Consumers' Debt Tactic Changes May Hurt Banks, Tavakoli Says [Excerpt]
Bloomberg News – August 26, 2009
By Jody Shenn

Banks may be hurt as more consumers realize they would be better served by paying off their credit- card balances than making their mortgage payments, according to Janet Tavakoli, an industry consultant.

"Even in bankruptcy, it's hard to clear away that debt, but your house, that's non-recourse, meaning you hand over the keys and walk away, in most states," she said. "Even better, some banks are so far behind in foreclosures you may be able to stay in your house for quite some time. What happens to banks? They're stuck with a house they don't want, and that 30 percent credit-card interest they were reporting instantly plummets."

The loss of customers servicing high-cost plastic will rob banks of a key tool used to offset rising credit-card defaults, she said. In July, U.S. credit-card charge-offs, or share of the debt deemed uncollectible, were 10.52 percent, down from a record 10.79 percent the previous month in the first decline since September, according to Moody's Investors Service.

Tavakoli "warned that the biggest credit bubble in world history was coming well in advance," investor Jim Rogers wrote in a back-cover recommendation of her 2009 book "Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street."


End of Excerpt


Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008).

Janet Tavakoli's book on the causes of the global financial meltdown (and how to fix it) is Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (John Wiley & Sons January 2009).

Clients of Tavakoli Structured Finance have the benefit of proprietary research, which is not available in any other paid or public forum. Clients also commission proprietary research and analysis.

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