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Townhall
Finance...
Charge!
By Charles
Payne
February 12, 2012
Half a
league half a league,
Half a
league onward,
All in the
valley of Death
Rode the
six hundred:
‘Forward,
the Light Brigade!
Charge for
the guns’ he said:
Into the
valley of Death
Rode the
six hundred.
Charge of
the Light Brigade... Alfred, Lord Tennyson
Miscommunication
in the Battle of Balaclava on October 25, 1854 sent 600 British
soldiers to
their deaths during the Crimean War. Many believe the word “charge” is
itself
the way to self-destruction, especially when it comes to personal
finance.
Those with discipline can actually take advantage of credit card
companies
these days and build up goodies like free air miles as long as they pay
their
bills in full and on time. Unfortunately, that is a tiny sliver of the
population. The rest eventually cut corners and end up tapped out to
the point
they have to cross their fingers at Starbucks after already taking a
sip from a
Trenta-sized cup of coffee.
Late
Tuesday, the market spiked higher after the release of the latest data
on
consumer credit. For the second consecutive month, the number blew away
consensus. The experts were looking for a $7.0 billion consumer credit
increase
in December, but the actual number was $19.3 billion. The number was
driven
largely by demand for auto and student loans, which sent non-revolving
credit
higher and caught the experts off guard.
There are
several narratives to this news, including the fear of debt but also
the need
to get the wheels of commerce moving again. There is no doubt debt is
dangerous, and there was too much credit out there pumping up the
housing
market, but we need commerce to get out of this mess. I realize I’m
breaking a
cardinal rule of Dave Ramsey and other brilliant folks that preach the
gospel
of cutting up credit cards.
I don’t use
credit cards, and at one point in my life, I went ten years without
any. But
there is a role in this economy for the ability of households to access
credit.
The
interesting thing is the free market is still not in the mix to the
degree it
should be as government non-revolving loans (students with lingering
Sallie Mae
loans included) increased $8.8 billion while all non-revolving loans
spiked
$16.6 billion. This is great news for the auto sector, which has become
the new
subprime epicenter.
I don’t
think anyone in the nation could be turned down for an auto loan these
days.
The Fed has been printing money like crazy for a few years now and
hardly any
of it has reached Main Street. It’s all gone to banks to shore up
flaccid
balance sheets and pay bloated bonuses. Now, that cash is trying to
escape into
the system and seek out hands that would put it to work.
I think its
good news in the sense banks have said there was no demand for loans
because as
we know, people, especially broke people, don’t want money. The problem
has
been lending standards that swing so far from the lax period that
pumped up the
housing balloon that the most credit-worthy borrowers were turned away.
It’s
pretty clear banks are now more willing to play ball, maybe in part to
the fact
there are fewer ways for them to make money. You could also make the
argument
the uptick in demand is a sign of increasing confidence. Again, I’m not
buying
into that one completely.
Banks
Loosen the Screws
In the
second quarter of 2008, 50% of lending officers told the Fed they
refused to
lend to those that didn’t meet lending standards. Now, none of the
banks say
that. Back then, 57% raised credit score requirements and 10% increased
minimum
payments, now it’s 0.0% and 2.4%, respectively. Those trends continue
for
would-be borrowers in both credit cards and consumer credit.
There is a
greater sense of normalcy, but it’s against the backdrop of a deep
recession
that has us cheering mediocrity. That said, I think the street
overlooks this
consumer credit number too much ... it’s at the heart of the matter
when it
comes to building and crashing great economies.
View the
charts, read this story and others at Townhall Finance
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