Late Loan Payments Causing New Bank Crisis

Washington Post:

Increasing struggles by consumers and businesses to make payments on a variety of loans, not just mortgages, are setting off a new wave of trouble in the financial sector that is battering even institutions that had steered clear of the subprime-home-loan debacle.

Late payments on home-equity loans are at a record high, according to fresh data from the Federal Deposit Insurance Corp. The delinquency rates on loans for cars, small businesses and construction are spiking to levels not seen in a decade or more.

Read the whole story: Washington Post

Comments

[RobertArend]

One of the best ways to revive the economy would be to restore the preReagan tax deduction for all consumer credit interest.

O, and the lending industry should drastically reduce interest and penalty fees. Make it easier for people to reduce debt and losses will diminish significantly.

O, and do your own negotiating with the consumer, instead of farming troubled borrowers to unaffordable credit counciling services.

[KillTheMessenger]

Just where are they teaching that borrowing money is a source of income? And where are they teaching that borrowing too much money does not lead to inflation?

[Sundialsvc4]

I think that the biggest problem is, and always has been, that people look at "money" as end unto itself. In the past twenty-odd years, stupendous amounts of ("borrowed" ... sic ...) money has been dumped into the system, producing an illusion of easy-money roughly comparable to a sugar-buzz.

For many generations before ours, banking was looked-upon as a conservative business ... because if you were conservative in your banking you made steady (and very considerable) profit in good times and in bad. Reaganomics, et al, brought us "eat, drink and be merry" on a worldwide scale. And to pay for it all, the ordinary consumer has been saddled with something that used to be a pariah: usury.

Let's call it what it is, for once ... usury.

Now look into any holy-book, any ancient system of law, and what is ONE thing that you repeatedly see explicitly­-outlawed? Usury. Many cultures had, and still have, a "day of Jubilee" in which all debts are canceled. What does that mean? It means, "no long-term debt."

Maybe we should give up the notion that we are magically wiser than our forefathers, and our forefathers' forefathers' forefathers' forefathers before them, were. Maybe they were right and we are terribly, globally wrong.

[outnow]

My son; yes your have been screwed. Probably in places that cannot be mentioned. Banking is a backdoor man situation. Although Alexander Hamilton favored bankers, they suck "big-time.­" To minimize their role in current situation is naive. The New deal was an attempt to save them. Securitiization and bundling loans..Let­'s "leverage" that a thousand times over - play money for Wall Street.

[Sundialsvc4]

In a great many ways, "conventional thinking" lately has been that "we can disregard 'the common man,'" because we can simply "treat him-or-her in the aggregate, and it all washes out."

If you, and your father and your grandfather and your great-grandfather before you, are all so gosh-darned "privileged" that it never occurs to you that "if the plebes have no bread, then, why, let them eat cake!" ... might cost you your head ... then you really DON'T have a clue anymore. (Ask the ghost of your great-gran­dfather.)

Truly-wise businessmen, like Henry Ford, understood that "the common man" IS "the business." That's why Henry made darned-sure that everyone who worked in his factories could afford Fords.

The "so-called bankers" who stare with (uncompreh­ending...) alarm at "late loan payments" and see them as "a new bank crisis" are bewildered by the very idea that millions upon millions of Americans cannot AFFORD "bread," much less that it is even remotely possible that THEIR OWN ACTIONS are the root causes of it.

Hence, my admonition: maybe the men and women who WROTE those ancient texts ... who codified these principles into laws so stringent that you could get your hand chopped-off for usury ... you know, KNEW SOMETHING.

(Gasp.)

[outnow]

Tell me something I didn't know thirty years ago.

[KillTheMessenger]

Americans would be better served by looking at banking as a numerical problem rather than a historical or religious one. Amortization schedules will always tell you down to the point what you can and can not afford. They are the one and only tool needed to deal with a bank offering a loan. If you can afford it, take it. If you can't, leave it. Nothing else matters and everything else is a distraction from the real problem: Americans are numerically and financially illiterate.

