No credit check month

Offers of easy credit are bad news for the poor | smh.com.au

It's "No credit check month" at Radio Rentals. If you go to its website, the first thing that greets you is a big sign assuring customers that they can apply for the lease of a plasma television, fitness equipment or "computers plus more" without having their credit record checked.

The company claims this isn't being irresponsible. What garbage.

Anybody who claims that this sort of behaviour is responsible or ethical is talking absolute twaddle. It is subprime greed writ small.

The irresponsibility of lending money without proper credit checks is underlined by the fact that other financial institutions have argued that the Federal Government should make more information on personal credit histories available to enable them to be more responsible lenders.

The sad thing is that "No credit check month" is not a one-off. It is a symptom of a wider problem, stretching beyond just one company. It represents a business model which is predicated on maximising profit by appealing to those doing it tough, that just a bit more debt might be the gateway to the good life.

A review by the Victorian Government estimated the total amount of credit lent by the small loans industry at between $50 million and $100 million a year in Victoria alone. Many small lenders and lease companies specifically design their products to fall outside existing credit regulations.

Organisations such as Radio Rentals claim that they run the risk of the loss if the client is not able to repay the loan or keep up payments on the lease. But the loss encountered by the company is small compared to the financial, emotional and social loss of those who enter an unsustainable debt spiral because of irresponsible lending practices by those who should know better.

Radio Rentals may bear a loss in the event of a default even though the business model of such firms means that they will have the original asset returned to them. But the executives of Radio Rentals won't have to explain to their children why debt collectors and sheriffs are at their door when the debt spirals out of control.

Yes, debtors need to show some personal responsibility. But corporate lenders need to show some responsibility as well. As an MP, I see the results of this sort of irresponsible lending. And the financial counsellors attached to churches and organisations such as Lifeline see it more acutely every day.

The Radio Rentals chief executive said it was important that people with poor credit histories have the ability to acquire things such as washing machines and refrigerators. This argument might hold a small amount of water. But it doesn't apply to fitness equipment, game consoles, plasma TVs and the other goods you are tempted with on the website.

Advertising like "No credit checks" specifically and deliberately appeals to the vulnerable in society, who would not be able to find credit from more responsible lenders. It is predatory lending.

The transfer of credit regulation to the Federal Government does provide an opportunity for a more consistent and rational approach to the laws governing lending in Australia including, for the first time, a national responsible lending obligation imposed on all lenders.

The Minister for Corporate Law, Nick Sherry, is basing his plans on world's best practice legislation. But we know that even the best legislation in the world will have its limits. Lenders determined to be irresponsible will find ways around restrictions.

We need stronger legislation. But we also need to condemn those businesses that go out of their way to prey on those on who can least afford it, who skirt around the law and seem not to care about the consequences of their actions.

These days, corporate responsibility is quite fashionable. The Corporate Responsibility Index says this is achieved "when a business adapts all of its practices to ensure that it operates in ways that meet, or exceed, the ethical, legal, commercial and public expectations that society has of business".

Businesses which gear their business model to lending more to people who already have too much debt will need to have a good long look in the mirror before they come anywhere near being regarded as good corporate citizens. (Chris Bowen)

The world shuts up shop

There is an increased focus on domestic issues: cheap, home-based pursuits are making a comeback, and frippery is out. Australians spent 13 per cent less on eating out in the last quarter of 2008, while a Manhattan dentist is pitching his teeth-whitening services with the phrase "Make me an offer".

The challenge is to come up with a political response that does not make things worse. Western countries used to preach openness, free movement of people, the breaking down of barriers. Now the instinct is to raise the shutters and protect voters' livelihoods. Social unrest is spreading; particularly at risk are the nations of central and eastern Europe, which fervently embraced the free market after the Berlin Wall came down. As their workers headed west, their businesses loaded up on debt to fuel breakneck expansion; now, they can't meet their obligations.

The world's leaders promise to stop protectionism, but that is not how they are acting. (Adrian Michaels)

IN FLORIDA, a state devastated by tumbling house prices and repossessions, the inhabitants are arming themselves against recession, with requests for concealed-weapon permits up 42 per cent in the past 45 days. In Moscow, the murder rate has climbed by 16 per cent. At Tetsuya's — the most exclusive and expensive restaurant in Sydney — the waiting list has shrunk from three months to 24 hours.

We have been told that we are in the worst economic crisis for 20 years, then 30, then 80, then 100. It can't be long before someone points out that really, all things considered, the Black Death was comparatively pleasant. But beyond the hyperbole, one thing is clear: what began as a financial problem in certain debt-soaked nations is battering the economies of dozens of others, as well as millions of people working in almost every trade. It will change behaviour, and alter the pecking order of the world's economies.

