Hefty losses at its credit card unit are of interest in this article as many said problems would spread. A few months ago we reported that people were keeping credit card accounts current while defaulting on house payments. Not any more, from what we hear from Japan’s MUFG (Mitsubishi UFJ Financial Group Inc.) While losses also came from subprime issues, credit card defaults are alarming. Part of the credit card losses came from restructuring. Analysts look for subprime contamination of other markets because many collateralized debt obligations (CDO’s) are credit card receivables.
Did you ever wonder why your credit card company changed your terms to indicate that everything you buy with the card is collateralized? What are the chances of the company repossessing your toaster? Probably very small, but on paper it is a collateralized asset. But what happens to gasoline and food bought with the card? Therein lies the problem with the theory.