Monday, 11 February 2008

eSubPrime : "Living Beyond Your Mean"

"The number of bad debts referred to the courts for legal action grew by 25 percent last year. "

"During the course of 2007 some 194,000 bad debt matters were referred to district courts - that's 40,000 or 20 percent more than the previous year. "

"A report in the Savon Sanomat newspaper quotes the Justice Ministry as saying that the growth in bad debts is due in large part to borrowers defaulting on instant loans."

"Heikki Liljeroos, a Government Counsellor with the Justice Ministry says the dramatic growth in unpaid debts comes as little surprise to officials."

Some degree of officials' incompetence comes with no surprise too... Where is the FSA (Finnish Financial Surpervision Authority)? Why don't they act and stop those predatory lending? We have all witness the drama it has brought to distressed families in the U.S. . Are they going to act when the problem are deeply anchored and become irreversible?

You see the people that will use those kind of service are the people the less likely you want to lend. People that won't get a proper loan from the bank (although the standard had deteriorated in the past years), people that will use that money as bad investment or worse people using it for paying other debt... Basically central bankers, in the last leg of the boom have been heavely promoted "Moral Hazard"...

We all know that debt has been accumulated in an unreasonnable way for many households, allowing in the way to inflate various asset classes. Can that continue? NO. I don't think so.

Imagine, those people are defaulting at a time when the economy is booming (or has been) and at a time when the job rate is
an historical low. So what would happen if the economy reverse gear and the job rate inch up?

After all the economy won't boom if you stop giving cheap credit, that's how the world economy has been engineered in the past 10 years...

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