I live in one of the countries world wide that have gone way over the limit on personal debt. Credit cards and mortgages far over the ability to repay and savings basically non-existent. There will be repercussions coming. When? I don’t know.
The US consumer is not perhaps the worst, but with the way the banking and lending practices are allowed to be basically unregulated or very seldom watched, this makes it a highly volatile situation. What is remarkable in history is that the US is the ONLY country to go through this type of crisis, not once, not twice, but three times and a few lesser crises in between.
Why? Well, from what I can see, the government is seen as an enemy and regulations are seen to bind banks, lending and mortgages to unfavourable levels. Well, if unfavourable is the watchword here, then I would say the current situation is that.
JPMorgan just bought Washington Mutual, after the government seized it. One of the largest banking buys in history. The Treasury and Federal Reserve are trying, maybe in vain, to get a very unfavourable bailout of the lending industry passed using a very vaguely written bill.
Try looking at other countries, and see if those business practices would work for personal lending, mortgages and compare the differences.
In France, for example.
The BBC’s Emma Jane Kirby asks if other nations should take a leaf out of the thrifty Gallic book?
French credit cards are little more than debit cards, so there is no question of simply sticking a couple of flat screen TVs on your credit card and hoping to pay for them later – if there are insufficient funds in your account, your bank will immediately block the transaction.
“People here don’t believe you can just put your debts together and get them refinanced… But in London… it was as if wealth was something you could get from a bank, it’s a sort of miracle people seem to believe in England.
But France still believes in strict rules and regulations,
Finance Minister Christine Lagarde says.
“Expect two conditions – a down payment of 20% of the value of the house plus mortgage [repayments] which will not exceed 30% of income.
“You already have a pretty good safety net there and clearly no real estate financing similar to the sub-prime market that has existed in the US and which has hurt the financial system so much,” Ms Lagarde says.
Here, in Canada, all mortgages must be insured, must be registered and the banks insist on at least a 10% downpayment. This used to be lower, but with the way properties were selling to people who were noticeable way over their limit on the ability to repay, the regulatory agent, CMHC chose to change the qualification level and changed the amortization time. Just a short time ago, mortgages could be repaid over 40 years, now they are limited to 35 years.
Credit cards are still one of the highest risk debts out there, with up to 29% interest, and a lot of people here have done what is considered very high risk. They have put the debts into one consolidation loan, then started charging again on the cards.
North Americans, U.K. residents, are all very high consumers, with extremely high debt levels. This is now coming home to roost, unfortunately.
History has lessons, and I am not going to reiterate all of them. No point. But some of the historical commentary from people living during the Great Crash in 1929 ring ominously.
1929 Here is what happened.
“In August of 1929, the Fed began to tighten the money supply continually by buying more government bonds. At the same time, all the Wall Street giants of the era, including John D. Rockefeller and J.P. Morgan divested from the stockmarket and put all their assets into cash and gold.
Soon thereafter, on October 24, 1929, the large brokerages all simultaneously called in their 24 hour “call-loans.” Brokers and investors were now forced to sell their stocks at any price they could get to cover these loans. The resulting market crash on “Black Thursday” was the beginning of the Great Depression.
The Chairman of the House Banking and Currency Committee, Representative Louis T. Mc Fadden, accused the Fed and international bankers of premeditating the crash. “It was not accidental,” he declared, “it was a carefully contrived occurrence (created by international bankers) to bring about a condition of despair…so that they might emerge as rulers of us all.”
On Sunday, December 23, 1913, two days before Christmas, while most of Congress was on vacation, President Woodrow Wilson signed the Federal Reserve Act into law. Wilson would later express profound regret over his tragic decision, stating:
“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world – no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”
Sound familiar? It is long overdue that the American policy makers, the guy on the street, called for regulation, freedom from the “duress” of a small group of men in Wall Street and the credit markets.
I, personally, would love to see the American voter, worker, business man, corporate CEO outside Wall Street, all demand that regulations be put in place and the funds provided to make sure those regulations were obeyed. Right now there are over 50 different agencies, and consolidating those into a few lesser number would make the whole situation far more effective, far more efficient, and maybe, just maybe, the american taxpayer WOULD find themselves never, ever again facing another meltdown.
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