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Pushing Plastic: Deep Subprime Lending


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#1 wndysrf

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Posted 05 November 2004 - 03:21 PM

3:30PM: September Consumer Credit was released at the top of the hour and showed an increase to $9.8 bln (consensus of $7.0 bln)... The release is generally not market-moving, but September's increase puts year/year growth at 5.8%...

Here in Los Angeles, you have the worst of the worst credit ratings.

Imagine pulling up a credit report on the following:

- 22-year old head banger rock musicians competing on MTV for the "Ozz Fest" award, who purchase thousands of dollars of equipment at GTRC.

- 27-year old single mother, living with her 25-year old surfer boyfriend, the construction worker who hasn't paid or reported income taxes in 5 years, attempting to maintain the beach lifestyle with an $1,800/mo. one bedroom apartment.

- 35-year old junior college grad, working the at the boiler room for Survival Insurance, selling high-priced, high-commission auto insurance to DUI convicts, who has blown out his credit card balances to purchase expensive suits and a BMW 325.

- 18 year old college student, striving for "The O.C." lifestyle, taking lavish spring break vacations to Cabo San Lucas, and spends $400/week on dinners at trendy restaurants, admission fees to the clubs, and $7.50 martinis.

- 42-year old IT Manager, recently laid off at Bank of America, trying to daytrade his $35,000 "severance package", living on his Capital One and MBNA credit cards to "preserve his trading capital"

- Recently divorced 38-year old housewife, temporarily working at Pottery Barn for $10/hour, living on her Bank One and Citibank credit lines, while she negotiates a divorce settlement from her recently unemployed ex-husband.

- 29-year old Hispanic machinist, making $18/hour, driving a brand new Dodge Hemi pickup, lowered with airbags, custom wheels, and a $5,000 stereo/GPS/DVD system, living in a Santa Ana apartment with 2 roomates, desperately fighting off 3 pregnant ex-girlfriends chasing him for prospective child support.

- 36-year old hairdresser in Beverly Hills, living in a luxury high-rise apartment on Wilshire Blvd., spending $400/week on Botox injections, still paying off student loans, attempting to be "discovered" by a talent agency.

- 28-year old Laguna Beach skateboard junkie, travelling around the nation in a used bread truck to attend competitions, with no income, attempting to score a sponsorship from Oakley or Hurley International, living off of cash advances obtained from his UC Irvine "private label" credit card offered by JP Morgan Chase.

Virtually an unlimited pool of applicants for Cross Country Bank, as reported in today's WSJ:

Pushing Plastic

By MITCHELL PACELLE

Americans with shaky credit have been good to Rocco Abessinio. His privately owned bank (Cross Country Bank) has earned half a billion dollars in eight years of providing credit cards to people who couldn't get one elsewhere, either because of past bankruptcies, loan delinquencies or simply inadequate income.

Now Mr. Abessinio is in a fight with government authorities over how he treats his customers. Attorneys general of a half-dozen states have filed civil suits alleging that his business misled customers about terms and fees or engaged in abusive collection practices.

The banker's battle opens a window into "deep subprime" credit-card lending, the business of offering cards to people with abysmal credit scores. This is the low end of a "subprime" universe of about 40 million consumers. At the end of last year, according to data firm CardWeb.com, the bank had $1.5 billion in credit outstanding to two million cardholders.

More than one-fifth of its borrowers ultimately default, Mr. Abessinio says, compared with 2% to 5% of prime customers of other card issuers. "We have to charge accordingly," he says.

His bank's annual interest rate on balances starts at a lofty 23.99%. Many new customers, such as the Berrys, are charged an upfront $100 fee. Combined with the first year's $50 annual fee, this becomes an immediate $150 card balance counting against the initial credit limit, which is often around $500.

Other fees can mount quickly. When the borrowers fall behind on paying and exceeded their limits, they have $60 in late fees and over-limit fees tacked on each month. Collection agents say that when accounts are charged off as a loss, more than half of the balance sometimes stems from fees and interest rather than from purchases.

Mr. Abessinio got into the credit-card business by running card operations for various small banks. He later set up a business to handle back-office card operations and tailored programs for customers with poor credit. Then, finding that many banks balked at the risk involved in serving these customers, he formed his own bank in 1996 to do so.

His Cross Country Bank, based in Wilmington, Del., pitched its credit cards in part as a way for customers to re-establish a good payment history. His Applied Card Systems, which also handles other card-servicing operations, opened phone collection centers in West Virginia and several other states, where dozens of collectors sitting in office cubicles spend their days phoning delinquent cardholders around the country.

