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Originally posted by zookeeper Graduating college in 1991 (Fine Art), I'm tickled that you think that I'm an econ/finance/govt. major. I have just been around long enough to see this very disturbing trend of personal spending develop. I remember when a "Gold Card" was something that was only given to the upper 1% income earners, credit card issuers used that image of success to market to "dreamers" who really wanted to live "Lifestyles of the Rich and Famous". Now, I can rattle off at least 7 shows, that I know of, that use the same formula.

The reason why consumer spending has been healthy for the past several years is because it has been cheap to spend money for a few reasons. The primary three reasons are: growing employment, rising home prices, and expanding stock portfolios. The principle reason, imo, for why consumers are so able to spend so much, and not necessarily go into the debt calammity you describe, is the mortgage/refinancing boom. The housing boom has enabled property owners to refinance their mortgages to take advantage of lower interest rates, actually borrow more than they really needed to begin with, and still end up paying less than they previously did. The end result ... they have more free cash to spend than before without any additional debt obligations. It's like consolidating student loans ... at a time of high interest rates, you start off with loans that have floating rates that adjust to the relative high market rate, then when interest rates dip, you refinance or consolidate your loans to a low fixed rate ... now you have x amount of cash more a month to spend or save.

All in all, I'm not sure how much actual debt payments have increased relative to disposable income but that's the statistic you need to look for to answer your question. My guess is that because consumers still have significant amounts of credit, that it's not that huge otherwise lenders would certainly be far more attentive to their default risk exposure. Of course, despite all this, interest rate volatility could change consumer behaviour drastically.

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Indeed, just yesterday news came out of consumer confidence reaching its highest level since in four years (and also a rise in existing homesales) despite rising oil prices and all other pesimistic reasons you can conjour up. This raised fears on Wall Street that the Fed might continue to drive interest rates up (despite a reason statement that it would stop doing this for a while) and sending the market down with it.

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Originally posted by metalgearsolid You know my economic teacher said debt was good as long as it went back to something that would be an investment.

Yes, there is good debt. and bad debt.
Leaveraging your debt. by using the bank's money to buy a house for example, is good debt.
Credit / Consumer cards are bad debt. and as a kid, I watched my parents go through that mess.
You can't really go through life easily without a credit card, but try and be fiscally responsible because they can really screw your life up if you let them...

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Originally posted by occrider The housing boom has enabled property owners to refinance their mortgages to take advantage of lower interest rates, actually borrow more than they really needed to begin with, and still end up paying less than they previously did. The end result ... they have more free cash to spend than before without any additional debt obligations.

...But the thing that makes me nervous is that, and I'm generalizing here, people are getting their "extra cash" through home equity loans, which imo is very dangerous. If there was a significant "event" you could have large numbers of people having foreclosures.

...and moving back in with Mom and Dad (the only people who actually own their home)

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Originally posted by occrider otherwise lenders would certainly be far more attentive to their default risk exposure.

Doing some time in the banking industry, myself...
1. lenders set "lending goals" and the numbers that I saw were just unreal ie: 62,000,000.00+ for ONE month!

2. I saw some people's credit applications that had multiple collections and judgements, and were approved for a very high line.

3. Defaults were just seen as cost of doing business, for the income from interest charges and penalties was just too good to pass up.

Last edited by zookeeper on Apr-28-2006 at 04:52

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Originally posted by Fir3start3r but try and be fiscally responsible because they can really screw your life up if you let them...

Such as the new practice of banks marketing Visa/MC, with limits starting at $6000.00+, to incoming college students, many of them with virtually no "money skills".

I compare this practice to hawks, picking off young birds as they leave the nest for the first time.


The discipline that is required, to use these high limit cards, is overwhelming for "older" (ie:me) people, let alone a 19 year old college student.

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Originally posted by zookeeper ...But the thing that makes me nervous is that, and I'm generalizing here, people are getting their "extra cash" through home equity loans, which imo is very dangerous. If there was a significant "event" you could have large numbers of people having foreclosures. ...and moving back in with Mom and Dad (the only people who actually own their home)

Well it could be legitimate extra cash if they're excercising their prepayment options of pre-existing high interest rate fixed mortgages, and switching to ARMs or a new fixed rate mortgage at a lower interest rate. I suppose I could actually look up the default rates to see what the trend was, but I'm not sure it would be very ethical of me to comment on it here .

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Doing some time in the banking industry, myself... 1. lenders set "lending goals" and the numbers that I saw were just unreal ie: 62,000,000.00+ for ONE month! 2. I saw some people's credit applications that had multiple collections and judgements, and were approved for a very high line. 3. Defaults were just seen as cost of doing business, for the income from interest charges and penalties was just too good to pass up.

Yea I can't really comment outside of the mortgage industry.

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im pretty sure we're OWED more money than we OWE.

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Originally posted by hiram im pretty sure we're OWED more money than we OWE.

OH yes, that's a whole different topic topic (another thread idea?!)

We keep forgiving debt in the interest of foreign relations

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Originally posted by occrider excercising their prepayment options

Funny you should mention this,

Some morgage lenders, and I think this trend may be growing, are incorporating LARGE penalties for early payment. With the "hook" of low interest rates, but a BIG surprise in the fine print.


I think my whole point is that I don't like the fact that Americans are getting "comfortable" carrying a high six figure load of debt as just part of life.

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Originally posted by zookeeper Funny you should mention this, Some morgage lenders, and I think this trend may be growing, are incorporating LARGE penalties for early payment. With the "hook" of low interest rates, but a BIG surprise in the fine print.

Well I'm afraid you're taking extremes in the sub-prime market and trying to apply it across the entire mortgage industry. In the prime market, only about 2% of home loans carry prepayment penalties of any length.

Both Fannie and Freddie take a lot of effort to avoid the bad publicity of predatory lending as do many other institutions. I'm not sure this trend is as pervasive as you imply.

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I think my whole point is that I don't like the fact that Americans are getting "comfortable" carrying a high six figure load of debt as just part of life.

Do you know the statistical trend in debt payments as a measure of disposable income? That was my singular question and it would eliminate all conjecture on the matter. I suppose I could try to look it up but I'm lazy .

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