[schoolmaster]

The financial system over here is crumbling like a pack of cards in a cascade. The question is who would take up the challenge of buttressing it from the other end, and then use corrective measures for obtaining a stable system. The executive branch has proved to be irresponsible by the way they increased the loan to 9 trillion dollars, while at the same time bringing about tremendous inflation in the price structure which could bring the have- nots to their knees. Apart from the national debt, the public debt is all time high, and the lending institutions are at a loss as to how to recover without letting the people to completely quit. If the period of pay back is extended, the recovery process would take longer letting some more people in the grind. Disheartened many well to do people may transfer their funds into more stable economies aggravating the perilous situation that the banks are already experiencing. To think of the virues of capitalism versus socialism at this point will only be an academic exercise.

[outnow]

May be a "false choice" between socialism and capitalism. A "New" New Deal is necessary to prevent the breakdown of the financial system. I have become a fan of Lyndon Larouche. Hillary understands the pain of the 80%. She has morphed into a blue collar system. That 80% is you and me. HRC almost "feels" the pain. Wall Street to Main Street. Let's save capitalism fro0m it's own greed. Feed the people - how revolutionary!!!!! Cut back population!!!!! The Clintons are for the one-percent but are seriously considering worldwide starvation!!!!

[outnow]

It's good that you are so timid. You must be respect of the system. Perhaps we should be a little dismayed but not angry. Maybe we should try to help out poor bankers who took risks and engaged in fraud. Yes, triple your payments and never question authority. Do you have a son or daughter who can fight for this system? While they are partying while your kid dies...It'­s always been that way. I think we should pray on it. Not that your kid matters, so long as they are partying on our dime.,

[KillTheMessenger]

It is curious that the people who know the least about socialism are the first ones to talk about it. I beg you, please inform yourself about what the word means before you use it outside of any context in which it belongs.

[darthdarcy]

People are hooked into using Credit cards at rates of 0% for the first year of 6 months or 7% and then the Credit Card Companies keep raising rates based upon any excuse, and these days some that are totally ridiculous not even based upon your payment record to them, so it goes to 11% or 14% and then it's over 20% as high as 26% or even over 30% once they've got you, so it's not about paying off the amount you borrowed any more at all they're no better than the Mafia these days..

[KillTheMessenger]

It's all pointed out in the contract one has to sign. Can people read? If they can, why don't they? Or don't we teach in school that contracts are binding?

[outnow]

The consumer is a child. That's why usury was outlawed. You are an adult; why don't you understand?

[trollsbwild]

Exactly. So, I so not feel so bad for financial institutions that charge ridiculous interst rates. They are pigs and do not deserve to get their full pricipal repaid if they are charging obscene rates.

[Dunnage]

Government recommends eary payment. Each citizen should do his part.

[robinhood2]

Too bad the banks allowed their lending standards to go into the toilet in their efforts to "build market share". The unfortunate reality is that they pay their marketing types much better than their credit people. Credit analysts who turn down deals are often regarded as not being "team players". I guess, every few years, the banks end up having to clean house and a lot of people lose their jobs. In 5 or 10 years, the surviving banks will probably be up to their old tricks again, with a new crop of MBAs trying to once again "build market share".

[outnow]

Milton Friedman, Milton Friedman in your face forever. Free trade , free trade. Kill middle class; kill labor; kill manufacturing; kill services. Sell out!!!!!! Now!!!!!!!!!

Banking sucked its own garbage. Too bad!!!!!

[outnow]

See, you create a "trust" and the bank sells the loan to the trust. The bank takes the poor credit risk its books and sells the loan to a third party. The borrower thinks he has scammed the system because4 he is essentially worthless - he knows this, and so does the mortgage broker....­....

The "paper" is sold from the trust to investors who leverage 33 to 1 because the market is going higher. The bad loan is off the books and a "securitized" debt is created. Banking regs don't apply.

The banking system died. You may think that it can be revived. But a quadrillion reasons say it is dead. Now if people don't want to see the problem, then just service the loan obligations. Get a job and pay. What job?