Kevin Stanley, who was a supervisor in Beckley, said in a sworn statement that he would call customers up to eight times in a day "to get a point across." If a child answered and he could hear a parent telling the child not to say he was home, Mr. Stanley said, he had another strategy. "We would tell that child, 'Don't listen to him. We know he's there. Don't lie for your dad,' " he said in his sworn statement. "Or, 'Don't end up like your parents when you grow up.' "

Employees described heavy pressure to collect, imposed by a system in which the bonuses of supervisors and collectors were pegged to the payments they brought in. Collectors routinely "made derogatory statements" to cardholders, said former collector Rose Duncan in an affidavit filed in West Virginia state court.

"I have told cardholders that they are thieves who steal the bank's money, that they should get a job, that they are useless, that they are bums, that they needed to quit sponging off everybody, and that they were liars," Ms. Duncan said. "I overheard other collectors telling cardholders to donate plasma, go out into parking lots of malls and pick up pennies, or pick up cans" to earn the money to pay.

Tammy Bosold, also at Beckley, described calling cardholders at work. "I'd tell them that if they didn't pay me, then everybody they worked with was going to know that a bill collector was calling them," she said in a sworn statement. When hung up on, she said, she would call back on the main line and have the person paged. However, Applied Card Systems later restricted calling cardholders at work, she added.

The most serious allegation, made in suits by several states' attorneys general, is that collectors at times reached into debtors' bank accounts and withdrew money without their explicit approval.

Ms. Bosold said her technique was to talk very fast. She said she would say something like, "This is Tammy with Cross Country Bank. I see we have your information with National City. We'll process this payment for $75. Do you have any questions? Thank you. Bye."

Mr. Abessinio's business has felt a crimp from all this. The pressure has included a tougher capital requirement imposed by the Federal Deposit Insurance Corp. on Cross Country Bank. The FDIC said in 2002 it "had reason to believe that the bank had engaged in unsafe or unsound banking practices, and had committed violations or law and/or regulations." It wasn't more specific. Without admitting or denying any infraction, the bank agreed not to engage in "hazardous" lending or operate with a large volume of "poor quality loans" or "inadequate capital."

To boost capital, Mr. Abessinio says, his bank had to raise prices and lose some accounts, and his employment has fallen to about 1,500 from 4,000 three years ago. "We shrunk, and the powers that be seem to want us to shrink further," he said.

"We're hoping we can survive through the low point of this cycle."


....................................

Cross Country should come out to California and open up shop here.

Plenty of applicants.

And why not go to Wall Struck and raise some capital? I'm sure some hungry investment bankers can find hordes of pension fund investors and HedgeFunds with insatiable appetites for an IPO in this "hot" sector...........

Below is a chart of World Acceptance (WRLD), which makes unsecured personal loans to subprime borrowers. So far, so good. Nice looking chart, and looks like it will breakout soon.

Never before has the world seen such easy credit availability.

............................

I'm off to Big Sur for the weekend.

Gone on Monday, will be back on Tuesday.....

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#2

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Posted 05 November 2004 - 05:13 PM

Comical, and yet spot on as usual....

#3 BusKow

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Posted 05 November 2004 - 05:22 PM

The Always Bullish ShowBrien Projects
1440 SPX
2151 NAS
135 XAU
262 HUI
Prudence, indeed, will dictate that governments long established should not be changed for light and and transient causes, and accordingly all experience hath shown that mankind are more disposed to suffer, which evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations , pursuing invariably the same object, evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security.

#4 Drano

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Posted 05 November 2004 - 05:30 PM

GOO founders say they don't want to split the stock because they want people to buy and hold.

I'll just bet they do!

http://start.earthli...D865TVE80_story

Skim through the puffery at the top to read horrifying stories of the GOO faithful -- like the guy who has 80 shares and runs a GOO chatroom.

Oh, the humanity.
Of course I'm caustic!

#5 An Ant

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Posted 05 November 2004 - 05:31 PM

Nasty/NDX printed nice dojis similar to June high.
Afternoon was spent retracing 62% of morning drop in 3 corrective waves.

Looking forward to gap down open on Monday.

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Posted 05 November 2004 - 05:33 PM

SOME YOUNG PUNK STARTED POSTING ON MY GOLD FORUM A FEW YRS AGO

He knows his stuff...just put this up-for what its worth-when he completes it, I'll post it

1163.50 is the most important number in the WORLD
(Mricchio) Nov 05, 15:24

I will be submitting an editorial that will seen around the world shortly.
It will address the level on S+P index called 1163.
Folks, to say this is important is an understatement.
There is a war going in the futures market.
Lot of beat up shorts, but there are still many selling 100 lots in the mini's and big spu's
The close is very important.

