After the crisis of the financial bubble and the subprime mortgage-related derivatives, after the crisis of the housing bubble, after the subsequent crisis and equity in economic crisis, many economists and analysts think (and fear) that the next wave of financial tsunami, especially in the U.S. and the UK, will be due to the credit crisis, understood as the crisis caused by the insolvency, consumer credit cards. The investment bank JP Morgan Chase, while reporting the overall results higher than forecast last quarter, had allocated 10 billion dollars to cover the expected defaults on credit cards - double what had allocated the previous year - and warned that if the economy worsens, the sum could be even higher.
Anyone who has lived several years in America or England, I guarantee you, would you say (sarcastically): "But are you?" I would say because they would know very well how indebted Americans and British with credit cards and how this system could be maintained only through the continued growth of the economy, wages and income.
For example: In 1994 a young boy in the first year of college receives a credit card with a line of credit of $ 500. Knowing (because it comes from a relatively educated) that credit cards are potentially dangerous, is intended not to use it except in situations of absolute necessity. So, for the years of college, where it is retained by the parents, and uses little responsibly, paying full and on time each month the amount borrowed.
Through its computer system manager of a credit card identifies the boy as a responsible borrower, and without having received the request, increasing the credit line to $ 1,000. The boy feels honored for his involves judgments and more sure of his ability to manage credit. So start using it more often, it's a bit 'over expenditure but always pay on time (although not always the full amount and always more than the minimum required.)
Meanwhile, the boy graduated. Looking for a job that pays enough to cover rent, car, and a few extras. Its turnover, however, greatly increases (by revenue equal to 0, on the other hand, any increase is exponential). For convenience, pay some bills automatically by credit card, but then is always on time with the monthly payment. Do you feel safe and claims that the limit cost is raised further. Since it uses the card regularly and pay on time for some years now, the card company raises its credit line to $ 3,600.
The guy works, earns money and wants to have things that demonstrate your ability to earn. He is constantly surrounded by beautiful things that they call the shop windows and billboards through the machinery, powerful computers, televisions giants, DVD players. So every time you buy something with your credit card. So now earns nearly $ 2,000 a month and a payment of $ 100 did not even hear. He needs a computer, a monitor, a printer, a nice TV, a phone, an MP3 player, an air conditioner. All things you can afford and then buy with your credit card, so do not feel the "pain" to spend hard-earned money.
One day, a new credit card company, determined to set an aggressive strategy to take market share from more established rivals, gets its data and forward it's a brand new credit card with a limit of $ 10,000 and an annual interest rate for the first six months of 0.0%. Once again, the guy feels rewarded for his responsibilities. Also feel a new sensation not altogether unpleasant feel rich. If you wish, tomorrow it could go into a shop and spend $ 10,000. But of course, would never do that, because he's a great guy, intelligent and responsible.
But one day his old car breaks down. He has some money put aside but do not want to spend it because he needs in case of real emergencies. Since many people buy a car in installments he decides to do the same, only half of its income is in black and not being hired for an indefinite period would never get a loan, without proper payment. So she gets her credit card without looking at anyone puts down 8,000 of $ 12,000 he needs. The rest is a breeze to get a loan from a bank of car dealer friend.
Covers rate with ease. The minimum would be $ 160 for a credit card and about $ 50 for the bank loan. He also often pays twice and its credit rating increases. Increases even notice it so much that other banks holding credit cards. One of these sends a credit card to be activated with a credit line of $ 13,500 and an annual interest rate of 0.0% for the first six months. The boy, who is not stupid, he knows that by transferring the debt of the other credit card (that a month will have an annual interest rate of 14.9%) and the bank loan would save significantly (at least for six months) and is activated immediately to transfer the total the new card.
The system of "credit rating" identifies then as an "agent" with the ability to make individual payments for more than $ 10,000 and further enhances its status. He himself, driving a new car, feels much more wealthy and entitled to a lifestyle more suited to his new status. Calls for new credit cards and get, especially for consumer credit. Even though his salary remained unchanged, its purchasing power is approaching now at $ 35,000.
Meanwhile his old TV is good because it came out as flat patterns. Her computer is old and can not even surfing the net. Every day new movies come out, new music and new video games. And then he had always wanted a motorcycle. All in all pay two installments, or pay $ 400 one is the same thing ... more than 400 dollars a month it is. So it gives some whim, without exaggeration. But without the proper motion can no longer live ...
Buying new things is the best thing there is, as soon as they buy. A week later, however, the sense of wellbeing is fading and he can not shake off the feeling that something is missing. He decides to take a trip abroad, in Europe, to find some college friends and new roads. He's away for two months and when he returns there is little money in the bank, two months of back rent, three monthly car insurance, three stages for each credit card, three-month bills, two parking tickets and the car breaks down.
The boy is not stupid. Knows that he has chosen. Calls to other banks and get new credit cards. Then it gets all the credit was transferred to his bank account and fled, leaving behind a hole accumulated $ 50,000 in 7 years.
This is what happens in 7 years at a smart guy, educated on average that starts from a credit line of $ 500. Now let us imagine what would happen in 7 years to a less educated man, who, a thousand labors, managed to get a mortgage of $ 150,000 to buy a house and that, shortly after the first monthly payments on time, receive credit cards with a credit line equal to three times ... Or a small industry that detects a small company with a loan of $ 500,000 ... All goes well until the home continues to increase in value, since there is so much work that pays well, until there is demand for products and labor ... Until the bubble bursts.
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