Curious Numbers for Credit Cards

Curious Numbers for Credit Cards

The Federal Reserve released its monthly minutes yesterday, and for the first time in recent memory, some parts of the outlook were fairly chipper. “Financial market conditions,” it states, have “generally strengthened, and surveys and anecdotal reports pointed to a pickup in household and business confidence.”

One piece of data that caught my attention was the Fed’s unemployment expectations. In an upward revision from its last meeting, the Fed now expects the jobless rate to be between 9.2% and 9.6% by late this year.

These are interesting numbers when compared with the Treasury’s recently completed stress test. That test which was used to determine whether banks were adequately capitalized under a worst-case scenario assumed that 2009 unemployment would fall between 8.4% in a baseline scenario and 8.9% in the worst-case scenario.

In other words, the Fed’s baseline outlook is grimmer than the Treasury’s worst-case outlook. These funny inconsistencies remind us why economics is an art, not a science.

Why fret over a handful of basis points, you say? Simple: According to some Fitch Ratings analysis, there’s a historical one-to-one correlation between unemployment and prime credit card charge-offs. That is, if the unemployment rate doubles, so does the credit card charge-off rate. It’s even worse for lower-quality cards.

When you’re talking about numbers this big, an increase in the charge-off rate of a few dozen basis points is nothing to sneeze at. And since the stress test’s goal was to adequately capitalize banks, the thought that more money may need to be raised in the future doesn’t seem far-fetched.

Will it be the end of the world for banks? For most, no.

But when the Federal Reserve’s own projections challenge the Treasury’s stress test by what could equal billions of dollars of losses for several banks, there’s yet more reason to wonder whether the test was more of a confidence campaign than an objective and realistic analysis.

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Curious Numbers for Credit Cards

Curious crowds disrupt Istanbul's new Europe-Asia rail service

ISTANBUL (Reuters) - Turks intrigued by Istanbul's new underwater rail line linking Europe and Asia are overcrowding trains by riding to and fro under the Bosphorus, forcing closure of one station and causing delays by pressing emergency stop buttons, state railways said.

The service was also hit by a brief power cut in the morning rush hour, prompting television footage of passengers walking through the tunnel next to a stationary train.

Prime Minister Tayyip Erdogan opened the multi-billion dollar Marmaray, a 13 km (8-mile) tunnel, to great fanfare on Tuesday. It is expected eventually to carry some 1.5 million passengers a day under one of the world's busiest waterways.

State rail company TCDD said the service was facing strong demand. It had closed one of its stations to alleviate overcrowding. Some passengers riding the trains for the first time and unfamiliar with the systems had pressed 'emergency stop' buttons, causing delays.

"We expect our passengers to take into account the crowds and to avoid constantly going back and forward if possible to make space for other passengers," it said.

The two bridges and ferry services crossing the Bosphorus are heavily crowded with commuters in Europe's biggest city.

Government critics say the opening of the tunnel, one of Erdogan's "mega projects" designed to change the face of Turkey, was rushed to coincide with Tuesday's 90th anniversary of the founding of the modern Turkish republic.

(Writing by Daren Butler; Editing by Nick Tattersall and Ralph Boulton)

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