Hooyah, $2T in credit card credit lines to be pulled back.

[DAPUNISHER]

Originally posted by: Skoorb
Of course, none of this changes the simple fact that people in the US, in general, overspend on goods they truly do not need; people are more apt to run up credit card debt on cruises, meals, stereo equipment, and furniture than air conditioners and fixes to their roofs.. You have co-workers and family and friends who have CC debt and plenty of things they don't need.

Hell, most people have so much crap, they have to use the garage for storage, and park the cars outside.

I ran into an old friend at Sports Authority, got to talking, he was considering moving into a bigger home because they were running out of room. 2 adults, 1 child, 3 bedroom, 2 bath, 2 car garage, and that isn't enough room, are you having another baby, I asked? No, we have too much stuff! I observed- why not just stop buying stuff, problem solved. He and the Mrs, seemed to loathe the concept, though they grudgingly admitted it would resolve the space issues.

He was looking at treadmills. We live in Fl., you can run outside year round, and there is no lack of good places to run locally either. It reminds me of Beldar Conehead "We must consume mass quantities."

 

[SlickSnake]

Originally posted by: Skoorb

Originally posted by: SlickSnake

Originally posted by: Skoorb
That is just not the case. Median household incomes in the US are $61k/year.

Just to point out how wrong you are factually, here is what the census bureau states:

In 2007, the median annual household income rose 1.3% to $50,233.00 according to the Census Bureau.

And this household income figure has DROPPED in 2008, not gone up. But since 2008 is still unfolding, and unfolding BADLY, the final tally is not yet in. And this figure is also mostly based on TWO wage earners in a household, not ONE which makes the income per person an average of $25k per year, but men still make more than women, by as much as 35% more. So the spread might be 31k for the man and 19k for the woman, which is a pretty measly household income if even one wage earner loses a job and you got 2 or more children to support and 2 cars and a house payment or rent.

If we're going to use numbers, let's at least be honest with them (and yes I was wrong on median household):

The median income per household member (including all working and non-working members above the age of 14) was $26,036 in 2006.

From wikipedia, which referenced the same sources, so when we include families we see the income in general go up, which is not surprising.

Of course, none of this changes the simple fact that people in the US, in general, overspend on goods they truly do not need; people are more apt to run up credit card debt on cruises, meals, stereo equipment, and furniture than air conditioners and fixes to their rooves. You know this as well as I do. You have co-workers and family and friends who have CC debt and plenty of things they don't need.

(cut from a previous post above you also said)

Again, 61k/year goes quite far in the hands of a good steward. There are plenty of families that make that and have *gasp* savings accounts.

Look, household credit card debt in the US averages about 9k. It's not like people are continually running up their CC to stratospheric levels endlessly. What happens is, when a person has $0 on their card they just see it as lost opportunity, so they start to use it on bullsh*t they don't need, then when it gets high they tailor it back to a more comfortable level. Most households with 9k in debt, _if they really wanted to_, could kill that off quite quickly, but they are not willing to.

Do you realize that with 61k median household incomes the average new car sells for over 30k? The average used car is about half that. In reality, if people are so consistently hard up they can buy a much cheaper vehicle than even half that and still do fine. People have no savings, they have no retirement, they live hand to mouth constantly despite ample opportunity not to. Many people in the US are simply greedy. There's no other way to put it, they are monetarily obsessed avarice-enslaved soul-less consumers who spend, spend, spend trying to fill the hole of whatever the hell they have in their life.

Ok, let's just drop the fake posturing your endlessly doing and get right down to the BALLS of your posts, and your THREAD you are a CANADIAN trashing the US. You are inferring that ONLY in the US do people overspend and buy shit they don't need. Kinda biased, there, huh? Most of the people I know who have a lot of CC debit are in hock for things like $1500 transmission overhauls or emergency medical care or home repairs. You are showing your obvious bias towards Canada, sir, and it stinks.

