Is Credit Card Addiction Back?

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

Statistically, one out of seven families live in severe physical deficient housing. In fact, the housing and stock market revealed in July of 2009 that the Great Recession further widened the gap and income disparity between the average, hard-working Americans and the top 1% of wealthy Americans. Edward N. Wolff suggests that the average American produced a massive 36.1% drop in overall marketable assets while the top 1% of wealthy Americans only lost 11.1%. This income gap disparity ensures that ever-increasing need for affordable housing as the economic crisis worsens.

Low interest rates and the ease of borrowing money are two primary causes of the current recession. In 2007, 37% of the total home mortgage loans were considered a “liar loan” because the mortgage lender did not evaluate income or assests (Russo, Mitschow, & Schinski, 2015). The Federal Government sought to encourage home loaners to loan to risky homebuyers and they kept low interest rates for far too long. During this time mortgage brokers began selling home mortgage loans rather than a commercial banking system. They were not subject to the scrutinized federal regulations, and lent money to many individuals who were unable to afford the homes that they were buying. Many people overestimate their ability to pay debt, resulting in them buying expensive homes because they were approved regardless of their credit or income. The crisis occurred when homes values dropped due to the ability for individuals to buy expensive homes, which resulted in people owing more on their homes than the value of the house. It was nearly impossible for people to make a profit when selling their homes, so many homeowner’s felt that it would be best to default on their loans as they were losing money paying for a home with less value than the actual loan. The more foreclosures there was, the more home values diminished and causing more and more

Most of the debt seen by households was in the form of mortgages, and loans against people’s mortgages. Again with the government regulations and push for more people to own houses, builders to expand their developments and banks to offer subprime loans which lead to competition among banks to lower interest rates, give out adjustable rate mortgages, and even give no income no asset loans, it was easy to get the credit backing from banks and financial institutions for individuals. This increased spending and debt can be contributed to why the economy was looking up for many years, and the economy was booming. However when this uncertainty began to fall, more people pulled out of their personal investments that they considered risk and starting hanging on to their money. Below is a chart from the U.S. Bureau of Economics depicting the household savings before and after 2008.

Reduced short-term interest rates caused the cost of borrowing to be cheaper for everyone, financial institutions and individuals alike. With Tech stocks valued very lowly, investors flocked en masse to the booming real estate sector, coupled with a huge amount of cheap credit and the Federal Government’s deep seated policy of home ownership for low income families, there was an explosion of commercial and residential loans being taken out by almost everyone (Oregon Law Review, 2011).

Consumer credit and spending has a great influence on the health of the economy. It seems like there having uncontrolled access to consumer credits can have a major effect on the housing, businesses and firms, and other lending agencies that issues lines of credit. According to the text, “The availability of consumer credit was a major factor in the slowing of the U.S. economy in 2007 and 2008; the credit crisis began when the housing market collapsed and homeowners began to default on mortgage in record numbers” (Farnham, 2014, p.330). This had a major effect on businesses and firms that dealt with consumer loans and other credit policies to consumers, and it required some of these polices to be tightened to prevent any more damage to the

United States economy was faced with grim economic prospects that nearly plunged the economy into recession. The measures that were put in place by the Congress and the Federal Reserve Bank did make the US economy survive the recession scare that was realized in August 2011. This recession scare was occasioned by the figures generated from the July 29th GDP report (Bullard, 2011). The Federal Open Market Committee (FOMC) has however remained on the outlook and has warned the players in the financial markets of a possible downside risk originating from Europe. The basis of FOMC assertion was premised on European sovereign debt crisis that eroded the confidence households and businesses had in certain financial institutions. However, the drops in confidence have not impacted growth because large businesses have focused their growth strategies to Asia as opposed to Europe. Besides, households are less bothered by events unfolding in Europe which they consider too distant to make them change their behavior (Bullard, 2011).

UK household indebtness. Both the high unemployment rate and the high borrowing costs had lower the households’ solvency. In addition, the buy-to-let investors’ cyclical

There are competing measures of financial stress, including three versions calculated by regional Federal Reserve Banks (Chicago, Cleveland and St. Louis). Two regional Federal Reserve Bank measures (Chicago and St. Louis) are pointing to similar conclusions, namely that financial conditions in the absolute sense are still loose, but have become less accommodative in recent weeks. They do not, in any way, point to a tight environment, at least when viewed from a historical perspective. Those who support the case for the Fed remaining on the side-lines assert that, despite a negative real federal funds rate, easy financial conditions now provide less help to the real economy. The lower degree of accommodative conditions in the financial system seen in recent weeks is, in some commentators’ opinion, already equivalent to a 25 basis points increase in the federal funds target. Markets have, therefore, already done the FOMC’s job. Meanwhile, the Federal Reserve Bank of Cleveland’s measure of financial stress has entered territory signifying a moderate level of tautness. Credit market instruments are important components for these measures of stress.

talk of a credit bubble. We believe the high-yield bond market correction this quarter is

The global economic downturn, the sub-prime mortgage fiasco, investment bank collapses, falling shares and home prices, and tight credit pushed the United States into a recession by end 2007.In response to which the Federal Reserve, Treasury, and Securities and Exchange Commission responded with unprecedented , monetary policy expansion, fiscal stimulus and financial institutional bailouts

Easy availability of credit in the U.S. has been sighted as the primary reason behind Subprime mortgage crisis that occurred in 2007. However, the other factors or fault lines responsible for this crisis tend to be deep and are not easily recognizable or rather have lead to the primary factor of easy credit availability. Our aim in this chapter is to understand what these other factors are and to examine whether there existed alternate feasible and long term

U.S. credit crisis from 2007. Since 2002, the consumer finance branch of Grupo Santander a

A survey by MBA (2008) showed that 9.2% of all mortgages outstanding were either delinquent or in foreclosure.

This paper analyzes data obtained over the history of Lending Club from 2007 to the most recent year's available data and applies statistical methods to this data as follows. First, it assesses factors that are most highly correlated with the success or failure of a personal loan approved by Lending Club (e.g.: debt to income