Is The US Sliding Toward Another Credit Crisis? Part I

This is Part I of a conversation between Jeff Black, VP of Content and Education at Tornado, and guest Eric Rosen, recorded in April 2023. Eric’s a former Head of Credit Trading at JP Morgan and now authors “The Rosen Report.” All views Eric expresses are his own. They are not investment recommendations or advice.

ER on forecasting the 2008 crisis: I was early. I started writing a daily note to senior management in July of 2007 expressing my concerns. People thought I was stupid until I was proven right. Banks were over-levered and taking substantial risks.

On consumer health: I am concerned and have written extensively in recent months about my fears. Credit card debt is almost $1 trillion (+31% in 2 years) with the average Annual Percentage Rate of almost 24% according to Forbes. The average card balance is up to $7,951 from $6,209 two years ago.

Additionally, auto loans lasting 6–7 years were 1% of the market in 2005 and are 30% today. The savings rate went from 33.5% to 4.5% in the past 2 years. People are being squeezed by inflation and wages which have not kept up.

Now, higher rates on homes, and sharp increases in rent and food are pushing people to tap cards and dip into savings.

On parallels, then and now: The ramifications of the regional banking crisis are quite concerning. These small to medium lenders drive the economy with critical loans to small businesses and real estate. With the crisis, lending is drying up as interest rates are higher. Many people and companies are unable to access credit at any reasonable price or terms. Loan to values are falling for what banks will give.

On potential ripple effects: An avid reader and real estate owner/developer called me last week. He has owned a piece of property for decades and has a $900k loan on it with his long-time regional bank as the lender. The loan-to-value (LTV) on the property is 15%, and he has been a customer of the bank for ages. He also had given a personal guarantee (PG) on the loan. The loan matures soon, and he went to refinance it. The bank told him they are not able to do so today. This is one small example of my concern about the impact of the sharp pullback in lending by regional banks.

You can find the original audio / blog, and a range of others, at Tornado.com

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