Tuesday, December 16, 2008

Credit cards are rapidy defaulting

And the banks with their aggressive rate increases are partly to blame. Are any of these credit card holders paying back their cards with new home equity loans? How about the proceeds from the sale of their house in a short sale? Oh that's right. There's isn't any money in these scenarios.

Lucky the consumer has a good paying job, and job security to help him through these times. This week, the Fed will release new credit card rules. After all, isn't the Fed in the business of buying credit card receivables?

If they are financing AIG's and Citigroup's and Bear Stearns toxic junk, why wouldn't they finance credit cards?

If you want to see where the defaults are happening in credit card land, just take a look at this graph from the NY Fed.

Capital One said the net charge off rate was 6.98% yesterday. But the roll rate is collapsing. That is the rate of the % of credit card holders who are late, who just decide to quit paying. It supposedly is about 20%. But let's look at the roll rate in credit card receivables that are securitized. At American Express that rate is 47%. At Capital One it is 34% and increasing.

Why is that important?

Because that, my friends, is the definition of quantitative easing. Buy junk. But credit card recievables, and buy AIG's junk assets. Backstop Citigroup's toxic loans. Buy asset back loans, and buy commercial paper. Buy what no one else wants. And pretend that the assets you buy are money good.

These companies already know what is junk--they just don't tell you. Why else it is securitized? Why else are assets that are junk put on the Level 3 hierarchy?

And why else are credit card roll rates doubled on those assets that are securitized? And does anybody wonder why the securitization markets are frozen? They are just markets to off load your junk onto investors before they blow up, when you know that they are going to blow up!

But now, the Wall Street finance machine is broken. So who finances then, these assets.

You do! Your Treasury, and your Federal Reserve. But they just call it a "loan."

Ever buy a house with down payment help from your parents? How many people pay back this "loan?"

It won't be any different with quantitative easing!

But all this bad news doesn't mean the market is going to go down. You have hedge fund liquidations that are helping bouy the market!

With all the mistrust in hedge fund land, investors just want out of these black boxes. It used to be those that were underperforming just wanted their money back. So those hedge funds that were poor performers got redemptions. They had to sell because they were long stock.

Now the better hedge funds, that have better returns are getting redemptions. These were the better hedge funds because they were short. So they have to buy stock to meet redemptions!

And now when Goldman reports, you'll have buyers taking up the stock, because the kitchen sink has been supposedly thrown in.

After investors already bought Goldman a new kitchen!

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