 The ugly truth on credit card debt
We help you understand your debt profile in order to evaluate what balances are realistic and how to best manage large purchases like homes and college educations.
Be mostly debt-free with your credit cardsNot all debt is bad debt. Lenders are interested in your ability to repay — those with higher credit scores are more reliable in terms of the amount of debt they carry and the consistency with which they make repayments. Credit card debt is really the thorn in your side. Take a look at the ratio of your balance-to-limit ratio: This is the amount of debt you carry on a card divided by your total limit. Aim for 7 percent or lower combined and never more than 30 percent on a single card.For example, let's look at a fictional case:
When your total balance-to-limit ratio is at 7 percent, as you further reduce your credit card debt you'll see a smaller gain in your credit score. You may feel great with zero credit card debt, but your credit score isn't going to see as big of an increase in points. Lenders want to see that you use credit but do so responsibly. Big ones: student loans and mortgagesStudent loan and mortgages are major investments in your future and carry large sticker prices. Many people can't imagine paying off their home decades earlier than the maturity date of their loan (although some people do). What's important with these items is to play it safe. Make sure you take out loans with payment schedules you can afford even if your financial situation were to drastically change. Debt isn't bad but being overloaded with debt is — don't hope for the best, plan for the worst.Final thoughts |
Sunday, 23 December 2012
Debt breakdown: Is being-debt free a realistic goal?
Saturday, 22 December 2012
Out with the old, in with the new: Eliot Spitzer says Wall Street needs a regime change
Eliot Spitzer:
Let’s just list the week’s carnage on the Wall Street fraud front:
And how does Wall Street respond? By refusing to admit there’s a problem — by clinging to power and by frantically dodging blame.
And not to personalize it, but executives whom I prosecuted still claim I did it because — get this — I just didn’t like them. Even though their companies threw them out after the charges were proven and their companies have had to pay billions in settlements.
What to make of all of this?
Wall Street has the same mentality as the Penn State leadership: Brush things aside, ignore first principles, avoid the tough ethical choices, go for the short-term win while protecting the cash cow.
And this attitude has been corrosive over time to the ethic of our economy and the trust that should undergird our financial sector.
We need a fresh start, new leaders. The current crop have failed across the board. Just as we every now and again vote out the entire political leadership, now is a good time to say to the folks on Wall Street, “Bring in a new team.”
There is something honorable about the Japanese approach: When something goes wrong, the leader steps aside. But we’re not the Japanese. Corporate leaders in America have shown time and time again, they do not possess that same sense of honor.
A leadership change will have to be forced — like they did at Penn State, like England is doing with its banking leaders, like shareholders could do with the companies they own and like the U.S. government has to do sometimes for the health of our economy.
That’s “My View.”
Let’s just list the week’s carnage on the Wall Street fraud front:
- Libor investigations ensnare almost all the major banks — estimates of damages of more than $20 billion are front page in leading papers;
- JPMorgan Chase now says its London derivatives trades cost nearly $6 billion in losses — and were a major failing in oversight and management;
- HSBC admits massive failures that resulted in permitting money laundering of huge sums of illegal dollars;
- Wells Fargo admits it discriminated in issuance of mortgages, charging minorities more than it should have.
And how does Wall Street respond? By refusing to admit there’s a problem — by clinging to power and by frantically dodging blame.
And not to personalize it, but executives whom I prosecuted still claim I did it because — get this — I just didn’t like them. Even though their companies threw them out after the charges were proven and their companies have had to pay billions in settlements.
What to make of all of this?
Wall Street has the same mentality as the Penn State leadership: Brush things aside, ignore first principles, avoid the tough ethical choices, go for the short-term win while protecting the cash cow.
And this attitude has been corrosive over time to the ethic of our economy and the trust that should undergird our financial sector.
We need a fresh start, new leaders. The current crop have failed across the board. Just as we every now and again vote out the entire political leadership, now is a good time to say to the folks on Wall Street, “Bring in a new team.”
