A Different View Of Todays Economic Crises

     OK, you say, so here we have another view of the economic problems growing in our country. I say, think again, I do not think you will hear the "talking heads" of TV land or our national leaders giving you this view. I would like you to know, as you read this article that in addition to being a credit counselor, I am also a pretty conservative capitalist who strongly supports a minimul government regulation free enterprise system. Since I have considerable experience in the areas of credit and debt counseling, mortgage brokering and credit restoration, and while not an attorney, even the court system as it pertains to debt and judgments and subpoenas.

       So lets start at the beginning. as far back as the 1700's, the concept of buy now and pay later existed in some form. In the 1920's, hotel chains issued them to there customers for convenience, when they were on the road. In 1946, John Biggens of the Flatbush National Bank invented the "Charge-It" card. This was the first bank issued card and was used as a retail credit card for store purchases. In 1951, the Diners card was created, and in 1958,The American Express  card was born. It wasn't until the 1970's with the creation and regulation of the magnetic strip that credit cards began to grow in popularity. If you can believe this, in the mid 70's, congress actually banned the mass mailing of active credit cards to people, unless they were requested.

     How things have changed. By the 1990's, government lawmakers made a 180 degree turn around and de-regulated the credit card industry. Helped along by two favorable Supreme court decisions which essentially eliminated the usury laws (Usury laws defined illegal interest rates), the seeds for potential disaster were sown. Also, during the 1990's our lawmakers decided home ownership should become easier for everyone to achieve. They did this by allowing he formation of the sub-prime investment market. Wall street got into the mortgage game and realized how much money was to be made by creating mortgages for people with bad credit who could not verify there income, or ability to pay. The problem was that to get a sub-prime loan you generally had to pay an onerous rate of interest. Of course, not initially. You could purchase the home for perhaps as low as 3% interest with no money down. But , after the first, second and third years, the interest would skyrocket increasing the monthly payment to an unaffordable level. These loans became secured investment instruments traded on wall street for a premium, because of there high rate of return, or high interest charged to the home buyer.

    Instead of rewarding the sub prime borrower who made on time payments month after month, as these escalation of interest clauses kicked in, the interest and monthly payments increased to levels which were unmanageable by many. Thereby forcing a new loan with all of its accompanying closing costs, broker fees and bank fees and taxes due for another closing. Everyone was benefiting, but the homeowner, who was deceived into thinking this was the way it should be.

  Couple this with the deregulation of credit cards allowing banks to charge as much as 35 and 40% interest, with onerous late fees and over-limit charges and we add another ingredient to the soup. Couple this with the advent of payday loan companies being allowed to charge 350% interest annually for a payday loan, then add to this the universal default clause allowing banks to raise your credit card interest just because you may have paid late on another banks credit card, and you have a very sour tasting soup, indeed. The really amazing thing is that now everyone is investigating everyone else to see what happened. The FBI is investigating the Mortgage industry, of course, no one seems to be doing anything about the banks charging onerous fees, as credit card fees continue unabated, and payday loan companies continue to flourish.

   If Wall street and the mortgage banks had been a bit more astute and less greedy, they would have rewarded sub prime borrowers with lower interest rates rather than forcing them to refinance. This should have been a no brainer. When credit cards reached there credit limit, instead of allowing an over-limit charge with an out of this world fee, the over-limit charge should have been denied. No over-limit charge and thus no over-limit fee. Universal default clauses should have been made illegal. What does paying late on my Visa card have to do with my mastercard. The banks argue that it shows increased risk. It produces increased risk, due to the higher interest rate!

   Then, in about 2004 the OCC, or Office of the Currency Comptroller ordered banks to raise the minimum payment on credit cards to at least 3% of the balance and encouraged 4%. They said this would allow higher interest credit cards to be paid off faster. The problem with this brain storm was that many people did not have the monthly cash flow to accommodate these higher minimum payments. why doesn't anyone think about this stuff, before they act.

    All this brings us to today. Coupled with all of the above, we now have a recession and, in my opinion, run away inflation about to take place. Meanwhile, congress finds it necessary to hold hearings on steroid use in baseball. If this weren't such a tragedy, it would be hilarious.

  Again, just a few minor course corrections applied ten years ago would have, I believe prevented this melt down. Amazingly, the banks have become indignant with the advent of debt settlement as an option for debtors who would like to avoid bankruptcy, but cannot afford the Debt Management programs which are controlled by the banks. What's the bottom line? Greed, has gotten out of control, and, our leaders are asleep at the switch. I just read an article stating that after a law suit brought against Ameriquest Mortgage Company, Ameriquest was fined for not accurately disclosing costs and fees associated with many of its loans. Isn't that nice. The people who were abused got a small meaningless check, and the lawyers got rich.

   This article is not about hindsight. Each of the examples I mentioned occurred because of greed. if reasonability had been applied in each of these areas, i totally believe, that as a nation we could have avoided, or at least minimized what is about to befall us. The bottom line here is you need to do what you must to get out of debt, as fast as you can. If you must seek out credit counseling, get into a program, whether it be debt management, or debt settlement, or just learning to better manage your money, but make it a priority to be beholden to no one. You may subscribe to our Free Credit Counseling Newsletter absolutely free by visiting:http://freecreditcounselingblog.typepad.com/creditcounseling/. Do so, and we will send you a free budgeting calculator software.

Written By:
Steven Ciantro
Credit Counselor
American Debt Enders
Help@americandebtenders.com
877-766-2465

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