The next giant domino to fall, the one that might kill u: credit card debts

Arianna Huffington has penned an excellent piece regarding the coming storm - mirroring last fall's collapse of Lehman et al - as credit card defaults rise and the securities-backed markets that they prop up failing.

According to the Federal Reserve, the total outstanding credit card debt carried by Americans reached a record $951 billion in 2008 -- a number that will only climb higher as more and more people reach for the plastic to make ends meet. What's more, roughly a third of that is debt held by risky borrowers with low credit ratings.

And that's not the end of the economic downward spiral. As more and more Americans default on their credit card debt, banks will find themselves faced with a sickening instant replay of the toxic securities meltdown from the mortgage crisis. In another example of Wall Street "creativity," credit card debt is routinely bundled together into "credit-card receivables" and sold to investors -- often pension funds and hedge funds. Securities backed by credit card debt is a $365 billion market. This market motivated credit card companies to offer cards to risky borrowers and to allow greater and greater amounts of debt.

As these borrowers continue to default, banks and the investors who bought their packaged debt will take a serious hit. And how are the credit card companies trying to offset the rise in bad debts? By raising rates on the rest of their customers -- making it likely that more of them will end up defaulting, causing even more losses for the banks. And round and round and round we go.

Read the whole piece. You should be frightened.