PEN-L message, [PEN-L:28307] Consumer Credit Card Debt

The reason that the consumer credit card industry is surprisingly stable and highly profitable (with the exception of Providian Bank's recent collapse due to duplicitious marketing to highly indebted households and a few small, regional bank credit card scams/collapses) is the reluctance of American consumers to default on their debts. The rhetoric of the banking industry (while it tries to push through its one-sided bankruptcy 'reform') is that U.S. consumers are declaring bankruptcy at a record rate without regard to the responsibility of repaying their debts; nevermind that the most important determinants of consumer bankruptcy are unexpected factors: medical expenses, job loss, family crisis (divorce, etc). The ironic reality of the major financial services conglomerates is that investment banking and billion dollar loans to the WorldComs et al is dragging down their profits while consumer credit! card profits are rising (note, Citigroup reported a credit card default rate of less than 3 percent in the last quarter which helped to compensate for massive losses in its corporate lending division).

The interesting dilemma of finance capital is that, on average, only about 3.5-4.0 percent of consumer credit card accounts are delinquent. Consumer borrowers of the world could unite and have a debt payment strike/moratorium and bring these financial divisions to their knees. If only ten percent of consumer credit card accounts were in default, it could create a major financial crisis--such is the nature of the tyranny of the minority in post-industrial capitalism. And, by the way, some of the reasons that credit cards continue to be so profitable is: (1) consolidation (top ten corps account for 80% of outstanding credit card debt; (2) resale of consumer debt through securitarized bond sales throughout the global capital markets; (3) cross-marketing of other products through conglomerate subsidiaries and/or allied retailers; (4) international expansion (China is #2 market after US and Korea is the fastest growing mar! ket) and (5) squeeze of indebted consumers through rising nonfinance fees and 'sticky' interest rates due to fewer competitors and scarcity of new consumer markets (except for college student 'niche').

By the way, I am an expert witness in a civil suit against FIRSTUSA which has Enron like potential if the judge permits our discovery requests. Also, it appears that the market "access" that U.S. corps have been demanding and are receiving under WTO is now becoming a concern rather than a panacea because European and Asian households are not particularly interested in increasing consumption of American products. As a result, some new international projects are being formed with the objective of how to increase U.S. exports and thus reduce the U.S. trade deficit. Social scientists are being recruited to study global trends in consumer savings, cultural impediments to willingness to incur 'American style" debt, and marketing campaigns that successfully encourage greater consumer consumption without accompanying increases in household income.

bob manning

Rochester Institute of Technology

www.creditcardnation.com

>From: Doug Henwood

>Reply-To: pen-l@xxxxxxxxxxxxxxxxxxx

>To: pen-l@xxxxxxxxxxxxxxxxxxx

>Subject: [PEN-L:28302] Re: RE: positional goods

>Date: Mon, 22 Jul 2002 12:28:31 -0400

>Devine, James wrote:

>>I wouldn't be surprised if the company suffered from a whiff of

>>Ponzi, i.e., that their stock-market value is dependent on the

>>growth of the number of the suckers -- I mean, customers -- for

>>their credit cards. But that number can't keep on increasing,

>>especially in these days of excessive consumer debt.

>People have been saying things like this since the 1970s, yet debt

>continues to rise. Why is it different this time? (It may be, but

>I'd like to hear why you think it is.)

>Doug