CREDIT CARDS WILL BE THE NEXT BIG FINANCIAL BLOWUP By JOHN CRUDELE
November 20, 2008 --
WASHINGTON is so nervous that credit cards will become the next financial sinkhole that the government will soon ask banks to go through the arduous task of running tests on hundreds of millions of their cardholders.
On Oct. 7, the Office of the Controller of the Currency put together a test called Definitions of Data Fields Collected Monthly at the Account Level, which asks banks nationwide to put the 700 million or so credit cards in existence to a test of 74 questions.
I mentioned a few months back that the government was getting worried about credit-card defaults and that it was trying to put together a way to measure the problem by September, an unachievable deadline that came and went without any results.
Now, finally the government is ready to move and will probably seek out someone to make sense of the data once the banks put their credit cards to the test.
Question 11 on the test is, "Student Credit Card Flag - indicate whether a credit card is internally identified as a student credit card."
Question 27 is "report dollar and number of all applicants that applied for credit with a FICO score below the bank's normal cutoff FICO score."
Quick, close the barn door, the cows have already left.
www.cnbc.com/id/15840232?video=931599105&play=1
If you really want to laugh, watch this 10-minute video of Tuesday's "Squawk Box" on the Bubble Network.
Click Here to Watch the Video
CNBC - which loves bubbles more than Lawrence Welk ever did - invited a Chicago trader named Scott Nations to the show.
Nations then shook things up by saying, straight out, that the US government, through the Plunge Protection Team, manipulated Standard & Poor's 500 index on Oct. 10 and Oct. 28.
That was right before the election, in case you've forgotten, which brings into question whether there was something undemocratic going on.
The hosts of the show went apoplectic with one - sadly, one who should know better - calling the accusations "Internet rumors."
One viewer even noticed that his screen went blank for five seconds in the middle of the exchange, although CNBC said - if in fact it happened - that the dead air was due to technical difficulties and not censoring.
It's surprising that CNBC is so clueless, especially now when Washington is openly considering government rescues of auto, insurance, financial companies and anyone else that tells a convincing enough sob story.
You know where I stand on this. Once someone takes a really close look at what's been going on this'll be the biggest financial story ever.
Here are the facts: Ronald Reagan signed an executive order during his last year in office that created the President's Working Group on Financial Markets, which the Washington Post later nicknamed the "Plunge Protection Team."
In 1989, Robert Heller, who had just left the Federal Reserve Board, proposed that the government should rig the stock market in times of imminent disaster.
George Stephanopoulos, a top aide to former President Bill Clinton, said the government used this power in 1998 during the meltdown caused by the failure of hedge fund Long-Term Capital Management. And I spoke with a high-ranking official at the Fed about intervention when the markets cratered right after 9/11.
As soon as CNBC gets a clue, I'll let you know.
There aren't too many merry men on Wall Street these days, so I guess it's appropriate that Dick Fuld, who ran Lehman Brothers into the ground, has quit the board of the Robin Hood Foundation.
The organization confirmed the move to me, but wouldn't say why.
The foundation, which fights poverty in New York City, is chock full of investment types, especially hedge-fund managers.
Not surprisingly, Lehman also canceled three tables - equal to 10 percent of the total - that it had pledged to buy at the group's recent fundraising dinner.
If you want to lend a hand to the organization, send checks to: Robin Hood, 826 Broadway, 7th Floor, New York, NY 10003.
And that includes you, Mr. Fuld.
As you think about Goldman Sachs' reach inside the government, don't forget the story of American International Group.
AIG recently hit the government up for many billions in bailout money and will likely need even more in the future.
When that happened, Washington brought in Ed Liddy, an ex-Allstate Insurance executive, to run AIG.
That's seems pretty acceptable except that Liddy also was on the board of directors of Goldman, from which he resigned.
If anyone ever bothers to look into Goldman's dealings, they should ask whether the investment firm had any financial exposure to AIG when the US Treasury, under former Goldman chairman Hank Paulson, was bailing out the insurance company.
john.crudele@nypost.com