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Asia banking bonds capitalism chart China commentary credit Credit Cards credit crisis curiouscat data debt economic data Economics economy energy entrepreneur fed Financial Literacy government health care housing inflation interest rates Investing John Hunter Kiva micro-finance mortgage Personal finance personal finance basics quote Real Estate regulation Retirement risk save money Saving spending money Stocks Taxes Tips USA Warren Buffett

Soros on Financial Crisis and Markets

The New Paradigm for Financial Markets is George Soros‘ newest book. Here is an interview with him in May of this year, on PBS, Financial World Shifts Gears Amid Economic Tumult, about the ideas in the book and the current crisis.

JUDY WOODRUFF: How do you assess the strength of the financial system today?
GEORGE SOROS: I think this is the most serious crisis of our lifetime. It’s not just a housing crisis, but a crisis of the financial system.
…
GEORGE SOROS: The regulators have failed to regulate, and they really have to — they left it to the market. That was this market fundamentalist philosophy, that markets will take care of themselves.
…
And I contend that there’s been what I call a super bubble that has been growing over the last 25 years at least, which basically consisted of an extension in credit, increasing use of leverage. That was the trend in reality.

And the misconception that credit is that markets can be left to their own devices. Now, in fact, they are given to excesses, and occasionally they create crises, but each time the authorities intervene and bail out the failing institutions, provide fiscal stimulus, monetary stimulus.

So it seems like the market corrects itself, but it’s actually the intervention of the authorities that saves the market.

Related: Soros on the Financial Market Collapse - Jim Rogers on the Financial Market Mess - Leverage, Complex Deals and Mania

November 18th, 2008 by John Hunter | Leave a Comment | Tags: Economics, Investing

Credit Unions Slowly Fill Payday Lenders Void

As I have mentioned previously credit unions do a much better job than any other financial category of providing customer value. Instead of trying to trick you and rip you off, credit unions often just provide services at a reasonable cost. What a sensible idea. Credit Unions Slowly Fill Void As Payday Lenders Leave D.C.

In January, legislation went into effect capping interest rates in the District at 24 percent, effectively driving out the area’s payday lenders, whose business model is wedded to annualized rates of 300 percent and above. Credit unions are now slowly filling the void in small-dollar loans. At least half a dozen District institutions are attempting to reinvent the loans as a tool to help bring hard-pressed borrowers closer to financial health.

The credit unions’ products vary, but generally they are loans of $300 to $1,000 with an annual percentage rate of up to 18 percent. Unlike payday loans, in which borrowers sign over part of their next paycheck for the cash advance, the credit unions’ new products have longer terms, from thirty days to a year.

It is still an indication of bad personal finances to take the short term loan, but if that is the choice you make, paying a reasonable rate will greatly reduce the damage to your personal financial health.

Related: personal loans - Ohio Acts to Protect Citizens from Payday Loan Practices - Dragged Down by Debt - Don’t Let the Credit Card Companies Play You for a Fool - Sneaky Fees

July 26th, 2008 by John Hunter | Leave a Comment | Tags: Personal finance

Student Credit Cards

I posted before on how universities seek profits instead of helping students develop good financial literacy and habits. Here are some tips on how you should use your credit card. College Credit-Card Hustle

Universities and their alumni associations have discovered an unlikely and disturbing source of revenue: Increasingly, they are selling students’ personal information to big credit-card companies eager for young customers.

Using state public disclosure laws, Business Week has obtained more than two dozen confidential contracts between major schools and card-issuing banks keen to sign up undergraduates with mounting expenses for tuition, books, and travel. In some instances, universities and alumni groups receive larger payments from the banks if students use their school-branded cards more frequently.

The growing financial alliance between schools and banks raises questions about whether universities are encouraging students to incur additional high-interest debt at a time when many young people graduate from college owing tens of thousands of dollars.
…
Universities rarely negotiate favorable terms for their students, according to people familiar with the practice. On the contrary, some schools and booster groups entice undergraduates to sign up for cards with low initial interest rates that are soon replaced by steep double-digit rates.

Schools (and if some try to play legal games about alumni associations being separate, I don’t accept that) should fully disclose exactly what they are doing. I know they can make all sorts of excuses about why being open and honest is not right for them. Well, I think it is easy to predict they will be selling out their students and hiding that fact (if they must be open about what they are doing they will avoid some of the most egregious behavior because they know there will be consequences if they obviously sell out students). And, now Business Week has evidence that many are.

If a school is not open and honest about the deals they are making just assume they are selling out the students for their own gain. I can’t really see why we would want to support such behavior and I would encourage us not to.
Read more

July 20th, 2008 by John Hunter | Leave a Comment | Tags: Credit Cards, Financial Literacy, Personal finance

Credit Crisis Continues

US banks Citigroup and Merrill Lynch reveal fresh $15bn loss

In another sign of the intense pressure on leading banks, Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms. Huge exposure to American mortgages is expected to result in Citi taking a $10 billion hit to its accounts, dragging the bank to a first-quarter loss of almost $3 billion. Some analysts believe Citi’s write-downs could stretch to as much as $12 billion.

Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red. t is expected to knock a further 20% from the value of its sub-prime holdings, in spite of the fact that it announced $18 billion of write-downs only three months ago. The new rash of Wall Street losses and write-downs come in addition to the billions that have already been recorded.

The world’s biggest banks have suffered losses and write-downs totalling almost $250 billion since the beginning of 2007, according to analysts. Last week the IMF shocked markets by saying that global losses from the credit crisis could rise to $945 billion.

The language becomes even more extreme as the losses balloon.

Related: Fed Continues Wall Street Welfare - Credit Crisis (Aug 2007) - Central Bank Intervention Unprecedented in scale and Scope - Soros Says Credit Crisis Will Worsen Before Improving - Volcker: Spendthrift Americans Bred Credit Crisis

April 14th, 2008 by John Hunter | 1 Comment | Tags: Economics

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