Credit Crunch
The economy is undergoing a "slowdown"
according to President Bush, a "recession" according
to 61 percent of Americans. Regardless of the name, 83 percent of Americans
rate
the economy as only fair or poor,
"and almost two thirds are pessimistic now and about the future." One
large source of economic stress is the credit crisis, which has spread
from the subprime mortgage sector to the U.S. credit card market. "If
America's $14 trillion economy is a high-powered engine, credit is the motor oil that
helps it run smoothly.
When the lubricant is in short supply, the economy -- like an
engine -- is more prone to knocks and stalling." "The squeeze is reaching
beyond Wall Street to Main Street,
hitting everything from the availability of student loans to
credit-card interest rates to the prices of municipal bonds in
retirees' portfolios." Today, the Washington Post reports that college
students will see higher costs for loans -- and "some
students may be denied private loans entirely" at community and
for-profit schools -- because of the credit crisis. Chairman of the
Federal Reserve
Ben Bernanke acknowledged last month that the credit crunch is fueling
the economy's downturn. "More expensive and less
available credit seems likely
to continue to be a source of restraint on economic growth," he
said.
CREDIT CARDS -- THE NEXT FINANCIAL
CRISIS: A
new
report
by Center for American Progress Senior Fellow Christian Weller and
Research Associate Tim Westrich details
how a rise in credit card defaults could
produce an economic fallout on
par with the mortgage crisis of last year. Lenders have
tightened access to credit in the mortgage market, "forc[ing] families
to look elsewhere to borrow money to pay for ever more costly
necessities," including health care and college education. "[C]onsumers
who once relied on home equity to make ends meet are
now increasingly
relying on credit cards," Weller and Westrich write. As a result,
credit card debt reached a record high of $790.2 billion last
November. Approximately "35 million customers can only afford to make
the
minimum
payment every month, which means it could take years for them to pay
off
their debt," the report notes. That debt is increasing rapidly. Between
April 2006
and December 2007 -- the same
period
during which the housing market was collapsing -- inflation-adjusted
credit card debt increased four times faster than between March 2001
and March 2006. Weller and Westrich point out that "lenders package
credit card debt into securities" in a process similar to the
securitization of subprime mortgages. As such, "increased credit card
debt could ultimately translate into higher loan default and thus a liquidity
crisis similar to that in the mortgage market."
OPAQUE
AND UNFAIR LENDING: Despite these warning signs, credit
card companies continue to
aggressively target customers with less-than-perfect credit -- often
the same victims of predatory subprime lending schemes. "Direct
mail credit card offers to subprime customers in the United
States jumped 41 percent in the first half of this year, compared with
the first half in 2006," the Boston Globe reported. Travis Plunkett,
legislative director of the Consumer Federation of
America, said, "It's another sign that some credit card issuers are
engaging
in risky, irresponsible lending to vulnerable consumers." At the same
time, "[c]ard issuers also are raising
fees in anticipation of increased delinquencies
as the economy slows. Industry-wide penalty fees rose to $18.1 billion
last year from $17.1 billion a year earlier." Last month Bank of
America "sent letters notifying some responsible cardholders
that it would more than double their rates to as high as 28%, without
giving an explanation for the increase."
POLICIES TO PROTECT BORROWERS: Such
abusive practices have led policymakers to seek greater checks on
credit
card companies to protect consumers. The Center for American
Progress issued a 2006 paper recommending an incentive-based,
credit card safety rating system modeled
after the New Car Assessment Program's five-star safety rating. Sen.
Ron Wyden (D-OR) introduced a similar proposal, the Credit
Card Safety Star Act, in December. Such a rating system would not
preclude additional legislation that
would eliminate other practices considered abusive or unfair. For
example, Rep. Carolyn Maloney (D-NY) has
also introduced a
credit cardholders' Bill of Rights,
which includes provisions requiring card companies to give cardholders
45 days notice before raising interest rates and prohibiting card
companies from arbitrarily changing the terms of their contract with a
cardholder. Another bill sponsored by Sens. Carl Levin (D-MI) and
Claire
McCaskill (D-MO) would prohibit card companies from charging
interest on debt that i
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Many Christians are "going green for Lent," as religious environmentalism "has exploded along with awareness of human-made climate change."
MASSACHUSETTS:
"In one sign that Massachusetts' healthcare initiative is
succeeding, use of the 'free care pool' dropped by about 16 percent in
the program's first year."
TEXAS:
Only a small proportion of Katrina refugees in Texas are registered to
vote in tomorrow's primary.
NEW
YORK: State legislators push for a one-year moratorium on
foreclosures.
THINK
PROGRESS: Former White House adviser Mary Matalin blames the media
for Americans' economic insecurity.
POLITICAL
ANIMAL: Why does the Bush administration care more than the
telecoms about
retroactive immunity?
MEDIA
MATTERS: Despite paper's concern "about keeping women as newspaper
readers," Washington Post essay calls women "kind of dim" and "the
stupid sex."
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