Skip Olinger

Pay Back Time for Credit Card Companies

Very good job. You bring up a good question: Who is responsible for allowing credit card debt to pile up to size and mess it is now? Is it the consumer who used credit card debt to indulge in impulse purchases thinking that the appreciation of their house would pay it all off? Or, is the banks that granted easy credit to people who were poor risks and never had a prayer of being able to repay all their debt? Again, we come back to the evils (and there are also a lot of positives) of the securitization market. By securitizing credit card debt, banks substantial transferred risk to the note holders and generated fee income to boost their ROE. Investment banks were screaming for more product so they could maintain their fee income. Investors were screaming for notes that had higher interest rates in a low rate, low risk premium environment. So the banks, in turn, granted more credit to less creditworthy borrowers. Sound familiar? The music has stopped and we are short more than one chair. When you are a lender, you are responsible for maintaining credit standards and denying credit to the unworthy. If you fail to do this, you must suffer the consequences. Going back and raising rates and fees on the group that can still pay to cover your own misjudgment seems very unfair. Bankruptcy law is long established. It is designed to stop a lender from condemning individuals to a life of indentured servitude - from "owing their soul to the company store". So, in my opinion, yes, the government should limit extreme lending practices. And if that reduces banks appetite to lend to the credit unworthy, well maybe that would not be so bad!

Credit Card Crunch: Creating a New Generation of Subprime

Interesting detail on FICO but this is old news and not very helpful in stock picking. How bad can the credit card losses get at JPM? What effect on earnings will that have? Will it take the company under? Are they under reserved? At $12 per share, there could be an awful lot of pain baked into that price. Is there a value investment opportunity there even if write offs go to 10-12%? What happens of consumer spending improves in 2-3 years? Or will the company go under?

How this information affects specific stocks would be more helpful.

Winners and Losers from the Mortgage Mess

With all due respect, as the comments above point out, this was not a well thought out article. I have never heard before that it is OK for someone to lose their house so long as they never put up a down payment. I would not look at that as an indicator of personal financial strength.