There is an interesting pool at one of the local businesses. The winner is the one who picks the date and time that the first news article states that VISA,MC & AmEx are no longer accepted by businesses.

When these three giants falter from their huge debt, businesses will not be paid. Debit cards may survive. Retailers may be forced to hold merchandise until the perverbal check clears.

Any thoughts or predictions? The DOW closed down 777 on Monday. Will it drop 2000 Tuesday or rise 200?

Well, let's see. I work at the agency that does the web site for a major issuer of credit cards.

I get - on a weekly basis - the transaction volumes, the average balances, delinquency rates, late payment rates - all of the good and juicy inside information about the credit card business. I can't share a bit of it.

The decision to take/not take credit cards is one that is made by the business; further, Visa and MC is nothing but a process network and processing entity that operates for the bank. Visa & MC hold no consumer debt - the issuing banks do. Thus you have a Chase Visa, a Wamu Visa, a Citibank Visa, but you (usually) only have an "American Express" card or a "Discover Card".

This is because American Express and Discover issue cards directly and hold consumer debt. They have a higher level of risk. All of these issuing companies have finely tuned mechanisms for detecting changes in the market. You may have noticed that this past summer, the credit card companies began to raise interest rates even on "good customers" who carried debt, made payments on time, but still had their rates raised. This was because they saw the pending slowdown, detected an increase in late/nearly late payments, and they reacted accordingly to protect their cash-flow with higher interest payments.

Cash reserves of these companies are huge...tens of billions. Discover has about 37 billion in all sorts of assets against 6 billion in receivables, Amex has about 127 Billion in assets against about 47 billion in receivables.

You'll need on the order of 50% non-performing receivables to rally damage these firms, and maybe more.


Now, to win the prize, I can tell you about scores of companies that no longer take credit cards - to save on the processing fees and the cut taken by the various players along the way.

Certainly, we've seen the "cash discounts" for gas.

Where I live, "The Baker" - a local business - no longer takes any kind of credit card, and I've been in more than a few places - mostly restaurants - that have gone "cash-only".

I'll post a picture of the sign at "The Baker" after I stop by tomorrow.

If you need a citation right now, well ask Google for "Companies No Longer Accepting Credit Cards" and there we have:

http://www.contracostatimes.com/ci_10531774
"Pacific Gas & Electric Co. says it will soon halt a nearly two-year-old pilot program that enabled customers to use Visa brand credit cards for monthly utility payments.

Oct. 1 is the last day that PG&E will accept Visa credit cards for recurring or one-time payments of their bills, said Tamar Sarkissian, a spokeswoman for the San Francisco-based utility. The program was available only to residential customers Sarkissian said.

"When we began the program, it was a no-fee pilot program," said Brian Swanson, a PG&E spokesman.

By state regulations, such a program had to be cost-neutral. "We discovered that the savings from the program did not cover the costs," Swanson said."


I work in NYC, I work in and with financial service firms. Today's "crash" was only big in terms of points, it's nowhere near the 23% decline of 1929, and while there's fundamentally bad stuff happening, there's a hell of a lot more that will need to go wrong before we see a wholesale collapse of the credit card industry. There's MANY more companies ahead in line for failure before we see that.

If you want to worry about a business sector, I'd suggest you take a look at Aviation, which was barely able to handle the fuel price spike, now you'll see a downturn in passenger volume and then you'll see mergers and closures at an incredible pace.

I'd also be looking for a job NOW if I worked in the Hotel industry (might be too late for that).

In terms of opportunities - opening a General Store in what's left of "Downtown America" might not be a bad idea. Localized supply chains.

Also, if you live in a suburban area, an ultra-light (think carbon fiber), high-tech electrically assisted regenerative braking wagon for your team of horses might be a great way to do local delivery for a wide range of companies from the grocery store to the pharmacy. Also would be interesting to see if Machine Shops - 3d Fabs and so forth - start cropping up with the latest in CNC and sintered polymers instead of the old lathes and files.

Milk Men! Put on your Bow Ties! There's a Market Opportunity Coming! Re-Localization of markets!

WADR, 'milk persons' is the proper usage.

OTOH, your analysis of the situation is concise, insightful, well-informed, and in all respects superior to similar presentations by all the elected officials, appointed officials, and national party candidates who spoke today.

