Citibank is closing down credit accounts, giving consumers little to no warning:

Shannon Burdette tried to pay with her Shell Mastercard after filling up her gas tank this weekend but found the card rejected.

Confused, she called the customer service line on the back of the card, issued by Citibank, and was told the account was closed because of something that appeared on her credit report. But when the Sykesville, Md., resident got a copy of her credit report online, the only negative thing she saw was “closed at credit grantor’s request” on the Shell MasterCard account.

Citibank is well within their rights to close a credit account, at any time, for any reason, the manner in which they have done to with this group of consumers sure does not work in their favor from a customer service perspective.

Note: Citibank is NOT the same as CIT Group.

Last week, I believe, the news hit the wires that credit card delinquency hit the highest level ever – 6.5%. That was a good sign the high unemployment was starting to hit the consumer in the pocketbook. It was just a matter of time that consumer credit scores started to fall…

From the third quarter of 2008 to the first quarter of 2009 — the latest data available — the average TransUnion credit score dropped 6 points to 651, the credit bureau says. Scores fell more dramatically in states hardest hit by the housing bust: California saw a 10-point drop, for example, and Arizona, 11.

“Consumers are feeling the bite of the current recession,” says Ezra Becker, a director in TransUnion’s financial services group. “With delinquencies showing up in credit files, it’s not surprising that the average score is decreasing somewhat.”

More and more it seems that people are deciding – do I pay for food or do I pay the mortgage this month (or some other bill). This leads to individuals push off payments and a hit on the credit score. I know of two such people. All they are guilty of is being laid off, now their credit is crap – and they’ve eaten through some of their retirement funds as well.

Before we jump on the “well, you shouldn’t have lived outside your means” bandwagon, there is a good chance that a number of these people didn’t do anything wrong. They didn’t live outside their means but just found themselves in the proverbial “wrong place at the wrong time.”

All of this makes me ask does the credit rating system need to be revamped? Is there a better way of ranking/rating the buying power of a person than simply sticking a number on a file that belongs to their name?

I don’t have an answer to the question, it was just random thought…

Being out of it for the last 24 hours (or there about) means that I’ve missed a few things in the world of business.  Well, in the world in general as well.  

Anyway, there are a number of things that caught my eye as I went over the headlines for the last day.

Chrysler Dealers: ‘They Turned Their Back On Us’ 

You knew it was just a matter of time before the dealers/dealerships that fell victim to the Chrysler cuts started to speak up.  It didn’t take long, actually.  Something along the lines of 12 hours…

“I had to notify just around 50 people today that our business has been terminated, that they no longer have a job,” said Kevin Ormes, owner of the dealership. 

Ormes got a courtesy call on Thursday morning delivering the news, and he’s angry. 

“Over the past months, they’ve begged us to buy vehicles, they’ve begged us to do everything for them and when it came time to do something for the dealers that basically invested everything that they have, they’ve turned their back on us,” he told CBS 2. 

I actually feel quite sorry for Ormes.  The dealers who stuck with Chrysler, who ended up buying stock when Chrysler needed – but their dealership may not have – are not left in the dark.

Too bad for the dealerships that Chrysler went into bankruptcy. That move allows the company to void contracts (with the approval of a judge), leaving the dealer network virtually hostage to whatever decisions Chrysler made in the name of rightsizing.

G.M. Notifying 1,100 Dealers That They Will Be Dropped

And just as expected, General Motors did the same – the notified and additional 1,100 dealerships they were no longer needed in the GM family.

What I find interesting about the latest news is the input provided by the National Automobile Dealers Association.

The National Automobile Dealers Association estimated that the G.M dealerships being dropped employ 63,000 people, and that 40,000 work at the Chrysler stores being closed. Thousands more jobs are at stake in the later phases of G.M.’s dealer cutbacks.

There are another 100K jobs that will be looking for employment.

Empire State Manufacturing Survey: Conditions worsened modestly in May

The much watched Empire State Manufacturing Survey data was released on Friday, and wouldn’t you know it, conditions continued to decline.  

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers worsened only modestly in May. Although negative, the general business conditions index rose 10 points to -4.6, its highest level since August of last year. The new orders index fell several points and remained below zero, while the shipments index inched into positive territory. The inventories index remained negative, but rose from last month’s record low. Price indexes also continued to be negative, with the prices received index falling 10 points to a record low. Employment indexes indicated further contraction in employment levels and in the average workweek. Future indexes improved substantially for a second consecutive month; the future general business conditions index rose 11 points to its highest level since September.

