Professor Mark J. Perry's Blog for Economics and Finance
1. NEW YORK — "Major credit card issuers posted improved results for May, in another sign consumers are getting a handle in paying back their debts. Delinquency rates have been steadily improving for five months, indicating that consumers have gotten control of their debt payments even as the jobless rate has remained high."
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
10 Comments:
2/3s came from chargeoffs.
People can pay down their credit cards because they stopped paying their mortgages?
"2/3s came from chargeoffs."
This was just one estimate according to the article. It also says that:
"For May, five of the six companies reported lower charge-off rates."
So, clearly charge offs are a part of the reduction in debt but not all of the story. In any event, a reduction in delinquencies will eventually lead to an increase in credit availability which will work to the benefit of the economy.
I payed down significant credit card debt, but it was all according to plan and had nothing to do with economy or slowdown.
One driver for me was new rules threatening massive increase in rates if you miss a payment. Those I paid off and closed.
Thinking about credit card debt? Just say no! Some states are now putting people in jail for unpaid balances. Debtor's prison, anyone?
Anon: No state puts people in jail for owing money. This is totally untrue. You only go to jail if you fail to obey an order of the court to appear in court or at a deposition as ordered by a judge. Again, you do NOT go to jail merely because you owe money.
The issue about going to prison applies more to some debt than others, child support payments yes you go to the clink. Don't pay taxes you may go to the clink. Other cases are contempt of court cases, where its not failing to pay but failure to respond to the court. Push for requirements of service by certified mail as that should be something you know about. Of course also be aware of your states statute of limitations on debt.
Lyle: That is true. You can go to jail for nonpayment of child support and alimony and perhaps for failing to pay some taxes (states go after sales tax deadbeats criminally, for example).
But in the credit card and unsecured debt context, you do not go to jail simply for owing money. You have to ignore an order of the Court to comply with discovery requests or to appear at a hearing or a deposition to be sanctioned with incarceration.
Time: Are the Banks' Credit Card Portfolios Really Improving?
"an accounting rule...forced the banks to bring nearly $300 billion worth of credit card loans they had already made onto their balance sheets...Along with the nearly $300 billion jump in credit card balances, the banks added $7.8 billion in delinquent loans to their books. That means even if all those loans that consumers were behind on came from the off-the-books stuff, the loans being added had a delinquency rate of 2.5%. That's significantly better than the 3.4% delinquency rate the banks had in the 4th quarter of 2009, according to the FDIC. But it is likely that at least some of those newly delinquent loans came from the pool of loans that was already on the banks' books. That means that the delinquency rate of the new pool of loans was actually probably lower than 2.5%, and therefore would make the banks' credit card portfolio appear to be improving when they weren't."
Other good analysis in that article. Including (per commenter Bill) that bank chargeoffs impact the delinquency statistics. This is still a positive in the sense that clearing bad debt off bank balance sheets is a god thing, but it is not at all the same thing as customers paying off balances on time.
The AP is over run by hack journalists.
Here's a nice journalistic gem:
"Some analysts also suggest that consumers are benefiting from the credit card regulations that took effect in February. By constraining the ability of banks to raise interest rates and limiting fees, the rules made it easier for cash-strapped consumers to keep up with their payments, these analysts say."
This is the writer's opinion disguised as supposed authoritative views. You can find some analysts (whatever an analyst is) who "suggest" all kinds of things. Without quoting them by name, who cares? And "suggest" is such a cop out. If challenged that no respected analysts actually believe that, the writer can just say, I didn't say they thought that, I only said some suggest that.
My opinion, as an analyst, is that the credit card law caused banks to drop or cut credit lines for the least credit worthy customers. This started last year. Even 18 year olds who can fight in a war, vote, and enter into a legally binding contract can't get a credit card without a cosigner now. It shouldn't be surprising that delinquencies decline over time as riskier credits just aren't given credit and the worst ones are charged off. The AP can feel free to quote me on that.
Analyst Roscoe suggests that "The AP is overrun with hack journalists."
It's not just the AP, Roscoe, it appears to be a widespread problem.
But, if you aren't impressed by "analysts suggest", maybe "experts agree" will convince you.
I like to believe that most of us are immune to such drivel by now. It may be one of the reasons that traditional news sources have shrinking viewership/readership.
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