Reply #71: Interesting [View All]

[JNelson6563]

As for your point... yes, credit card debt is going way up, but I wouldn't say it's the "highest profit margins" when you take into account defaults, competitive pricing (all those 2.2% offers you get), and bankruptcies.

Yeah, I think I mentioned those as deterents. They go hand in hand with a bad employment situation.

Also, what many have missed is the sharp decrease in the number of banks IN that line of business. The market has really shrunk to just a handful of major players.

I don't see how that plays into the point of profit margin. It does favor the high profit margin argument a bit, we all know large corporations don't make business decisions with an eye to philanthropy....



I think it is amazing the rate of savings in Japan during this tough recession of theirs. Too bad so much of the spending going on is on imported goods. Otherwise it might actually help.

Lastly, I wouldn't invest in banks solely on the debt of the customer base. Keep in mind that critical interest rate spread. If rates go up too quickly we will be paying more on CDs and savings, but stuck still charging 6% on some loans that you would be foolish to pay off. It could get tight. It happened the other way in the early 90's when rates started to fall. We were charging 6% on some home equity products while we were still paying 10% on some long-term CDs opened in '88-'89. Not a good way to do things.

While I wouldn't invest soley onthe debt business either, it is a strong incentive (to be weighed against the disadvantages). You yourself stated above in this thread banks make the money off of what they loan out. They are loaning lots out. The logical conclusion is they will make some money. Didn't the 80's have notorious bank problems?

Panic? No (I'm over-weighted in financial stocks myself right now - but for different reasons), that's what asset-liability management is all about in a bank, and the good ones know what we're doing. But my advice for ANY investment is to KNOW their business. How they work and WHY they work - BEFORE sinking money into them.

Who said anything about panic?

And I agree about your advice, find out about a business before investing. I generally steer clear of banks. My opinion of the industry is not stellar and there are others I know much better. That's why I put "I'd" in my original post meaning "I would", not "I'm going to". ;-)

Julie