Volcker Says Finance System `Broken,' Losses May Rise (Update2)
By Steve Matthews and Doug Alexander
Sept. 5 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker said the U.S. financial system, dependent upon securitization rather than traditional bank loans, is broken, and may contribute to the weakest expansion since the 1930s.
``This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,'' Volcker said today at a banking conference in Calgary. ``Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.''
The former Fed chief projected ``a lot'' more losses from the collapse in the mortgage-backed debt market, after the more than $500 billion tallied so far, should the U.S., European and Japanese economies fail to pick up. He urged changes in financial regulations, echoing calls among sitting officials and legislators.
``It is the most complicated financial crisis I have ever experienced, and I have experienced a few,'' said Volcker, who has endorsed Democratic presidential candidate Barack Obama. Volcker ran the Fed from 1979 to 1987, and engineered an increase in interest rates to 20 percent to quell inflation that exceeded 10 percent.
U.S. growth has averaged 2.3 percent so far this decade, down from 3.4 percent in the 1990s. The current growth rate is the weakest since at least the 1940s, when the government began compiling figures on quarterly gross domestic product.
Volcker's comments came after a government report today showed the U.S. unemployment rate rose to a five-year high as the economy lost more jobs than forecast in August. The report underscored concerns that U.S. consumer spending will weaken and push the American economy into a recession.
Economists expect annualized rates of growth of 1 percent in the third quarter and 0.4 percent in the fourth quarter, according to the median estimate in a Bloomberg Survey in early August.
Fed Chairman Ben S. Bernanke said on Aug. 22 that financial turmoil has ``not yet subsided,'' and is contributing to weaker growth and higher unemployment. Policy makers will ``continue to review'' the Fed's measures to ensure liquidity to determine ``if they are having their intended effects,'' Bernanke said.
``Changes are going to have to be made'' to the global financial system, Volcker said. Banks three decades ago accounted for about 60 percent of U.S. credit; that later declined to about 30 percent as securitization -- where financial firms package assets into bonds and other instruments and sell them on to investors and other companies -- spread.
Volcker said he agreed with descriptions of the current financial system as ``dysfunctional. That is a polite way of saying it failed.'' The U.S. government, not the Fed, should take the lead in rescuing any financial institutions when ``push comes to shove,'' he said, echoing comments by former Fed Chairman Alan Greenspan.
The Fed rescued Bear Stearns Cos. from bankruptcy in March, facilitating the firm's merger with JPMorgan Chase & Co. by loaning against $29 billion of Bear securities. Bernanke has also made central bank loans available to nonbanks for the first time since the 1930s and lowered the rates at which banks can borrow from the Fed.
Showing posts with label oops. Show all posts
Showing posts with label oops. Show all posts
Monday, September 8, 2008
Tuesday, November 13, 2007
Canadians in Hock
Tip of the hat to reader '/dev/null' for forwarding this news story. Credit card debt is obviously a major problem for many Canadians. It is hard for me to comprehend how much revolving debt many people have and they don't even realize that they are enslaving themselves to the cheap crap they bought on the card.
Growing credit debt is crushing Canadians: study
Updated Tue. Nov. 13 2007 8:46 AM ET CTV.ca News Staff
A new study of Canadians' credit debt finds that a whopping 25 per cent owe between $10,000 and $40,000, and 28 per cent don't even know the interest rate they pay on their main credit card.
The report by Credit Canada and Capitol One was timed for release during their Credit Education Week, and is designed to raise awareness of good financial management.
Laurie Campbell, of Credit Canada, said the numbers -- which don't factor in mortgage debt -- were surprisingly high.
"The numbers are quite startling, even I was quite surprised, but nevertheless, this is truly what we're seeing," Campbell told CTV's Canada AM.
"Savings rates at an all-time low and debt rates at an all-time high so this financial literacy week in my opinion is long overdue."
The study, which questioned 4,000 respondents about their personal credit debt practices, found a disconnect between Canadians' debt levels and retirement plans.
When asked about their total outstanding debt from credit sources and loans, respondents said the following (figures don't include mortgage debt):
$0 -- 16 per cent
$10,001 to $20,000 -- 13 per cent
$20,001 to $40,000 -- 12 per cent
$100,001 to $200,000 -- 9 per cent
$300,001 to $500,000 -- 1 per cent
Two per cent of Canadians said they had six credit cards; while six per cent had five credit cards; 12 per cent had four cards; while the majority, 25 per cent, had two credit cards.
Twenty-two per cent of Canadians said they had only one credit card.
When it came to the average balances people said they carried on their credit cards, 36 per cent said their monthly balance was $0 because they paid off their credit card each month.
Eleven per cent said their monthly balance was between $1,001 and $2,500, 9 per cent had a balance of between $2,501 and $5,000 while 1 per cent had the highest monthly balance of between $20,001 and $30,000.
