Dealing with credit card line cuts

by Sundeep Kothari

Credit Card Cuts

 

This article discusses the reasons for the expected $2 trillion in credit card line cuts and some strategies for how consumers may deal with those cuts.

Bush forced to use TARP money for auto bailout

by Sundeep Kothari

Bush to use TARP money

With the collapse of a bailout bill, President Bush is expected to use a portion of the $700 billion Troubled Asset Relief Fund (TARP), the massive federal bailout passed a few weeks prior to the election.

For President Bush, this is proving to be the worst of both worlds. The Democrats were unwilling to go ahead and release the previously authorized $25 billion loan, which was given to help the automakers become more fuel efficient. And the Republicans were unwilling to get a bill passed for the $14 billion bailout.

Now President Bush is forced to do something he didn’t want to do: use the TARP money for the auto dealers. Some Republicans are alleging the UAW refused to compromise on wage cuts because they knew if the bailout bill failed, that President Bush would have no choice but to take some TARP money.

Whatever the case may be, everyone looks bad in this deal. The car industry is quickly using up its political capital. What happens next year if the automakers need more bailout money? What kind of reception will they get from Congress then? Especially if they are coming in with the same problems they have now.

GM has said it will cut 30% of its North American production during the first quarter. This, however, may not be enough. The facts are that American cars are not seen by American consumers to be as good as foreign cars, and that with the badly faltering economy, a lot of consumers simply aren’t buying cars anyway.

If GM doesn’t make massive cuts now, even deeper than the ones they propose, they will come back to Congress and they may find a far less receptive audience.

Congress considers $15 billion bailout for Big 3 automakers

by Sundeep Kothari

Congress mulls $15 billion bailout

Stunned by the loss of 500,000 jobs, the worst month in 34 years, Congress is considering a $15 billion bailout for the automakers.

Speaker Pelosi has dropped her opposition to re-directing a previously passed $25 billion loan to the Big 3 automakers for the development of environmentally better, more fuel efficient cars. This is something that President Bush supported.

There is no support whatsover from Congress to take a portion of that $700 billion and give it to the automakers. But there is enough support to change that loan and release those funds to the Big 3.

Credit card lines to be cut by $2 trillion

by Sundeep Kothari

Credit card lines to be cut by $2 trillion

Credit card companies are expected to cut credit lines by $2 trillion over the next 18 months.

This will lead to a sharp drop in consumer spending, which will lead to more trouble for retail businesses, which will lead to retailers laying off workers, which will lead to more foreclosures, which will worsen the economy.

But since banks have no money to lend out, they have no choice.

Proposed new credit card rules

by Sundeep Kothari

Proposed new credit card rules

In May of 2008, the Federal Reserve Board proposed new rules for credit card companies. These include:

1. Banning banks from raising interest rates until a minimum payment is at least 30 days late, a promotional rate is expiring or the customer has a variable rate.

2. Encouraging banks to send statements at least 21 days before the due date.

3. Banning the widespread practice of applying payments to low or no interest balances first, then higher balances.

4. Banning banks from charging over-limit fees if the limit is exceeded because of a hold placed on the account.

These new rules are certainly good, but are not enough. Here is another rule that I support: Reducing the default rate from 31% down to 20% on credit cards. This would have the effect of allowing people to pay down their debts at a faster rate. In addition, individuals will have more money to pay their mortgage payments, which will reduce foreclosures. Also, people will have more money to pay down their student loans, and other personal loans. Instead, when the interest rate is jacked up to the default rate, then many people go ahead and file for bankruptcy. And then banks get nothing in return. By reducing the default rate, banks will have more liquid cash, gain more stability, and the credit market will have some thawing.