And I'm VERY SURE that Canadians run up just as much entertainment spending on CCs as Americans do, and nothing you say to the contrary at this point will dig you out of this obviously biased hole you dug yourself into with your little thread tirade against Americans and CC debit.

 

[LegendKiller]

Originally posted by: DAPUNISHER

Originally posted by: Skoorb
Of course, none of this changes the simple fact that people in the US, in general, overspend on goods they truly do not need; people are more apt to run up credit card debt on cruises, meals, stereo equipment, and furniture than air conditioners and fixes to their roofs.. You have co-workers and family and friends who have CC debt and plenty of things they don't need.

Hell, most people have so much crap, they have to use the garage for storage, and park the cars outside.

I ran into an old friend at Sports Authority, got to talking, he was considering moving into a bigger home because they were running out of room. 2 adults, 1 child, 3 bedroom, 2 bath, 2 car garage, and that isn't enough room, are you having another baby, I asked? No, we have too much stuff! I observed- why not just stop buying stuff, problem solved. He and the Mrs, seemed to loathe the concept, though they grudgingly admitted it would resolve the space issues.

He was looking at treadmills. We live in Fl., you can run outside year round, and there is no lack of good places to run locally either. It reminds me of Beldar Conehead "We must consume mass quantities."

Heh, we were watching HGTV this weekend, a silly show called "My house is worth what!?". There was a couple that had a $1MM home in Vegas that wanted to get a bigger house. They had 1 kid. The house was nicely appointed, stuffed full of shit. It was a 4,500sqft house.

My parents had a 2,200 sqft house with 3 kids. we all had our own bedroom. I cannot fathom why people think they need these huge houses.

It's utterly ridiculous.

 

[First]

I love how people time and again fail to understand that our entire history (since before 1776) has been chalk full of debt financing. No way we win the Revolution against Britain without French loans, or double the size of the U.S. without financing from Amsterdam/UK with the Louisiana purchase. Over-extended credit card debt from everyday consumers is not what got us into this mess and neither was sub-prime; poorly assessed mortgage securities bought and sold by banks who didn't understand their high risk or were high risk takers themselves, was the main culprit.

As far as home loans go; to put it simply and succinctly, there is absolutely nothing wrong with taking out a loan for a home from a bank, it's vital and essential to economic growth, especially since mortgage interest rates tend to be very low (single, not double, digits) if you're a reliable guy (good credit, job, etc.). This gives people plenty of incentive to make payments on time, find a good job, etc. The incentive to do these things will not go away simply because a small percentage of consumers will be bailed out on their mortgages (mostly people underwater), or simply because major banks have been bailed out. But realize that these companies are horribly battered financially (stock price overly depressed, confidence and reputation trashed, etc.), not exactly a situation banks wanted to be in. And it certainly isn't like these guys knew they'd be bailed out, unless you believe in conspiracy theory nonsense; there has never been a precedent for the type and size of this bailout in the first place, so how could banks plan for and know they'd get one, especially if your name is Lehman? (i.e. it's highly improbable in the extreme all these banks came to the same realization that they'd just be bailed out). We've been bailing banks/people out since the early 20th century anyway.

 

[First]

As far as spending vs. saving goes, and budget deficits, I'd like for someone to explain how countries in Europe aren't doing better when their aggregate budget deficit is 0.6% of GDP (ours is roughly 70-80%) and they spend less than we do? Or how Japan, the highest savers of the Western powers on the planet, are so consistently stagnant financially for, let's see, 15 years now?

Or how about the argument that we're not a free enough market economy? Iceland says "Hi, I just went bankrupt". Or how about the argument we should peg our dollar to a commodity, like gold? Wages, growth, and productivity/GDP since Bretton Woods was disbanded in 1971 says you're out to lunch on that one, as does the fact that no one (really, no one) on the planet pegs their currency to gold anymore.

