House of Cards

The New York Times recently reported on page one that credit cards may be the next to go in the financial crisis. Danny Schechter published this similar warning last June in City Beat, a weekly newspaper in Los Angeles.

You thought the housing crisis was bad? You ain’t seen nothing yet.

The Mess

Nationwide, two million homes sit vacant. Home sales are at a nine-year low. Former Treasury Secretary Larry Summers says that housing finance has not been this bad since the Depression. We still don’t know the full extent of the colossal subprime rip-off, but a recent Bank of America study did some guesstimating on the scale of the consequences of the “credit crisis.” The meltdown in the U.S. subprime real estate market, the bank said, had led to a global loss of $7.7 trillion dollars in stock market value since October.

While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards. Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy. You and your credit card have become key players in the highly unstable financial crunch. Mortgage lender cupidity and bank credit card greed wedded to financial institution deregulation supported by both political parties, have been made manifestly worse by Bush administration support-the-rich policies. It has brought us to a brink not seen since just before the Great Depression.

While campaigning in Edinburg, Texas, in February, Barack Obama met with students at the University of Texas-Pan American. “Just be careful about those credit cards, all right? Don’t eat out as much,” he said. After the foreclosure crisis, he warned, “the credit cards are next in line.”

The coupling of home equity debt and credit card debt has gone hand in glove for years. The homeowners at risk can no longer use their homes as ATM machines, thanks to their prior re-financings and equity loans, often used in the past to pay off their credit cards. Indeed, homeowners cashed out $1.2 trillion from their home equity from 2002 to 2007 to pay down credit card debts and to cover other costs of living, according to the public policy research organization Demos.

To compound the problem, fewer people are paying their credit card bills on time. And, to flip the old paradigm, more are using high-interest credit card cash to pay at least part of their mortgages instead of the other way around.

How bad is it?

• Financial analysts say that in the U.S. alone more than $850 billion in unpaid credit card balances is at stake and fast approaching $1 trillion, roughly the same amount as in the subprime market.

• CNN reports that worldwide, consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year.

• The unpaid debt portion of this is continuing to pile up, with U.S. consumers last year adding $68 billion against their credit lines, boosting credit card debt by 7.8 percent, the largest increase in seven years, just when the last recession was beginning.

• Even as they spent, consumers have been going into default at a stunning rate. The percentage of people delinquent on their credit cards is soaring, and credit card companies are now writing off somewhere near 5 percent of payments.

• By last fall, the major banks were setting aside billions for loan-loss reserves while anticipating an increase of 20 percent in non-payments over the next two to four quarters.

• Capital One, one of the biggest credit card banks, was forced to write off $1.9 billion in bad debt just in the last quarter of 2007.

•By October, according to a survey of only the leading credit card banks by the Associated Press, the value of credit card accounts at least 30 days late was up 26% from the previous year, to $17.3 billion. Serious delinquencies among some of the biggest lenders rose by 50 percent or more in the value of accounts that were at least 90 days delinquent.

• Making matters worse, or more widespread throughout the economy, just as with mortgage debt, credit card debt is put into pools that are then resold to investment houses, other banks and institutional investors. About 45 percent of the nation’s $900-plus billion in credit card debt has been packaged into these pools, and so many companies, not just a few, are at risk of being forced out of business by credit card debt write-offs.

What this adds up to, and what Obama didn’t say, is that we are actually face to face with the results of the most massive failure of our political and economic system since the Depression. Since Ronald Reagan, we have been living in an era in which neither the meltdown of the savings and loan banks in the 1980s nor the Enron-like scandals of the Bush years has stopped the relentless advancement and protection by both parties of the ability of financial institutions to make a buck at any cost to the social good and economic fabric. Which is what you get, of course, when both parties are so dependent on massive financial contributions to get their candidates into office and when the corporate media, heavy with advertising from the FIRE sector – Finance, Insurance and Real Estate – doesn’t warn the public or investigate the egregious fudging, misrepresentation and outright fraud that underpins the subprime and looming credit card crisis.

Priceless!

