Credit Cards on Life Support

Buffett was late to the party last time around and the market seems to have passed him by. The real question regarding credit cards is how have these companies held out so long?

The Next Major Financial Crisis
by: Marc Courtenay June 28, 2009

Warren Buffett doesn't see the "green shoots" Ben Bernanke and other bullish investors have spoken of in recent months. In fact, the billionaire investor believes the economic picture will grow darker before things improve.

"Everything I see about the economy is that we have had no bounce," Buffett told CNBC anchor Becky Quick in a televised interview Wednesday. "There were a lot of excesses to be wrung out and that process is still under way, and it looks to me that it will be under way for quite awhile. In the annual report, I said that the economy would be in shambles this year and probably well beyond, and I think that is true."

From our vantage point, the nearly $1 trillion in outstanding U.S. credit-card debt could be the next major crisis to roil the economy... Losses on U.S. credit cards rose above 10% of the total loans outstanding in May – a new high in the 20-year history of the Moody's Credit Card Index, and the sixth-consecutive monthly record.

The mounting losses are forcing banks to bail out off-balance-sheet entities they use to package hundreds of billions of dollars of credit-card loans into securities. The total losses are very hard to estimate and most likely exceeds earlier estimates.

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