I've heard directly a great deal about the effect of the credit crunch on businesses, mortgages, and car loans.  Car loans are apparently unobtainable with a credit score of less than 700; mortgages have been pulled merely for the crime of having a large percentage of your assets in (unmortgaged real estate).  Corporate credit lines have been cut or exhausted.

What I haven't heard about is how this has trickled through to the credit card companies.  Six months ago, some nice banking experts from the FDIC and other government agencies made a credible case to me that the credit card industry really is different, because default is much easier to see coming.  The initial extension of credit is scary, of course, but it tends to be advanced in small amounts, and built up as your relationship with the credit card company goes on.  And when they see you missing payments or getting overleveraged, they can lower your credit limit to stop their losses.  Indeed, in theory they can call the revolving loan, though in practice, this would cause problems.

Anecdotal reports of credit card offers flooding the mails intrigued me.  Were these simply the legacy of already-paid-for direct mailing campaigns?  Akin to my experiment last year, where I called my credit card company and asked them to double my limit just for the hell of it (a request that was approved within fifteen minutes), I applied for a credit card.  Actually, I accidentally applied for three, which goes to show that you don't have to be too bright to be a blogger.  Be careful on those credit card deal aggregation sites, is all I can say.

Result:  Instant new credit of about 10% of my annual income from the two that approved me within two minutes.  American Express very sensibly makes you wait a few ways for your exclusive Costco membership card/Amex, and when they notice that I seem to have a sudden interest in acquiring large amounts of new credit, I imagine they might just turn me down.  The terms on both cards were attractive, with a 0% one year introductory APR, collision liability waiver for car rentals, and other perks that might tempt someone who already has way too many airline miles.

Then I realized that in addition to being too stupid to figure out a fairly simple web page, I had managed to ding my credit score with new credit applications just as I started house hunting.  I'm hoping to spin this to them, and you, as a sort of adorable absent-minded-professor dedication to my research.  With has the benefit of being sort of true.

Anyway, what to make of the fact that banks are still apparently handing out credit cards like candy?  I have several theories

1)  The credit card market is contracting unevenly.  I have good credit, marred only by a moronic dispute with the New York State tax authorities which drags on despite their admission that they were completely and thoroughly mistaken.  I make a middle class income, albeit journalist-middle-class, not corporate-lawyer-middle-class.  Aside from a 5% car loan and student loans carried at 2.25%, I am not overburdened by debt.  Perhaps the average joes like me are still doing fine, while people who have more trouble with their bills are finding the doors slamming closed.  If so, those people should show up in the bankruptcy statistics soon.

2)  The credit card market isn't contracting.  So far their models are actually working, and their business model remains more reliable than other industries.  That should show up in next quarter's earnings numbers.

3)  The credit card market needs to take on new customers because people are frantically paying down their high-interest credit cards.  I know a fair number of people who have decided that their credit card balance is Public Enemy #1.  That's already showing up in the consumer spending numbers.

4)  The credit card market needs to take on new customers because they're on the verge of going bust.   They're just playing out the Great Countrywide Ponzi Scheme in 2009.  That doesn't explain, though, why they're giving me credit cards with 0% introductory APRs.

5)  Alex Tabarrok is right and the credit crunch is underwhelming.  I'm skeptical, because of all the other problem credit markets.  The Fed data on bank credit is interesting, but that's not really where the action in the credit markets is today; you could have increasing bank loans, and nonetheless, decreasing credit supply.


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