NY Times: Pain Spreads as Credit Vise Grows Tighter

[MattH]

http://www.nytimes.com/2008/09/19/business/economy/19econ.html

"disabling the credit on which so many everyday transactions depend — but also by frightening people"

"American Express, to take one striking example, is reducing the maximum credit limit for half of its tens of millions of cardholders...American Express is hardly alone"

"in some ways reminiscent of the 1973 oil embargo"

"the credit squeeze, if it persists, will force businesses and consumers to cut spending more than they already have"

A residential mortgage from Bank of Smithtown requires 20 percent down and clear evidence of adequate income to repay the loan, as well as a good record of paying down debt....“Now many of these lenders are gone,” Mr. Rock [Bank of Smithtown's CEO] said, “and the small-business borrowers are coming to us, and we are doing good old-fashioned underwriting, and the result is that fewer people are getting loans.”

Message Edited by fused on 09-19-2008 01:28 PM

[haulingthescoreup]

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@MattH wrote:

...."American Express, to take one striking example, is reducing the maximum credit limit for half of its tens of millions of cardholders...American Express is hardly alone"

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Half??? --Wow!

[MattH]

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@haulingthescoreup wrote:

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@MattH wrote:

...."American Express, to take one striking example, is reducing the maximum credit limit for half of its tens of millions of cardholders...American Express is hardly alone"

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Half??? --Wow!

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Yep, half, according to the NY Times.

This is looking more and more like a postmodern 1929 every day, although I think we are unlikely to have another Great Depression because this time the government will dump enough money into the economy to prevent that. Fortunately, even after the last eight years of deficit spending the US national debt as a proportion of GDP is still below the levels of the 1980s, thanks to the deficit-reductions of the 1990s, so the US government actually has the borrowing capacity required to handle the current emergency. But during the next recovery this country had better get serious about debt reduction again.

[score_building]

Thanks for the great post MattH, i hadn't caught this article.

[MidnightVoice]

Here is an interesting, stupid and wrong quote from the article:

"Being pickier means that an American Express cardholder whose maximum has been reduced to $1,000 from $1,200 has that much less to spend on clothing or meals out, purchases that lift the economy"

The cardholder has exactly the same amount of maney as before, just less credit.  It as bad as Dave Rasey (in reverse).

[MattH]

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@MidnightVoice wrote:

Here is an interesting, stupid and wrong quote from the article:

"Being pickier means that an American Express cardholder whose maximum has been reduced to $1,000 from $1,200 has that much less to spend on clothing or meals out, purchases that lift the economy"

The cardholder has exactly the same amount of maney as before, just less credit. It as bad as Dave Rasey (in reverse).

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Given how some people do treat credit as though it were cash, I do wonder if tightening credit limits may have a deflationary impact similar to what tight monetary policy has. I'm not a revolver and haven't been for some years -- my wife and I pay our balances in full so the mortgage is the only interest we are paying. And even when we did sometimes need to carry a balance to smooth out fluctuations in our expenses we never allowed it to get anywhere close to any credit limits. But I gather many people now are using credit cards to make ends meet, which is of course even less sustainable then was the home equity loan boom.