The credit card industry (Visa, MasterCard, American Express, etc.) and the 10 banks that dominate the industry as the primary card issuers spend an estimated $2 billion a year in endless marketing worldwide. We are all bombarded with their solicitations and sales tie-ins and gimmicks. They know that they might only have a 2-3 percent return rate, but that more than pays the enormous costs. They have thus succeeded in supplying 1.5 billion cards to 158 million U.S. card holders. That averages to 10 cards per person. In the last few years, retailers, banks, a wide range of companies, sports teams, unions and even universities have launched specialized card programs. Like the car companies that discovered that they made more money on car loans than automobiles, the benefits of what’s been called “financialization” is obvious to more business sectors.

Credit card advertising for new card holders is especially effective now as inflation drives costs up and consumers have less to spend. “Charging it” on yet another new credit card is for many the only option to meet their budgets or maintain their lifestyles, especially as gas prices rise. It’s become habit for many to spend more than they have. As a result, overall U.S. credit card debt grew by 435% from 2002 to year-end 2007, from $211 billion to approximately $915 billion.

The relentless, continuing push by the credit card banks doesn’t target potential customers alone. Constant focus group studies and other research techniques are still being used to persuade retailers to encourage more credit card transactions. Increasingly, businesses simplify their use by “swiping” and other gimmicks, no signed receipt needed.

“More and more sectors of the American economy recognize that their financial success is based on the success of the credit card industry,” explains Robert Manning, the author of the definitive Credit Card Nation and a leading expert who has been sounding the alarm about the consequences of credit card debt.

“Everything is very clearly thought out and premeditated. Whether it’s having conferences and think tank sessions about how to encourage people to accept more debt [or] to work with merchants – for example, to persuade merchants with empirical information that … if they use a credit card that they’ll buy 20-25 percent more.”

Manning notes that saving and thrift was historically a positive value in the U.S. As recently as the l980s, the national savings rate was 10 to 11 percent. Since 2005, Americans have saved less than 1 percent of their disposable incomes. In fact, the most recent figures from March show that the savings rate is negative, below zero. And also in March the government reported that for the first time since the Depression, Americans owe more on their ≠homes than they have in equity. Essentially, on average, America is broke and its credit cards played a dominant role in getting there.

Manning, who teaches at Rochester Institute of Technology, has taken on the issue with original research and financial literacy courses for students. He found that many of his students already had credit cards before they arrived on campus, some for years.

As we all know, the companies don’t tell about the downside when they are seducing customers. They offer low introductory or teaser rates, in the same way that mortgage brokers enticed sub-prime customers. They offer rewards, frequent flyer miles and other prizes. Students are especially targeted because they have little real-world financial experience. The U.S. Public Interest Research Group, which is campaigning against student debt, says the average is $4,000 per student, but it easily climbs after four years to $15,000 to $20,000.

All of this, in our globalized world, is not unique. Clear across the world and down under, the New Zealand Union of Students’ Associations (NZUSA) and bank workers’ union Finsec are joining forces to try and keep students out of high-interest debt. The amount students owe on credit cards has increased by 32 percent since 2004, according to the NZUSA Income and Expenditure Survey. Credit card debt has increased at a higher rate than low to no interest overdrafts.

Here in the U.S., one mother, Joan E. Lisante, has set up a website targeted at other parents, www.consumeraffairs.com, so they can tell their stories. She wrote recently about what she calls the “plastic prison.”

“My 22-year-old son Jon, a college senior, got 52 credit card offers in the last year. I know this because, like a CIA operative, I intercepted the offers pouring into our mailbox.

“He got 19 from Capitol One, 13 from Providian, six from Washington Mutual, four from Chase, four from eBay and one each from an assortment of lenders ranging from PayPal to First Premier Bank in Sioux Falls, South Dakota (co-capital with “Small Wonder” Delaware of the credit card kingdom).

“Most begged Jon to rip open the envelope and wallow in instant gratification. Capital One, the most persistent suitor, shouted, ‘Offer Status: Confirmed. No Annual Fee!’

“‘16 Card Designs’ (but none that tally the total whenever you use it). You could get a response in as little as 60 SECONDS when you apply online.

