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[bob ford <bobford79 AT yahoo.com>]

Just posted on NYT.  This is a very big deal, which could dry up more than 
all of the liquidity that has been pumped into the economy.  Credit card 
spendeng is second only in consumer liquidity to actual paychecks.  This 
could be very good for the long-term financial health of the average 
american; but I don't see how it will do anything but make this present 
recession much worse
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By REUTERS

Published: December 1, 2008 

Filed at 12:38 p.m. ET

Skip to next paragraph  (Reuters) - The U.S. credit-card industry may pull 
back well over $2 trillion of lines over the next 18 months due to risk 
aversion and regulatory changes, leading to sharp declines in consumer 
spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first 
being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form of 
credit-card lines to decline by 45 percent."

Bank of America Corp <BAC.N>, Citigroup Inc <C.N> and JPMorgan Chase & Co 
<JPM.N> represent over half of the estimated U.S. card outstandings as of 
September 30, and each company has discussed reducing card exposure or 
slowing growth, Whitney said.

Closing millions of accounts, cutting credit lines and raising interest rates 
are just some of the moves credit card issuers are using to try to inoculate 
themselves from a tsunami of expected consumer defaults.

A consolidated U.S. lending market that is pulling back on credit is also 
posing a risk to the overall consumer liquidity, Whitney said.

Mortgages and credit cards are now dominated by five players who are all 
pulling back liquidity, making reductions in consumer liquidity seem 
unavoidable, she said.

"We are now beginning to see evidence of broad-based declines in overall 
consumer liquidity."

"Already, we have witnessed the entire mortgage market hit a wall, and we 
believe it will, for the first time ever, show actual shrinkage over the next 
few months," she wrote.

The credit card market will be 18 months behind the mortgage market and will 
begin to shrink by mid-2010, Whitney said.

Whitney also expects home prices to continue falling another 20 percent hurt 
by lower liquidity. They are down 23 percent from their peak, she said.

"In a country that offers hundreds of cereal and soda pop choices, the 
banking industry has become one that offers very few choices," Whitney wrote 
in a note dated November 30.

She also said credit lines to consumers through home equity and credit cards 
had been cut back from the second-quarter levels.

"Pulling credit when job losses are increasing by over 50 percent 
year-over-year in most key states is a dangerous and unprecedented 
combination, in our view," the analyst said.

Most of the solutions to the situation involve government intervention, and 
all of them require more dilutive capital to existing lenders, she said.

"Accordingly, we continue to be cautious on our outlook on US banks."

SUGGESTIONS

In a column in the Financial Times, Whitney suggested four adoptable changes 
to make a difference.

The first would be to re-regionalize lending, which has gone from "knowing 
your customer" or local lending, to relying on what have proven to be 
unreliable FICO credit scores and centralized underwriting, due to the 
nationwide consolidation since the early 1990s, she wrote in the column.

Expanding the Federal Deposit Insurance Corp's guarantee for bank debt will 
also help as the banks need to know they can access reasonably priced credit 
for an extended period to continue to extend new credit lines, she wrote in 
the column.

Whitney also advised delaying the introduction of new accounting rules, which 
would bring off-balance-sheet assets back on balance sheet, until 2011 or 
2012, as the primary assets that will come back are credit card loans.

Whitney suggested amending the proposal on Unfair and Deceptive Lending 
Practices that is set to be adopted in 2010, saying restricting lenders' 
ability to reprice an unsecured loan will cause them to stop lending or to 
lend less.