Have you considered runing for office?

Forty years ago it was pretty rare for a person to use credit on anything but a house or vehicle. Most daily transactions were made with cash. Larger ones a cheque. If you had the money you could spend the money. If not you waited and saved until you did.

The funny thing is that we had a substantial savings rate driven by people saving up for big purchases and the proverbial rainy day. This meant the banks had cash to lend out. Now we have a savings rate that hovers between zero and negative numbers. Nobody saves up to buy a car. last time I bought a vehicle the man was shocked that I paid with a cheque and offered to go to the bank and get cash.

Of course I'm told that easy credit is 'progress'. Even though using credit almost always increases the actual price paid. A neighbor got one of those rent-to-own deals on a TV. When I multiplied out his payments he will have paid about three times what you could buy the same TV set for if you paid cash.

He made the same money as I did. If he would have just saved what he would pay the rental place he could pay cash, own it outright, and do it in just a couple of weeks. But he wanted the TV set now.

Which is, in a nutshell, is how we got into this mess.

To give an insight into what is going to happen is shown by a statistic released today in the UK. The approvals for new mortgage business last month, is at 2% of the same value it was just 1 year ago at just £143 million. There has been a drop of 98% in the value on new mortgage loan approvals in the space of just 1 year.

http://news.bbc.co.uk/1/hi/business/7641535.stm

http://www.wsws.org/articles/2004/jan2004/debt-j15.shtml a report dating back from 2004.

June 1993 - US Consumer debt = $825.9 Billion

June 2008 - US Consumer debt = $2.587 Trillion = around $24,000 /household

The consumer debt graph has been essentially an exponential graph since the end of the second world war.

The unsecured consumer debt bubble has yet to burst. The credit card debt bubble is unsecured meaning that it is based on no real fixed assets. If you think sub-prime was scary then you haven't seen nothing yet.

Forget credit cards, I'm waiting for when US currency becomes so devalued it's useless. At that point I'll be glad I have some gold, silver, and items to barter.

As Martin already mentioned, this bet doesn't really make sense to me, at least for the reason given. Businesses stop accepting credit cards all the time, usually because the fees aren't offset by a hoped for increase in total sales when they accept credit cards. For example, a small restaurant may have to pay CC fees every month that it otherwise wouldn't have to if it only accepted cash, but the average bill may be higher if people could charge it.

If I default on my credit card balance, it's the issuing bank that hurts, not Visa/MC/AMEX/Discover. Last year, there was over $2 trillion in credit card transactions just in the US, and the CC companies charge 3,4,5% for each transaction. You do the math.

The ironic thing is that people who declare bankruptcy often get deluged with more credit card offers. That's sick.

AMEX told me they were no longer issuing business lines of credit when I asked about lowering my rates. My local credit union lowered my rate by ~3% a couple months ago so I figured why not try AMEX too!??! So they are cutting back apparently.

Ding! That's the right answer. Guess I'm old fashioned, because that's been my financial style from day one. (Though forty years ago, I was just sorting out the difference between thumbs and toes.) Now I own my own place, have a low overhead business, have a bit set aside, and owe not one penny. People have been living high off credit and snickering at my frugal ways and old cars for fifteen years; now my discipline is speaking louder than words. "Pride cometh before a fall," says an old book, and it's going to be a long way down for some.

Anyway, regarding CC, I think there are two kinds of credit card issuers: those that plan on people paying off their balance (mostly), and those that rely on people paying minimums only (i.e., loan shark interest rates).

I had a credit card issued from one of the latter. Their game was blatantly obvious: get me in debt up to my eyeballs. Total SOBs. So I dropped the credit line from $15G to 500 bucks, just for laughs. They didn't like that, oh no. Now I use it for Internet purchases only, protecting my interests and theirs from fraud and the Russian mob. Instead of being grumpy and snarly, they should have offered me a corner office with perks. My fiscal conservatism was the right(eous) path. Hope these predatory types get a major spanking; they deserve every whack.

I think a lot of people are under the misconception that people are using credit when they are using their debit card. I use mine for everything rather than hand enter transactions and use it via credit rather than atm becaue I get rewards points. My credit and debit card look almost identical so unless you were close enough to see the word debit or checking on the cards its impossible to tell.