mikebrah

Fool Me Once... Bill Miller, Meredith Whitney Face Off Again

He's got balls of steel....and rocks for brains :)

MM

Credit Card Losses Are the New Bad Mortgages

Mark, you sound like you are on the cusp of capitulating. Hang in there a little longer, bro. Eventually nature wins.

MM

Do You Believe Borrowing Leads to Prosperity? (Part 2)

"Personally, I want to be financially secure rather than appear to be financially secure."

Amen.

User353372:
TIME FOR AN INTERVENTION!

MM

Credit Card Catastrophe: Congress Can't Help

doubleguns,

The author stated that 20% of a credit card companies' revenues come from ALL the fees they receive from ALL merchants. This means when you add up all the merchant fees from all the people, like yourself, who pay a small fee it contributes to about 20% of a card companies revenue.

The other 80% of their revenues are from ALL the late fees and interest from ALL the users. No one was suggesting any individual merchant pays a 20% fee.

Make sense?

MM




On May 04 11:41 PM doubleguns wrote:

> anandokos, I cant even figure out how merchant fees could approach
> 20% since merchants just swipe the cards. I believe that possibly
> the poster ment that the 20% was from merchants USING cards and 80%
> from consumers using cards.
>
> I am still waiting for clarification.

Credit Card Catastrophe: Congress Can't Help

Sonia,

Your assertion that high interest rates are unprofitable for the card companies is quite wrong. I agree with the author's points, and the general sentiment of the posts (yours included) but high rates are quite profitable. That is why they do it.

If I loan you $1k at 20-50% interest, I don't really care if you eventually default. I am getting $200-500 per year in interest and can expect it to take you several years before things become bad enough that you have to file for bankruptcy.

So lets assume I collect interest for 6 years while your personal life steadily erodes. That is somewhere between $1200-3000 dollars in interest on a $1,000 loan. Then, when you actually do file BK, I will still get some percentage of the remaining balance back. So if you file Chap 11 with that $1,000 balance still there maybe I get $500 back. So I have made somewhere between $1,700 and $3,500 on a $1,000 investment in a 6 year time frame for APY return in the range of 23-58%. These are quite "back of the envelope" figures but that is a mighty handsome return. There is that small caveat that you ruined your life in the process though. Oh well.

As antiquary said: "It's pretty basic that the foolishness of some is wealth itself to the wise."

The main point of the author is that this wouldn't be possible if people weren't so stupid. I fullheartedly agree with that sentiment. If I hand you a shovel and you just happen to dig your own grave with it, that's your fault.

MM


On May 03 01:20 PM Sonia wrote:

> Used wisely, credit cards are both convenient and profitable. My
> Discover card pays 1% cashback and Capital One Visa, 1 1/4% carhback.
> I put everything including my grandson's college tuition on these
> cards, pay off the balance each month weeks before the due date by
> on line transfer from our bank, and get a receipt on line. The companies
> make certain money from the merchants, so everybody's happy. The
> banks are self defeating when they charge outrageous interest rates.
> The escalating balances and fees mean borrowers can never hope to
> repay, and end by filing bankruptcy, losing the banks what is owed.
> Fixed low interest rates on cards, with credit limits based on credit
> history, would benefit both banks and borrowers.

Removing American Express from the Trio of Death

Trader Mark:

Thanks again for another insightful piece. I opened a COF short position myself last week and I am curious: do you think it is going to 0 or are you just playing it as a figurehead for a general market downturn?

Thanks!
MM

PS - obviously we have no idea what the Fed may do to prevent a BK, but in hypothetically "normal" circumstances do you expect COF to survive?

Capital One Defies Even Constanza Logic

Philosophically speaking, we can't go through the biggest credit contraction in history without a major credit card company going BK, and COF is one of the crappiest out there. They've got my vote!

Disclosure: short COF

MM