October 29, 2007

Debt-addicted Americans looking for a fix - "Stressed borrowers use plastic to delay default"


Debt = Slavery. And credit-addicted, live-beyond-their-means Americans are about to find out that no, money doesn't grow on trees and yes, Congress tightened bankruptcy laws at a very interesting time.

Oh, this will end so ugly. So, so ugly.


Rising mortgage payments and tighter lending standards for refinancing amid the subprime credit crisis have dried up once-easy access to home equity loans for many middle-income borrowers -- so desperate borrowers are using credit cards to cover basics while trying to keep up with home payments.

"When credit conditions dry up, marginal borrowers turn to plastic," said Merrill Lynch North American Economist David Rosenberg. "We're seeing signs of that already."

In an October 5 research note, Rosenberg called rising credit- card delinquency rates as the "next skeleton in the closet."

It is one scary skeleton -- and a specter of bankruptcy.

The problem with using credit cards -- with their high interest rates -- to stave off default brought on by "reset" adjustable mortgage interest is that it merely postpones an inevitable crisis, said Gregary Brown, social policy director at Metropolitan Family Services in Chicago.

"Our biggest concern right now is that there are lot of people who will face a choice between bankruptcy or foreclosure," he said. "Either way, it's going to suck."

57 comments:

Batman said...

Forclosure first, bankruptcy second. But we all know the proles will keep making minimum payments on bills, buying groceries on credit and spinning the wheel one more time hoping for a miracle.

cf. Kunstler on gambling: http://tinyurl.com/2bmpe7

My question is: what **cking collection agency is going to be able to handle the huge spike in business? Seriously. These debts will not be collected man, no friggin way. There just isn't enough repo men to do the job. They're all going to have to cut bait - I just don't see any way around it.

The gas, power and water will get shut off, sure, but the McMansions will stay inhabited like a wasteland of rotting cardboard boxes filled with unpowered Xboxes, gameboys and remote control General Lee's cars from China and SUV's with no gas out front. Welcome to the rest of your life in Shanty Town folks - mind the open sewers and mafia operated fresh water racketeers. God bless America.

new third world american said...

*
*
*
*
*
I'm only spending $3 per each Christmas gift this December. If I made more, or had more, I would give more, but that's not the case.

That's the best that I can do. I tossed my last CC out in 2004.

No Halloween candy to give out this year either. :(

Marky Mark said...

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Interesting - I have seen articles that say just the opposite. That underwater "homeowners" will stop making mortgage payments but keep the credit cards paid-up. So when you do get kicked out - you can still live. Also - I think alot of "investors" who bought these subprime CDO or SIV thought that exact same thing - that people will do almost "anything" to save their house - but that has now changed.

YOUR FRIEND DOPEY said...

.
.
HAHAHAHAAA

MY MORTGAGE WAS DUE TODAY AND I DIDN'T HAVE ANY MONEY, BEING THAT MY HOME QUIT APPRECIATING, AND I CAN'T USE IT AS AN ATM ANYMORE, SO I USED MY CREDIT CARD!!!

THIS IS THE SAME CREDIT CARD THAT I PAID OFF LAST YEAR WITH A HOME EQUITY LINE OF CREDIT THAT ANGELO AT COUNTRYWIDE GAVE ME ON MY 125% REFINANCE!!!

DO YOU KNOW HOW MANY HOUSE PAYMENTS I CAN MAKE WITH THIS CREDIT CARD YOU LOSER RENTERS???

I WIN AGAIN!!!

P.S: I DIDN'T PAY ANGELO EITHER!!!

Edgar said...

The slide continues after x-mas. I can't wait to see the look on the stupid people's faces when they realize that they are up to their eyeballs in debt in a worthless currency and they don't even have any. Priceless.

michael said...

but...but...mozillo said it's all good and it's all behind us. proits for all in Q4 and forward.

...or are you saying he was...was lying?????

Mark in San Diego said...

That is why this whole mess is playing out in slow motion, and some of our critics here can't see what is happening. . .the reason the average US consumer isn't in a panic (and Wall Street continues to go up), is because it is slow - if we had a 2000 point drop in the Dow, or one day a million FB's marched on the Whitehouse, it would unmask the situation. . .but one BK at a time, one foreclosure at a time doesn't make much news. . .the sad thing is most people in BK blame themselves (although they DO share some blame), rather than Realltors, Mortgage Brokers, etc. who set this whole thing up.

