Posts Tagged ‘Banking’

How to boost the Economy: Give low-income workers access to credit

Thursday, February 26th, 2009

I first heard on the radio, about how the minimum annual income required to apply for unsecured credit is being lowered from $30k to $20k.

“It?s a double-edged sword,” said financial planner Leong Sze Hian. More low-income people could end up in debt as a result, but more access to credit would provide urgent relief for those who lose their jobs, he said. “

If the reason the limit has been lowered so that they can borrow money, than that’s insane! A $100 cash withdrawal from a credit card has $10-$15 in fees, and additional interest that accumulates daily. Their debt would end up snowballing and these “low-income people” would be in a much worst position than just ‘losing their job’.

On the other hand, letting these group of people have access to these credit might help increase consumer spending, and maybe help prevent some companies from closing down. How so? 3 words: 0% INSTALLMENT PLANS.

Do you have any idea how much stuff is now affordable and available via 12/24/36 month installment plans? No more crazy interest rates with Court’s in-store credit facilities. Hello new furniture, home appliances, vacations. That young couple can now get married earlier. It’s like opening Pandora’s box.

**correction @ Feb 26, 11.34pm** I typed too soon. Apparently, credit cards will still require a $30k annual income. These new group of people will only have access to loans (with still very obnoxious interest rates).

But learning how to manage credit doesn’t come overnight. After all, like what is said on this blog:

Have we learnt nothing from this crisis??!

How did the whole subprime mess start? Banks lent money to people with low income and these people defaulted on their debt.

Let’s hope that these new group of people will learn to use credit wisely. If not, they’ll help form the next crisis ahead – the credit card default crisis!

SOON, MORE CAN BORROW
Neo Chai Chin
chaichin@mediacorp.com.sg

THE timing seems appropriate. From Sunday, new rules on lending will kick in that the authorities believe will tread the line between discouraging overspending and facilitating responsible borrowing.

While commentators welcome the Moneylenders Act, which they feel would protect consumers from chalking up massive debts, concerns were raised about two groups :at opposite ends of the income spectrum: Those earning less than $20,000 annually, and those making over $120,000 a year.

The latter group of high-net-worth individuals are excluded from unsecured lending provisions, which stipulate borrowing caps.

The assumption is that they can handle their finances better, or at least are able to take on more debt, said Citigroup economist Kit Wei Zheng.

But there are exceptions, especially in these times – he noted, some could have borrowed more “on the assumption that his or her income stream will remain stable over time”, only to encounter strains with wage cuts or, indeed, retrenchment.

As for consumers with annual income below $20,000, they will now have the option of borrowing up to $3,000 in unsecured personal loans, with interest per annum capped at 18 per cent – there was no such provision for them previously.

“It?s a double-edged sword,” said financial planner Leong Sze Hian. More low-income people could end up in debt as a result, but more access to credit would provide urgent relief for those who lose their jobs, he said.

While the low-income will now have a “safer route to take when borrowing money”, there remains the “potential of increasing debt levels”, said Credit Counselling Singapore?s assistant director Tan Huey Min. “Whether it?’ll discourage people from turning to loansharks, is hard to say.”

Last month, the Singapore Police Force had noted the potential for a rise in loanshark activity as more seek to borrow illegally.

Overall, the changes to the moneylender rules will allow more individuals with genuine need greater access to unsecured credit. The minimum income requirement will be lowered to $20,000, though the threshold for credit cards remains at $30,000.

For unsecured loans, the credit limit is set at two times a borrower?s monthly income, if he earns between $20,000 and $30,000; and at four times his monthly income, if he earns $30,000 to $120,000. These provisions exclude study, renovation and medical treatment loans, for instance.

On the whole, Member of Parliament Ellen Lee said the new Act was timely. “It is in times like this that people have to be more cautious,” said Ms Lee, who had previously raised concerns about the relaxation of rules on licensed moneylending giving small-time borrowers a “false sense of
security”.

As for credit card holders, what of those whose incomes dip in these tough times?

Responding to feedback from the Association of Banks Singapore, the Monetary Authority of Singapore and Law Ministry said they could keep their cards, but banks should check cardholders? incomes periodically and not grant additional credit until the outstanding unsecured loan is paid
off.

Latest statistics from Credit Bureau Singapore show the numbers of those missing credit card and personal loan payments were inching up, with those aged 30 to 34 making up the biggest proportion of delinquents.

Complexity: the Game of Hot Potatoes

Wednesday, February 25th, 2009

George Soros thinks our current financial situation is more severe than the Great Depression, and similar to the demise of the Soviet Union. Well that’s certainly not good news. I’m a lay person. I haven’t the slightest clue how they made the financial system so complicated.

We’re having a credit crisis, which means credit is tight, because banks have gaping holes in their balance sheets, and dare not lend out anymore money, or can’t, because they are over-leveraged. The bailout is meant to ‘solve’ this problem. But I think the hole is too big to be covered with even bailout money, and credit is still going to be tight. So why doesn’t the government give credit directly to borrowers through another agency? If they do so, they still have chance of getting their money back, with interest!

This question was brought up in Singapore before, and the answer given was that Governments aren’t set up to assess individuals for loans, and that banks had a better set up for that. Uh … yeah, which is why banks are need bailouts now, cause they know what they are doing.

It seems to be like a global game of ‘hot potatoes’. The US government is dishing out billions of dollars that they don’t have. Me thinks that at the end of the day, countries (like China) who bought US treasuries will end up stuck with the ‘hot potatoes’, which have no value.

Now if only there were a RESET button … …

Soros sees no bottom for world financial “collapse”

NEW YORK (Reuters) – Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

“We witnessed the collapse of the financial system,” Soros said at a Columbia University dinner. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.”

His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.

Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

“I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world,” Volcker said.

(Reporting by Pedro Nicolaci da Costa and Juan Lagorio; Editing by Gary Hill)