Will the Global Banking Crisis Spread to Credit Card Companies?
It was a chaotic time on the stock market last week with rumors that Lehman Brothers would be the next investment bank to succumb to the credit crisis a la Bear Stearns, the closing of IndyMac, and the collapse of the stocks of mortgage giants Fannie Mae and Freddy Mac after the announcement that they were insolvent.
The question that many are asking is how the real estate and mortgage crisis will spread to the rest of the economy. One industry that could easily be affected by the credit crisis that developed under the real estate and mortgage collapse is the credit card companies. In Britain, the estimates are that 20% of the nation’s 56 billion pounds of credit card debt won’t be repaid. That led the Times Union in the article titled “Fears grow of a global plastic meltdown” to say that ” … there are increasing signs that this last breakwater, shoring up the economies of the western world, is about to crack under ever-increasing strains.”
Still, not everyone agrees that a global credit card debt meltdown is imminent. An article in the Arizona Republic noted that credit card defaults were only slightly above the average default rate over the past five years.