There is something honorable about the Japanese approach: When something goes wrong, the leader steps aside. But we’re not the Japanese. Corporate leaders in America have shown time and time again, they do not possess that same sense of honor.
A leadership change will have to be forced — like they did at Penn State, like England is doing with its banking leaders, like shareholders could do with the companies they own and like the U.S. government has to do sometimes for the health of our economy.
That’s “My View.”
After Laundering $800 Million in Drug Money, How Did HSBC Executives Avo...
Too big to fail.
Too big to prosecute.
Even the Wall Street crooks
are amazed by this one.
New probe in Alpe Adria bank scandal
Prosecutors in Carinthia have confirmed a new investigation around the Hypo Group Alpe Adria (HGAA) bank against 12 people. None of those under investigation were named.BZÖ-Deputy party leader Stefan Petzner had already indicated that there were new investigations around the end of October and now this has been confirmed by prosecutors.
Spokeswoman Gabriele Lutschounig said that no further information would yet be revealed because the investigations were still ongoing.
Petzner said that shortly before the Hypo was taken over by 100 percent by the Austrian government there was corruption on the part of various people including bankers and local politicians. At the time the government said it was necessary for the bank to be nationalised to prevent its collapse.
Hypo Group Alpe Adria (HGAA) is an Austrian banking group with numerous cross-border activities in 12 countries of the Alps-Adriatic region. Its network of branches and offices extends from Austria through Italy and Liechtenstein, from Slovenia through Croatia, Bosnia-Herzegovina, Serbia, Montenegro, Hungary and Germany on to Brussels.
In May 2007 the BayernLB bought 50% plus one share (controlling stake) of HGAA for 1.63 billion Euros. On 14 December 2009, BayernLB, Kärntner Landesholding and Grazer Wechselseitige Versicherung sold their stakes in the bank to Austrian government for one Euro each.
Friday, 21 December 2012
Out of Work and Into Debt: Why the "Plastic Safety Net" Isn't Enough
Amy Traub
What would you do if you were laid off from a job? While you looked for a new position, you’d likely cut expenses as much as possible and begin drawing on any savings you have to pay the bills you can’t avoid. As time went on, you might turn to family, friends, and community institutions for assistance. With luck, you’d qualify for federal unemployment insurance benefits, and the $300 a week on average that they provide would be a critical support. At the same time, you might wind up putting groceries or gas on your credit card -- and then having trouble paying that bill. You wouldn’t be alone.
New findings from Demos’ 2012 National Survey on Credit Card Debt of Low and Middle-Income Households reveal that job loss is a leading contributor to credit card debt, and the debt accumulated can take years to pay off. A quarter of all low- and middle-income households with credit card debt reported that they had accumulated their debt as a result of a job loss. Among households with members who have been unemployed in the past three years, 34 percent say that expenses relating to job loss are the single biggest contributor to current credit card debt.
We also find that households with members who have been unemployed in the past three years have credit card balances that average $100 more than those who have not experienced household unemployment. Unemployed households also pay average credit card interest rates seven percent higher than households that haven’t been impacted by unemployment. Over time, higher rates can lead to thousands of dollars in extra interest payments—even on credit cards that have since been cancelled.
Since households experiencing unemployment are more likely to pay credit card bills late and have difficulty paying off other debts, they also tend to have worse credit. Having poor credit can impose higher costs and reduced economic opportunities for years to come: causing a consumer to end up paying more for loans and insurance, have difficulty renting an apartment, or even be turned down for a future job.
Americans shouldn’t have to rely on a “plastic safety net” of credit card debt to make ends meet – we should have a genuine, public safety net to provide support when we’ve fallen on hard times. Clearly the unemployment insurance system is failing to adequately sustain out-of-work Americans and should be strengthened. But instead, we face the danger of cuts.
