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LTCI Watch: Double whammy

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The Federal Reserve Bank of New York is reporting that (horrors) U.S. households increased total credit card debt 0.6 percent in 2013, to $683 billion.

The same institution reported that small businesses had — joy! — an easier time getting loans — but: only “experienced and profitable firms” had good access to the credit markets.

Firms that wanted less than $100,000 — the kinds of firms that respectable baby boomers who’ve lost salaried jobs might try to start — had a much harder time getting loans. The loan approval rate was just 46 percent for firms that tried to borrow less than $100,000, compared with 60 percent for firms that tried to borrow more than $100,000.

TransUnion says the overall credit card delinquency rate has dropped to 1.48 percent, which is low by historic standards.

Meanwhile, the insurers that issue private long-term care insurance (LTCI) are still famished for returns. The Federal Reserve Board is keeping interest rates low partly to encourage investor to “move out” along the risk curve and take a chance on somewhat riskier risks, but state and federal insurance company investment rules and traditions, and the wagging finger of the media, lock LTCI carriers into plain farmers’ market vanilla investments created by pasture-fed organic investment cows. If the portfolio managers ask for a sprinkle of investment cinnamon, heaven help them.

So, on the one hand, the LTCI carriers can’t make much on their investments.

On the other hand, they can’t even increase their yield by investing in the credit card debt, small business loans, or, in many cases, the mortgage loans of respectable 40-something and 50-something workers — workers who, really, are just trying to go beyond working to pay today’s bills and earn enough to save for retirement, insure their income, put something aside for their children’s education, and, possibly, buy private LTCI coverage.

Certainly, some consumers sailed through the Great Recession with plenty of cash and no dings to their credit ratings.

But many consumers who stayed employed and paid their bills took rating dings simply as a result of changes in scoring rules, or, in some cases, lender decisions to cut back on credit limits that, in turn, jacked up the consumers’ debt-to-income ratios — even though the consumers took on no new debt.

The consumers are on the runway to success, ready to take off, but they can’t get the modest amounts of new credit that they would need to follow the example set by people who took off into prosperity 10, 20 or 30 years ago. They can keep working, and they can pay the bills they have now, but they can’t get ahead. They can’t easily start companies that will eventually employ other people.

Twenty years ago, during the doldrums of the 1990s, I wrote story after story about workers who overcame layoffs by starting businesses. Today, those stories are rare. Just about the only people who can branch out on their own seem to be people who start out selling a few dozen cheap-to-bake brownies or cookies at a time from card tables at flea markets. I think the difference is that, 20 years ago, would-be entrepreneurs had credit cards. Today, workers are lucky to have a few prepaid debit cards with a positive balance.

So, in effect, the rigid credit rules are destroying the supply of LTCI and much of the potential demand for LTCI and other products that upper-middle-income people like.

What a system.

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