Banks May be in More Trouble than Expected
Traditionally it has been easy for banks to estimate how many Americans would struggle to pay off their credit cards due to the strong correlation between missed payments and unemployment. Simply put, fewer jobs meant more trouble was on the way.
Something has changed however. Recently credit card defaults have started to outpace layoffs. Could this be due to the fact that unemployment numbers are severely underestimated by our government? Or is it simply because those who still have jobs are also struggling to make ends meet?
Experts believe that millions of Americans will not be able to pay off their debts. This is because those people who still have jobs are not all trying to pay off their debt. Many of them are only making the minimum payments. And as most people know, making the minimum payment on a credit card is not enough to pay off the credit card.
By 2010 the nation's 19 largest banks could expect as much as $82.4 billion in credit card losses. According to federal regulators this is the worst case scenario. However, we all know how our government is optimistic, often to an extent that seems plain old ignorant!
If unemployment reaches 10 percent, (this refers to our government's unemployment rate not the actual unemployment rate) the rate of uncollectible balances at many banks could far exceed that 10 percent. In the next year American Express and Capital One Financial both expect 20 percent of credit card balances to go bad. Bank of America, Citigroup and JP Morgan Chase expect about 23 percent of their credit card loans to go bad.
Of course many experts do believe that the government is already underestimating the potential losses of banks credit card problems. According to Oliver Wyman, a management consulting firm, card losses at the nation's largest banks could reach as high as $141.5 billion by 2010! |
 | Former Executive Sues Bear Sterns
| Gary M. Reback was a former executive of Bear Stearns who was fired in 2008 when JPMorgan Chase bought the nearly collapsed bank. Now this very silly man is suing, claiming that he is owed a $2 million bonus! Some people just don't understand that bonuses were invented to reward people who did a good job. Mr. Reback didn't do a good job. In fact, evidence seems to suggest that he did not even do his job, let alone a good job!
The suit was filed with the Supreme Court on May 1st and named Bear Stearns and JPMorgan Chase as the defendants. Although the bank was on the verge of collapse, Reback claims that he made millions of dollars for the Wall Street firm. In reality, he took millions of dollars from investors and never returned it to investors. Is that what he meant by making money? In reality that is called taking money!
Mr. Reback is also suing for $1.1 million in severance pay which he claims Bear Stearns promised him. Phone calls were not returned by Reback or his attorney but according to a spokesman for JPMorgan Chase, "Mr. Reback is not owed any money."
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| More Foreclosures on the Way?
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Many people are starting to wonder if the rate of foreclosures are going to skyrocket. And May is the month they are taking a close look at. According to ForeclosureRadar.com, "there is a Pigzilla the size of a freight train in the python and it has worked its way to the lower intestines."
Mark Hanson who works for ForeclosureRadar.com says that foreclosures did not surge in April because banks simply did not have the capacity to process all of the distressed loans.
According to Mr. Hanson, "Beginning on May 4th the properties taken to foreclosure in California surged. For the past few months, Washington Mutual (WaMu) had been near full foreclosure moratorium. As of May 7th -- only 5 calendar days into the month -- WaMu already has 10% MORE foreclosure-related Real Estate Owned ((REO's) - Property owned by a Bank) than in all of April. At this run rate, WaMu will have a record foreclosure month of 3300 foreclosures in CA alone or 7000 nationally worth approximately $2.5 billion."
According to Consumer Credit Counseling Service of Atlanta, they have seen significant increases in the number of people calling for help who have interest-only loans and are now delinquent. At this time last year they counseled about 100 per month. Right now they are doing closer to 800 per month!
President Obama has started the "Make Homes Affordable" program which is supposed to help delinquent borrowers. The question is how many people does this program have the capacity to save? There are no real numbers at this point because as of now the program is still "ramping up." |
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