If unemployed workers and their families need credit cards to make ends meet even when unemployment benefits are available, imagine how bad things could become if the benefits expired. As Ilana Novick noted on this blog last week, unemployment benefits for approximately 2.1 million Americans who have been out of work for more than six months are set to expire at the end of December unless Congress acts to extend them. There are many well-documented reasons to extend benefits: avoiding an increase in household indebtedness – with all of its long term consequences – is yet another.
New findings from Demos’ 2012 National Survey on Credit Card Debt of Low and Middle-Income Households reveal that job loss is a leading contributor to credit card debt, and the debt accumulated can take years to pay off. A quarter of all low- and middle-income households with credit card debt reported that they had accumulated their debt as a result of a job loss. Among households with members who have been unemployed in the past three years, 34 percent say that expenses relating to job loss are the single biggest contributor to current credit card debt.
We also find that households with members who have been unemployed in the past three years have credit card balances that average $100 more than those who have not experienced household unemployment. Unemployed households also pay average credit card interest rates seven percent higher than households that haven’t been impacted by unemployment. Over time, higher rates can lead to thousands of dollars in extra interest payments—even on credit cards that have since been cancelled.
Since households experiencing unemployment are more likely to pay credit card bills late and have difficulty paying off other debts, they also tend to have worse credit. Having poor credit can impose higher costs and reduced economic opportunities for years to come: causing a consumer to end up paying more for loans and insurance, have difficulty renting an apartment, or even be turned down for a future job.
Americans shouldn’t have to rely on a “plastic safety net” of credit card debt to make ends meet – we should have a genuine, public safety net to provide support when we’ve fallen on hard times. Clearly the unemployment insurance system is failing to adequately sustain out-of-work Americans and should be strengthened. But instead, we face the danger of cuts.
If unemployed workers and their families need credit cards to make ends meet even when unemployment benefits are available, imagine how bad things could become if the benefits expired. As Ilana Novick noted on this blog last week, unemployment benefits for approximately 2.1 million Americans who have been out of work for more than six months are set to expire at the end of December unless Congress acts to extend them. There are many well-documented reasons to extend benefits: avoiding an increase in household indebtedness – with all of its long term consequences – is yet another.
The End of the World? Probably not. The end of banking regulations as we know them? Almost certainly
It seems that in the world of banking, it’s now a question of get as big as you can and then do as you like. You see, the bigger the bank failure, the harder the hit on the world’s financial system. And four years after the Lehman Brother debacle, American authorities are signaling that big banks can do whatever they please.
Take the case of HSBC. Just a couple of weeks ago it was handed a $1.92 billion settlement. And what this meant was that it avoided indictment on charges of money laundering, transferring billions of dollars for nations like Iran, and helping Mexican drug cartels to move money through America. A few dollars to pay – certainly in terms of the amount of money the bank may have made out of its illegal operations – and then business as usual.
HSBC isn’t the first bank to avoid the wrath of the criminal courts. Over the past few years six other foreign banks have been handed ‘settlements’. Banks such as ING, Barclays, Credit Suisse, and Standard Chartered have been moving billions of dollars around the world for countries such as Cuba, Sudan, and Iran.
Have you ever tried to transfer $10,000 or more, and been requested to produce all sorts of paperwork for money laundering purposes? Well it seems that these rules don’t apply to real big money. Big banks can move money at will, and never be threatened with jail.
And it doesn’t stop there. Just this week, UBS has fessed up to fixing Libor rates on products worth trillions of dollars through to 2009. Has the Department of Justice taken their sword to the bank? No. What has happened is that UBS looks likely to pay $1.5 billion in settlements to UK, US, and Swiss authorities and a Japanese subsidiary of the firm will plead guilty to a US criminal offense, therefore keeping the main bank safe.
Of course, there have been low level traders fired across all the banks concerned. But, surely, the big boys – Chairmen, CEO’s, and CFO’s – will have known about their banks’ operations? If not, the question has to be why not. And if so, the question has to be why they are still employed.
Either the banking system around the world is not functioning properly, or it is run by a bunch of liars, cheats, and swindlers.