RiperDurian said...

"I'm only spending $3 per each Christmas gift this December."

Not to worry! For just 1.99 you can give the gift of one the finest Ramens around:

http://tinyurl.com/2fwyrs

Anonymous said...

I live in an affluent suburb. In the past Halloween used to be very lively (and expensive). This year it has been noticably subdued.

I don't think people are borrowing on their credit cards in my neighborhood. However they are certainly cutting down.

I, being a HPer, was saving away while the rest were having a party. Now that the party is over I am having doubts if I did the right thing. For example I have a 12 years old car that I would like to upgrade. However I feel guilty getting a new car (even though I can easily afford one) when people around me are trying to tighten their belts while driving new BMWs and Lexus. :-(

Out at the peak said...

I accidentally had a late payment on a credit card even though I had the means and the intention to pay it in full recently. I'm putting a blimp in the stats, but hopefully I'm counted in the +/- category of borrowers in trouble.

Two of my cards have raised fraud warning signs after some large purchases. I guess they are doing the right thing, but it also seems like they are more suspicious. I've always kicked up my spending in Q4.

(One of my credit cards decided to charge a $40 annual fee. I'm pissed. They must have sent out one of those Opt-Out notices, but my bad for not spending an hours a month going over legalese. I'm canceling that account.)

Anonymous said...

""Either way, it's going to suck."

Such elegant English issuing from Mr. Social Policy Director. He probably worked his way up the employment ladder from the gutter, but part of him never left there.

Anonymous said...

**ALERT** - PANIC selling in the secondary markets for asset backed securities.

http://www.markit.com/information/products/abx/history_graphs.html

this looks worse than August!

Anonymous said...

"DEBT" is a four letter word to be avoided at all costs. American's must relearn the thrift of forefathers as they have become way to spoiled and spendthrift with the gifts their forefathers bestowed upon them by their sacrifices.

I own my car, I pay all my bills when the statement arrives in the mail to avoid late fees, I pay off my CC balance every month in full, merely using the card as a spending monitoring tool that allows me to keep on hand cash at a minimum and to allow me to capture all the incentives my cards offer me. But of course in the eyes of the banks that makes me a deadbeat!!

Mark in San Diego said...

Anon - "feeling guilty buying a new car when other people are in trouble". . .I NEVER feel guilty - I love to rub it in people's faces that I have always lived below my means, and now have more money than I will ever need in this lifetime (I am donating to animal shelters, so I am not all bad). . .my father was a frickin factory worker in Canton Ohio, and he never bought on credit. . .I saved 10% of my salary since my paper route, and invested in quality blue chip stocks - bought a house I could afford, and then rental property during the 1993 housing collapse here in California. . .sold off everything by 2006, and live on the interest. . .so if you were saving when your stupid neighbors were spending, go out and buy a really nice car, and tell everyone you paid cash!!

Frank@Scottsdale-Sucks.com said...

I can't understand why people don't simply live within their means.

I'm not being sarcastic - I simply cannot understand it.

I guess I'm fortunate that after quitting college, I couldn't keep up my student loan payments and that resulted in bad credit for a few years. I couldn't get credit cards or car loans and had to learn to work hard and smart enough to pay cash for the things I wanted.

Fast forward 15 years and even though I now have excellent credit I still have no debt and no credit cards and paid cash for my car.

Maybe everyone should start adult life with bad credit. That'll teach them to live within their means like it did me. It will also make people far more successful in business and career when their only choice to buy things is with cash, not credit.

Princess Mononoke said...

It sure is an awful way for all the parties involved to learn a very valuable lesson... The HARD way! It sure won't be pretty.

The ripples will become so profound; it will become impossible to continue the Happy Happy Happy rhetoric!

bill said...

Hey Keith,
How about a "Will Bernanke drop interest rates" poll?