“Now this kid has never held a job (yet) for more than one summer. He spent one summer working in the FEMA flood insurance call center, which shows how much expertise you need to work there. Although he is familiar with the inner workings of Blockbusters and Starbucks, Jon’s not yet a member of any corporate elite, prestigious profession or skilled craftsman’s guild. Does this matter? Apparently not.”

“The key for the banks,” Manning says, “is to get them dependent upon consumer credit, shape their attitudes towards savings, consumption and debt and to then multiply the number of financial products that they’re buying from that particular bank so the credit card will lead to the student loan, to the car loan, eventually to a home mortgage and then maybe some insurance products and investment opportunity.

The banks, he says, want students in a condition of dependency. “Young people today that see credit as a social entitlement have no understanding of what it is going to entail to repay those loans back. Once they’re used to living on borrowed money, then the banks realize that they’ll be following that pattern possibly for the rest of their lives. By the time they graduate they’re so indebted, and they’re so dependent upon the use of credit and debt, that it’s already presaged their future. They can’t possibly pursue the kinds of careers that they anticipated.”

Defaults on student loans are climbing. Many students used those loans to pay off credit cards. Military recruiters are now promising to pay off debts to entice enlistments. Other government agencies are also offering funds as part of their head-hunting.

Rise Up

“Many of you have probably forgotten that the American Revolution was largely driven by the great American planners, that were heavily in debt to European banks and they had very onerous terms,” Manning said in a lecture I attended when I was making my film In Debt We Trust. “And they recognized that they could not financially prosper under such outrageous financial demands.”

On the day I visted Manning’s lecture in an alcove literally right next door to the lecture room in the student center, local branches of banks like Chase and HSBC were signing up students for checking accounts and credit cards. Freshmen lined up at the tables to set up accounts. The banks had permission from the same school administration that hires Manning to counsel students to avoid getting into debt.

I listened in at the pitches.

BANK REP: “You don’t need anything for deposit, and we’re giving out free backpacks.”

BANK REP: “You get zero percent on the purchases for the first six months and then it goes to the standard intrest rate.”

QUESTION: “What’s the interest rate?”

BANK OF AMERICA REP: “The interest rate is variable … to be honest with you, off-hand, I don’t know the interest rate off-hand. Sorry.”

A student is counting out twenties as his first deposit.

BANK REP: “I just need your signature. Right here, please.”

ANOTHER BANK REP: “And it’s free while they’re a student.”

What will happen when they do have to pay it back includes nonstop calls to them and their parents. Credit card collection agencies know how to harass, threaten and then sweet-talk cardholders who are late. They even have a term for people squeezed by debt: “sweatbox.” They also know that the longer the debt goes unpaid, the larger the potential profit for companies, as interest builds up at rates of up to 30 percent. Credit card promoters call people who only pay minimums “revolvers.” Those of us who pay our bills in full? “Deadbeats.”

Recently the companies unilaterally hiked late fees and penalties that compound the debt. A few missing payments can earn you an interest rate hike to 29 to 30 percent. If you are late with a payment on some other debt not related to your credit card, you can readily find your interest fee doubled on your credit card. Some companies make more on fees and penalties than on interest payments. The companies racked up more than $17 billion in 2006, the last year for which records are available.

Like many of the homeowners who accepted subprime mortgages, and like you with your credit cards, youths and adults alike signed dense agreements that are largely unreadable. The credit card banks constantly update these with those small print notices with which you get assaulted in the mail, these drafted by risk-minimizing lawyers. Of course, it’s unlikely you bother to read these. In part of the unread text, the companies give themselves the right to unilaterally change the deal even after it is signed. Other small print insures that consumers cannot sue them over differences. All grievances have to be arbitrated in a process the companies created and control.

Even the Federal Reserve Bank condemns some of these practices, noting: “Although profitability for the large credit card banks has risen and fallen over the years, credit card earnings have been consistently higher than returns on all commercial bank activities.”

The Failure Trifecta

Track the subprime and credit card mess back, and you will find its origins in free market policies since Reagan that deregulated banking and much of the oversight that managed for years to keep the greed-meisters on Wall Street in check. The failure of media-lionized Alan Greenspan’s Federal Reserve Bank to pay attention to predatory lenders and sub-prime schemers allowed them to prosper.

