Consumer Credit Drops Sharply

U.S. consumer credit (outstanding) decreased at a rate of 3.5%, or $7.5 billion, to $2.5 trillion in February 2009, according to a report by the Federal Reserve, released yesterday. The drop was much larger than expectations of a $1 billion decline. It was the fourth decline in six months.

However, the growth in consumer credit for January 2009 was revised to $8.1 billion, up from the previous estimate of $1.8 billion. The decline in borrowing in December 2008 was also revised to $5.6 billion from the earlier estimate of $7.5 billion.

As the economy continues to be in recession and job losses continue to rise sharply, consumers are cutting back on spending.

Further, credit-card lines continue to be reduced by the lenders. It is estimated that available lines were reduced by nearly $500 billion during 4Q08 alone. The balances on consumers' credit cards fell at a rate of 9.7% in February 2009 -- the fastest rate of decline since 1976.

Federal Reserve has recently implemented Term Asset-Backed Securities Loan Facility (TALF) to facilitate the extension of credit to households and small businesses.

The $200 billion facility (in joint effort with the Treasury), which could be expanded up to one trillion dollars, provides 3-year term loans to investors against AAA-rated securities backed by recently originated consumer (credit cards, auto loans and other types of consumer credit) and small businesses loans. Apart from the banks like Citigroup (C) and JP Morgan Chase (JPM), the facility is expected to benefit the credit card issuers like Capital One (COF) and student lenders like Sallie Mae (SLM) and Nelnet (NNI).

However, it has been reported that the participation in TALF has been less than enthusiastic, as the investors remain wary of legislative interference, tedious paper work and other issues.

--Neena Mishra

Comments

[youngolf:]

So Chase decided to charge $10/mo. and incr the 2% min to 5% min pymt of balance.......then changed their mind due to the outcry.

What freaking idiots are making decisions in these financial companies??? This is beyond belief that 6 figure earners can be so stupid. We are in big trouble.

Apr 08 08:39 AM

[TeresaE:]

The banks, while relying on "taxpayers" are busy bankrupting who? Taxpayers.

Great freakin plan they have.

My guess is that 2 things are occuring, January's uptick may have something to do with people running up their debts before filing. If you know you can't make full payments, the company cuts your available credit and you lose your job, your filing. Cash out while the cashing is good. Also, December was cold and I know many people/companies that ended up charging their utility bills.

As for the February drop, I believe many of us have finally figured out that we have been duped and that 25% or more of your income paying interest will never lead to security. Tax returns in, credit card debt paid off. Wish everyone else would wake up.

Apr 08 09:01 AM

[HTHTFH:]

Stories like this are exactly why I think people are too optimistic too soon about some purported recovery. Nobody wants to face the music.

Apr 08 09:10 AM

[dybydx:]

LOL. These guys took trillions of YOUR money so they can charge you higher fees and take away more of YOUR money. To top that off, YOU have absolutely no say in how they are going to spend YOUR money, although you are pretty certain that they will get a big fat bonus regardless.

But they again, all these hand outs occurred in Washington. Taxation without representation isn't a novel concept.


Even more retarded is the Fed

On Apr 08 08:39 AM youngolf wrote:

> So Chase decided to charge $10/mo. and incr the 2% min to 5% min
> pymt of balance.......then changed their mind due to the outcry.
>
>
> What freaking idiots are making decisions in these financial companies???
> This is beyond belief that 6 figure earners can be so stupid. We
> are in big trouble.

Apr 08 10:17 AM

[richard_nog...:]

I hadn't thought about paying for energy using credit cards. That is pretty sorrowful. There are hundreds of square miles of tree damage in Oklahoma, Kansas, and Missouri that are there for the taking. Anyone with at least a pickup truck and a chainsaw is welcome to it. Landowners and the States will be appreciative, plus it can be put to good use as firewood to reduce debt due to energy costs next winter.


On Apr 08 09:01 AM TeresaE wrote:

> The banks, while relying on "taxpayers" are busy bankrupting who?
> Taxpayers.
>
> Great freakin plan they have.
>
> My guess is that 2 things are occuring, January's uptick may have
> something to do with people running up their debts before filing.
> If you know you can't make full payments, the company cuts your available
> credit and you lose your job, your filing. Cash out while the cashing
> is good. Also, December was cold and I know many people/companies
> that ended up charging their utility bills.
>
> As for the February drop, I believe many of us have finally figured
> out that we have been duped and that 25% or more of your income paying
> interest will never lead to security. Tax returns in, credit card
> debt paid off. Wish everyone else would wake up.

Apr 08 11:22 AM

[LemurSteveo:]

I need some help here. I've been reading article after article on the Bearish sentiment on (COF) Capital One Finance, the downgrades and negative sentiment, yet miraculously the stock has been rising day after day. Please SOMEBODY tell me what is going on behind the curtains. Are the TARP or TALF funds pumping money into COF behind the curtains and if so, how much?

Apr 08 06:31 PM

[LemurSteveo:]

I need some help here. I've been watching the negative reports coming out on Capitol One Finance (COF) for weeks now. The Sell warnings, the Downgrades, the Bearish Sentiment. Can ANYBODY tell me why this stock keeps rising!?! Are the TARP or TALF fund being used to prop up COF from behind the curtains? If so what are the perticulars of this "arrangement" ?

Apr 08 06:36 PM