-Drop 25 bps and send oil to $96/bbl and gold to $850
-Drop 50 bps and send oil to $102/bbl and god to $900
-Leave rates alone and watch the stock market gamblers disgorge 700 points in one day (now that the trading limits are off)
-Raise rates (hahahahhaha- right.)

Princess Mononoke said...

Finally the LA Times is blowing the lid off of the toxic sludge of a loan program, the Pay Option ARM. Warning borrower’s of false advertisements promoting the minimum payment. Needs to be abolished!

How Wachovia, CW & others keep perpetuating the same offense only now they’re targeting borrowers with perfect credit and lot’s of equity!

Way to go banks, you not only screwed people with poor to average credit with these loans. But now you want to screw people with perfect credit. Unbelievable!

http://www.latimes.com/news/la-fi-loanpitch29oct29,0,5503836.story?coll=la-tot-topstories&track=ntothtml

Anonymous said...

IN PLACES WHERE CREDIT IS NOT USED IN HOUSING PURCHASES, THE HOUSING PRICES ARE 90 PERCENT CHEAPER? MAKES ONE WONDER WHERE THESE PRICES CAME FROM?

heading for the bunker said...

Real life anecdote:

Lady at a convenience store was ranting loudly to the clerk about how her family just can't make it anymore. She and her kids "All work 10-12 hours a day and it's not enough to pay the bills!".

She was also holding a large latte, so my pity for her plight was diminished. I know she will vote for Hillary - America, as we knew it, is toast.

Frank@Scottsdale-Sucks.com said...

Lady at a convenience store was ranting loudly to the clerk about how her family just can't make it anymore. She and her kids "All work 10-12 hours a day and it's not enough to pay the bills!".

Friends still living in Arizona tell me this is the daily scene in every bank branch in Scottsdale. People desperately pleading with the bankers that they "deserve" to keep their cars and houses even though they can't make the payments anymore.

Sorry, but you don't deserve it. That's my take on credit - if you can't pay cash for it, you don't deserve to have it in the first place.

borkafatty said...

And the Debt Cancer just keeps on spreading with no cure insight...besides Deflation, or Hyperinflation...take your pick.

Either or....I see no other Bubble Position.

Frank@Scottsdale-Sucks.com said...

My question is: what **cking collection agency is going to be able to handle the huge spike in business? Seriously. These debts will not be collected man, no friggin way. There just isn't enough repo men to do the job. They're all going to have to cut bait - I just don't see any way around it.

In my business I submit about $4,000 a month to collections and maybe $300 or so are paying up. The only reason I even bother sending to collections anymore is for documentation when I claim the bad debt tax deduction on those accounts. (A disproportinate number of these deadbeats are from Arizona, Nevada, and San Diego, especially San Diego.)

Interestingly, people aren't even disputing the collection accounts anymore. It's like their credit is so trashed they don't care about having another red mark on it.

Anonymous said...

Since discovering HP and the other bubble blogs last fall, I have managed to save about 30K, pay off 10K in credit card debt and put 5K toward a car. Of course, I could pay off the credit card, but I want the cash for a rainy day.

That said, if I would have bought a home last fall (not that I could at these DC prices), there is simply no way that I would have any savings and would probably be underwater like all my other neighbors that just bought.

Now, I just need to find a safe place to put it and/or invest a bit.

Thanks blogosphere!

sam said...

Was talking to my favorite Sushi restaurant proprietor this weekend-he said business was definitely slowing and that his distributors were remarking on a sharp slump in restaurant deliveries. He thought it was due to real estate in this east coast bubble city.

Told him that we were renting and he could count on our regular business. Guess I'm like a crack smoking consumer- can't imagine what I would do if I had to sacrifice my weekly Sushi outing.

Sushi chef thanks all those desperate homedebtors working hard to rent my money.

Princess Mononoke said...

Dear Heading for the bunker:

America is already toasted! & burnt at that!

The next President, whoever it will be Republican or Democrat will have their hands full the moment they're inaugurated. In fact, they will be neck deep in this waste!

What really scares me is that George W. has one year left... How much more devastation can this country take, really?

brokersleaveyoubroke said...

"Way to go banks, you not only screwed people with poor to average credit with these loans. But now you want to screw people with perfect credit. Unbelievable!"

