Is the Crystal Ball Clearing? | 148 comments (147 topical, 1 editorial, 0 hidden)

Because if it's collateralized, it isn't at risk?

by rifek on Mon Mar 12th, 2012 at 06:50:14 PM EST
[ Parent ]

What's the credit risk of a secured credit card?

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 04:34:13 AM EST
[ Parent ]

Re: yes (none / 0)

None, it's fully liquid. Non-liquid collateral is a different issue.

by rifek on Tue Mar 13th, 2012 at 02:33:52 PM EST
[ Parent ]

Re: yes (none / 1)

Are you talking about different kinds of risk here?

If I pawn a clock or a house, the lender does not have a credit risk, but a risk that their evaluation of the value of the collateral will not be correct when if a time comes when the collateral needs to be sold.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Mar 13th, 2012 at 03:54:43 PM EST
[ Parent ]

Re: yes (none / 0)

They have a credit risk, that you won't pay. Only after you don't pay do they get to liquidate your collateral. Then they have liquidity risk.

Then again, some people say "all risk is liquidity risk".

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 04:39:25 PM EST
[ Parent ]

Re: yes (none / 0)

But that is clearly false. Liquidity risk can be made to go away entirely (at least within the system of banks in good standing) through appropriate central bank policy. This will not, however, do anything about credit risk.

Liquidity risk is a political problem of whether you get to defer payment. Credit risk is a fundamental problem of whether you are able to make payment.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 13th, 2012 at 06:55:13 PM EST
[ Parent ]

Re: yes (none / 0)

So why are people made to pay interest from the privilege of borrowing from their own collateral?

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 04:44:12 PM EST
[ Parent ]

Re: yes (none / 1)

I suppose it's just a way to trick retail bank customers. Like "actively managed" mutual funds that behave exactly like index funds, but have three times as high fees.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 13th, 2012 at 06:04:54 PM EST
[ Parent ]

Re: yes (none / 1)

No, it's actually a way to extract tribute from people with poor credit.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 06:06:46 PM EST
[ Parent ]

Re: yes (none / 1)

No one is forced to have a credit card. But people can be tricked into it. Just like people can be tricked into putting their savings in "actively managed" funds.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 13th, 2012 at 06:10:20 PM EST
[ Parent ]

Re: yes (none / 0)

In the US, you're practically an unperson without a credit card:

You need one to make a hotel or plane reservation, or to rent a car, even if you plan to pay cash. Many stores require a credit card to accept your check. Responsible use of a credit card builds a good credit rating, too, marking the owner as mortgage-worthy.
But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card.

(link)

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 06:11:05 PM EST
[ Parent ]

Re: yes (none / 0)

I've never used or even had a credit card in my entire life. Why not just use a debit card instead? I do that all the time.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 13th, 2012 at 06:24:21 PM EST
[ Parent ]

Re: yes (4.00 / 2)

The US system appeared absurd to me too, the first time I heard of it, but there it is. If you can't deliver a credit card company that says you payed your bills on time, you are not creditworthy.

Sweden instead uses implicit credit worthyness unless the central government register says that we failed to pay a bill so many times that it ended up with Kronofogden.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Mar 14th, 2012 at 04:35:20 AM EST
[ Parent ]

Re: yes (none / 0)

In France, you get to be "interdit bancaire" (blacklisted by a government file, and denied all banking services), basically if you ever write a dud cheque. There is now (this is recent) a government-mandated minimum service that banks are obliged to provide to people who are blacklisted, which amounts to a debit card.

The advantage of this system is that you can (could, until a few years ago) write a cheque for just about anything. The banks are trying hard to stamp out the massive use of cheques (because they cost them money) and force us to use credit (or debit) cards.

Credit card balances are paid off automatically every month from your bank account, so you can't have outstanding balance on your card (what you have instead is an overdraft).

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Wed Mar 14th, 2012 at 06:59:05 AM EST
[ Parent ]

Re: yes (none / 0)

You still use cheques in France? I think we phased them out in like the mid 80's.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Mar 14th, 2012 at 10:40:39 AM EST
[ Parent ]

Re: yes (none / 1)

We still use them in the U.S......(I've never seen them in Italy). But the system is broken.

by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 14th, 2012 at 11:14:54 AM EST
[ Parent ]

Re: yes (none / 1)

As do I. The bulk of debit cards here in the US can be used the same as a credit card. Secured credit cards are frankly a predatory practice no one sees fit to regulate. They prey on the patently ignorant and on those whose creditors would garnish any bank account they opened.

by rifek on Wed Mar 14th, 2012 at 02:59:15 PM EST
[ Parent ]

Re: yes (none / 0)

You have obviously not been denied a mobile phone contract because you didn't have a credit rating (good or bad: no credit rating is worse than bad credit) which you could only establish with a credit card.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Mar 14th, 2012 at 03:02:31 PM EST
[ Parent ]

Re: yes (none / 0)

People in that situation should be able to get pre-paid cell phones. If not, that is a real abuse, as there is no risk. As soon as you reach your pre-paid limit you can only use the phone to dial 911 or the provider's line to add more minutes. Now, if you don't have a credit card, it may be necessary to go to a retail outlet to add more minutes to your cell phone. In Arkansas there are plans specifically for low income people designed to provide them with basic communications for health and safety. Such plans provide much better phones than the cheapest available. That is probably a boondoggle for the providers.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 14th, 2012 at 04:42:48 PM EST
[ Parent ]

Re: yes (4.00 / 2)

That's just one example of what you can be denied for having no credit history. You can be denied anything that involves a credit check, which is becoming increasingly standard when dealing with corporations. You may be denied an apartment rental application, for instance. You may be denied a car rental. Your debit card may not be accepted for online payments. And so on and so forth.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu Mar 15th, 2012 at 05:22:04 AM EST
[ Parent ]

Re: yes (none / 1)

From Wikipedia: In ~~Hungary~~ Sweden debit cards are far more common and popular than credit cards. Many ~~Hungarians~~ Swedes even refer to their debit card (~~"betéti kártya"~~ "kontokort") mistakenly using the word for credit card (~~"hitelkártya"~~ "kreditkort").

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 13th, 2012 at 06:27:48 PM EST
[ Parent ]

Is the Crystal Ball Clearing? | 148 comments (147 topical, 1 editorial, 0 hidden)

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