Bottom line; it's certainly not just one of these factors, but a variety of them taken together as a whole. That's why economists use all sorts of hybridized models for their forecasts.

 

[StageLeft]

Originally posted by: SlickSnake
Ok, let's just drop the fake posturing your endlessly doing and get right down to the BALLS of your posts, and your THREAD you are a CANADIAN trashing the US. You are inferring that ONLY in the US do people overspend and buy shit they don't need. Kinda biased, there, huh? Most of the people I know who have a lot of CC debit are in hock for things like $1500 transmission overhauls or emergency medical care or home repairs. You are showing your obvious bias towards Canada, sir, and it stinks.

And I'm VERY SURE that Canadians run up just as much entertainment spending on CCs as Americans do, and nothing you say to the contrary at this point will dig you out of this obviously biased hole you dug yourself into with your little thread tirade against Americans and CC debit.

Awesome, another guy who thinks that I should be quiet about America. That may make some sense if not for the fact I've lived here for many years and it represents probably 60% of my adulthood and 85% of my professional career. The reason I badmouth Americans' debt is because my audience is more apt to find relevance in it; I am fully aware that Canadians love to blow money on garbage, too and although not to a degree as severe as Americans, the differences are comparatively minor, so feel free to use the term North Americans If I had a strong bias to Canada I'd be living there.

Anyway, here is a graph of how Americans spend their money.

My parents had a 2,200 sqft house with 3 kids. we all had our own bedroom. I cannot fathom why people think they need these huge houses.

It's because they have nothing else to live for. I know people who's entire purpose in life is to amass sh*t and net worth, as if that's going to make them any happier or mean a steaming pile of sh*t when they're on their deathbed, like an extra bedroom really matters. When you have five kids in a 3 bedroom house it does matter, but taking out debt for hardwood floors? Lawls.

How many people take out loans for furniture? You want furniture go to a swap shop or pick it up from somebody's lawn who's giving it away. It's a complete luxury item, assuming you're not eating food on the floor. People are taking out loans on furniture, on minivans with backup-assist and leather seats, on huge televisions, on cruises.

 

[StageLeft]

As far as spending vs. saving goes, and budget deficits, I'd like for someone to explain how countries in Europe aren't doing better when their aggregate budget deficit is 0.6% of GDP (ours is roughly 70-80%) and they spend less than we do? Or how Japan, the highest savers of the Western powers on the planet, are so consistently stagnant financially for, let's see, 15 years now?

Can you explain that? I know that the UK, as an example, is in a far worse state than the US; its government represents almost half of its GDP, I believe (contrast with less than 30% in the US) and it has a great deal of debt and a big ole' deficit.

And I certainly agree that on some level debt is a useful thing to have. It's hard to say at which point it's too much, both on a household budget and national standard.

 

[DAPUNISHER]

Originally posted by: Evan
Or how Japan, the highest savers of the Western powers on the planet, are so consistently stagnant financially for, let's see, 15 years now?

How the hell did Japan become a Western Power?

 

[First]

Originally posted by: Skoorb

Can you explain that? I know that the UK, as an example, is in a far worse state than the US; its government represents almost half of its GDP, I believe (contrast with less than 30% in the US) and it has a great deal of debt and a big ole' deficit.

Right, when I say Europe it doesn't include the UK (at least anymore), especially since their currencies are distinct and separate. I pulled the stat from The Economist, here: http://www.economist.com/finan....cfm?story_id=12689737

And I certainly agree that on some level debt is a useful thing to have. It's hard to say at which point it's too much, both on a household budget and national standard.

Well, figure that a guy making 60K on average over his working lifetime (40 years), pays 20% annually in taxes, and consumes 60% (realistic since "consumption" these days is highly dependent on # of children and housing), and he saves the remaining 20% in interest-bearing investments (specifically the stock market, where investment are historically consistent since 1802). By the time he's 65 (if he starts at 25) he'll have anywhere from $500K-$1M (adjusted for inflation) using the rule of 7 (investment doubles every 7 years on average over 30+ year periods). It's that consumption figure that really matters. Will you overextend yourself by taking out a jumbo loan? Or will you be modest? It depends on your employment and job performance more than anything else.

