To TARP or not to TARP

Via calculated risk I see that AmEx is complaining that losses will mount as customers reduce spending on their AmEx cards. He also notes that delinquent payments are up and so are write-offs.

AmEx has also been on the forefront of lowering customers credit limits as they pay down their balances.

I have ambivilent feelings about that strategy as it affects risky borrowers. It strikes me that someone in economic hardship and has to choose what debts to pay is more likely to blow off the debtor that has pre-emptively told them they won't loan them more money in the future. And it seems those fearing economic hardship should make the same calculus: pay the minimum on AmEx cause if worse comes to worse we'll need the credit limit free on other cards*

What I don't get is why AmEx is dropping the credit limit of low risk customers. I've heard anecdotal evidence that AmEx is dropping the credit limit for pretty much everyone. Which makes no sense to me if their business model is dependent on people using the card and then paying it back.

For example, we just got a notice that our credit limit has been reduced. On one level, I don't care because I thought we had cancelled the card. We have 0 balance and don't intend to use it. But we've also never been late, have 2 incomes own a home that is not underwater, etc etc. We aren't rich, but we are the kind of people AmEx should be trying to encourage to spend money.

On the otherhand, I've never been impressed with AmEx. They claim to be statistically driven, but make basic errors of hasty generalization often mistaking aggregate trends with individual behanviour. To be fair, that's endemic in the credit card industry and at least they don't make nearly the number of billing errors BoA does.

I guess it's easy to see how the fools got in this mess.