I have heard a lot of anecdotal evidence that the banks are settling mortgages and credit cards at unheard of terms that are extremely friendly to the borrowers. The backdrop is that banks have so many losses in so many places that they will do anything other than send a credit card to a collection agency or a house through the foreclosure process. There are a lot of costs associated with these venues, so the first stop is to haggle with the consumers. In the case below, posted by zerohedge.com from a reader, Citibank is willing to settle for 53% of the outstanding credit balance. This is representative of the losses that are being realized with consumer credit cards. The banks might seem like they have weathered the storm, but I think the issue is all about timing – can they earn enough with the steep yield curve and fixed income trading before the next wave of asset price declines continue? I guess what I would like everyone to get out of this is a fact that seems to be missing in the media: fundamentals on the consumer side are still very negative and in some areas continue to decline. Liquidity and federal backstops can stem asset price declines, but they cannot immediately reverse the hemorrhaging that continues to occur in the residential real estate market and consumer credit. Read the letter below and see if it sounds like everything is rosy to you? And what about the repercussions that this message sends? If you are struggling to pay your bills and you see that Citibank offered someone else a 53% settlement, then why wouldn’t you wait for the same deal? On the other side, why not rack up credit card debt and see how the banks react when you stop making payments. Moral hazard?