The saddest thing is that the American authorities have signaled they don’t have the spine to deal with the root cause of the problem. Big banks used to be too big to fail. Then they became too big to bail. Now, it seems, they are too big to jail.
Take the case of HSBC. Just a couple of weeks ago it was handed a $1.92 billion settlement. And what this meant was that it avoided indictment on charges of money laundering, transferring billions of dollars for nations like Iran, and helping Mexican drug cartels to move money through America. A few dollars to pay – certainly in terms of the amount of money the bank may have made out of its illegal operations – and then business as usual.
HSBC isn’t the first bank to avoid the wrath of the criminal courts. Over the past few years six other foreign banks have been handed ‘settlements’. Banks such as ING, Barclays, Credit Suisse, and Standard Chartered have been moving billions of dollars around the world for countries such as Cuba, Sudan, and Iran.
Have you ever tried to transfer $10,000 or more, and been requested to produce all sorts of paperwork for money laundering purposes? Well it seems that these rules don’t apply to real big money. Big banks can move money at will, and never be threatened with jail.
And it doesn’t stop there. Just this week, UBS has fessed up to fixing Libor rates on products worth trillions of dollars through to 2009. Has the Department of Justice taken their sword to the bank? No. What has happened is that UBS looks likely to pay $1.5 billion in settlements to UK, US, and Swiss authorities and a Japanese subsidiary of the firm will plead guilty to a US criminal offense, therefore keeping the main bank safe.
Of course, there have been low level traders fired across all the banks concerned. But, surely, the big boys – Chairmen, CEO’s, and CFO’s – will have known about their banks’ operations? If not, the question has to be why not. And if so, the question has to be why they are still employed.
Either the banking system around the world is not functioning properly, or it is run by a bunch of liars, cheats, and swindlers.
The saddest thing is that the American authorities have signaled they don’t have the spine to deal with the root cause of the problem. Big banks used to be too big to fail. Then they became too big to bail. Now, it seems, they are too big to jail.
UBS and the Libor scandal: the gift that keeps taking
If ever a banking scandal deserved to arouse public fury it is the one at UBS over its part in rigging money markets
Call it scandal fatigue. A palpable sense of resignation now greets each fresh revelation of even the most colossal financial fiascos. Whether it is HSBC handing over £1.2bn in fines and charges for lax controls against money-laundering, Kweki Adoboli getting seven years' jail for rogue trading, or JP Morgan fessing up to over £3.5bn in losses from making supersize bets in the City, these debacles register – but fail to generate the anger that the sums and the misconduct involved deserve. Perhaps outrage requires a hate figure to provoke it: a Fred the Shred, or a Bob Diamond.
Yet if ever a banking scandal deserved to arouse public fury it is the one being uncovered at UBS over its part in rigging money markets. This week's details from regulators about just how flagrantly senior staff at the multinational bank went about fixing so-called Libor rates – the interest rates that determine everything from the cost of your mortgage to the monthly loan repayments made by businesses and local councils – make clear that the Libor scandal goes much further than a few rogue individuals or even a few rotten institutions. This is a far bigger scandal than the horrors unearthed by regulators at Barclays Capital over its part in the Libor fixing. There, investigators managed to nail 14 staff and were unable to show how the scammers actually profited from their scam.
In the case of UBS, regulators have already caught 45 individuals, and found clear evidence of profiteering. As the £940m fine slapped on UBS this week (the second such fine, unbelievably – against £290m for Barclays) demonstrates, this is a much bigger case. And crucially, it shows not just a few rotten apples but an entire rotten culture, where highly paid staff at some of the world's biggest banks and City dealers colluded in fixing quoted market prices.
They did so blatantly – through emails and internet message boards – and cynically. "You know, scratch my back, yeah an all," reads one exchange from a banker to a broker at another firm. "Oh definitely, yeah, play the rules." They did it for personal gain: "I'll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want," reads another UBS trader's promise. The Swiss watchdog puts at $64m the clearly calculable profit made by UBS alone through just one year's tampering with Libor. And they did it in volume. The Financial Services Authority has totted up at least 1,900 occasions when UBS bankers asked their colleagues, other brokers and employees at other banks for Libor to be fixed for their gain. And those are only the written requests: the verbal demands would surely be at least as abundant.
