BANKS ARE AT IT AGAIN

[Joe Ross]

The New York Times had an interesting article out this morning talking about credit card lenders moving back into the sub-prime borrowers' space. Apparently, recent lessons from the financial bailouts/crisis have already been forgotten.

According to recent data from Equifax, credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009.

The problem with the sub-prime space is that those risky borrowers almost never say "no" when lenders are willing to finance a purchase. Far too many people have a habitual need to have "stuff" -- usually the newest and priciest they can buy. Hence, the debt spiral continues until folks collapse under the weight of bills they can't afford. In response, lenders begin to cry for help. The next thing you know, here comes the Federal Reserve with yet another financial institution rescue package in hand, courtesy of the American taxpayer.

This ugly cycle almost always begins and ends the same way. Is this sort of financial activity indicative of a healthy economy? I think we all know the answer to that.