[January]

Why is it that when we need someone to get us out of the mess we've gotten into all we hear are the "I told you so's"? Yes, as you sow you reap. We all already know that.

What we need is some new sowing. On this thread appears the word "socialism­." That is not a new idea, nor is it even a new US government policy. The bail-outs of the "too big to fails" are as socialistic as you can get. But only if you work for the government or are rich.

Let's have a break through. Let's try socialized medicine. It works everywhere else. The only difference is that it works for working people everywhere else. Maine is trying it. So is Massachusetts and elsewhere. Hawaii has had a version of it for years. Maybe when we try socialized medicine, the slander against socialism will be reduced. Then we can get on with being the nation we want to become.

[KillTheMessenger]

"Told you so!" serves an educational function. People are responsible for their lives. They are responsible for reading the contracts they sign, even in nations which provide much better social services than the US.

Socialized medicine is a social contract that takes care of things people can not be made responsible for, like getting cancer. That's nothing one choses to do. Illness does not happen because of a contract one signed. It just happens. And society acknowledges that people who do not have to worry about their health care cost can heal faster and work more effectively, which is good for society as a whole.

It is no use to throw everything into one big hat and call that socialism. For one thing that is not what socialism is by definition, and for another shielding everyone from every wrong decision they ever make is not practically possible. And there is no place in the world where it is practiced.

[outnow]

You don't want to pay taxes. How much do you understand medicne as a business? Have you practiced medicine? Are you up on quality of care issues? What is the "expertise you bring? I challenge you to a Curriculum Vitae contest. Either put up or shut up! What is your experience in health care issues?

[Paul]

When capitalism exports manfacturing jobs to China to save costs, when capitalism gives upper management the revenue realized from new efficiences due to automation, when the average worker is losing income and net worth while the upper 1% income bracket is gaining exponentially, it is time to change systems.

Under socalism the economy is run for the greatest good to the greatest number. Look at what socialism has achieved in Western Europe: better heathcare, better education, good mass transit, 35 hour work-week and six weeks vacation - in short - a better quality of life.

Socialism - the way forward.

[heal57]

I disagree.. Modified Captalism with good paying jobs, fair trade, safety nets, superior education, pay as you go healthcare without it being a 'business', and regulation of industry where needed [and it's needed] is the way to go. Pure Socialism usually winds up with rich people getting things that others don't. It's never really totally fair. I do agree some countries in Europe have had it much better than the US, but because of globalization and importation of cheap labor [sound familiar?] things are changing there too, and not for the better.

[Paul]

Germany on its own exports more than the US. Why is that? Because they have a superior educational system - they actually invest in their children rather than build jails to hold high school drop-outs driven to crime.

Germany has state health care - so their major corporations are not forced into funding an inefficient system riddled with run-away costs. And German executives don't make 1000 times the average worker.

I agree that our capitalism is badly out of balance - we need more regulation at the very least. But the system that lets rich people get things that others don't is unregulated capitalism, not socialism. If things keep going the way they are, we are going to wind up like Brazil or Mexico, not Germany. We need radical change.

Socialism - the way forward.

[Oldtimer]

We get ourselves in trouble with labels like Capitalism vs Socialism. We are better off just
lookinjg at the historical record of one FDR. He was born wealthy to a privileged family and
so were the advisors in his cabinet - Harriman, Marshall, Hopkins, .....
The beauty of FDR is that the wealthy people advising him understood that for capitalism to
survive itself it had to build a MIDDLE CLASS. Americans have to get back to aiming for
improving the middle. If banks fail than creative destruction should do its work but the policy
of our government has to put the health of the middle class back on the front burner in
every way possible. Keynes was right. Milton Freidman was a snake oil salesman.

[outnow]

Oldtimer, Thank you for telling the truth. Every piece of legislation should have to pass the "smell test": does it benefit the middle class?

I knew Truman and Nixon. I lived in Missouri and Whittier. Banks failing? Politicians lying? I wrote the book. I was there - were You? I'll bet that you were.

