Professor Elam

One student reported in class that her company had received notice of reduced credit card limits.

Meredith Whitney points out that the control of credit cards are in the hands of a few big banks. With less capital to risk, they are now cutting back on credit card limits.  As she says (this was on CNBC this morn at 6:35 AM) about ten percent of credit card holders would never have been granted loans in the past but now get them thru the cards.  It struck me that the irony of this is that regional banks in good shape now brag that they have no mortgage exposure or credit card exposure. Well that is the problem, they cannot make a decision about how might be a decent risk, so the big banks throw eveyrone overboard. Point is, contracting credit card limits in a crunch will lead to, you guessed it, less spending.

She predicted that the big banks would survive but zero growth or profit for two years. Lower mortgage rates mean nothing if your home value is underwater, The real estate markets will have to work that out. Prices must fall on marginal homes. there are apparently hundreds of what I  would call marginal homes built on the fring areas of San Antonio, such as west and north of 1604 that now sit empty for rent or sale. Most are really stand alone apartments of about 1500 sf. What are they worth, not what they are asking at $125 K. They are really woth the comparable rent on a similar apartment, adjusted for the higher insurance and property tax one has to pay.  So a price of $75 K would be more like it.