Credit card companies--American Express in this case--pay people to cancel their credit cards:
American Express Co. is offering a $300 incentive for customers to cancel their accounts as the card issuer grapples with surging loan delinquencies and soft card-member spending.
The company is offering a $300 prepaid card, which can be used anywhere American Express is accepted, to certain customers who pay off their entire balance between March 1 and the end of April. Enrolling in the deal automatically cancels the customer's account, regardless of whether he successfully pays off the balance.
It only applies to select customers but we can be sure that they are high risk credit card users. Something like this would have been unthinkable two years ago when it seemed like every company was handing out credit cards to anyone that wanted them.
The contraction in consumer credit is inevitable--consumers are the weakest link in America and Canada--and financial profits will decline materially over the years. If you are thinking of investing in a business, try to figure out how much of the profits are actually financial profits. These may not exist 5 years from now. The market is re-pricing everything--G.E. isn't down 60% because of insolvency risk but because its huge financial profits won't be there in the future--but some companies may still be overvalued. Tags: commentary