I wouldn't worry about it. The reason these people have perfect credit is that they're smart enough to avoid stupid debt traps like those loans. Even the not-so-smart have surely heard enough about these loans by now that they will avoid them. After all the bad press these loans have gotten lately nobody can get one now and then later claim they didn't know what they were getting into.

Anonymous said...

>> I'm only spending $3 per each Christmas gift this December. If I made more, or had more, I would give more, but that's not the case. That's the best that I can do. I tossed my last CC out in 2004. No Halloween candy to give out this year either. :(

Dad, you suck!

Eric said...

"Real life anecdote:"

Women are always returning the overpriced Coach shoes they buy at my job because "whoops I forgot rent was due or I need to pay the electricity bill hehe".

Anonymous said...

>> I own my car, I pay all my bills when the statement arrives in the mail to avoid late fees, I pay off my CC balance every month in full, merely using the card as a spending monitoring tool that allows me to keep on hand cash at a minimum and to allow me to capture all the incentives my cards offer me. But of course in the eyes of the banks that makes me a deadbeat!!

Well, well, well - aren't YOU just a swell person!

Anonymous said...

> IN PLACES WHERE CREDIT IS NOT
> USED IN HOUSING PURCHASES, THE
> HOUSING PRICES ARE 90 PERCENT
> CHEAPER? MAKES ONE WONDER WHERE
> THESE PRICES CAME FROM?

This is nothing but an urban legend. I have been there so I am talking based on real experience:

1. Economies without a well defined credit market have as much as 90% of their economy running in black. So an individual pays 10% of the price officially and 90% unofficially (hence oficially house seem cheaper). To take a loan from the black market you have to pay interest as high as 2% per month. Hence it is much harder for common man to afford homes.

2. Because of lack of taxes being payed out infrastructure is also bad: electricity, water, roads, building code and inspections. All these are a big mess and you are mostly on our own.

3. The housing boom has occured in these economies as well. It is a worldwide phenomena and not just limited to the US.

My experience is that people have it really nice in the US compared to many other parts of the world. They are just making bad choices and somehow they have accepted this as a right. No one really thiks about their civic duty to society and to future generations. My 2c worth.

Anonymous said...

>> I can't understand why people don't simply live within their means.

You're pretty dense, so let me sum it up in 2 words: the media.

The media is rubbing your nose in it, day in and day out. You're not:

1. Thin enough
2. Pretty/handsome enough
3. Rich enough
4. Smart enough
5. Famous enough

To be all those things, you must spend money (that you don't have).

Capiche?

Anonymous said...

debit was wealth

Fred said...

YOUR FRIEND DOPEY...try not to be so jealous..its embarrassing.

Stuck in So Pa said...

Out at the peak said...
I accidentally had a late payment on a credit card .....

Two of my cards have raised fraud warning signs after some large purchases. I guess they are doing the right thing, but it also seems like they are more suspicious....

(One of my credit cards decided to charge a $40 annual fee. I'm pissed. They must have sent out one of those Opt-Out notices, but my bad for not spending an hours a month going over legalese. I'm canceling that card.....
----------------------------
NEVER had a late payment, only use cards for the rebates, pay them off every month. Had my first red flag, requiring a phone call to unlock my card, after a large purchase. Three of my better cards started to charge yearly fees, two rescinded them when I called to cancel, one did not. Bye-bye card!
--------------------------
Anonymous said...
"DEBT" is a four letter word to be avoided at all costs......

I own my car, I pay all my bills when the statement arrives in the mail to avoid late fees, I pay off my CC balance every month in full, merely using the card as a spending monitoring tool that allows me to keep on hand cash at a minimum and to allow me to capture all the incentives my cards offer me. But of course in the eyes of the banks that makes me a deadbeat!!
------------------------
Me Too! Maybe we can start a deadbeats's club. Another couple of things to watch out for is 1.them dropping your
credit limit amount without your noticing it, 2. moving your due date up a few days at a time per month, and 3. shortening the grace period after which you have to pay interest. One card eliminated it altogether. You started paying interest the second you made the purchase, regardless of the fact that the card was paid in full every month. That one also went bye-byes!

Anonymous said...

edgar,

your one sick puppy.

corvinus said...

