Brian A. Davis

Why This Rally Is Unsustainable

The fact is with the changes in FASB rules, banks were once again left off the radar screen...to continue to bury and elude the truth of toxic assets.

That being said, rally by decree as opposed to rally on fundamentals is unsustainable.

'Panics Do Not Destroy Capital'

Dear Readers,

Panics to not destroy capital. Panics simply put a lender on notice as to how many bad loans they have already made. For instance, in California when thousands and thousands of (bad) loans were made to high risk borrowers, that was the point where capital was lost. Now that the financial market is approaching the "Panic" stage (and things will get worse before they get better) lending institutions are simply realizing now how much capital that has been put into "unproductive works."

While some readers will contend that it is a good business to see their fellow American in a debt ridden situation, and finally relying on credit cards for necessities, it is a perilous position for the companies and borrowers who are involved in this practice.

Finally, I firmly believe credit card issuers (and any other loan originators for that matter) and their clients have a business relationship. However, should the clients fall upon hard times (see the state of the U.S. Economy) credit card underwriters are in an extremely unenviable position.

Respectfully,
Brian A. Davis

Big Ben's Credit Card Moves: The Good, the Bad and the Ugly

Dear Readers,

Continued growth of MA and V will be predicated on consumer demand.

MA and V, have excellent business models. Both companies have healthy stock prices as well. MA and V are based on consumer credit transactions (which should see weakness in coming months).

1. Over-spending
2. Inability to service debt
3. Default rates
4. Tighter underwriting standards

The ability for consumers to service debt will be tested. While this becomes more or less an issue for the underwriting banks, it will also effect the bottom line of MA and V. Furthermore, once a MA or V user defaults, then that customer is unable to continue transactions. Last, banks will continue to scrutinize customers with tighter underwriting standards. There will be come customers that banks will not want. These issues will effect the bottom line of MA and V.

Respectfully,
Brian A. Davis

P.S. I do not hold positions on MA and V at the time of this article.