Monday, September 29, 2008

Chronicles Of Depression 2.0: #273: Your Card

BoA to close credit cards for approximately 60% of customers?

This is sheer rumor.

But I have to say that it makes sense to me.

Recently: Chronicles Of Depression 2.0: #247: Plastic
What’s particularly ominous to me, is that earlier this week during the live televised hearings of Paulson and Bernanke, one of the representatives asked, “And what’s next? I’ve heard the next crisis is credit cards.”

It doesn't take much thinking to realize that if a bank is seeing "stress" (that's the new word) on their billings, they would take steps to prevent more of that happening.

So the solution would be amputating cardholders. And since these businesses have rankings for cardholders, it again only makes sense that they'd do it according to that formula.

I wouldn't want to be one of those people in a supermarket on Wednesday -- the October 1 date this is supposed to happen -- with a cart full of food for stocking up suddenly finding out their survival stock is no longer available to them.

If Bank of America does this, others will follow. It will indicate several things:

1) Cash is king
2) Liquidity is king
3) Clean balance sheets are king

Liquidity means more than sitting on cash on hand. It's the stock of funds used for whatever loans they need to service from their highest-rated customers. But if the tubes of credit remain clogged, it becomes the stock of funds needed to hedge against customer runs on the bank. Something that is guaranteed once word of credit cards being killed makes its way onto the Net.

Bank of America will try to sell this bad debt -- at discount -- to clean their balance sheets.

And as for Bank of America, let me remind all of you of the shit they tried to pull not too long ago. I posted about it in my old blog and screamed bloody murder about it:
BofA aims new credit card at illegal immigrants: report

NEW YORK (Reuters) - Bank of America Corp. has begun offering credit cards to customers without Social Security numbers, typically illegal immigrants, the Wall Street Journal reported on Tuesday.

The two links for the articles are dead, but this is independent confirmation of that program.

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