Most Recent Stories


The reason credit crises are so devastating is because they are consumer driven as opposed to business driven.  When the consumers in an economy pull back the ripple effect is unbelievable.  The banks lose cash, asset values fall, consumer spending dwindles, velocity of money slows to a drip, businesses lose the ability to fund operations, etc, etc.   At the heart of this credit crisis is the consumer.  Your normal recession is business driven rather than consumer driven.  We’ve seen two nasty consumer driven recessions in the last 100 years.

You’ve probably heard that “banks aren’t lending”.  That’s hogwash.  They are lending plenty.  It’s just that they aren’t lending to sub-prime borrowers because they are trying to stay flush with cash.  Therefore, the potential borrower pool dries up because banks can’t afford to lend to consumers who won’t pay them back.  More importantly, consumers stop borrowing because they become cash strapped.   It takes a crisis for consumers to realize that they should be net savers rather than net borrowers.

At the heart of this crisis is credit cards.  Potentially the most overlooked shoe to drop in the world.  Moody’s reported yesterday that credit card charge-offs are up 58% to an all-time high.  The delinquency rate is up 35% and the principal payment rate (willingness of consumers to pay back debt) is down 12% year over year.  Credit cards represent a $2.4 trillion ticking time bomb on bank balance sheets.  As the jobs situation continues to worsen it’s unlikely that this consumer driven economy springs back to life any time soon.