I have taken up making my own mochas at my parents' house. A lot cheaper than shelling out $4 a pop, which is enough to buy yourself lunch.

Anonymous said...

please anyone reading this post, take 10 minutes of your time and go to http://financialpetition.org/ read it. if we have any hope whatsoever of getting out of a world-wide depression of biblical proportion, signing this petition is worth 10 minutes of your time.

and pass it on to your friends that are scared of what they are seeing as well. if enough people sign this we might have a chance.

just a small flicker of hope in an emmense black void.

stormsailor1981

Andy in San Diego said...

To those of you using credit cards "wisely", don't think you're getting a free lunch. Credit cards increase the cost of everything by a couple of percent, and they make bankers rich. The wealthy bankers then screw you in other ways. :-)

profit from this said...

What companies run large scale collection agencies?
For hire collections?
Sounds like another boom industry.

Edgar said...

anonypuss sed:

edgar,

your one sick puppy.


Q: How many sheeple are up to their eyeballs in debt?

A: Quoth the raven, Nevermore!

Anonymous said...

Andy in San Diego said...
To those of you using credit cards "wisely", don't think you're getting a free lunch. Credit cards increase the cost of everything by a couple of percent, and they make bankers rich. The wealthy bankers then screw you in other ways. :-)

October 29, 2007 10:02 PM
-------------
Of course. Every single expense a merchant incurs gets passed on in the price of the goods they resell. Wholesale purchasing and using cash is always best. I remember an independent gas station called "Workingman's friend" which dealt in cash only. As credit cards became more common they started to lose business. They always had to deal with the people that handled the cash pinching a few bucks, of course there were the drive offs and the big whammy for all cash businesses, robbery!! Credit cards add a layer of protection from theft and thus the banker's actually earn there keep a bit. For the consumer they give you a layer of protection and security.
And if you use rewards cards you can negate some of the costs of plastic that is in the price, and let the cash buyers pay for that!!

Anonymous said...

.
.
HAHAHAHAAA

MY MORTGAGE WAS DUE TODAY AND I DIDN'T HAVE ANY MONEY, BEING THAT MY HOME QUIT APPRECIATING, AND I CAN'T USE IT AS AN ATM ANYMORE, SO I USED MY CREDIT CARD!!!

THIS IS THE SAME CREDIT CARD THAT I PAID OFF LAST YEAR WITH A HOME EQUITY LINE OF CREDIT THAT ANGELO AT COUNTRYWIDE GAVE ME ON MY 125% REFINANCE!!!

DO YOU KNOW HOW MANY HOUSE PAYMENTS I CAN MAKE WITH THIS CREDIT CARD YOU LOSER RENTERS???

I WIN AGAIN!!!

P.S: I DIDN'T PAY ANGELO EITHER!!!

========================

O.K. You think your real smart cause you are floating credit back and fort--- paying peter with pauls money and visa versa.

NEWS FLASH. Your net worth is going into the toilet and at some point you will run out of credit to keep this game going. Have fun with the new BK LAWS, you may find out that in the long run you just screwed yourself as you may be forced to rent for the rest of your life... RENTING may be smart now and for the next few years till house prices normalize again. After that RENTING may suck, just like it did during the 1970's and 1980's. Stagflation will eat your ass--- and your credit will be so trashed that you won't qualify for a $500 Sears Account.

One more thing--- you had better get used to this idea of a WAGE GARNISHMENT!!!!

Anonymous said...

The Roaring twenties was a time of partying, partying, and partying.The depression of 29 through the 30's was one of sorrow, sorrow, sorrow.

So you have the roaring 90's tech, stock market bubble, then house bubble 2001-2005 Paarty!
Now its time its time to pay the piper. VERY SAD!

Anonymous said...

A black swan event could happen and that could scare the shit out everyone. The market could crash and billions could be evaporated in minutes.

A large bank failure would ne a black swan. Ben Stein would shit himself. This would be worth it just to see that.

Of course he liked Merril and financials back in August.

Fed and the central banks will do everything to prevent this - thus the MLEC the Master Liquidity Enhancement Conduit) The beautiful thing is the fraudulent MLEC may not be ready until January and that could be too late.

http://en.wikipedia.org/wiki/Black_swan_theory

Anonymous said...

