SPIEGEL FILES CHAPTER 11- TOO MUCH CREDIT CARD DEBT!
March 18, 2003
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Spiegel Group, Inc. filed Chapter 11, largely because of a risky bet on credit cards, according to the Wall Street Journal. In its N.Y. Bankruptcy Court filing, Spiegel said it ran out of cash after it was forced to repay investors who bought securities backed by its credit card receivables.
The WSJ went on to report that Spiegel’s troubles started several years ago, when it aggressively expanded its credit card business in a bid to drive up catalog sales. It generated income by selling notes based on its credit card receivables, but as a condition of those sales, it guaranteed a minimum return. When charge-offs began rising, it tightened credit standards, and that caused sales to slump. Spiegel hopes to recover, with credit lines still subject to Bankruptcy Court approval.
Editor’s note: This could happen to a number of similarly situated companies. Moreover, as discussed in prior releases, this “securitization” only leads to more and more debt for the American consumer. When it is Fannie Mae or Freddie Mac creating debt for the purchase homes for Americans, it makes a certain amount of sense. People need a place to live, no matter what.
But when a company “originates” or creates a multi-million (or billion!) dollar portfolio of debt, like Spiegel, “wraps” it into bonds and sells it to the investing public, guarantees that (at least a certain portion of) it will pay, and then goes about creating MORE consumer debt, it can be a recipe for disaster.
Let’s hope our bank regulators stop this endless cycle of “securitization” before it brings down some of our major banks, and possibly the entire economy. Consumer credit and personal bankruptcies are already at record levels. But of course, it is WE CONSUMERS who are irresponsible with credit, and need a tough new Bankruptcy Code. NOT the government, that is seriously in the red, or these big time lenders, like Spiegel, that are filing Chapter 11. Spiegel, look at yourself in the mirror- go back to serving the American consumer, not victimizing her.
