McClatchy tackles a subject
that I've been wondering about for a while, consumer credit cards:
U.S. banks charged off 5.47 percent of all credit card loans in the second quarter, according to the Federal Reserve, representing some $50 billion that they'll likely never collect.
What the article fails to address in its attempt to parallel credit cards and mortgages is the derivative question - "What kind of derivative securities have been created based up on the credit card market?"
Are there more credit default swaps out there?
Derivatives multiply the actual dollars involved in a transaction by creating a de facto "bet" with long odds against losing. The best way I have heard credit default swaps described is something like this - Everyone can buy life insurance on one seemingly healthy person. If that person lives, no big deal. But if he dies, everyone who bought a policy must be paid the full premium. (This explains why a $250 billion dollar sub-prime mortgage market crashed a multi-trillion dollar derivatives market.)
Even if such securities are not nearly as large as the mortgage based derivatives, with the economy balancing ever-so precariously, a harsh shock, however small, could cause some of our financial geniuses to panic like little girls on the Titanic.