Friday, June 26, 2009

Record Credit Card Charge-offs

From the incomparable blog Calculated Risk via Reuters, this story about credit card charge offs:

The U.S. monthly credit card chargeoff rate surpassed 10 percent and hit a sixth straight record high in May, Moody's Investors Services said on Wednesday ...

The chargeoff rate index -- which measures credit card loans the banks do not expect to be repaid -- rose to 10.62 percent in May from 9.97 percent in April.

"We expect the chargeoff rate index to continue to rise in the coming months but at a slower pace, as it peaks at around 12 percent in the second quarter of 2010," Moody's senior vice president William Black said in a statement.

My question is about the psychological extension of this story - when do you start looking around a room with 10 people in it, and say to yourself "one of these people isn't paying their credit card bill, why should I?". I think if things fall too far apart, there is a tipping point where moral hazard (for the individual - the corporate moral hazard is gone) goes by the wayside. The stock market run from March to the last few days doesn't mean anything, nor does any financial news propaganda - things are terrible. And they are getting worse. The unemployment levels are horrific and growing. Their is no end in sight yet.