Business news is now reaching what I would call the “good bad news” cycle. People are now taking bad news and are trying to make it look good by saying “it wasn’t as bad as the last report”.  

Contraction is contraction.  Wake me up when growth actually starts.

Signs that the consumer is hurting, Credit Card Defaults Reach Record Highs in April

For most of this recession cycle, the news has focused on the business community.  How banks are not making a profit, how retailers are overstocked with inventory, how homebuilders are unable to sell.  

Well, the signs that the consumer is actually hurting can now be seen.

Take a look:

Default rates (per credit card issuing bank)

• Citibank – 10.21
• Wells Fargo – 10.03
• JP Morgan – 8.07
• Discover – 8.26

As unemployment continues to rise, it would be safe to expect the above numbers to continue climbing.

Last evening I was reading my RSS subscriptions, commenting on some threads about the Feds decision to lower interest rates, and I really started to think about the US (and world) economies. Ultimately, the question “is another depression on the way” came to mind yet again…  So I decided to put some things down on paper (and then into the blog) in order to assess the question.

• The speed of current deep recession

The US went from a shallow recession, with low unemployment, to one of the worst financial crises since 1929 in a matter of weeks.  Yes, the events were in the building for months, if not years, but it all came apart in roughly 4 to 6 weeks…. and no one was prepared for how quickly it happened.  

• Credit is hard to come by

The credit industry is contracting, and contracting fast.  Credit Card companies are cutting limits of superior borrowers, for some it’s hard to get a mortgage, companies – solid companies – cannot find funding even though they have revenue to cover their costs, and banks are not lending to each other.  Basically, spending is crawling because the pool of money has shrunk

• Oil is down today, but…

The price of energy (oil, specifically) was on a wild ride the last 4 years, up to almost $150 this past summer and down to $40 the past week.  However, due to limited supplies and production, oil will start to rise over the next year once the economies of the world begin to stabilize, causing pressure on economic growth once again.

• Debt is overwhelming…

The government is so far in debt, it will never be repaid, and our financial institutions are in the same boat . Essentially, we are spending money today that we don’t have in order to solve a problem.  In doing so, however, we may be creating a bigger problem down the road.  

Oh, yea, and the consumer is so far into debt that they have no money and cannot obtain credit (see #2).  If the consumer cannot spend, how will the economy recover?

• Unemployment is on the rise…

Going from historic lows to levels not seen in about 20 years, unemployment will play a big fact in any the economy’s recovery.  If it continues to rise, problems will persists.

• Mortgage meltdown, real estate bubble…

Huge over production of housing, mortgages to anyone and everyone that had a heartbeat and property values inflated beyond true value…. it plays into everything.  Spending, debt, credit…. and if this does not stabilize, how will the credit markets stabilize?

There were initial thoughts…  I do believe the economy is dangerously close to moving into another depression.  While I do not believe any depression will mirror the Great Depression, it is strikingly like the Long Depression on 1873.

Without a doubt, the actions taken by the government will provide some type of recover in the market – I just doubt if it will be a sustained recovery.

Oh, and another random thought… 

I am slightly concerned about how the stock market has been acting the last two weeks.  It is back to trading upward on negative news.  The economic situation has not changed, so why the movement towards the positive?  

Either a bottom has been found or a suckers rally is taking place…. I just hope it is a bottom.

The news is littered with stories of the mortgage implosion, home prices falling, financial institutions with record losses, and consumer sentiment at low levels but the headline that really stuck out at me today was this: Credit card industry may cut $2 trillion of lines.

This is a scary thought in terms of the U.S. economy when you read this quote from banking analyst Meredith Whitney:

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

Almost * HALF * of all consumer credit, in the form of credit cards, is expected to evaporate within the next year.

HALF.

The debate on usage of person credit is a long and heated discussion, one I am not about to address, however, even the most responsible of credit holders may feel pain in if this becomes a reality. Individuals with outstanding credit, those who have done nothing wrong, may no not be able to purchase…. You know… buy things… as in keep the consumer economy moving forward

The impact of such a contraction will send a shock wave through all sectors of the economy. It makes me wonder what the bailout money that was allocated to credit card companies is being used for. Apparently, it is not to increase consumer liquidity.