Add to these failures a complicit Congress, with Democrats and Republicans alike dependent on donations from the three leaders of the FIRE economy. To assure their freedom to run their businesses their own damn way, the banks in the 1990s persuaded Congress to deregulate the practices of financial service companies. Pro-business Court decisions have allowed them to base their operations in low-tax states like South Dakota and Delaware and to end consumer protections against usury.

This decade, Bush’s tax cuts and his bankruptcy “reform” bill strengthening the power of credit card companies were passed with bipartisan support, including that of Senator Dianne Feinstein. Add major media amnesia to this list and you get a trifecta of failure. The New York Times admitted that advocates warned them that a rise in predatory lending was destroying poor communities in 2001, but they sat on the story for nearly six years.

Neither the politicians nor the media told us that every major brand name banking firm and investment house had its fingers in the juicy pie of pedaling mortgage-backed securities worldwide without disclosing that many of these mortgages were deliberately offloaded on people whom they knew could not afford to pay them. As with the credit card industry, these mortgage borrowers were cleverly given “teaser rates” that would soon reset upwards. The banks then resold the mortgages as “asset-backed paper” even though the assets’ value was so questionable.

Meanwhile, media outlets took in hundreds of millions in ad revenues from deceptive lenders and credit card banks encouraging Americans to shop and charge till we drop. The Super Bowl broadcast ran all those cool but misleading ads by credit card companies and mortgage hustlers. It was, um, “priceless.”

Notes scholar Lionel Tiger: “Those who have been operating the managerial levers of the financial system have failed embarrassingly and massively to comprehend the processes for which they are responsible. They have loaned money avidly and recklessly to people who couldn’t pay it back.

“They fudged data to get loans approved and recalculated. Then they sausaged fragile figments of money reality into new ‘products’ which could be sold around the world to investors eager to enjoy the surprising returns which often accompany theft, managerial incompetence and fraud. When it comes to responsibility for all this, there appears to be no one here but us spring chickens.”

– Danny Schechter blogs for Mediachannel.org. His film In Debt We Trust spawned the action website StopTheSqueeze.org. He’s written a new book on the crisis called PLUNDER: An Investigation Into Our Economic Calamity. Dissector@mediachannel.org.

Originally Published: 06/25/2008, LA City Beat

Popularity: 16% [?]

1. This problem doesn’t exist in mainland Europe,
thanks to strict policy and definitive-culture,
thus it will be Anglo-America/US-UK
that is going to drop currency value on that event.
2. Answering the first comment:
It is communism at work.
The media silences, just like it does with the double ineligibility of the non-USA citizen, non-USA born, Caligula’s horse to presidency.

Credit had its problem with “free market” policies of Reagan? You’re talking about a country that sets the time value of money (through the Fed monkeying with interest rates) as having a free market? Step away from the crack pipe, mister.

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You forgot Australia,land of the down under.Where exactly is anybody’s guess,although We,like as in the Royals,are reassured our Universities only have some adminstration problems.And we,will survive from the Treasury officials,because house earnings ratios are greater than inflation,fancy that!And no number of Chinese students and foreign students would have credit cards in risky circumstances,would they!?No!And life is peachey,especially if one has no problems elsewhere.The, there are Australian students,known in previous years,maybe, of getting their parents in a lather of perspiration over mobile phones and computers. And did the cure come about when in say 2004 or6 Americans found Illiterate in finance stuff,found on the highbeam website.Be admired U.S.A.be admired!That way you wont know you are in deep quicksand,and there is no sink or swim.Only waterboarding!?

When a citizen engages with some of these credit card companies they might as well be dealing with the mafia as many of these companies are little better. YES, I agree citizens need to take responsibility with their spending, but too realize at the same time there are companies out there, that like organized crime loan sharks, set people up to fail, to be able to raise rates to gouging levels.

Don’t think for a moment these companies will ever play fair and try and keep rates fair, as they will use anything they can INCLUDING holding your payment one extra day to MAKE it late so they can gouge you, or not sending you a statement so that you might miss or be late on a payment.

