How in Heck Can Anybody Even Think That We Are on the Cusp of a Consumer-Led Recovery?

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For a growing number of Americans, job prospects are bleak, savings are too low, debts are overwhelming, and, as the following report reveals, credit ratings are shot to pieces -- how in heck can anybody even think that we are on the cusp of a consumer-led recovery?

"More Americans' Credit Scores Sink to New Lows" (Associated Press)

The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers - nearly 43.4 million people - now have a credit score of 599 or below, marking them as poor risks for lenders. It's unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

"I don't get paid for loan applications, I get paid for closings," said Ritch Workman, a Melbourne, Fla., mortgage broker. "I have plenty of business, but I'm struggling to stay open."

FICO's latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO's 300-to-850 scale weren't as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

Comments

[Luke]

about a year ago, i read somewhere that FICO would become totally meaningless as the economy heads downhill. i don't recall the site where i read it but it seems to be spot on.

i for one say opt out. pay cash. screw debt. screw the bankers.

[Mar]

I refinanced my house using a mortgage from a local community bank that doesn't charge escrow because they don't even HAVE an escrow department. For the first time in 20 years, I had to provide pay slips and PROVE that I could afford the house and met the traditional requirements to qualify (i.e, debt ratios, debt to income ratios, etc). They didn't use a credit score at all; they did check my credit report. The president of the bank said on a radio show that they lent to people who showed both the ability and the DESIRE to pay back their debt and that they don't charge escrow because (a) it would cost them and thus the customers more and (b) if you can pay the mortgage, you ought to be able to pay the taxes and insurance on your own as well.

I hope and pray that this is the way things will work in the future, but I'm not counting on it.

[CedarS]

The same people the banks drove into personal bankruptcy are the
very ones the banks need to take on loans to continue the racket.

Luke has it right. Opt out ==> Break the Bank.

[Blurtman]

I bet that Tishman Speer's credit rating is just fine in spite of their massive default. Now why is that?

[Marion Shaw]

I must say that banks can be very useful in managing
ones private financial life. Therefore, to those who
want to burn the banks, what do you propose will go in
its place: sharecropping, carpet-baggers. the rise of
the clans again? a return to medieval money-lending
with no regulation? holding companies that can charge
40 percent interest rates? Reform the banks and
put a reasonable cap on interest rates that banks and
credit card companies can charge. That would be a
more sustainable solution. By the way, in most states,
you don't need a college degree to get a bank charter.
Maybe some good ole boys ought to pool their resources
and start local banks for the poor and unemployed;
might bring unexpected productivity somewhere.

[MichaelN]

Marion and Mar, I agree. While it is certainly emotionally satisfying to think "burn the banks," it is not going to lead to a positive outcome.

Further, how many people can actually exist on cash? I suppose that theoretically I could do so, but it would be a burden. Our family is grateful for the convenience of being able to use a credit card.

I'm also, drum roll, a mortgage broker and I can assure you that the AAA-credit people that I've always worked with would be up that proverbial "creek without a paddle."

Reform banking (eliminate TBTF) - but we need it.

[sharonsj]

I don't want to burn all the banks, just the giants ones that speculate with taxpayer money.

The gist of the article is the so-called recovery (which isn't) and the tanking of good credit scores. Since everyone I know is having money problems and can't pay bills on time--or at all--no wonder credit scores are going down.

One friend has been struggling to pay her credit card bills for years and finally gave up and stopped. I've been paying them for years because I never have enough to pay off the card. Banks have been making out like bandits because poorer people just keep paying off on the revolving debt until they die...or until they are so broke they have to stop paying. When the rates are 30% or higher, there is no way to pay it off. No wonder Americans feel like we are serfs.

[Blurtman]

I think we need to differentiate invesment banks from savings banks. Bringing back Glass Steagal would be a step in the right direction of reform.

How is that Goldman Sachs masquerades as a savings back to take advantage of easy money? When was the last time anyone saw a Goldman Sachs ATM?

And why do we need middlemen banks to lend us our own money? Wht can't the feds operate banks and cut out the middlemen.

[roger]

How about setting priorities? In 60, when we bought our
first home, we sat on boxes for the first 2 years,
a new car had to wait till 70.
Guess that is unAmerican
Happily retired with no financial problems.

