mdmrjsds

Is American Express Worth the Risk?

On Nov 13 12:16 PM Chris B wrote:

> It is just me, or is it just freaking great that my tax dollars are
> now funding those social parasites known as credit card companies,
> the production of bling Hummer SUV's, and the same "investment" banks
> that moved their headquarters offshore to avoid paying taxes into
> the system they now suck money from.

I'm with you Chris B. I don't see how Amex is *essential* to the functioning of the American economy. If you allow Amex to receive money, there is no ethical way to deny GMAC, and thus GM, access to the same program. Actually, any firm that has a financing arm has to be granted access. So retail is now acceptable as well and Circuit City can suck at the public teat too.

I suspect this is a function of Hank Paulson's connections and favoritism towards finance, not any kind of rational policy. Hey, he's going to be looking for a job in a few months. ;-)

There was another post on Seeking Alpha about creating a new financial system with the 700 billion instead of just giving it to the failed institutions. seekingalpha.com/artic... Put them into chapter 7, and sell off their assets to the new institutions. Just like it is difficult to get union workers to think non union, it is difficult for these managements to think different business model. Better to just put them back into the job market and salvage the going concern parts of their business under new management (lop off three or four tiers, say all headquarters management levels).

Or they go into Chapter 11. Their boards of directors' made mistakes. Who selects the board of directors? Executive management, who also made mistakes. So the creditors force out executive management and the board of directors and everyone else pays. That's capitalism.

How Much Credit Is Too Much? Where AmEx Went Wrong

Actually, where Amex went wrong was in broadening their card holders. At one point they were exclusive to wealthy clients. About 5 years ago they decided to issue to lower income individuals.

In a sense, this made sense, as they had basically all of the rich market, so expansion necessitated that they broaden to grow. And while the economy boomed from the housing bubble, it looked like a brilliant move. In the current economy, they are paying the price for their decision. By the way, I'm not saying that this negates your point about raising limits. They weren't alone in this, as all card issuers were raising limits during the housing boom.

This was purely a Chenault decision, so while he took the kudos for brilliance during the boom years, he has to take the brickbats now. Like all CEOs, his performance is dependent on general economic trends. They, and analysts, tend to forget that 85% of a CEOs performance is due to general economic trends. How could they demand exorbitant compensation if they remembered? ;-)