 

[dmcowen674]

Originally posted by: LegendKiller
Heh, we were watching HGTV this weekend, a silly show called "My house is worth what!?".

It may be silly but Kendra Todd is HOT.

 

[whylaff]

If anyone is interested in credit card securitization, I found a video for you?complete with a whiteboard.

http://vimeo.com/2346233

 

[StageLeft]

Originally posted by: whylaff
If anyone is interested in credit card securitization, I found a video for you?complete with a whiteboard.

http://vimeo.com/2346233

Thanks. So, if Citi and others are selling their debt, we can easily determine whether "those with balances" or those without are what a credit card company wants. If they sell $1B in debt plus its interest for more than $1B, well then we know that the CCs do indeed want to accumulate debt from their customers because they can sell it.

 

[Howard]

Originally posted by: Duwelon

Originally posted by: SlickSnake
Citizens' Economic Stimulus Plan: Stop Paying Credit Card Debt! By Richard C. Cook

The banks make money creating credit out of thin air and giving it to people who apply for their cards. Then they make even more money by charging 30% or more interest on many credit cards to service these debts. Frequently these high interest fees are charged on department store and gas cards which have relatively low credit limits and are given to people to try to make these retail outlets appear to be making more money in sales than they really are. The people given these specialty credit cards might not be able to buy these retail companies products otherwise, meaning these stores would sit on a lot more unsold merchandise which would hurt the companies profit forecasts and stock values to their investors.

So blaming the consumers for taking these high interest cards to buy stuff like appliances, clothing for the family or gas that they often really do need is blindly ignoring the fact many of these retail companies are offering credit through back door bank deals offered to the companies at great interest rates. Many of these retail companies would cease to exist without someone taking these high interest specialty credit cards and moving stale and overstocked merchandise and supporting the retail companies and the banks underwriting their wholesale buying.

And the same banks that are underwriting these retail companies inventories with 100 million dollar credit loans at 5% interest rates are also the same banks offering these insanely high 30% interest rate specialty credit cards to consumers to move this inventory the banks already technically own and sold to the companies in the first place. So it's like the same banks are financing the same items 2 times. If the consumer fails to pay the credit card debt, the consumer gets screwed on the credit scores and the bank still gets their money from the retailer, although it will be at a wholesale rate charged to the retailer for the merchandise, not at an artificially inflated arbitrary retail value charged to the consumer.

This is one of the dirty little secrets of bank and retail capitalism which artificially prop up consumer prices and screw the consumer in the process even if they don't use the specialty credit cards to buy the items, and doubly screw the consumers who do.

The story of John

John is an average guy. He works for N&H Construction where he works on a team with 5 others building homes for lower to middle class familes. John has three kids to feed, a wife who loves him and a father who lives with them because he can't take care of himself after John's mother died of cancer last year.

Yesterday, just a day after John's 13 year old dog died of being run over by a Wealthy Banker, John went to Sears to buy his brother in law a gift. It's his brother in law's birthday and he thought it would lift both his and his brother in law's spirit. John is a giving guy, unselfish and loving of his family and neighbors. While he was at Sears, he stopped by the Televisions to check out the latest in high def televisions. He didn't have enough to money to buy one, he could barely cover his brother in law's present until his next paycheck. That's when the evil corporation struck. A salesman came up to John as he was looking at a brand new Sony 60" HDTV. The salesman didn't say "how are you?" or "can I help you?". The salesman simply handed John an application. A sears credit card application. John said no thanks, but no sooner had he uttered the words had a revolver been pulled from the Sears Sales associates pockets and pointed at John's head. "Holy ****" John exclaimed, as he was totally stunned. The sales associated simply told John to fill out the application, purchase the TV should the application be approved, and everything would be alright.

