Banks and credit card companies are now reaping the effects of a society that systematically replaced decent worker pay with a society of debt, credit, speculation, usury, and anti-trust violations.
On October 30, American Express reported that it will fire 7000 workers or 10% of its workforce. Business insiders refer to job cuts as "efficiencies," and often reward corporations for this behavior. Apparently, American Express packaged up credit card debts and sold them to investors. But that business appears to be drying up.1
On November 3, Citigroup, a bank and credit card lender, announced a $1.44 Billion loss from its "bonds." Although credit card debt does not pose as great a threat to the economy as the mortgage banking crisis, prognosticators say the credit card situation will worsen in 2009.2
"Bundling" debt into securities was also a factor in the massive failures of the Fannie Mae and Freddie Mac who securitized mortgages from predatory lenders. According to CNBC, "there is roughly $1 trillion of outstanding credit card debt—compared to $14 trillion worth of outstanding mortgages—and in the second quarter of 2008, $385 billion of this had been bundled into asset-based securities, according to the Securities Industry and Financial Markets Association."3
The largest US credit card lenders are Discover Financial Services, Bank of America, Citigroup Inc., JPMorgan Chase, Capital One Financial Corp., American Express Co. and HSBC Holdings. Bank of America, Citigroup, JP Morgan Chase, and Capital One have already received billions in relief from the US Treasury (see 11-13-08 post).4
In other credit news, MasterCard had its second consecutive quarterly loss. The company's loss included a write down for settling a lawsuit against Discover and American Express. MasterCard (36%) and Visa (51%) dominated the credit card market in part by violating anti-trust laws.5
Credit card companies profit by taking a fee, about 2%, from retailers. Retailers assume that consumers will buy significantly more, perhaps 30% more, if they use plastic rather than cash.6
Not surprisingly, as an election nears, relief for working-class debtors facing fates much worse and more permanent than quarterly losses is being discussed but not settled.7