So far, they can not refute a single thing that I say... the reason being that I am them...and the know that. Ha. ha, ha. I am old and bold. Not young and crazy.

[KillTheMessenger]

Except that FDR was not promoting socialism. Apart from that, a lot more of FDRs policies would do the US quite a bit of good.

[Village]

My bank has been taken over by the feds for non performing commercial real estate loans.

[dadw5boys]

They have to have millions desperate financially to begin to implement Marshal Law.

[outnow]

Martial law. Not Marshal Dillion. "Mars" for the God of War: Mars.

[PepperzMom]

It was only a matter of time before "someone" noticed that the mortgage loans were only the tip of the iceberg coming down.

Logic would have told the "experts" that if you, a consumer, had a mortgage, you likely had a car loan too, and a fair number also would have equity lines, since a huge chunk of the housing boom was built on a pyramid of not only mortgage loans run amok, but also home equity loans to allow for more than the traditional 80% of value threshold.

As for business loans, heck, again it was only a matter of time before "someone" noticed that with a slowdown in buying, bottom lines on businesses would tank, thereby taking away their ability to repay loans. No sales, no profits...­no loan repayments.

[outnow]

I paid cash for my home. I worked in a factory to pay for my education. I have no mortgage at all. Nor do I have any credit cards. I am a registered left winger. I carry a union card. My savings are going to carry me through. No deferred compensation. That's ERISA. But don't read then Pension Reform Act of 1973. It could make your eyes tired. A Capitalist Manifesto?

You folks got taken in by Raygun. He was only an actor! I guess the joke's on you. Ha, ha , ha!

[darthdarcy]

This is all caused by the unbridled greed we've seen since 2000 especially capitalism run a muck this is largely due to Phil Gramm and Enron's Commodities and Futures Modernization Act as well as the absence of Usery Laws and deregulation allowing banks to charge outrageous rates designed to cause failure and hardship they're killing the Golden Goose which has always been our Middle Class not the top 1%...who have reaped all the benefits from the terrible policies of this Administration which John McCain wants to continue to all our detriment.­.

[Troubledwawa]

Most of the 2nd mortgage loans that are out there now are worth about as much as the piece of paper, or electrons, that they are written on. Pretty much worthless.

Add to that, that for about 90 days or so now the number one contributing factor to foreclosures now is negative equity - most of the first loans are also losing value at an increasing rate. There's not too much there to stop it now, from what I can see.

Save your money.

[KillTheMessenger]

You mean... if someone gets a loan, they have to pay it back? What a concept. I bet most people in the US don't know that. At least they behave like as if they don't.

[Troubledwawa]

True, to some paying your bills is a wild concept.

However, many others have either been, or are about to, get caught up in the haphazard course of action our government took a few years back by restricting bankruptcies without limiting the amount of interest a bank can charge.

Yeah, I can imagine trying to get blood out of a turnip looks good on the books, but in reality, it's a different story - as we are all witnessing.

[KillTheMessenger]

A credit card is NOT an instrument that is useful to finance a few months of life before a personal bankruptcy. It is much better to go bankrupt earlier without credit card debt than later with. As hard as that might sound, there is a proper technique to going bankrupt and there is an improper one. The proper technique involves knowing when to take the scissors to the plastic. The earlier, the better. If they would only do one thing in high school, it should be to teach students how to calculate interest and read a credit (card) contract.

[darthdarcy]

Typical...

[outnow]

They just wanted "warm bodies" to sign up for the "big fraud." That is "spreading home equity" like "spreading democracy.­"

If you have two arms and a leg.......­....Congra­tulations !!!.... You qualify!

You mean "me" with no income and no credit? yes, YOU! Sucker!!!!!!!! But the real joke is on the banks.

If you didn't "smell a rat" and connect the "dots to the war".....w­ell there is a recovery group: a 12 Step program - how to recover from the BS I'm chewing on and like it!

