The credit market freeze isn't just about Mortgage Backed Securities or Commercial Paper. As credit cardholders fall delinquent on their credit card payments, American Express, once considered the grand dame of credit cards, is in trouble. It having difficulty raising money to operate.
Amex, and other non-depository credit card companies, borrow money to conduct daily business by selling credit card-backed securities. These bonds are secured by customer payments, and many customers aren't paying.
Last summer, it seemed inconceivable that Countrywide could fail. Or Lehman Brothers. Or AIG.
At the beginning of 2008, the cream of credit card-backed securities was trading at LIBOR plus 50 basis points. The level of risk associated with buying the debt was such that this was considered an adequate return. That same debt sold last week for LIBOR plus 475 basis points, according to data from Chase Bank, reported by Bloomberg today. That's an increase of 950%!
What's in YOUR wallet?
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I didn't need to read this as I am packing to go to NAR this morning! Ouch. It is spooky out there.
Susie,
Have a great time at NAR! Find out who needs what you have to sell.
Mike in Tucson
Mike,
There is only a debit card in my wallet. If there is no money it doesn't get purchased, just the way it is. Sorry AmEx
Don,
What a great concept! I can't say the same. Thanks for commenting.
Mike in Tucson
A few months ago I would have told you that you were NUTS but in this climate who knows what is next.
Marchel,
A few months ago I never would have believed it possible. The market was down 10% in two days this week, and only recovered a little of that today.
Mike in Tucson
I am paying off cards as quickly as I can. Plan is to only use debit card/cash for the immediate future. Not fun at all.