John tried to reason with the sales associate, even asked how his manager allows this to go on. Other shoppers didn't even notice him. The sales associated told John, if there was a problem, he could talk to his manager. John, with a touch of hope, told the Sales Associate that he wanted to see his manager. His manager came, with a 12" shotgun that was now also pointed at John. "I don't want to die!" exclaimed JOhn. "Then just fill out this credit application and purchase this $5000 cutting edge entertainment system". "But I won't be able to pay it back.." No sooner had John uttered the word "back" had a fiery blast of the Manager's sawed off shotgun streamed just inches past John's head. "OK OK!" Yelled John, not even able to hear himself. He was about to yell Ok until he was sure he was actually making the sound, so the evil Manager and his Sales Associate would know that John had given in, and wouldn't blow his head off. What stopped John from yelling was a cold, evil smile that was now being displayed on the Manager and Sale Associate's mouths.

Despite the shotgun blast, no customers were even paying attention to them. They were walking buy, and every other customer that wandered into the Electronics section was eagerly filling out Credit applications. There was even a mechanic making near minimum wage that was applying for a $7000 projector system and home stereo system.

So, John gave in. He filled out the application, at gunpoint, and went home with the TV. His kids were delighted, but immediately when him and his wife were alone in their bedroom, he broke down and wept. "They were going to kill me..." he kept saying, "They were going to kill me."

Man, you crazy. You... you just crazy.

 

[LegendKiller]

Originally posted by: Skoorb

Originally posted by: whylaff
If anyone is interested in credit card securitization, I found a video for you?complete with a whiteboard.

http://vimeo.com/2346233

Thanks. So, if Citi and others are selling their debt, we can easily determine whether "those with balances" or those without are what a credit card company wants. If they sell $1B in debt plus its interest for more than $1B, well then we know that the CCs do indeed want to accumulate debt from their customers because they can sell it.

I worked for a CC company in the securitization department for a year, putting in place 4 ABCP conduits for ~4.5bn in credit line capacity. I then switched over to the public term issuance. I left the company after the year, because, frankly, it sucked ass working there. I absolutely hated it, it was boring, the people were snobbish/cliquey/financially stupid. None of them could see the impending credit crisis.

First off, there were a number of problems with the video.

There's not one CC company (Citi, MBNA, Capital One...etc) that sells the interest, some private label cards may, but the "big ones" don't. The I/O strip is held by the CC company and it is the main source of revenue for the company.

Additionally, no CC company sells off the equity tranche, they all hold it on balance sheet. That equity tranche is sized by the rating agencies (methodology hasn't changed in a decade, so it wasn't caught up in the mortgage BS). The equity, or D tranche usually, is sized at maybe 9%, which is pretty large. I know that they are pretty robust.

Finally, the capital structure is far more difficult than he's letting on. There's sharing between the tranches, there's "usage", of principal to pay interest due. There's principal payment rate, which reduces the risk. Usage of interest to pay principal...etc.

Securitization isn't something simple you can write on a white-board for 5 minutes and explain it. In doing so you miss a lot of minutia that is actually not minutia, it's very complex and makes a huge difference.

Personally, I don't see CC trusts busting like mortgage trusts, at least at the AAA level. To bust a AAA CC bond would take principal payment rates dropping to 10% (currently at 16%+) OR LOWER, delinquency to jump up to 30%+ (7% or so currently), excess spread to drop to 5% (currently 10%+).

 

[Ozoned]

Originally posted by: LegendKiller

Originally posted by: Skoorb

Originally posted by: whylaff
If anyone is interested in credit card securitization, I found a video for you?complete with a whiteboard.

http://vimeo.com/2346233

Thanks. So, if Citi and others are selling their debt, we can easily determine whether "those with balances" or those without are what a credit card company wants. If they sell $1B in debt plus its interest for more than $1B, well then we know that the CCs do indeed want to accumulate debt from their customers because they can sell it.

