The Next Credit Crunch

Avatar:
Ben Cohen
Author:
Publish date:
Social count:
0

Arianna Huffington explainsthe next stage in the economic meltdown. Credit card debt:

As more and more Americans default on their credit card debt, banks


will find themselves faced with a sickening instant replay of the toxic


securities meltdown from the mortgage crisis. In another example of


Wall Street "creativity," credit card debt is routinely bundled


together into "credit-card receivables" and sold to investors -- often


pension funds and hedge funds. Securities backed by credit card debt is


a $365 billion market. This market motivated credit card companies to


offer cards to risky borrowers and to allow greater and greater amounts


of debt.

As these borrowers continue to default, banks and the investors who
bought their packaged debt will take a serious hit. And how are the
credit card companies trying to offset the rise in bad debts? By
raising rates on the rest of their customers -- making it likely that
more of them will end up defaulting, causing even more losses for the
banks. And round and round and round we go.