But I Thought…. Well, Never Mind (Bankruptcies to Return to Pre-’Reform’ Level?)

From a subscription-only article at CardForum.com (para breaks added by me):

….. executives at two large issuers predicted recently a decline in consumer credit quality. “In 2007, we would expect bankruptcy filings to return to more normal levels, and potentially, a worsening in the credit environments,” David Sidwell, executive vice president and chief financial officer at Morgan Stanley, said of its Discover card business.

Fifth Third Bancorp President Kevin T. Kabat said the overall credit environment in 2007 “won’t be as favorable” as it has been. “We would expect some mild deterioration going forward.”

A recent report from Bernstein Research forecasts the net loss ratio on credit card portfolios–estimated at 3.5% for 2006–will rise to 5.2% in 2007 and 5.95% in 2008.

“Normal” levels of bankruptcies would be the pre-”reform” 1.5 million per-year average of 2001-2004, as opposed to the (somewhat educated) guess of 700,000 to 800,000 I predicted in late August. The level of losses indicated above could be enough to slow down the economy, even if everything else is going right. If the research turns out to have foreseen events accurately, lenders will to an extent be paying the price for deliberately throwing money at people who they knew probably couldn’t repay, or who would they knew would run into problems if there were even a minor financial disruption. That will be little consolation to borrowers who theoretically should have known better, but thanks to more factors than I can cover here, didn’t.

SHAMELESS PLUG: People who are concerned about becoming part of an unfortunate financial statistic should go here, figure out where they stand, and, if necessary, take action to prevent it.