#7 Tchaikofsky

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Posted 05 November 2004 - 05:40 PM

Close: The October employment report served up gains in stocks today as nonfarm payrolls showed its largest increase since March... The economy added 337K (consensus of 175K) jobs in October, and September and August nonfarm payrolls were revised 113K higher... Average hourly earnings also moved higher - to 0.3% (consensus of 0.3%) - in a sign that the labor market was strengthening as a whole... Average work week also held steady at 33.8 hours (consensus of 33.8) and the unemployment rate increased a slim 0.03% to 5.46% (consensus of 5.5%)...

Inspired by the strong economic data, buyers sent stocks substantially higher in the opening minutes and the indices (although choppy throughout the day) managed to close near those levels - the S&P 500 finishing above its previous high for the year... Economically-sensitive sectors, such as retail, airline, and technology, spearheaded the market's climb... Retail itself benefited from Sears' (S 45.89 +8.71) announcement that Vornado Realty (VNO 38.13 -1.12) was taking a 4.3% stake in the company, whereas tech enjoyed a lift from Nvidia's (NVDA 17.63 +2.22) better than expected Q3 (Sept) report...

#8 FauxCaster

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Posted 05 November 2004 - 05:53 PM

And there's no corruption anywhere in the lending world? This magic circle-jerk of free money might work in perpituity. But we know most other bubbles weren't really working in the end, the companies just lied to us. We sit aghast at the lending practices and the numbers. But the numbers have always been wrong in the past (whether it was fiber optic roll-out, or energy trading, or 'daisy-chains' in the S&L 80s). Something is rotten somewhere. Somewhere a homebuilder is lying, a lender is lying, a bank's OTC derivatives exceed all safeguards. There is too much expectations and pressure to lie. Something will break, and it will all be revealed as fraud. But this time, there are no interest rates to cut to bring sanity to the market.
"WE ARE BEING KEPT ALIVE by the Entropic movement of Dark Matter(Sino-Nippo-dollar purchasing of $UST)---as soon as there is a ringing sound,a sign of an clogged artriosclerotic wormhole on the emergency fiat-meter it will end--dynamic equilibrium,will have been achieved;better known as death" -- beardrech (Mar 15 2006, 01:17 AM)

"There's a good chance he was drunk or drugged. Only an idiot would jump into the bear cage." -- Belgrade Zoo Director Vuk Bojovic (August 20, 2007).

It's like you're dreamin' about Gorgonzola cheese when it's clearly Brie time, baby. -- Hitchhiker (S.A.M. 1998)

Mar 28 2003: July 2003 is the time I have identified as the low of the bear move...then the first leg of the bear is over ...many will be caught by surprise to see the market near it's all time high again within 3-4 years [2007] ..."depression" similar to 1932 doesn't come until 2010. -- blackbelt (Mar 28 2003, 10:05 PM)

#9 stanley

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Posted 05 November 2004 - 05:54 PM

Taipei, Taiwan: If you can pick it up by two fingers, it is yours. So far no one did (Gold bar, weight 12.5Kg)(but hoster cancelled this offer as of yesterday)
(source: udnnews.com 11/05)
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#10 Drano

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Posted 05 November 2004 - 05:55 PM

Tchaik, love the reference to NVDA, now trading at 17 and change. Used to trade at 70.

Hope GOO can do the same for me. Actually, even trading at 70 would make me very happy.
Of course I'm caustic!

#11 dozer

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Posted 05 November 2004 - 06:07 PM

Comical, and yet spot on as usual....

Word. tanks wndy.

#12 orvack

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Posted 05 November 2004 - 06:13 PM

Crude Oil ( Daily ) :

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#13 Auntie Septic

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Posted 05 November 2004 - 06:23 PM

Taipei, Taiwan: If you can pick it up by two fingers, it is yours. So far no one did (Gold bar, weight 12.5Kg)(but hoster cancelled this offer as of yesterday)
(source: udnnews.com 11/05)
Posted Image

The reason why it was cancelled was that every
bass player in the world was headed over there.
Imagine, a "golden" opportunity to apply the
freakish strength you develop in your fretting
hand.

Oh well, back to bar gigs...
Removed.

#14 BusKow

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Posted 05 November 2004 - 06:24 PM

Didn't know it earlier but ShowBrien is hosting Arch Crawford after these commercials...
Tom O'Brien Page
Prudence, indeed, will dictate that governments long established should not be changed for light and and transient causes, and accordingly all experience hath shown that mankind are more disposed to suffer, which evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations , pursuing invariably the same object, evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security.

#15 dozer

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Posted 05 November 2004 - 06:29 PM

""Retail itself benefited from Sears' (S 45.89 +8.71) announcement that Vornado Realty (VNO 38.13 -1.12) was taking a 4.3% stake in the company,""


tee hee....and I'll bet ol' Vornado was SELLING a 4.3% stake by the close today! :lol:

what a great scam...





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