Anon 7:41:

LOL. OF COURSE it is true/loans, that WITHOUT CREDIT homes would be much MUCH cheaper. Use the noggin' God gave you for Pete's sake and think it through.

The fact that other countries have housing bubbles is totally irrelavant to the issue. Why? Because those countries ALSO have credit/loans. Doh!

Peter T said...

Andy:
> To those of you using credit cards "wisely", don't think you're getting a free lunch. Credit cards increase the cost of everything by a couple of percent, and they make bankers rich.

Cash handling has its price, too, especially in security measures. The 1 or 3 percent that the bank charges the merchant are a cost, of course, but the banks get only rich through interest and late fees.

az_mtb said...

Keith,

I almost pissed myself after reading this crackpot's article....Can you imagine the people that actually fall for this?

10 Great Reasons to Carry a Big, Long Mortgage

http://tinyurl.com/2cbsyj

Anonymous said...

95% OF AMERICAN CONSUMERS ARE FINANCIALLY RETARDED???

a) True
b) False

Anonymous said...

Let's give credit where credit is deserved. It was a REPUBLICAN controlled Congress (at the time) that had impeccable timing to redo bankruptcy laws for a economic disaster that they supposedly did not see coming.

sam said...

Andy,

Have to say that credit card system is a pretty damn impressive innovation. Up there w/ internet.
I broke down and got a credit card last year for the first time in over a decade after trying to live off credit-grid.

The f'ing rental car company (Budget) kept pulling my credit report everytime until I couldn't rent a car because my credit was "bad". Fixed that w/ a CD secured line of credit in 3 months. So, I broke own and have been accumulating free travel sh*t eversince, never paying a penny in interest.

Blame the people, not the technology.

PS. shout out to the soon-to-be late great Merrill Lynch for inventing a credit card that ties directly into your margined brokerage account, enabling the rich (defined Democratically as anyone with more than $1000) to tax deduct their credit card interest.

Anonymous said...

lots of help wanted ads for repo men in so cal.

Anonymous said...

Anon October 29, 2007 5:09 PM
Said-
"I have a 12 years old car that I would like to upgrade. However I feel guilty getting a new car (even though I can easily afford one) when people around me are trying to tighten their belts while driving new BMWs and Lexus. :-( "

Hey, I always tell my kids that everyone is jealous of my '86 Camry. You know, the luxury version with the peeling paint, 4 wheels, steering wheel, brake and gas pedals. It doesn't burn any oil. I roll down the road in total luxury. My 2 wheel convertible is my favorite vehicle though.

The BMW plaque on cars means "Bowel Movement Within". And yes, I could afford to BUY (not lease) one if I needed to stroke my fragile ego. Married with children...who friggin cares!!

nnj said...

I have always wondered what debt-a-holics would do when all of their credit margin was used. After the heloc and all credit cards are maxed, then what? I guess we'll find out soon enough.

If I had to use my c/c to pay my mortgage, I think I would hang myself.

Princess Mononoke said...

Everyone keeps blaming the sheeple for credit abuse. Yes, they alone are responsible for the choices they made. eg; living beyond their means.

However, one must take into account that their role models have been... The government, The Fed, Banking Institutions, etc.

The Banks have been purchasing long term assets with short term SIVs and borrow money from each other (leveraged to the tilt). The Fed loans billions of dollars to the Banks and also has a dollar paper mill. The government has mismanaged our tax payer money in a gross way. etc. etc. etc.

There is NO liquidity in America!

Princess Mononoke said...

I must add the stock market and bond markets. Corporations and Municipalities issue stocks and bonds to support their commercial ventures and infrastructure.

This Nation and that of the World has been built on lenders and borrowers.

Princess Mononoke said...

I was just wondering... most bloggers have been mentioning collection agencies for all those Americans that will soon be unable to pay their debt. Yes, I agree with you that they themselves created this debt and are fully responsible or should be for paying it back. Right?

Okay then shouldn't the SAME be TRUE for the banks? Government? Why should their DEBT be forgiven? Overlooked? Swept under the rug so to speak!

Why should we continue to allow this corruption! Or go without ANY punishment!