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When there is blood in the water, it is only natural that dorsal fins swirl
around excitedly. Now that America’s housing market is ailing, predators have
their sights on the country’s credit-card market. Analysts at Goldman Sachs
reckon that credit-card losses could reach $99 billion if contagion spreads from
subprime mortgages to other forms of consumer credit. Signs of strain are
clearly visible. There are rises in both the charge-off and delinquency rates,
which measure the share of balances that are uncollectable or more than 30 days
late respectively. HSBC announced last month that it had taken a $1.4 billion
charge in its American consumer-finance business, partly because of weakness
among card borrowers.
It is too early to panic, though. Charge-offs and delinquencies are still
low. According to Moody’s, a rating agency, the third-quarter delinquency rate
of 3.89% was almost a full percentage point below the historical average. The
deterioration in rates can be partly explained by technical factors. A change in
America’s personal-bankruptcy laws in 2005 led to an abrupt fall in bankruptcy
filings, which in turn account for a big chunk of credit-card losses; the number
of filings (and thus charge-off rates) would be rising again, whether or not
overall conditions for borrowers were getting worse.
The industry also reports solid payment rates, which show how much of their
debt consumers pay off each month. And confidence in credit-card asset-backed
securities is pretty firm despite paralysis in other corners of structured
finance. Dennis Moroney of TowerGroup, a research firm, predicts that issuance
volumes for 2007 will end up being 25% higher than last year.
Direct channels of infection between the subprime-mortgage crisis and the
credit-card market certainly exist: consumers are likelier to load up on
credit-card debt now that home-equity loans are drying up. But card issuers look
at cash flow rather than asset values, so falling house prices do not
necessarily trigger a change in borrowers’ creditworthiness. They may even work
to issuers’ advantage. The incentives for consumers to keep paying the mortgage
decrease if properties are worth less than the value of the loan; card debt
rises higher up the list of repayment priorities as a result.
Card issuers are also able to respond much more swiftly and flexibly to
stormier conditions than mortgage lenders are, by changing interest rates or
altering credit limits. That should in theory reduce the risk of a rapid
repricing of assets. "We are not going to wake up one day and totally revalue
the loans," says Gary Perlin, Capital One’s chief financial officer.
If a sudden subprime-style meltdown in the credit-card market is
improbable, the risks of a sustained downturn are much more real. If lower house
prices and a contraction in credit push America into recession, the industry
will undoubtedly face a grimmer future. Keep watching for those dorsal fins.
1. The author makes mention of dorsal fins which are irrelevant to the
topic in order to _____.
[A] make people alert to the potential danger
[B] attract the readers’ attention by presenting an interesting
phenomenon
[C] make people realize the graveness of the issue by showing a similar
case
[D] make the passage more vivid by imparting new knowledge to readers
2. Rises in the charge-off and delinquency rate indicate _____.
[A] the deterioration of the subprime mortgage
[B] the inadequate ability of card borrowers
[C] the influence of the technical factors
[D] the change in relevant laws
3. According to the third paragraph, the number of bankruptcy fillings
would be rising again because_____.
[A] there is a change in America’s personal-bankruptcy laws
[B] the charge-offs and delinquencies are still low
[C] the influence of the personal-bankruptcy laws has been digested
[D] the overall conditions for borrowers are getting worse
4. The subprime-mortgage crisis influnces the credit-card market in
that_____.
[A] the fall of asset values affects the card borrowers’
creditworthiness
[B] the decrease in the mortgage payment leads to the rises of the card
debt
[C] the drying up of the home-equity loans spur consumers’ incectives to
repay the card debt
[D] the falling house prices makes the card debt rising higher
5. According to the author, the credit-card market will more likely be
threatened by_____.
[A] a gradual downward tendency
[B] a rapid collapse
[C] a sustained trend of lowering price
[D] the accumulation of economic recession |
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发表于 2017-8-6 14:10:56