I worked for a CC company in the securitization department for a year, putting in place 4 ABCP conduits for ~4.5bn in credit line capacity. I then switched over to the public term issuance. I left the company after the year, because, frankly, it sucked ass working there. I absolutely hated it, it was boring, the people were snobbish/cliquey/financially stupid. None of them could see the impending credit crisis.

First off, there were a number of problems with the video.

There's not one CC company (Citi, MBNA, Capital One...etc) that sells the interest, some private label cards may, but the "big ones" don't. The I/O strip is held by the CC company and it is the main source of revenue for the company.

Additionally, no CC company sells off the equity tranche, they all hold it on balance sheet. That equity tranche is sized by the rating agencies (methodology hasn't changed in a decade, so it wasn't caught up in the mortgage BS). The equity, or D tranche usually, is sized at maybe 9%, which is pretty large. I know that they are pretty robust.

Finally, the capital structure is far more difficult than he's letting on. There's sharing between the tranches, there's "usage", of principal to pay interest due. There's principal payment rate, which reduces the risk. Usage of interest to pay principal...etc.

Securitization isn't something simple you can write on a white-board for 5 minutes and explain it. In doing so you miss a lot of minutia that is actually not minutia, it's very complex and makes a huge difference.

Personally, I don't see CC trusts busting like mortgage trusts, at least at the AAA level. To bust a AAA CC bond would take principal payment rates dropping to 10% (currently at 16%+) OR LOWER, delinquency to jump up to 30%+ (7% or so currently), excess spread to drop to 5% (currently 10%+).

I have CD's with credit card companies, which are fdic insured. Isn't this the source of most of their capital? Aren't they required to have capital backing their credit line offerings?

 

[Vic]

Funny, I just got a letter from Citi that they had increased my credit limit.

 

[LegendKiller]

Originally posted by: Ozoned

Originally posted by: LegendKiller

Originally posted by: Skoorb

Originally posted by: whylaff
If anyone is interested in credit card securitization, I found a video for you?complete with a whiteboard.

http://vimeo.com/2346233

Thanks. So, if Citi and others are selling their debt, we can easily determine whether "those with balances" or those without are what a credit card company wants. If they sell $1B in debt plus its interest for more than $1B, well then we know that the CCs do indeed want to accumulate debt from their customers because they can sell it.

I worked for a CC company in the securitization department for a year, putting in place 4 ABCP conduits for ~4.5bn in credit line capacity. I then switched over to the public term issuance. I left the company after the year, because, frankly, it sucked ass working there. I absolutely hated it, it was boring, the people were snobbish/cliquey/financially stupid. None of them could see the impending credit crisis.

First off, there were a number of problems with the video.

There's not one CC company (Citi, MBNA, Capital One...etc) that sells the interest, some private label cards may, but the "big ones" don't. The I/O strip is held by the CC company and it is the main source of revenue for the company.

Additionally, no CC company sells off the equity tranche, they all hold it on balance sheet. That equity tranche is sized by the rating agencies (methodology hasn't changed in a decade, so it wasn't caught up in the mortgage BS). The equity, or D tranche usually, is sized at maybe 9%, which is pretty large. I know that they are pretty robust.

Finally, the capital structure is far more difficult than he's letting on. There's sharing between the tranches, there's "usage", of principal to pay interest due. There's principal payment rate, which reduces the risk. Usage of interest to pay principal...etc.

Securitization isn't something simple you can write on a white-board for 5 minutes and explain it. In doing so you miss a lot of minutia that is actually not minutia, it's very complex and makes a huge difference.

Personally, I don't see CC trusts busting like mortgage trusts, at least at the AAA level. To bust a AAA CC bond would take principal payment rates dropping to 10% (currently at 16%+) OR LOWER, delinquency to jump up to 30%+ (7% or so currently), excess spread to drop to 5% (currently 10%+).

