The Next Financial Bust

(I’ve been sitting this post for a few of months now but I didn’t think my ideas were reasonable enough to stick. The New York Times posted this anonymous letter from a bank executive identifying that credit card debt will be the next big problem.)

Recently, I moved to a new flat in Edinburgh. I visited the Halifax Bank of Scotland to let them know my new address. After we changed my address, the cashier informed me that I was eligible for a credit card from the bank without a credit check. This was a “limited time offer” for “long-term customers” of the bank. The offer of credit without proof of my ability to repay it sounded remarkably similar to the sub-prime mortgage crisis so I decided to feign interest to learn a little more.

I was told to take a seat while and offered a cup of coffee while I waited for a Financial Advisor to discuss my application. The financial advisor asked about my occupation and salary and without any proof, proceeded to offer me a credit card with a £3,500 limit based on the system.

The next financial disaster could well be your problem because you might have accepted credit from your bank during the credit crunch. If a bank has 100,000 customers with credit-check free cards, that is an easier problem to deal with than 100,000 customers with an unsecured mortage. But the credit card debt is likely to be unsecured debt and how many banks will be able to afford to announce more write-offs due to poor decisions?