Few are paying attention to the next bubble

expected to burst: credit cards. Combined with

the subprime losses, such a credit card nightmare

has the potential, experts say, of bringing down

the entire financial system and global economy

What a Fucking Mess! [Source]

While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards.

Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy.

You and your credit card have become key players in the highly unstable financial crunch.

Mortgage lender cupidity and bank credit card greed wedded to financial institution deregulation supported by both political parties, have been made manifestly worse by Bush administration support-the-rich policies.

It has brought us to a brink not seen since just before the Great Depression.

While campaigning in Edinburg, Texas, in February, Barack Obama met with students at the University of Texas-Pan American.

“Just be careful about those credit cards, all right? Don’t eat out as much,” he said. After the foreclosure crisis, he warned, “the credit cards are next in line.”

The coupling of home equity debt and credit card debt has gone hand in glove for years.

The homeowners at risk can no longer use their homes as ATM machines, thanks to their prior re-financings and equity loans, often used in the past to pay off their credit cards.

Indeed, homeowners cashed out $1.2 trillion from their home equity from 2002 to 2007 to pay down credit card debts and to cover other costs of living, according to the public policy research organization Demos.

To compound the problem, fewer people are paying their credit card bills on time. And, to flip the old paradigm, more are using high-interest credit card cash to pay at least part of their mortgages instead of the other way around.

How bad Is It?

* Financial analysts say that in the U.S. alone more than $850 billion in unpaid credit card balances is at stake and fast approaching $1 trillion, roughly the same amount as in the subprime market.

* CNN reports that worldwide, consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year.

• The unpaid debt portion of this is continuing to pile up, with U.S. consumers last year adding $68 billion against their credit lines, boosting credit card debt by 7.8 percent, the largest increase in seven years, just when the last recession was beginning.

* Even as they spent, consumers have been going into default at a stunning rate. The percentage of people delinquent on their credit cards is soaring, and credit card companies are now writing off somewhere near 5 percent of payments.

* By last fall, the major banks were setting aside billions for loan-loss reserves while anticipating an increase of 20 percent in non-payments over the next two to four quarters.

* Capital One, one of the biggest credit card banks, was forced to write off $1.9 billion in bad debt just in the last quarter of 2007.

* By October, according to a survey of only the leading credit card banks by the Associated Press, the value of credit card accounts at least 30 days late was up 26% from the previous year, to $17.3 billion.

Serious delinquencies among some of the biggest lenders rose by 50 percent or more in the value of accounts that were at least 90 days delinquent.

* Making matters worse, or more widespread throughout the economy, just as with mortgage debt, credit card debt is put into pools that are then resold to investment houses, other banks and institutional investors.

About 45 percent of the nation’s $900-plus billion in credit card debt has been packaged into these pools, and so many companies, not just a few, are at risk of being forced out of business by credit card debt write-offs.

What this adds up to, and what Obama didn’t say, is that we are actually face to face with the results of the most massive failure of our political and economic system since the Depression.

Since Ronald Reagan, we have been living in an era in which neither the meltdown of the savings and loan banks in the 1980s nor the Enron-like scandals of the Bush years has stopped the relentless advancement and protection by both parties of the ability of financial institutions to make a buck at any cost to the social good and economic fabric.

Which is what you get, of course, when both parties are so dependent on massive financial contributions to get their candidates into office and when the corporate media, heavy with advertising from the FIRE sector – Finance, Insurance and Real Estate – doesn’t warn the public or investigate the egregious fudging, misrepresentation and outright fraud that underpins the subprime and looming credit card crisis.

Shop & Charge Till We Drop

Track the subprime and credit card mess back, and you will find its origins in free market policies since Reagan that deregulated banking and much of the oversight that managed for years to keep the greed-meisters on Wall Street in check.

The failure of media-lionized Alan Greenspan’s Federal Reserve Bank to pay attention to predatory lenders and sub-prime schemers allowed them to prosper.

Add to these failures a complicit Congress, with Democrats and Republicans alike dependent on donations from the three leaders of the FIRE economy.

To assure their freedom to run their businesses their own damn way, the banks in the 1990s persuaded Congress to deregulate the practices of financial service companies.

Pro-business Court decisions have allowed them to base their operations in low-tax states like South Dakota and Delaware and to end consumer protections against usury.

This decade, Bush’s tax cuts and his bankruptcy “reform” bill strengthening the power of credit card companies were passed with bipartisan support, including that of Senator Dianne Feinstein.

Add major media amnesia to this list and you get a trifecta of failure. The New York Times admitted that advocates warned them that a rise in predatory lending was destroying poor communities in 2001, but they sat on the story for nearly six years.

Neither the politicians nor the media told us that every major brand name banking firm and investment house had its fingers in the juicy pie of pedaling mortgage-backed securities worldwide without disclosing that many of these mortgages were deliberately offloaded on people whom they knew could not afford to pay them.

As with the credit card industry, these mortgage borrowers were cleverly given “teaser rates” that would soon reset upwards. The banks then resold the mortgages as “asset-backed paper” even though the assets’ value was so questionable.

Meanwhile, media outlets took in hundreds of millions in ad revenues from deceptive lenders and credit card banks encouraging Americans to shop and charge till we drop.

The Super Bowl broadcast ran all those cool but misleading ads by credit card companies and mortgage hustlers. It was, um, “priceless.”

Notes scholar Lionel Tiger: “Those who have been operating the managerial levers of the financial system have failed embarrassingly and massively to comprehend the processes for which they are responsible. They have loaned money avidly and recklessly to people who couldn’t pay it back.

“They fudged data to get loans approved and recalculated. Then they sausaged fragile figments of money reality into new ‘products’ which could be sold around the world to investors eager to enjoy the surprising returns which often accompany theft, managerial incompetence and fraud.

"When it comes to responsibility for all this, there appears to be no one here but us spring chickens.”