I have CD's with credit card companies, which are fdic insured. Isn't this the source of most of their capital? Aren't they required to have capital backing their credit line offerings?

CDs are but a fraction of their funding. Capital One's master trust has about 46bn in receivables, ~90% of which is financed through securitization.

They do have capital backing the equity tranche of the master trust.

 

[dmcowen674]

Originally posted by: Vic
Funny, I just got a letter from Citi that they had increased my credit limit.

Of course you did

 

[Corbett]

Chase cut down the lines of credit on my cards a week ago. Some by almost 50%. This explains it. Bastards.

 

[dmcowen674]

Originally posted by: Corbett
Chase cut down the lines of credit on my cards a week ago. Some by almost 50%. This explains it. Bastards.

I thought the rich were not affected?

Your words.

 

[Corbett]

Originally posted by: dmcowen674

Originally posted by: Corbett
Chase cut down the lines of credit on my cards a week ago. Some by almost 50%. This explains it. Bastards.

I thought the rich were not affected?

Your words.

Where did I say that? And I am not rich, lol....YET

 

[Ozoned]

Originally posted by: LegendKiller

Originally posted by: Ozoned

Originally posted by: LegendKiller

Originally posted by: Skoorb

Originally posted by: whylaff
If anyone is interested in credit card securitization, I found a video for you?complete with a whiteboard.

http://vimeo.com/2346233

Thanks. So, if Citi and others are selling their debt, we can easily determine whether "those with balances" or those without are what a credit card company wants. If they sell $1B in debt plus its interest for more than $1B, well then we know that the CCs do indeed want to accumulate debt from their customers because they can sell it.

I worked for a CC company in the securitization department for a year, putting in place 4 ABCP conduits for ~4.5bn in credit line capacity. I then switched over to the public term issuance. I left the company after the year, because, frankly, it sucked ass working there. I absolutely hated it, it was boring, the people were snobbish/cliquey/financially stupid. None of them could see the impending credit crisis.

First off, there were a number of problems with the video.

There's not one CC company (Citi, MBNA, Capital One...etc) that sells the interest, some private label cards may, but the "big ones" don't. The I/O strip is held by the CC company and it is the main source of revenue for the company.

Additionally, no CC company sells off the equity tranche, they all hold it on balance sheet. That equity tranche is sized by the rating agencies (methodology hasn't changed in a decade, so it wasn't caught up in the mortgage BS). The equity, or D tranche usually, is sized at maybe 9%, which is pretty large. I know that they are pretty robust.

Finally, the capital structure is far more difficult than he's letting on. There's sharing between the tranches, there's "usage", of principal to pay interest due. There's principal payment rate, which reduces the risk. Usage of interest to pay principal...etc.

Securitization isn't something simple you can write on a white-board for 5 minutes and explain it. In doing so you miss a lot of minutia that is actually not minutia, it's very complex and makes a huge difference.

Personally, I don't see CC trusts busting like mortgage trusts, at least at the AAA level. To bust a AAA CC bond would take principal payment rates dropping to 10% (currently at 16%+) OR LOWER, delinquency to jump up to 30%+ (7% or so currently), excess spread to drop to 5% (currently 10%+).

I have CD's with credit card companies, which are fdic insured. Isn't this the source of most of their capital? Aren't they required to have capital backing their credit line offerings?

CDs are but a fraction of their funding. Capital One's master trust has about 46bn in receivables, ~90% of which is financed through securitization.

They do have capital backing the equity tranche of the master trust.

This securitization, I mean, how do the bundle unsecured debt, and sell it to somebody? Who would buy that? And who would insure that? If you don't mind explaining.

 

[LegendKiller]

Originally posted by: Ozoned

This securitization, I mean, how do the bundle unsecured debt, and sell it to somebody? Who would buy that? And who would insure that? If you don't mind explaining.

Not sure what you mean. People buy unsecured debt all of the time. Please elaborate.