Credit Collapse

Credit Card Market Collapse

The American banks are meeting the dramatical collapse. Nonpayment on credit cards is growing, and it is expected that it will only increase in future. Associated Press has processed the data on 17 trusts, which deal with securitization of plastics. According to the agency estimates, the volume of debt on credit cards with a delay of 30 days and more has increased by 26% and has reached $17.3 billion compared to the October, 2007. It stands for more than 4% of the debt on plastics. The experts of Associated Press analyzed the data on cards, issued by the large banks, such as Bank of America and Capital One Financial.

They also analyzed the data of the large retailers, such as Home Depot and Wal-Mart. Altogether they collected 325 million of accounts, which is around 45% of the total credit card debt of USA citizens. This is around 920 billion dollars.

The largest delinquency has the Bank of America - $5 billion. In October this index has increased by 200%. Capital One has 4.5% delinquency in the III decade against 3.5% the year before. In November more than 1.2 million out of 30 million of accounts in this bank had delinquency or were considered the default. In the end of 2008 the Bank of America is getting prepared to write off the debts on $4,9 billion.

A long-term delinquency has the most steady increase rate. For instance, Advanta, GE Money Bank, and HSBC have the debt with a 3-month delinquency increased by 50% and more. The delinquencies in November increased by 25176 cases compared to 6000 cases last year.

The growth of delinquencies on credit cards is a side effect of a mortgage crisis, the experts believe. "Eventually the debt has spread to the other sectors, no matter whether it started from mortgage and spread on credit cards, or vice versa". - says Cliff Tan, the professor of Stanford University, who specializes on credit risk.

Upon the delinquencies, the number of defaults grows, when the creditors consider the bad credit debts and write them off. According to the data of Equities and National Exchange Commission in USA, in October the level of the written off debt has increased by 18% compared to the October, 2006.

Mark Zandy, the Chief Economist of Moody's, calls the crisis on the mortgage market and the employment crisis in some regions of USA, the main reasons of credit card delinquencies. Capital One has more delinquencies and defaults in the regions where the mortgage crisis is more intense, including California and Florida.

"The consumer passion to wish and to spend is a flesh of our nation". - says Howard Dvorkin, the founder of Consolidated Credit Counseling Services. But, it's not easy for many Americans to file for bankruptcy in order not to pay off the credit debts. For instance, those consumers, who have above average income, are not able to do that.

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