What’s that sound? The credit bubble popping?

[erik_kosberg]

<just_my_two_cents>
FWIW, I think that J. P. Morgan Chase and closely-related Fannie Mae are huge looming disasters. It’s just a guess, but I think that JPM may be less than a year from going belly-up (they’re way overextended in their derivative positions) resulting in a bailout that will make Long Term Capital Management look insignificant. The impending scandal of JPM (and the many powerful figures in business and government who know what’s going on and are doing nothing to stop it?) will make the Enron fiasco seem tame by comparison.
</just_my_two_cents>

[pluckyduck]

C'mon, these guys need to cut this out. Regular business is just getting back to business as normal.... we don't need anymore scandals or failures to send us reeling again.

I don't pretend to understand much of all this fancy pants stuff that goes on. All I know how to do is buy a product for $Y and sell it for $Y+$X, using $X to pay salaries and overhead and hopefully make a little profit. That's it. It's not rocket science and it's as complicated as the vast majority of all the small and medium sized businesses in America get.

I'm tired of "their" fancy stuff messing up what we're doing for a living.

Andrea

[erik_kosberg]

http://makeashorterlink.com/?M31412BD1

A poor appetite for the Japanese government's sale of 10-year bonds startled currency traders.

The sale of 1.8 trillion yen in new 10-year bonds drew bids worth 0.88 times the amount of debt on offer -- the first time such an auction failed to attract enough bids, and another sign of concern about Japan's economy and financial system."

If it can happen to the Bank of Japan, it can happen to the U.S. Treasury.

I hope that I’m wrong, but I’m getting a stronger feeling every day that the U.S. credit markets (the banking sector, private and government government bonds, etc.) are limping towards a monumental meltdown.

[hymie[$]]

I don't pretend to understand much of all this fancy pants stuff that goes on.

The fundamental notion of derivatives is that risk can be bought and sold just like anything else. In a derivatives trade, one side is looking to pay to reduce an element of risk, and the other is willing to accept added risk in exchange for payment. The fact that these instruments can be used for wild speculation doesn't mean that they can't also be used for increased stability.

Even unsophisticated investors do this sort of thing. For example, when you purchase insurance, you are entering into a swap transaction, where you give away a low-probability high-cost event (the accident) and receive a high-probability low-cost event (the premiums). When you refinance a fixed rate mortgage with a variable rate one, or vice versa, you are are enetering into an interest-rate swap.

[mjfrombuffalo[$]]

I'm just crossing my fingers and hoping the real estate bubble "bursts" soon. (Sorry if it'll mess up new homeowners, but if prices don't drop I'll still be renting when I'm 90)

[erik_kosberg]

More anecdotal evidence:

http://www.prudentbear.com/creditbubblebulletin.asp

JPMorgan is a most conspicuous (historic) example of a desperate lender aggressively extending Credit (in the hot area) in hopes of gambling (taxpayer money) their way out of a deep financial hole._ Perhaps it’s only coincidental, but it is interesting to note that third quarter Investment Banking revenues were down 31% year-over-year, while “managed credit card outstandings” increased 31% y-o-y._ Moreover, total assets were basically flat for the quarter (up $1 billion to $742 billion)._ Yet, Commercial Loans were down 7% as Managed Consumer Loans grew 7% (28% annualized!)._ Year-over-year, Commercial Loans dropped 16%, while Managed Consumer Loans jumped 15%._ Nonperforming loans jumped 27% for the quarter to $5.542 billion (up 109% y-o-y), with commercial nonperformers up 43%._ It is almost as if the volatility in JPMorgan’s various businesses is a microcosm of the unstable and distorted U.S. economy.

[frazzledspice]

Eric, I doubt JP Morgan's position is any different from other banks.

In the first place, is there a bank in the country whose investment banking revenues haven't decreased?

And, regarding the credit card lending, JPMorgan had millions of customers with credit cards with high credit limits.

Problem is, two years ago most of their customers might have had $10,000 credit limits with only $500 as an outstanding balance.....

That's because two years ago those customers had capital gains instead of capital losses. They had jobs instead of unemployment insurance. They had bonuses instead of pay cuts.
They had commissions instead of business expenses.

If you look at every consumer who does banking business with JPMorgan, probably 99.9% of them have lower net worths and higher debts. And a reasonable percentage of them might have serious problems.

All credit card issuers should use a little prudence. In good times, they extend credit limits to astronomical levels, figuring the customers will be happy, but unlikely to overextend.

(BTW, my sister is a VP at JPM/Chase.)

[jgibson2[$]]

And it just keeps on keeping on.

A friend at work told me that her daughter just quit her job at a national discount department store chain. She was a front-line manager (checkout supervisor)

Why?

Aside from the usual headaches of such a job, she told her mom that there was one totally insane requirement for the cashiers. No matter how well you did your job, you could be reprimanded and eventually fired if you failed to get 2 store credit card applications a shift. Since I have no way to verify this, and since I suspect they're not the only ones playing this game, I won't mention the store name.

[hymie[$]]

How difficult should that be, if the store gets any number of first-time buyers at all? At almost every store I've ever been to, getting a store credit card gets you at least 10% off your purchases at the time of the application. Some people might not want to bother because of the fuss and delay of filling out an application, and that's where the role of the store employee comes into play - to encourage the customer through the application process.

I've got a little collection of store cards that have never seen the light of day after that first use.