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Post by jeffolie on Aug 22, 2007 11:58:06 GMT -6
Credit cards paid before mortgages Going against conventional wisdom, people are handling their credit-card bills much better than their mortgage payments. In terms of credit-card accounts, only 4.1 percent were in default in the first quarter of 2007, which are the most recent figures that the American Bankers Association has available. That's down from 4.46 percent in the last quarter of 2006 and 4.53 percent in the 2006 third quarter. You might have guessed that Wall Street packages this credit-card debt into securities just like it does with mortgages. And if these investments go the way of mortgage-backed securities, the banking system and the country could be in double trouble. www.nypost.com/seven/08212007/business/like_a_house_of_cards.htm
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Post by beachbumbob on Aug 23, 2007 14:27:48 GMT -6
wave of bankruptcies on the horizon...and then what
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Post by unlawflcombatnt on Aug 23, 2007 17:44:40 GMT -6
If bankrupting consumers are now forced to pay off more of their bankrupted debt than previously, it will reduce the money available for consumer purchases.
This will be an unintended consequence of tightening of bankruptcy rules, and it will be a definite hit on the economy.
Who could really afford the financial loss from bankruptcy better-- a rich bank that issued a credit card with abundant financial resources, or a consumer who may have almost no financial resources?
Which will hurt the economy more, a relatively small loss to a bank, or a comparatively huge loss by a consumer. The bankrupt consumer was pumping nearly 100% of his income into consumer spending (which is 70% of our economy), thus creating the demand for production necessary to keep our economy afloat.
Meanwhile the financial institution is contributing to overvaluation of assets through mortgages, leveraged buyouts, and inflation of stock prices due to both direct investment, as well as loans to investors.
The consumers' loss hurts the economy much more than the financial institution's loss. That's because there's no demand for capital investment, unless there's consumer demand for production facilitated by capital investment. Without consumer demand, no productive capital investment opportunities are created. There's no need for capital equipment or production facilities if consumers can't purchase production.
Investment capital vs. consumer spending power are the trade-offs resulting from the latest Bankruptcy Bill. It has preserved investment capital, but reduced the consumer-created opportunities for productive investment.
Again, it's consumers who create the demand for production, which, in turn, creates productive investment opportunities. Investment capital without investment opportunities results in no investment, over-investment, over-valuation of assets, non-productive investment, or even counter-productive investment.
The latest Bankruptcy Bill was a step backwards. It helped those who needed help the least, at the expense of those who needed it the most. This type of "help" is bad for the economy, and bad for Americans overall. It redirects financial resources to those who have the most and need them the least, and away from those who have the least and need them the most.
This is not only an issue of "fairness." It's an issue of what helps the economy the most. Unfortunately, the Bush administration took the wrong course on both counts.
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Post by jeffolie on Aug 24, 2007 9:47:32 GMT -6
"The latest Bankruptcy Bill was a step backwards."
One of the factors that prolonged the Japanese deflation was the inability of their banks to go bankrupt. They did not write off their bad loans. The same phenomena will be evident as American consumers are forced to work out payments over 5 years by having to use Chapter 7 instead of the quick write off of Chapter 11. Those above the median income of their State must use Chapter 7.
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