Among the most significant developments has been the realisation that the most prudent countries — such as Germany, Japan and China — will suffer as badly, or even worse than, the spendthrifts. Despite the whiff of hubris that wafted from Berlin when the banks of Britain and America went into meltdown, Germany's economy contracted by up to 2 per cent in the last quarter of 2008, compared with 1.5 per cent for Britain's.

The problem was that the Chinese and Germans were too thrifty: their countries' growth was reliant on sales of goods to countries that were borrowing. Now that Americans can't afford its products, China's exports have collapsed, down 17.5 per cent from a year ago.

Americans can't spend because their house prices have crumpled, their shares have plummeted and banks will not — or cannot — lend them any money. Insecurity is also forcing cutbacks: January saw the highest monthly jump in unemployment in 34 years.

The equally worried Chinese seem to want to save still more: imports into China fell 43 per cent in January compared with the year before. Yet if no one at home or abroad wants to buy their goods, the result will be massive unemployment: some 20 million people are already said to have lost their jobs. As they head home from the coastal manufacturing belt, their Government is trying to force-feed them consumer goods; 80 per cent of all white goods sold in December were subsidised.

As demand dries up, the arteries of global trade are hardening. Lufthansa's air freight division is putting 2600 staff on short-time working, while cargo ships have so many empty containers that shipping rates are a 10th of what they were at last year's peak. The knock-on effects are complex, but painful. "For Rent" signs dot empty storefronts on the once sought-after stretch of New York's Madison Avenue, where the vacancy rate rose by 50 per cent in 2008. A falling appetite for luxury goods helps explain why half of India's 400,000 diamond workers have lost their jobs. More than 40 have committed suicide.

Or take car sales, which Carlos Ghosn, the chief executive of Renault-Nissan, estimates could fall by 21 per cent across the world this year. Car companies are begging governments for hand-outs — but that won't shift their products from showrooms. Among other things, lower car sales mean fewer catalytic converters, which means that platinum does not need to be mined so intensively and Anglo Platinum, which operates mostly in South Africa, is axing 10,000 jobs.

Migrant workers are being asked to leave countries, which will mean a fall in remittances, a lifeline for the world's poorest people. Africans working in the developed world have been sending back up to $40 billion a year to support their impoverished relatives, but the World Bank predicts that this could drop substantially this year.

There is an increased focus on domestic issues: cheap, home-based pursuits are making a comeback, and frippery is out. Australians spent 13 per cent less on eating out in the last quarter of 2008, while a Manhattan dentist is pitching his teeth-whitening services with the phrase "Make me an offer".

The challenge is to come up with a political response that does not make things worse. Western countries used to preach openness, free movement of people, the breaking down of barriers. Now the instinct is to raise the shutters and protect voters' livelihoods. Social unrest is spreading; particularly at risk are the nations of central and eastern Europe, which fervently embraced the free market after the Berlin Wall came down. As their workers headed west, their businesses loaded up on debt to fuel breakneck expansion; now, they can't meet their obligations.

The world's leaders promise to stop protectionism, but that is not how they are acting. Britain and Italy are propping up their car industries while professing opposition to protectionism. Congress wants to protect the American steel industry; the French Government is spending more on newspaper advertising. However restless they are, electorates need to remember that a lack of protectionism lay behind a huge increase in prosperity for millions of people. That is not easy when jobs are being lost.

A cleaned-up banking system is a top priority — but the debate has only just started about how our banks are to look, who will run them and how they will be regulated. "The history of financial crises," warns Michael Pettis, professor of finance at Peking University, "shows a mismanagement of the regulatory framework that comes out of them."

Above all, consumers are somehow going to have to change their behaviour. Americans are certain to be more prudent for now, but they need to maintain a hostile attitude to debt when the immediate crisis is over. It will be just as hard to persuade the Chinese, Japanese and Germans to start spending to supplement export-led growth with domestic demand. "The world doesn't need more stuff to sell," explains Professor Pettis, "it needs more buyers."

As they mature, Asian economies will in time have better pension and health systems, which will help persuade people that there is a safety net for hard times, and tease money out from under the mattress. "Surplus countries have to spend their income and enjoy themselves," says Charles Dumas, an analyst at Lombard Street Research. "The purpose of an economy is to consume." Right now, though, the main objective is survival. (Adrian Michaels)

Nationalisation in America?

