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This is my effort to share my thoughts with readers about concerns facing our country today.  I believe there is a good chance my grandchildren may be the first generation in the history of this great country not to have a better standard of living than their parents. If so, our generation is to blame. The clock is running out for damage control. .

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« Is Obama's Victory Killing the Stock Market? | Main | Where this Economic Crisis Began »
Wednesday
Nov122008

The Next Financial Crisis

Mortgage mess, airline industry, auto industry, insurance industry, banking industry, investment banks, and bam, you have an economy on the rocks. Is it over? Have we seen the worst? No. When it's raining shoes, will another shoe fall? You bet, and it's a size 16EEE.

Credit cards. How bad can that be? Sure people are falling behind, but it can't possibly be as bad as the other shoes. Can it?

Probably it wouldn't be, except for securitization. Remember that term? It was what the banks did with mortgages. You think your bank that issued your credit card is holding your debt? Absolutely not, most have peddled some percentage to someone else. The greater you are as a risk, the greater the odds they have sold from 50% to 75% of your outstanding balance. Where is it? Repackaged in those securities just like mortgages were. 

So your bank that issued your credit card has peddled from 50-75% of your outstanding balance to others. They are now in a position to push harder on the interest rate on the outstanding balance. Probably that will make it harder for many people to pay their monthly minimums. Estimates say the banks will write off $96billion in 2009, or 10% of the outstanding balance. The average American owes $10,000 on credit card balances.

Remember how many times the mortgage write offs have been adjusted upward? If this follows that trend the $96 billion may become $200 billion.

How did the banks get here? When securitization took off, greater credit risks were taken. If it was an entitlement for every American to own a house, certainly every one should have a credit card. 

In 2009 be prepared to duck, this shoe will fall and it's a big one.  

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    The Next Financial Crisis - Journal - Our grandchildren will pay the price
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    The Next Financial Crisis - Journal - Our grandchildren will pay the price

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