that will definetly lower earnings but i don't think it will matter since someone will most likely take their place (credit score repair, credit counselors....anything else)
Yep, but the whole credit industry is a crock. I say that people should max out their cards, take the cash, trash their credit ratings, and leave the lenders on the hook. That would be an interesting scenario, no? I could even see someone like Citi being on the ropes.
Can you imagine if there was a sudden and mass-level trend to do this, and tens of millions of Americans did, on the order of an average of $50k, maybe amidst an extreme economic downturn? It would have the potential to bring down the financial system.
Don't you think it would be possible then for the collection agencies to sue you and garnish your wages or take your assets? I guess if you have no assets and no job, you can do that and just file for bankruptcy when they try to collect. By the way, bankruptcy stays on your credit report for 10 years. Consequences of bankruptcy: ⢠Some banks may refuse your credit card application or demand a higher rate. ⢠Some credit underwriters may discriminate against you if you apply for a home mortgage or car loan. ⢠Many unsecured credit card companies may not increase your credit limit as rapidly as you might like. ⢠Prospective employers may discriminate against your employment application
A lot of people lived on Credit Card in HK after the Asian Financial Crisis. I would assume lots of people in Korea and Thailand did that too.
Subprime Debacle Analysts and investors say they are keen to hear what the firms say about their potential losses as defaults on subprime mortgages, home loans to borrowers with bad credit records, rose to seven-year highs. More than 20 subprime lenders have closed down or sought buyers since the start of 2006. So far this year, shares of New Century Financial Corp. and Fremont General Corp., two independent subprime lenders, dropped 90 percent and 50 percent respectively. The perceived risk of owning subprime mortgage bonds, backed by subprime mortgage loans, has risen about 30 percent since the start of February, according to the ABX-HE-BBB- 07-1 index of credit-default swaps on 20 securities rated BBB- and created in the second half of 2006. Together, Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns hold about $6.4 billion of the securities, according to estimates from Hintz at Sanford C. Bernstein. $1 Trillion ``They're all involved to a degree, whether it's trading or originating deals,'' said Benjamin Wallace, who helps manage $650 million at Grimes & Co. in Westborough, Massachusetts, and holds shares of Morgan Stanley. ``You just don't know who owns what. They may have securitized it or still hold stuff on their balance sheet.'' Goldman and Lehman would be hardest hit if the slump in subprime mortgages turns into a credit crisis like the one that followed Russia's debt default in 1998, Hintz told clients in a March 6 report. If the losses are contained to the mortgage market, Lehman and Bear Stearns will sustain the biggest drop in earnings, he said. Investment banks repackage mortgage loans into securities that they sell to investors. Demand for higher yields led them to the subprime market, where interest rates are 2 or 3 percentage points higher than prime loans. As that business flourished, firms financed subprime lenders and some bought them outright. `Internal Risks' The subprime market ``was virtually non-existent 10 years ago,'' said Karl Case, an economics professor at Wellesley College in Wellesley, Massachusetts, and co-creator of the Case- Shiller Home Price Index, which tracks residential real estate values. ``It's well over $1 trillion now, it's big stuff.'' Lehman, which last year securitized $146 billion of residential mortgages, held $2 billion of non-investment grade residual interests from residential mortgage securities as of Nov. 30, up from $500 million a year earlier. ``We're going to find out how good internal risk controls are today at these big shops versus five years ago,'' said Bruce Foerster, president of South Beach Capital Markets in Miami and a former capital markets executive at Lehman. If Lehman's holdings decline 20 percent in value, 2007 net income would be reduced by about $130 million, or 3.2 percent, Hintz estimates. That isn't likely, said David Trone, a New York- based analyst at Fox-Pitt, Kelton Inc. ``While Lehman has $2 billion in residual interest in subprime mortgages, we believe the company has hedged 100 percent of its credit risk,'' he wrote in a March 1 note to investors. ``This has created meaningful gains that should offset any future increased credit loss experience.''
"Money demands that you sell not your weakness to men's stupidity, but your talent to their reason."-Ayn Rand -- That statement is golden.
The funny thing that happens now is inflation. The fed now has to worry about inflation. With oil, precious metals, commodity prices going through the roof. They can't lower rates..they will have to keep raising which will just worsen the real estate problem. It will turn into a complete nightmare all thanks to Alan Greenspan who lowered the fed discount rate to 1% for two years...real bright.