Obama tries to fulfill his promises, making a change. So far, he has closed Guantanamo (Bravo!), injecting some funds to the collapses financial institution (debatable..some people are pro to this action but others are contra. And, now he is going to launch tax-cuts. Besides, he is planning to give a financial support for some states to prevent them from the negative effects of the economic crisis. It seems, from now on the governmnet will have much more intervention. Will the US be a socialist country ("socio-democrat" as it is practiced in the Western European countries?

Here is an article by Anne Davies.
 
BARACK Obama will this week deliver the most important speech of his youthful presidency when he tries to reassure Americans that his economic strategy is sound, even as the pressure builds to nationalise some of the US banks or take large stakes in them.

According to The Wall Street Journal, Citigroup is in talks with federal officials that could result in the US Government owning between 25 and 40 per cent of the struggling bank.

Bank of America, which is also rumoured to be fragile, has denied it has sought a further injection of federal funds.

Although it is not formally a State of the Union address, because he has been in office for just over a month, Mr Obama will address the nation on Tuesday (Wednesday noon Melbourne time).

The stimulus package, a foreclosure amelioration package and the bare bones of the bank bail-out mark II are in the public domain. Mr Obama must now convince the American public that these measures will work.

Overnight, Australian time, he will lay claim to the mantle of fiscal responsibility when he details his plan to cut the US deficit from $US1.6 trillion ($A2.4 trillion) in 2009, or 10 per cent of gross domestic product, to a third of that level by 2013.

The plan will rely heavily on winding back spending on the Iraq war and ending Bush-era tax cuts for those earning more than $US250,000. Under US law, the tax cuts to the wealthy will lapse unless they are renewed in 2010.

Mr Obama's job will be to balance being frank about the problems with not frightening the markets further, even though few believe the US economy has touched the bottom of this recession.

Top of the list will be his attitude towards nationalisation. The very whisper of the word has been enough to send the share price of the major banks tumbling in the past week. Citigroup's shares hit $US2 on Friday, after the Senate banking committee chairman Chris Dodd seemed to leave open the door to nationalisation.

The White House has ruled it out - for now. "This Administration continues to strongly believe that a privately held banking system is the correct way to go," White House spokesman Robert Gibbs said on Friday.

Meanwhile, Secretary of State Hillary Clinton has been seeking to shore up US access to credit during her visit to China, telling her hosts: "We are truly going to rise or fall together."

"Our economies are so intertwined," Ms Clinton said in an interview with Shanghai-based Dragon Television, "it would not be in China's interest" if the US were unable to finance deficit spending to stimulate its stalled economy.

Louisiana governor Bobby Jindal, a rising star in the Republican Party, said he would reject $US100 million aid for unemployment benefits for his state because it would cost the state more in the long term. In contrast, California governor Arnold Schwarzenegger, also a Republican, praised the package, saying it was necessary for California's recovery.

Mr Obama plans to announce overnight that former Secret Service agent Earl Devaney, who helped expose lobbyists' corruption at the Interior Department, is his pick to oversee the $US787 billion economic stimulus plan as chairman of the new Recovery Act Transparency and Accountability Board.

Fannie Mae and Freddie Mac

I like this cartoon explaining very well the cause of the collapsed of American economy. A friend of mine said that the federal reserve is just going to print the money to pay the bail. This will not happen if banks were not easy to give loans just to anyone. Actually, the federal reserve is illegal, it is not even part of the government. The Fed is just a group of banks that decide how much money to print and how much to sell money for. Under the constitution of America this is illegal. He added that only congress is allowed to do this. By taking the money, the government controls the banks, and with the control the government could make the bank not give the money so they can keep control. Actually the source of the mortgage problem in America, he said, is the institutions that the previous government has created, Fannie Mae and Freddie Mac. They are government companies that setup loans. It seems complicated....government tried to help and ended up with a troublesome situation....

Bail-out things....No soup for responsible people

I like this cartoon explaining very well the cause of the collapsed of
American economy. A friend of mine said that the federal reserve is
just going to print the money to pay the bail. This will not happen if
banks were not easy to give loans just to anyone. Actually, the federal
reserve is illegal, it is not even part of the government. The Fed is
just a group of banks that decide how much money to print and how much
to sell money for. Under the constitution of America this is illegal.
He added that only congress is allowed to do this. By taking the money,
the government controls the banks, and with the control the government
could make the bank not give the money so they can keep control.
Actually the source of the mortgage problem in America, he said, is the
institutions that the previous government has created, Fannie Mae and
Freddie Mac. They are government companies that setup loans. It seems
complicated....government tried to help and ended up with a troublesome
situation....



PS : Sorry, I forgot where I picked up this pic but it is Mike Lester's art work..