, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
December 1st, 2008 at 11:56 am
See.. I would call that a moment of perfect clarity.
December 1st, 2008 at 12:38 pm
Let’s see how it plays out. It makes sense for consumer lenders to limit their exposure. But the bottom line for them is that the way they make money is by loaning people more money than they can quickly pay back, at high interest rates.
So I expect they’ll shut off credit more quickly to those folks who are digging the biggest holes most quickly. And they’ll probably do some checking before increasing credit lines. But for folks with jobs and consistent incomes, the credit card companies definitely DO want to keep them spending at or beyond their means.
I expect credit card companies to start offering some folks LOWER interest rates to try and prevent some defaults. This is something that will actually be in their interests if unemployment goes up another 3% or more. So I hope the government does step in to “help” companies figure this out.
December 1st, 2008 at 2:34 pm
While my fellow consumers may have my shoulder to lean on or cry on, I’ll shed no tears for the credit card companies that might take on some water, or even outright capsize, because of this.
Remember: Most of these credit card companies have spent the last 10-15 years flooding our mailboxes with loose, easy, “pre-approved” offers of all sorts. Many of them have even been stalking and preying on college students, setting up card tables on campuses and handing out cards to incoming freshmen with little or no employment history.
I damn sure don’t want to see any federal bailout money going to credit card companies.
Agnostick
agnostick@excite.com
December 1st, 2008 at 7:11 pm
[...] with the news of a possible $2 trillion pull back on credit by the banks, I think we’re look at the potential for a serious deflation. And if that happens, watch out, [...]