[Mark]

"I think we need to differentiate invesment banks from savings banks. Bringing back Glass Steagal"

yes! gosh i wish. It's so freaking obvious what needed to be done with this reform. just wind the clock back to the 90s. Banks cry boo hoo. Oh no! the banking sector won't be over 20% of GDP then or whatever the **** it was in the 2000s, 30% whatever! big deal

[kevinearick]

They just can’t help but torch themselves. Bred behavior cannot be changed in real time. Shop till you drop or rebuild your community. There’s no going back, and all the shoppers can do is replicate the past.

What made America great was not the multinationals; they are the result, what came out of the pipeline last. What made America great was entrepreneurship, the ability to re-invent itself, from the bottom up. The pipeline is emptying, and government is pushing the pump along behind the multinationals, blocking the pipeline, to maintain artificial pressure at the outflow, GDP, at exponentially increasing costs, and the pension funds are running out of cash to prop up the market. The communities that want to survive may want to start running across that bridge.

Backpatching

To roll out technology at equilibrium, entrepreneurs need to see the entire system, from the internal to the external loops, and how they are bridged, to maintain continuous circulation through the pipeline. The dc bus is the easy part. The AC flux is the hard part. Entrepreneurs need to change hats as they pass through the A/D rectifier, DC bus, and D/A inverter, because each has different requirements, which necessarily appear to internal participants as exclusive, but are actually balanced on a symbiotic fulcrum of fulcrums.

The immediate community need is to dismantle multinational certification on the event horizon, so small business can begin to replace the multinational dc technology that has a chokehold on the community economies, and to dismantle family law, leaving civil contracts to the Court, so small business has access to the talent required to backfill the collapsing global economy.

Parameters have to be passed through the looking glasses, from the simple money system in the dc bus, to the highly complex quality of life parameters in the D/A inverter. There is no way to plan the D/A parallels; they have to be backpatched at the end of the global iteration.

The pyramid ponzi dc bus, multinationals in this case, cuts the tails off the population (270-360 & 540-630), to average down / filter its participants for control purposes. Tell them nothing. They will steal what they need and generate the mythology necessary to justify the process. That is their nature.

Governments protect old families from evolution, in return for their legacy investments. A constitution is an at-will civil contract between the old families and the new families, to ensure durable circulation through the pipeline, which is measurable only by the new families. Neither multinationals nor their governments can raise kids or retire parents, as required to maintain the NPV window, which underlies the ongoing concern assumption of the dc bus.

The law follows behavior, informally at first, and then formally, paving an already well-trodden road. There is a reason why new couples throughout History have not shared knowledge of their marriage beyond the community, and why the State so urgently seeks to securitize the process. You will save yourself a lot of misery, and save the State from itself, if you tell it nothing. Backpatching is the last step. (corollary: tell it and watch it go boom)

If all else fails, let the dc bus crash and build a new one. The planet will recycle the debris. Those that want protection from evolution seek the civil contract, because it’s simple, has diamonds for door knobs, and promises to mitigate future risk. Otherwise, draw up an MOU, and collect from the dc bus on the front end of each technology phase after the first. The first payment will include all material costs and labor for the first two phases. No bank is required.

The length of the fuse for non-payment depends on the practitioner, the application, and the dc bus required, the relative time required to backpatch the looking glass.

Oil at $75/barrel, negligible relative production cost, and the Saudi banks are losing money … you’ll have that with a dc bus left to its own devices. Assuming that America can simply turn on a switch and re-grow its manufacturing base is a gross misunderstanding of the mechanism. The State is the pressure switch, waiting for the last fool to enter. After that, it’s dominoes. Do the calculus on the acceleration of debt.

Each community needs to determine the bill of rights required to sustain its purely community interests, which is the steering, and contains the enumerated powers of commerce, which is the accelerator. The three branches of government must come from different cultures, or the brake will short to the accelerator. Currently, all the circuits are shorted into a series circuit to the accelerator, the multinational cartel, which is exempted by law from the US Constitution, and it is dragging the global economy out onto the false-work of global institutions, which is collapsing from the weight.

Entrepreneurs come from unprotected labor. They do not spring forth from a multinational test tube or from a government focus group. Only strong communities can raise talent, because the process requires intergenerational cooperation, which is what opens the NPV window for the multinationals. Left to its own devices, which naturally understates debt, a dc bus will consume its own food chain every single time.

[Jon]

Blurtman your first comment I think was a bit of scaremongering. Nobody is saying revert to those things. Making the banks pay for their mistakes could result in a much better banking system.

I don't understand why people need to resort to these all or nothing arguments, the world is simply not that black and white.
Think!