The Debts of the Spenders: A Closer Look at the US Housing and Credit Card Markets

Karl Denninger is great:

To put this in perspective there are condos out in Las Vegas that sold for $500,000 that now can be had for $50k or so. You'd think that's a great deal. You'd be wrong, because half the complex is foreclosed, the association is on the verge of bankruptcy and as a consequence the special assessments will be rolling in soon - and they won't be small!

Now add to this the basic business model in the consumer credit sector - jack up everyone's credit card interest rates. This is effectively an attempt to cost-shift those who cannot pay and are defaulting onto those who (still) can. It is doomed to fail because those who can pay off the card will immediately do so and close the line, while those who can't default under the increased burden. This looks good for a little while but the math is never wrong, and this sort of path forward either collapses under its own weight or eventually will draw a strong government regulatory response.

Either way what the banks are doing can't work; 36% interest charged against someone who is paying zero because they defaulted is still zero, but all your customers who can pay it off and leave will do so to avoid being bent over the table.

Source: http://market-ticker.denninger.net/archives/
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