Wednesday, November 12, 2008

The other shoe is about to drop?

Credit card losses hit new highs. (HT: Across the Curve)
"Credit card companies have been setting aside money to cover credit losses, but analysts estimated the lenders would still need higher provisions."

American Express is now a nationally chartered bank holding company, allowing it to get access to loans from the Fed. This is a sign that American Express would have been in trouble otherwise. One possible reason the Fed is encouraging banks to hold more excess reserves: further asset depreciation, including nonsecured loans (ie: credit cards).

I just sent an email to my Money and Banking class that is typical of the last two months. Fed policy changes dramatically faster than we can cover the topics in class. What was true in class yesterday is no longer true today. The textbook, published last year, is now obsolete. I should have just called the class "Financial Crises and Monetary Policy" and taught topics around the latest news of the week.

*UPDATE!:* The Treasury Department now wants to subsidize the credit card (and auto loan) industry. I agree with Tyler Cowen: Bad idea.

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