When asked how their credit card habits could be best described:
50 per cent said they pay their credit card off in full every month.
37 per cent said they pay the minimum requirement each month
10 per cent said they do not have a credit card.
3 per cent said they sometimes/often miss the minimum required payment.
"Certainly what happens with a lot of people is they look at their statement, they see a minimum payment, and say that's what I have to pay and unfortunately they don't look further to find out what the implications of only paying the minimum payment are," Campbell said.
When it came to budgeting, 53 per cent said they have no budget. Another 31 per cent said they have a budget and stick to it, and 16 per cent said they have a budget but rarely stick to it.
When asked when they thought they would be able to retire, respondents said the following:
13 per cent -- never
3 per cent -- between 71 and 76
24 per cent -- between 56 and 60
29 per cent -- between 61 and 65
14 per cent -- between 66 and 70
"The majority of people expect to be able to retire at 60 or 65," Campbell said.
"I don't know how they expect to retire if they're not saving, so there's a real dichotomy between the way people see their future and the way they're handling their money."
When asked what their top concern was regarding credit and debt management, 26 per cent said they worried about not being able to deal with unexpected emergencies.
Campbell said the goal of Credit Education Week is to raise awareness among Canadians about credit debt and how to deal with it, through providing free advice and online resources.
While a strong Canadian dollar has lulled many Canadians into a sense of financial security, people must be cautious, she said.
"People are very optimistic which is a very wonderful thing but you also have to plan for your future and think about where you're spending your money and put your goals in place, that's the most important thing."
Growing credit debt is crushing Canadians: study
Updated Tue. Nov. 13 2007 8:46 AM ET CTV.ca News Staff
A new study of Canadians' credit debt finds that a whopping 25 per cent owe between $10,000 and $40,000, and 28 per cent don't even know the interest rate they pay on their main credit card.
The report by Credit Canada and Capitol One was timed for release during their Credit Education Week, and is designed to raise awareness of good financial management.
Laurie Campbell, of Credit Canada, said the numbers -- which don't factor in mortgage debt -- were surprisingly high.
"The numbers are quite startling, even I was quite surprised, but nevertheless, this is truly what we're seeing," Campbell told CTV's Canada AM.
"Savings rates at an all-time low and debt rates at an all-time high so this financial literacy week in my opinion is long overdue."
The study, which questioned 4,000 respondents about their personal credit debt practices, found a disconnect between Canadians' debt levels and retirement plans.
When asked about their total outstanding debt from credit sources and loans, respondents said the following (figures don't include mortgage debt):
$0 -- 16 per cent
$10,001 to $20,000 -- 13 per cent
$20,001 to $40,000 -- 12 per cent
$100,001 to $200,000 -- 9 per cent
$300,001 to $500,000 -- 1 per cent
Two per cent of Canadians said they had six credit cards; while six per cent had five credit cards; 12 per cent had four cards; while the majority, 25 per cent, had two credit cards.
Twenty-two per cent of Canadians said they had only one credit card.
When it came to the average balances people said they carried on their credit cards, 36 per cent said their monthly balance was $0 because they paid off their credit card each month.
Eleven per cent said their monthly balance was between $1,001 and $2,500, 9 per cent had a balance of between $2,501 and $5,000 while 1 per cent had the highest monthly balance of between $20,001 and $30,000.
When asked how their credit card habits could be best described:
50 per cent said they pay their credit card off in full every month.
37 per cent said they pay the minimum requirement each month
10 per cent said they do not have a credit card.
3 per cent said they sometimes/often miss the minimum required payment.
"Certainly what happens with a lot of people is they look at their statement, they see a minimum payment, and say that's what I have to pay and unfortunately they don't look further to find out what the implications of only paying the minimum payment are," Campbell said.
When it came to budgeting, 53 per cent said they have no budget. Another 31 per cent said they have a budget and stick to it, and 16 per cent said they have a budget but rarely stick to it.
When asked when they thought they would be able to retire, respondents said the following:
13 per cent -- never
3 per cent -- between 71 and 76
24 per cent -- between 56 and 60
29 per cent -- between 61 and 65
14 per cent -- between 66 and 70
"The majority of people expect to be able to retire at 60 or 65," Campbell said.
"I don't know how they expect to retire if they're not saving, so there's a real dichotomy between the way people see their future and the way they're handling their money."
When asked what their top concern was regarding credit and debt management, 26 per cent said they worried about not being able to deal with unexpected emergencies.
Campbell said the goal of Credit Education Week is to raise awareness among Canadians about credit debt and how to deal with it, through providing free advice and online resources.
While a strong Canadian dollar has lulled many Canadians into a sense of financial security, people must be cautious, she said.
"People are very optimistic which is a very wonderful thing but you also have to plan for your future and think about where you're spending your money and put your goals in place, that's the most important thing."
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