The U.S. banking industry is now acknowledging that, for all intents and purposes, they're massively gutting the consumer credit marketplace--making it virtually impossible for at least 2/3 of the population to obtain credit, virtually at all. Meanwhile, efforts--planned and in place--to return credit liquidity to the public domain are being compared to pouring water into a bucket with a hole in the bottom.
Very simply, banks are not cooperating--and they have no intention of cooperatiing either--with the government's plans; yet the government wants to give them trillions more in coming days.
It's all right here: "Card Issuers Choke Firms With Rate Hikes, Limit Cuts."
Is this insanity?
Card Issuers Choke Firms With Rate Hikes, Limit Cuts
By Alexis Leondis
March 17 (Bloomberg) --
...Almost three-quarters of U.S. companies with fewer than 500 employees are experiencing a deterioration in credit or credit- card terms at a time when half of them depend on credit cards as a primary source of financing, according to a December survey by the National Small Business Association, a trade group with more than 150,000 members.
--SNIP--
Lines Are Cut
Financial institutions may slash $2.7 trillion in credit- card lines by the end of 2010, according to a report published last week by Meredith Whitney, chief executive officer of Meredith Whitney Advisory Group LLC in New York. Small-business owners often use business and personal credit cards, with 41 percent relying on a combination of both, based on data compiled by the NSBA.
"Small businesses in particular are getting squeezed on multiple credit fronts," said Alan Blinder, an economics professor at Princeton University and former vice chairman of the Federal Reserve...
The newest plan, the Term Asset-Back Lending Facility, or "TALF," is being touted as a "solution." But, the reality is it's only aimed at "prime" loans for consumers with FICO scores of 720 or higher. (That's the definition of "AAA" credit these days.) That's roughly the top third of the population, because the median US consumer FICO score pegged at 678. In other words, the TALF program is aimed at consumer's that really don't even need credit!
The TALF program will not succeed. It cannot succeed. In large part, this is due to the reality that the Federal Reserve System is all but broken; and the hedge fund, or "shadow banking" sector--the folks that are supposed to implement the program by purchasing all this toxic debt from the banking sector--is still almost completely unregulated. I recently posted a diary about this: "Is it the largest betrayal of public trust in history?"
The other reason why the TALF program is doomed for failure is that the consumer credit marketplace has been eviscerated in recent months by the very entities that have been simultaneously receiving these benefits from the government. The purpose of these government funds, among other things, was/is to, supposedly, add liquidity to the marketplace; but the infrastructure necessary to do that is simultaneously being disassembled by these banks that are receiving these funds now.
Citigroup's CitiFinancial unit, HSBC, GE, Wells Fargo, AIG's American General consumer finance business, Bank of America, American Express and many other firms have simply walked away, or are planning to walk away, from many--or most--of their retail lending initiatives over the past few months and into the near future. Read about it right here: "Depression Daily News: Geithner Clueless; Main St. Loses Again."
Today's latest article goes on to tell us:
The banks are claiming it's an adverse risk environment. There is plenty of truth to this, but it's all relative to what we're talking about. The truth is that while chargeoffs may be reaching "7.1 percent on average in January compared with 4.6 percent a year earlier," what this means is that 92.9% of the entire public's still paying their bills!
The article points out the following consumer credit line cuts by major banks:
Citigroup is cutting credit lines by $600 billion.
Bank of America $500 billion.
JPMorgan Chase $300 billion.
American Express $100 billion.
That's $1.5 trillion in cut consumer credit lines, already. And that's only four entities.
That's on top of massive cuts previously announced or planned.
Today's article is loaded with information about small businesses being hamstrung throughout the country due to these egregious credit policies which some--including yours truly--can only see as being a near-total abandonment of the middle class...all sanctioned by the status quo!
The concept that the newly-announced (actually, it's nothing more than a recycled version of the originally-announced plans by former Treasury Secretary Paulson back in November--see link above) TALF program will fix this are nothing less than totally bogus.
We are up in arms about $173 billion to A.I.G., meanwhile, we're pouring trillions--and planning upon pouring trillions more over the next week--into a poorly-regulated banking and grossly-unregulated "shadow banking" sector that really doesn't give a rat's ass about social responsibility; the only thing they care about is their bottom line.
They've all but told us this over the past week, to boot. But, we're not even paying attention to that. We're all looking at AIG. The sad truth is that AIG is just a small example of the grossly ineffective efforts of a government that's more concerned with not nationalizing a few Wall Street banks--more focused upon that than they'll ever be with truly bailing out Main Street. Yes, we're being told that, no matter what, we will maintain the Wall Street status quo even if it means marching middle America right off of a cliff.
It is truly insane.