It isn't going to be covered up by AXP borrowing $3.5 billion from the Fed, or Capital One selling stock and then getting money from the Fed either. COF's balance sheet is toxic, and they are even including fees that never get paid as income. Sound familiar? Yes that's right. The same trick that IndyMac and Washingtun Mutual did with their sub-prime loans that went belly up. But then, they just called that negative amortization "deferred interest."
The problem is already out of control. But the credit card companies aren't letting Wall Street know, and Wall Street likes to pretend that things are fine. Things are so good in credit card land, that last week, credit card companies were lobbying to allow forgiveness of up to 40% of credit card debt:
Big banks have formed an unusual alliance with consumer advocates to urge the government to allow huge portions of credit card debt to be forgiven, a turnabout from recent years when the banking industry lobbied strenuously to make it harder for consumers to erase their credit card debts in bankruptcy.
The new pilot program, which the banks hope will become permanent, could involve as many as 50,000 people struggling with credit card debt. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40 percent.
http://www.newsday.com/services/newspaper/printedition/saturday/news/ny-bzcred015907148nov01,0,2060183.story
Why would banks want forgiveness? Because 60% is better than ZERO! And then, banks would be able to defer the losses on the forgiven debt. But tonight, Federal bank regulators rejected this proposal:
WASHINGTON (AP) -- Federal bank regulators have rejected a request by banks and consumer advocates for a program to let lenders forgive huge portions of credit card debt.
The Office of the Comptroller of the Currency rejected the request for a special program that would allow as much as 40 percent of credit card debt to be forgiven for consumers who don't qualify for existing repayment plans.
An unusual alliance of financial industry interests and consumer advocates, represented by the Financial Services Roundtable and the Consumer Federation of America, made the request to the Treasury Department agency on Oct. 29. It demonstrated the urgency of the situation in a deepening economic crisis: consumers -- even those with strong credit records -- defaulting at high levels on their credit cards, while banks battered by the credit crisis bleed tens of billions from the losses.
An agency official said the government objects to allowing banks to defer losses for several years on the forgiven debt, as would occur in accounting by lenders under the special program.
An unusual alliance of financial industry interests and consumer advocates, represented by the Financial Services Roundtable and the Consumer Federation of America, made the request to the Treasury Department agency on Oct. 29. It demonstrated the urgency of the situation in a deepening economic crisis: consumers -- even those with strong credit records -- defaulting at high levels on their credit cards, while banks battered by the credit crisis bleed tens of billions from the losses.
An agency official said the government objects to allowing banks to defer losses for several years on the forgiven debt, as would occur in accounting by lenders under the special program.
The agency "does not consider any plan that defers the timely recognition of loss as prudent, and any such proposal cannot be viewed favorably by us," Timothy Long, senior deputy comptroller for bank supervision policy, said in a letter to the two groups dated Monday and made public Wednesday.
http://biz.yahoo.com/ap/081112/meltdown_credit_cards.html?.v=6
So credit lines are being cut and reduced. So the consumer will be forced to default, because he doesn't have the credit lines to keep them current. Unlike AIG, they can't borrow from the Fed to pay the Fed. The game is already up at American Express. Changing to a bank holding company to beg for money from the Fed showed that they had immense losses that they need to recognize. But still, you have stockholders vainly attempting to prop up Capital One, whistling past the graveyard, because they refuse to look at Capital One who uses bank deposits to hold toxic loans on their balance sheet, hoping that they can recognize these losses more slowly than they are accruing.
Today Best Buy said their was a seismic shift in consumer behavior in spending. That is evident already. The next seismic shift in consumer behavior is the defaulting on credit cards. And it is happening at a much quicker and faster rate than Capital One wants to acknowledge. The securitization market already recognizes this. That's why their was zero asset-backed-securitizations of credit cards last month.
Why else would Paulson not use the TARP money for the automobile companies? Besides some banks and insurance companies, he wants to save the balance for ABS'. In his statement today he said:
Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt....
This market is currently in distress, costs of funding have skyrocketed and new issue activity has come to a halt. Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy. With the Federal Reserve we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities.
http://www.treas.gov/press/releases/hp1265.htm
So now Paulson wants another alphabet soup facility constructed by the Federal Reserve to buy "highly rated" credit card receivables. They are so "highly rated" that securitization has come to a halt! Why would anybody want to buy these receivables, that the same banks lobbied for the ability to write 40% of the value of them off?
Mr. Paulson, is the Treasury Secretary because he is paid to lie in front of the nation. He is paid to pretend that these problems don't exist. He is paid to pretend that these assets are worth more than they are not. He is paid to take your money, and give it to those who lost it, who pretend that they haven't. He is just a paid shill, but unlike Bernanke, his voice is gravely!
At least, when Capital One lies on their balance sheet they make television commercials that make you laugh. When Paulson tries selling the Treasury's plans his commercial makes you cringe!
And if you don't want to pour over a balance sheet to find a reason to sell Capital One, here's a quick bullet point question to consider:
Is the increases in sales of safes and guns just a statistical oddity or does it reflect the mindset of a consumer that is planning to default on his loans?
Maybe it's time to change "What's in your wallet?" to "What's in your safe?"
No comments:
Post a Comment