"Ok, ok, we’re listening. Selected elements of Ms Whitney’s (triumvirate) argument"

Stacy-Marie Ishmael sides with me on the Whitney post:

"Exhibit A - Meredith Whitney tells the FT she’s worried about the credit card industry, says aversion to risk will deprive consumers of more than $2,000bn (Nov 10).

Exhibit B - Whitney’s team at Oppenheimer release a note title “Consolidated lending market poses risk to overall consumer liquidity”; says credit cards are “second key source of consumer liquidity, the first being jobs” (Nov 30)

Exhibit C - Whitney pens opinion piece in the FT in which she says she is more bearish than ever, and is quite worried about…credit cards (Dec 1)

Ok, ok, we’re listening.

Selected elements of Ms Whitney’s (triumvirate) argument:

We expect available consumer liquidity in the form or credit-card lines to decline by 45 percent

Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination

More than $3,000bn of available credit has been expunged from the markets and therefore corporate and consumer borrowers so far this year.

I estimate that the mortgage market will shrink for the first time in US history and that the credit card market will be 18 months behind it.

While just over 70 per cent of US households have access to credit cards, 90 per cent of these people use credit cards as a cash-flow management vehicle, or revolve payments at least once a year.

While the credit card market is small relative to the mortgage market, it has grown to play a key role in consumer liquidity. Declining liquidity here will have disastrous effects on consumer spending and the economy. My primary concern is preserving liquidity to consumers, who command more than two-thirds of gross domestic product.

…leading to generalised systemic meltdown, etc.

What’s there to do? She offers some solutions:

First, re-regionalise lending…The government should now motivate local lenders (many of which have clean balance sheets) to re-widen their product offering to include credit cards and encourage the mega banks to provide servicing and processing facilities to banks that sold off these capabilities years ago.

Second, expand the Federal Deposit Insurance Corporation’s guarantee for bank debt.

Third, delay the introduction of accounting rule FAS 140 until 2011 or 2012. These moves to bring off-balance-sheet assets back on balance sheet for the sake of transparency are a mirage. The primary assets that will come back on to balance sheets are credit card loans. Frankly, there is more transparency in off-balance-sheet master trust data than in on-balance-sheet accrual accounting. Banks cannot afford it now and it will further constrain credit.

Fourth, amend the proposal on Unfair and Deceptive Lending Practices that is set to be adopted in 2010. The proposal includes one major change that will lead to a severe unintended consequence — pulling credit from consumers.

Which is all very well (and might even lead to FT Alphaville staffers finally being granted a credit card or six), but the counterpoint is that consumers shouldn’t be ‘financing’ their lives in the first place.

Call it the German way, as highlighted by the FT’s Berlin bureau chief Bertrand Benoit in a column in the Weekend edition:

To the German radio presenter, the real news about the measures announced by Washington on Tuesday to jolt banks into lending again was not so much the astronomical costs, but a little-noticed comment in Hank Paulson’s statement.

“Millions of Americans,” croaked the US Treasury secretary, were being denied credit or facing rising credit card rates, “making it more expensive for families to finance everyday purchases”. The notion that families should finance everyday purchases on credit, the anchor commented, “suggests Washington has still to understand what brought us there in the first place”.

I think that I'll have to do that post on Germany I thought of doing to complement the earlier one on Japan. I do love it when Stacy-Marie agrees with me.

Here was my comment:

Posted by Don the libertarian Democrat [report]

"in which she says she is more bearish than ever, and is quite worried about…credit cards "

I took it more as a personal plea for help in ridding her of her bearishness, which was beginning to weigh on her. The fact that she was pleading for others to burden themselves with more debt in order to relieve her of this malady is nothing more than that, simply asking for some help. What's wrong with that? And if the government obliges her as well, then more power to her.