Consumer Credit in Trouble
January 29, 2008
There was some hope that the financial mess of the US housing market would stay in the housing market. As more information becomes available to financial experts, there is some agreement that loan defaults may soon bleed over into other sectors as well. These sectors might include auto loans, credit cards, and even student loans. As household incomes become more strapped, increased late payments may become a major issue with some lenders.
The general consensus is that if past home loans were based on weak information on the borrower then it is likely that other lenders may have done the same with their loans. This trend toward loaning to those who are not able to afford the payback terms could result in large scale defaults across the nation in all sectors of consumer goods.
According to Stephen Gallagher, a chief US economist with Societe Generale, “Investors are increasingly wondering whether consumer credit is the next shoe to drop.”
U.S. consumer credit levels are hovering right around the $2.5 trillion mark which makes this issue a major concern for those who watch and monitor the national economy.
Experts estimate that nearly $800 billion of that $2.5 trillion is in the securitized markets. These markets are like those associated with the sub-prime mortgages which were bundled together and then sold as pools of bonds in the secondary markets. This type of bundling activity can leave both investors and consumers in a financially vulnerable position.
Many financial experts are suggesting that there will be an across the board increase in delinquent payments for such things as auto payments and credit card payments. This will be in addition to the already bleak housing market news. In the event that unemployment numbers increase as well, entire sectors of the consumer markets could be facing financial troubles