A person almost needs to have their own attorney to read the pages of microscopic print that these loan sharks put on microscopic pieces of paper so that citizens are kept in the dark. One card company Chase says they have the right to rasie rates at ANY time for ANY reason. Does that sound like someone you should trust or play ball with???. NEVER ever trust these criminals and to those who want to use their crooked services, I say you are dancing with The DEVIL!!!

Listen to an interview with economist Patrick Carmack at http://drop.io/Summerbird It is a free MP3 download and is currently the 13th file down from the top of the page.

I wish that even a third of all the warnings and obsession about calories and diet nonsense that was shoved down my throat growing up by my culture was devoted to overspending and financial literacy instead. I would have been much much better off! Of course the point is keep the consumer ignorant! All the better pigeons we are.

There are some simpletons in the world who don’t think the banks are responsible. A drug dealer is morally responsible for his part in the deal, even though it is ultimately up to the addict to free themselves!!!

So, what would happen if all those folks out there just blew off the credit card companies? When you are forced to make financial choices because your money has become scarce, it seems to me that you’d probably want to make your house payment or rent first (shelter); then food, utilities, etc.

The banks try to convince you that YOU are your FICO score; that this has something to do with who you are in your soul. BS! You are NOT your FICO score. So, who fucking cares? When money and resources are scarce, survival is manifest. Those credit cards are all UNSECURED. The banks took the risk when they engaged in this type of stupidity. So, the chickens have come home to roost. I have not pity for any of them. Let them fold.

Why should one starve or live on the street for want of paying off a credit card? Come on. Credit cards are plastic, the money is electronic blips on a screen over thousands of computers. But CASH? Better to acquire what you need by cash.

If people want to sell themselves into debt slavery, is it government’s job to stop them? How would you feel if the government imposed old fashioned sexual morality on you, as you seem to want them to impose old fashioned financial morality? I doubt freedom can long endure without both. We’ll be a nation of serfs soon unless God has mercy on us.

Wow, that was ignorant. Please repeat after me….”I am responsible for myself”, what ever happened to buyer beware? Are we all so stupid that we need big brother to protect us from everything, even our own stupidity? Here’s how the equation works…I have $100, if I buy something on my credit card for $200, then I owe someone $100. If I can’t pay them back, maybe I can’t afford that item right now. It is our own GREED that leads to overspending not the banks, they just give us a vehicle to make bad decisions. To the comment above about drugs and the dealer being the one at fault….do you think drug use would go down if the penalty for use was death? I know it would. The dealers are easier targets than the victims. Wake up and start making smart decisions for yourself and quit letting other “people” get you in trouble, bail you out, get you in trouble, bail you out, on and on.

Hey Republicans! You’re going to have to hear about this for the remainder of your party’s sorry sad little existence. And you won’t be able to say it was Clinton’s fault either, unless you’re totally delusional, which most of you morally bankrupt bastards are. Well, now you’re bankrupt in every sense of the word!

Burn Wall Street, Burn!

We have come into this world and we will be staying. You, though, are the species that will be going. Nature and all OTHERS have had enough. WATCH.

go to above site for critical international news. Here comes the North American Union, Amero and Martial law. Free book 2008 God’s Final Witness. With love, one of the remnant of Yahwey. elite/fallen angel/illuminati biters, until the day, you know the location. PENTECOST 2012.

No one wants to hear this, but it is true.

These monetary and lending schemes go back to ancient Babylon, and maybe before, to a pre-history that is now concealed. The racket goes on through the ages because the world has always been irredeemably corrupt and ruled by forces we do not understand. The reason the U.S. is the latest locus can be found in the Protocols of the Elders of Zion. No one wants to hear this, no one wants to examine the cherished myths we all inculcate. So the prison planet keeps rolling on.

The economy is bad and may get worse. The stock markets are bad, the home mortgage and other credit systems are broken, the jobs situation could possibly continue to deteriorate. Who knows what else looms? Don’t just accept whatever’s thrown your way. www.LikeSoup.com

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Where exactly is anybody’s guess,although We,like as in the Royals,are reassured our Universities only have some adminstration problems.And we,will survive from the Treasury officials,because house earnings ratios are greater than inflation,fancy that!And no number of Chinese students and foreign students would have credit cards in risky circumstances,would they!?No!And life is peachey,especially if one has no problems elsewhere.