The coming credit card apocalypse?
I recently counseled a good friend who was enduring a tough financial situation. He was supporting his family on his middle-class income with no health care benefits. That’s a precarious enough situation in America today, but he and his wife had also run up a whole lot of debt.
My friend was embarrassed about his largesse, but I assured him that it’s an all-too-common situation around the world these days. Although I tried to focus on his next steps, I couldn’t help wondering about the financial system that created this mess. Somehow multiple lenders decided to keep extending them more and more credit, well beyond their ability to pay.
The average household does not have a subprime mortgage, but it does bear more than $10,000 in credit card debt. The failure of subprime mortgages is thus the mere tip of the credit iceberg. As layoffs and foreclosures mount, credit card defaults will presumably increase as well. While each default will be much smaller than a mortgage foreclosure, the potential volume is beyond scary.
The NY Times Executive Suite blog exposed an insider’s view last week in the self-explanatory “The Worst is Yet to Come: Anonymous Banker Weighs in on the Coming Credit Crisis.” It’s well worth a read, just in case you think you’re seeing light at the end of the economic tunnel.