A debt crisis

Team Bush is sticking to its guns: There will be no recession this year.  I have two reactions to this:

  1. Well, they can manipulate the GDP and unemployment stats to say whatever they want, so within the confines of how they define a recession, they may well be right.
  2. Who's kidding whom?

And while we're on the subject of delusions, I have a message for the establishment media:  Stop calling it the "subprime crisis."  It's a debt crisis.  Or as that quintessential establishment media organization, The New York Times, reports today, "The credit crisis is no longer just a subprime mortgage problem."

As home prices fall and banks tighten lending standards, people with
good, or prime, credit histories are falling behind on their payments
for home loans, auto loans and credit cards at a quickening pace,
according to industry data and economists.

That this is being reported as news says something especially sad about the state of establishment media circa 2008, but let us press on:

Until recently, people with good credit, who tend to pay their bills
on time and manage their finances well, were viewed as a bulwark
against the economic strains posed by rising defaults among borrowers
with blemished, or subprime, credit.

“This collapse in housing value is sucking in all borrowers,” said Mark Zandi, chief economist at Moody’s Economy.com.

subprime mortgages, many prime loans made in recent years allowed
borrowers to pay less initially and face higher adjustable payments a
few years later. As long as home prices were rising, these borrowers
could refinance their loans or sell their properties to pay off their
mortgages. But now, with prices falling and lenders clamping down,
homeowners with solid credit are starting to come under the same
financial stress as those with subprime credit.

Yes, this is the sad state of the Grey Lady: Its reporters are just now discovering that prime borrowers also took out adjustable-rate mortgages.  Imagine that! 

And it is not just first-mortgage default rates that are rising.
About 5.7 percent of home equity lines of credit were delinquent or in
default at the end of last year, up from 4.5 percent a year earlier,
according to Moody’s Economy.com and Equifax, the credit bureau.

About 7.1 percent of auto loans were in trouble, up from 6.1 percent. Personal bankruptcy
filings, which fell significantly after a 2005 federal law made it
harder to wipe out debts in bankruptcy, are starting to inch up.

On Monday, Fitch Ratings,
the debt rating firm, reported that credit card companies wrote off 5.4
percent of their prime card balances in January, up from 4.3 percent a
year ago. The so-called charge-off rate is still lower than before the
2005 law went into effect.

The whole thing is an incredibly tiresome read for anyone who hasn't been under a rock for the last nine months or so.  For those of us who've been warning of trouble ahead for the last two or three years, it's just pathetic.

The Daily Reckoning