Posts filed under “Credit”
On this day 56 years ago, the U.S. economy began to undergo a momentous change. It was Oct. 1, 1958, and the company known best for its Travelers Cheques introduced a new product: The charge card.
Although American Express technically wasn’t the first company to introduce a charge card, it was the first to make its cards ubiquitous, and in the process changed the concept of where and how credit could be used. The nation hasn’t been the same since
From those humble beginnings, the use of credit spread throughout the county. The Depression-era generation was loath to become indebted to any bank or lender after seeing what could happen in a credit crisis. It’s no coincidence that the widespread use of credit didn’t occur until a new generation came of age.
Along with that new generation came the birth of the suburban bedroom community. Homes were bought with mortgages and furnished with revolving debt. Cars purchased with dealer financing were the glue that held the edifice together. All of these items were out of reach for the average family, unless purchased with credit. This is no small matter. As you can see from the Federal Reserve’s most recent Flow of Funds report, the total indebtedness of U.S. households is a staggering $14 trillion dollars.
What makes the unstoppable rise of credit so significant is the role it played in the 2007-09 financial crisis, and the subsequent recovery. Credit crunches are different from ordinary recessions. Not only are they more severe, as Carmen Reinhart and Ken Rogoff have documented in “This Time Is Different: Eight Centuries of Financial Folly,” but their character is significantly different.
Consider an ordinary recession . . . continues here
Today is an auspicious anniversary, though it’s one I suspect many people may not recall. On Sept. 23, 1998, former Federal Reserve Chairman Alan Greenspan and William McDonough, then president of the Federal Reserve Bank of New York, managed to orchestrate the rescue of the hedge fund Long Term Capital Management. It was a strange…Read More
Peer-to-Peer Lending Is Poised to Grow Yuliya Demyanyk and Daniel Kolliner Peer-to-peer lending—a type of lending which matches individual borrowers with investors—is a recent innovation. But because it fills at least two gaps left by traditional lending sources, the peer-to-peer-lending market is likely to continue growing for some time. Emerging first in the…Read More
Student loans are the next great subprime crisis! At least that’s what the usual purveyors of doom and gloom say (see this, this and this). The numbers are big, the default rates are high and soon enough this is going to tip the economy into the next crisis or recession. Not so fast, writes…Read More
Gates, Fees, and Preemptive Runs Marco Cipriani, Antoine Martin, Patrick McCabe, and Bruno M. Parigi Liberty Street Economics, August 18, 2014 In the academic literature on banks, “suspension of convertibility”—that is, preventing the exchange of deposits at par for cash—has traditionally been seen as a potential means of preventing economically damaging bank…Read More
Sometimes we don’t know exactly how broken things are until after they get fixed. Case in point: Fair Isaac Corp., the company that created the model used to calculate the scores underlying millions of consumer loan and credit decisions. The New York Times described Fair Isaac’s formula as “one of the most widely used and…Read More