Hint: It's not about religion. Ha, ha , ha !!!!!! Its's about MONEY!!!!!!

I am an intelligence agent from Starbucks.

[FogBelter]

Our current situation arises from a number of jealous corporate entities vying for power, over several decades, as they tried to create a self serving, turnkey economy by committee.

You start with investors who want an increase of their investment at any cost. Add to that corporate management who focuses on managing to the bottom line to the exclusion of the core purpose and principles of their business. Throw in a pathological corporate hatred for labor, coupled with a complete lack of comprehension, on the part of business, that in order to sell goods and services you need to have robust, confident, wage earning consumers who can afford to buy them and you arrive at where we are today.

Also, decades of pro business Presidential Administrations and Congresses, asleep at the switch, abdicating their responsibilities to balance the needs of the Republic fueled our current mess.

Some overlooked basics ... if you substitute wage increases for easy credit and mortgage refinancing, ultimately you arrive at a point where the consumer is tapped out, can no longer support their consumption, or repay their debts, and the whole process begins to collapse. Outsourcing good paying jobs to third world countries for cheap labor evaporates your domestic consumer market ... because of reprehensibly low wages, the standard of living in these third world countries are not rising to replace the domestic consumer base being dismantled, creating a system that can't support itself.

Hard times ahead.

[Tator]

Real simple solution that has worked since the being of time. Choose not to live beyond your means and you do not get in trouble.

The problem is not evil corporations or capitalism. Plain and simple it is the individuals fault for not living within their means. If they had they would not be in trouble would they?

[FogBelter]

People aren't born to be rapacious consumers they are cultivated to be so. Madison Avenue has spent decades tying purchases to self esteem, sexuality, morality, and other human motivators to great success. Americans spend beyond their means because that is what is expected by Business. So, yes, the America brand of redline capitalism is at fault.

Human beings do what they are taught and Americans have been taught to spend, whether they can afford it or not.

[Graywolf48]

You're pretty much a simple mind, aren't you? Or should I say simpleton? This nation's economy was built on credit, which means people living beyond their means. Otherwise you wouldn't need credit and banks and loans. Just pay cash or barter for everything. Without the "pay as you go" plan people would still be living in tents, tenements and little villages and putting block ice into their icebox. Pretty archaic, in the end. I don't think you know very much about history and even less about economics. So, how are things down on the farm, Tator? Still plowing with Ole Bess and living totally within your means? How 'bout them corporations? Are they living within their means or are they borrowing and leveraging? And the guvmint, when was the last time it lived within its means? Things aren't always that simple. Living within one's means would be nice if most people made a "decent" means and didn't expect very much from life.

[WorkingClass]

Always good to hear from you Tator.

[WorkingClass]

Hard times indeed FogBelter. I have been saying that soon we will hold bankruptcy proceedings in auditoriums so that thousands can go belly up at a single stroke of the gavel. Will it be possible for us to revert to an agrarian society? Or will we be reduced to roving bands of scavengers?

[KillTheMessenger]

Hard times? What hard times? If you don't spend more than you earn, you won't get into trouble. Ever.

[FogBelter]

Who is going to payoff the trillions of dollars worth of debt that already exists? The time for people to spend within their means to avoid hard times was thirty years ago ... the toothpaste is out of the tube.

[ImmanuelGoldstein]

One little problem with that theory Kill. The American economy is geared so that the only way we can maintain anything like a full employment economy is if everyone has at least 3 maxed out credit cards at all times. See the spike in unemployment? See the emptying malls and closing retail stores? Thats what happens when Americans live within their means. Soon many of us HAVE no means at all!

[elpollo]

Tell that to an African that cannot earn the 1500 calories a day to keep body and soul together. What an a**hole.

[MemphisBuffalo]

That would be unamerican.

[outnow]

Three billion people do not have enough to eat. One billion are actually starving. You are so full of economic hubris- what is you JOB? I aaaaaaaaaaam sure trhAT

Three billion without food? Could you please state weight and height?" I will bet that you are fat.