How’s This For "Contained Meltdown"?

I heard one economist recently refer to the current credit markets situation as “well-contained. Sure, contained on Planet Earth…”

A large part of the reason the markets are so erratic lately is because there is so much uncertaintly as to how much damage has been done and not yet acknowledged. How much more money will be lost, and by who? Financial engineering has helped build layers upon layers of cloaking around the bad investment eggs, and the unwind is coming in baby steps (which is good, time helps the markets digest what is clearly a big rotten meal…)

So here’s a story from a colleague of mine, which highlights the defensive posturing by creditors who are clearly fearing this “unknown risk” in the market. It also signifies a huge leap in terms of the webbing between “subprime” mortgage issues and areas of other financial concern. This is one way how the virus is NOT being contained…

“How far will this reach into credit cards? One fellow I know received a letter from American Express, dramatically lowering his available credit limit. Our analysis of the credit risk associated with customers who have residential loans from the creditor(s) indicated in your credit report.” He has two loans: one from ING Mortgage and a HELOC from JPMorgan Chase. He called Amex and they said: “We were told by Experian that your mortgages are with ‘risky lenders”. They also said that “information received from a consumer credit reporting agency was factored into the decision.” (He has no delinquencies. They listed standard reasons, inquiries, balances, etc.) He wrote, I have never seen credit being denied or reduced for something 100% out of the borrower’s control.”

Something to keep a watch on as the market feels for a bottom, those in position to lend money for any reason are proceeding with extreme caution…