Americans Owe Less, Thanks to Write-Downs
Why do Americans owe less money this year?
Floyd Norris zeros in one one of the factors: Banks writing down uncollectable debts:
“Figures released this week by the Federal Reserve showed that Americans owed $10.8 trillion on home mortgages at the end of the third quarter, down 2.2 percent from a year earlier and the lowest level since mid-2007. Similarly, the Fed said that outstanding credit card bills in October totaled $888 billion, down 8.5 percent from a year earlier. That number was the lowest since March 2007.
Those trends do not, however, necessarily indicate that Americans have paid down their debts and are starting to lead the more frugal lives that some financial planners have been recommending for years. There has undoubtedly been some of that, but the declines also indicate that banks have been forced to write off a lot of bad debts and have grown more stingy in granting credit . . .”
The chart below shows that credit card write-offs have soared to 10.2% annually, from one quarter of that a few years ago:
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click or larger graphic
Chart courtesy of NYT
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Source:
Americans Owe Less. That’s Not All Good.
FLOYD NORRIS
NYT: December 11, 2009
http://www.nytimes.com/2009/12/12/business/economy/12charts.html
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December 13th, 2009 at 10:06 am
More than 10% of all mortgages are in foreclosure? That is just incredible considering the carnage that’s already taken place.
My wife and I had considered buying a house selling for 40 cents on the dollar from three years ago as a rental but missed out because seven other offers were made, several at asking price and the winner paying cash. Our realtor’s take: don’t worry, there will be plenty of others coming on the market in that neighborhood very soon that are getting ready to go into pre-foreclosure/short sale status.
Seeing this graph is making me glad we missed out and even more gun-shy about doing anything anytime soon.
December 13th, 2009 at 10:36 am
Cramer is going to be a guest on NBC’s Meet The Press in a few minutes…this ought to be interesting. Cramer is “the press?” Maybe in the minds of the geniuses running NBC Universal, which coincidentally, airs his Mad Money show. I’m sure he will be much toned down though.
December 13th, 2009 at 10:38 am
bernanke should cover the bank’s losses, so that they can write off more,
until every home mortgage in the US is free and clear.
December 13th, 2009 at 11:36 am
Ha! Greenspan is on MTP right now saying that the reason the economy is recovering is because the stock market has rallied, not the stimulus.
Um…Wall Street has rallied because the economy is recovering, not the other way around. Please, Mr. Greenspan…Die.
Please.
Just.
Die.
December 13th, 2009 at 11:37 am
As you go through the checkout lane in the supermarket, reflect that every tenth through person through there, on average, will never pay for what they are taking out of the store.
December 13th, 2009 at 11:49 am
“As you go through the checkout lane in the supermarket, reflect that every tenth through person through there, on average, will never pay for what they are taking out of the store.”
The banks have no one but themselves to blame for this. There is no law that says everyone must have a credit card, despite Visa and MasterCard’s best efforts. If you make a loan to someone with no income and no security and they don’t pay it back…what did you expect to happen?
December 13th, 2009 at 11:51 am
I was surprised to see Greenspan sitting next to Cramer…what an odd couple. I do owe Jim an apology…he made a lot more sense than Greenpsan. The maestro was unintelligible at times and ridiculous at others…he did say that increased 401k’s are what is bringing the economy back, which is twisted at best, inane at worst. Of course he said the Fed is doing a great job, but they can’t affect things as much as we think…another ridiculous statement.
December 13th, 2009 at 11:59 am
@Steve
I found Greenspan irritating too (as you can probably tell!). My guess is that he was truly, genuinely afraid in Sept/Oct, when he admitted that his theories about the market were all wrong. Now, he’s not so scared anymore, and he’s falling back into the same line of thinking about market perfection that caused this mess.
Christina Romer was absolutely awesome, though. She should be the next Fed chief!
December 13th, 2009 at 1:15 pm
The labels are erroneously switched on the Distressed Mortgages graph. In foreclosure is 6 percent. Delinquent is 10 percent.
Those are roughly the figures reported here:
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/19/AR2009111903885.html
December 13th, 2009 at 1:33 pm
…”reflect that every tenth person through there, on average, will never pay for what they are taking out of the store.”
And why the fuck should they?
If everyone at the top is corrupt as hell, then why shouldn’t everyone else should be?.
Lets just bankrupt this place and move on to the next phase.
December 13th, 2009 at 1:48 pm
Yes, the climbing “savings” rate is largely attributable to defaulting on debt. It’s a start, but these people will also have to start real saving once they get rid of their debt. That Social Security based “retirement” without a paid for house is not looking so great, now that all that magical money went poof.
December 13th, 2009 at 1:48 pm
@cewing
“The banks have no one but themselves to blame for this. There is no law that says everyone must have a credit card, despite Visa and MasterCard’s best efforts. If you make a loan to someone with no income and no security and they don’t pay it back…what did you expect to happen?”
Spot on. And frankly I’m amazed that they haven’t pulled down credit lines even more aggressively than they have. Who in their right mind would lend unsecured money in this environment? Millions of households are on the edge, and their emergency fall back was always planned to be credit of some kind. Those that start living off the credit cards, either in the personal finances or small business, have to be terrible risks right now, with very high default rates now and to come. I guess with the high interest rates they’ve gone to and the fed govt’s backing, they can afford to still do such reckless lending.
December 13th, 2009 at 3:01 pm
Sooner than we think, none of this is going to matter since, among other real threats to our existance in the not so far off future, we’re running out of resources and our infrastructure is crumbling beneath our feet. Water systems are old throughout the U.S., the electrical grid is so hobbled it’s a wonder it works at all. But we’re ignoring these things in order to fight wars in Afghanistan, Pakistan, and Iraq.
i’m wondering just how soon the social contract will just become “quaint” like the Constitution and every day will be a real life-or-death struggle to survive. Many people are armed, many are ignorant and depraved, and watch out for those that are BOTH. Too many of us are rapidly coming to the same conclusion: “When ya nothin’, ya got nothin’ to lose.” More and more people livin’ in tents, on the street, in shelters, in their cars – no access to health care, diseases brewing by their lack of attention to the greater society by proximity, and the MSM reports 24/7 on Tiger Woods, fer crisesake! Do you think we’ve seen the last earthquake? Think storms aren’t comin’ that’ll wipe out big cities? Ever heard of a decade-long drought? Entropy is relentless. We as humans have no control over forces like these, and now our ability to respond to them is becoming weakened to the point of complete ineffectiveness by the state of our economy and the drop in tax dollars to towns, municipalities, states, and the fed is BROKE!
“It doesn’t take a rocket-scientologist to read the writing on the tea leaves,” as i say when i’ve had a bit too much vino.
It’s almost like its the final dash to the finish line for humanity. Last ones standing “win”.
December 13th, 2009 at 3:09 pm
Im not sure I buy into the end of the world scenario.
Russia has had what — 5 different regimes last century? — they survived.
In the 1970s, they same sort of attitude was prevalent . . . As negative as I have been, I just dont see it happening . . .
December 13th, 2009 at 10:34 pm
Americans Owe Less, Thanks to Write-Downs
but in other news Americans Owe More in Taxes because of Write-Downs since all taxpayers must share the pain of all the gamblers…
December 14th, 2009 at 10:33 am
[...] Ritholtz shows the decline in consumer debt – caused by write downs, not pay [...]