This corruption of one of the most prosaic things in financial markets was so widespread that senior managers either allowed it, or turned a blind eye, or were so negligent as to raise questions about whether they violated their fiduciary duties to shareholders. For the record, UBS went for years without proper supervisory controls on the department that fixed Libor. Yet this goes beyond a single Swiss bank, even one as large and ungainly as UBS. Over at taxpayer-owned RBS, Stephen Hester has been warning for months that he will soon need to surrender a massive fine to regulators. And the watchdogs themselves are investigating not only banks, but broker-dealers. An entire industry is now under a huge and very black shadow. And all this is happening just a few weeks before the yearly bonus-round.
The official answer so far to misconduct has been chasing a few bad apples and fining the banks that house them. That is no way near enough. The fines paid by Barclays and UBS seem almost like the costs of doing business – irksome, sure, but a punt worth making. It is surely time to talk about depriving major offenders of their licences to do some kinds of market activity. That may sound unduly punitive to some regulators, but consider: the Libor scandal is already proving to be one of the biggest in banking history – and it has only just begun to unravel.
Yet if ever a banking scandal deserved to arouse public fury it is the one being uncovered at UBS over its part in rigging money markets. This week's details from regulators about just how flagrantly senior staff at the multinational bank went about fixing so-called Libor rates – the interest rates that determine everything from the cost of your mortgage to the monthly loan repayments made by businesses and local councils – make clear that the Libor scandal goes much further than a few rogue individuals or even a few rotten institutions. This is a far bigger scandal than the horrors unearthed by regulators at Barclays Capital over its part in the Libor fixing. There, investigators managed to nail 14 staff and were unable to show how the scammers actually profited from their scam.
In the case of UBS, regulators have already caught 45 individuals, and found clear evidence of profiteering. As the £940m fine slapped on UBS this week (the second such fine, unbelievably – against £290m for Barclays) demonstrates, this is a much bigger case. And crucially, it shows not just a few rotten apples but an entire rotten culture, where highly paid staff at some of the world's biggest banks and City dealers colluded in fixing quoted market prices.
They did so blatantly – through emails and internet message boards – and cynically. "You know, scratch my back, yeah an all," reads one exchange from a banker to a broker at another firm. "Oh definitely, yeah, play the rules." They did it for personal gain: "I'll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want," reads another UBS trader's promise. The Swiss watchdog puts at $64m the clearly calculable profit made by UBS alone through just one year's tampering with Libor. And they did it in volume. The Financial Services Authority has totted up at least 1,900 occasions when UBS bankers asked their colleagues, other brokers and employees at other banks for Libor to be fixed for their gain. And those are only the written requests: the verbal demands would surely be at least as abundant.
This corruption of one of the most prosaic things in financial markets was so widespread that senior managers either allowed it, or turned a blind eye, or were so negligent as to raise questions about whether they violated their fiduciary duties to shareholders. For the record, UBS went for years without proper supervisory controls on the department that fixed Libor. Yet this goes beyond a single Swiss bank, even one as large and ungainly as UBS. Over at taxpayer-owned RBS, Stephen Hester has been warning for months that he will soon need to surrender a massive fine to regulators. And the watchdogs themselves are investigating not only banks, but broker-dealers. An entire industry is now under a huge and very black shadow. And all this is happening just a few weeks before the yearly bonus-round.
The official answer so far to misconduct has been chasing a few bad apples and fining the banks that house them. That is no way near enough. The fines paid by Barclays and UBS seem almost like the costs of doing business – irksome, sure, but a punt worth making. It is surely time to talk about depriving major offenders of their licences to do some kinds of market activity. That may sound unduly punitive to some regulators, but consider: the Libor scandal is already proving to be one of the biggest in banking history – and it has only just begun to unravel.
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