The 'Democratization of Credit' Is Over

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

De bijbehorende tabel geeft deze cijfers weer (laatste 2 kolommen
-percentage van groep, niet van 100% geheel- schattingen vanaf afbeelding
en moeten bij elkaar worden opgeteld):

Annual income	Pct. households  Falling behind  Default
Over $200.000		3,3		< 1%	  < 0,1%
190 - 200.000		0,7		< 0,5%	  nil
180 - 190.000		0,8		1%	  0,2%
170 - 180.000		1,0		1%	  0,2%
160 - 170.000		1,1		1,5%	  0,2%
150 - 160.000		1,3		1%	  0,2%
140 - 150.000		1,5		1,5%	  0,5%
	sub-totaal	9,7%		< 1%	  < 0,2%
130 - 140.000		1,9		1,5%	  0,5%
120 - 130.000		2,1		1,5%	  0,5%
110 - 120.000		2,6		1,5%	  0,5%
100 - 110.000		3,3		1,5%	  0,5%
90 - 100.000		4,2		2,5%	  1%
80 - 90.000		5,3		3,5%	  1%
70 - 80.000		6,5		4,5%	  2%
60 - 70.000		8,0		5,5%	  2,3%
50 - 60.000		9,3		6,5%	  2,5%
40 - 50.000		11,4		7%	  2,5%
30 - 40.000		15,7		10%	  4,5%
Less than 30.000	20,0		22,5%	  11,7

Van de 10% van de bevolking die 107% van de waarde van alle housing,
liquid assets en  pension assets bezitten, is dus minder dan 1% slordig
met betalen en kan/wil minder dan 0,2% niet op tijd betalen.

Zie mijn berichten van 3oct09 '90% Amerikanen negatief vermogen' en 6oct09
'The end of the dollar spells the rise of a new order'.

Het tweede omslagpunt ligt ongeveer bij een inkomen van $100.000
Best wel hoog, immers dit betreft dan de 80% van de bevolking die $100.000
of minder verdient?

Vraag me af wat de werkelijke pensioenleeftijd gaat worden van die 80%,
als ze al met pensioen kunnen.
Immers de laatste 90% heeft een negatief vermogen van 7% van de waarde
alle housing, liquid assets en  pension assets.

Groet / Cees

http://online.wsj.com/article/SB125511860883676713.html

The 'Democratization of Credit' Is Over -- Now It's Payback Time

By S. MITRA KALITA	OCTOBER 10, 2009

NEW YORK -- Karen King owes nearly $36,000, more than she's ever earned in
a year.

All day long, bill collectors call. She hunts for a second job, sometimes
skips meals, and stays with other family members at a grandfather's
crowded apartment, trying to get out of debt and turn her life around.

She largely holds herself at fault. "Years ago, I lived for now. It was so
stupid," the 28-year-old says. "It's depressing, but I can't live that
life anymore." Now, she says, "I basically want to live for the future."

The recession has forced a financial reckoning for Americans across the
income spectrum. The pressure is especially acute for the low-income
Americans who relied on borrowing for daily expenses or to gain the
trappings of middle-class life. Shifting credit practices over several
decades had enabled them to live beyond their means by borrowing nearly as
readily as the more affluent.
Credit Ruined, Now Living for the Future

View Slideshow
[SB125199054653983575]
Mustafah Abdulaziz for The Wall Street Journal

But the financial crisis and recession have reversed what some economists
dubbed the "democratization of credit," forcing a tough adjustment on both
low-income families and the businesses that serve them.

"We saw an extension of credit to a much deeper socioeconomic level, and
they got access to the same credit instruments as middle-class and
mainstream Americans," says Ronald Mann, a Columbia University law
professor. Now, "it will be harder for families at the bottom of the
income ladder to get credit cards," he says.

The financial crisis has forced lenders to be especially cautious with the
riskiest borrowers, a category that low-income families often fall into
because their debt tends to be higher relative to income and assets. The
ratio of credit-card debt to income is 50% higher for the lowest
two-fifths of Americans by income than for the top two-fifths, Federal
Reserve data show.

For families with incomes between about $20,500 and $37,000, the ratio of
debt to assets rose to 18.5% in 2007 from 14.4% in 1998 -- more sharply
than the increase among the overall population -- according to the Fed's
Survey of Consumer Finances. In addition, the chances of default and
delinquency on home mortgages are higher among lower-income households,
according to data from Equifax and Moody's Economy.com.

The democratization of credit began decades ago. Federal legislation in
the late 1970s required banks to avoid discriminatory lending and meet the
needs of local communities, spawning a wave of home buying and
entrepreneurship in lower-income neighborhoods. The rate of homeownership
in families with incomes in the bottom two-fifths rose to nearly 49% by
2001 from below 44% in 1989, according to Fed data analyzed by Mr. Mann at
Columbia.

Credit-card borrowing took a similar path. One cause was a 1978 Supreme
Court decision that let banks charge whatever interest rate was legal in
the state where their card operation was headquartered. The ability to
charge higher rates made it more profitable to offer cards to risky
borrowers. Adding oomph to both credit-card and mortgage lending was the
growth of markets where lenders could sell their loans.

By 2007, 35% of Americans in the bottom two-fifths of income had a credit
card with a balance, up from just over 21% in 1989. And use of these cards
increased. The median balance on the cards, adjusted for inflation, grew
180% over that period for people in the bottom fifth of income and 80% for
those in the next higher fifth.

When the recession struck, banks that had eagerly wooed new credit-card
customers reversed course. "Rather than keeping accounts that have high
loss potential and limited revenue opportunity, the mission becomes to
close out those customers' active lines and drive them off the books,"
said a report from TowerGroup, a research firm. By June 2009, banks were
closing credit-card accounts at a rate of 14% or 15% annually, double the
rate of a year earlier.

Government policy, in some ways, has reinforced lenders' business
imperative to pull back. A new credit-card law limits banks' freedom to
raise interest rates without 45 days' notice. Anticipating this and other
changes, card companies took aim at delinquent accounts and shed customers
deemed most at risk of default, says Chris Stinebert, president and chief
executive of the American Financial Services Association, a trade group.

"Banks and credit issuers are looking at their own debt and trying to
collect as much as they possibly can," he says.

Backers of the card legislation say one goal is to erect some obstacles to
both the lending and the borrowing excesses of recent years. Treasury
Secretary Timothy Geithner, testifying before Congress in July, said: "We
now know that millions of Americans were...unable to evaluate the risks
associated with borrowing to support the purchase of a home, a car or an
education."

All this means a new reality for consumers like Ms. King. Most of the
credit cards she had were maxed out by 2004. She would sometimes just let
the bills pile up and not pay the minimum. "I would start paying it, and
then my sister almost got evicted from her old apartment, or my
grandfather decided he couldn't pay the rent. They needed help," she says.

Later, the store cut her work hours. As she fell further behind, issuers
canceled her credit cards and handed the debts over to collectors. Ms.
King's credit score slid to 576, a level that deems her a high-risk
borrower.

Last fall, wanting to buy gifts for her mother and sister and clothes for
a young niece, she applied for credit and was rejected at Macy's and Dress
Barn, finally getting a card with a $250 limit at the Children's Place.

Her biggest chunk of debt, $26,000, stems from student loans to pay for
her two-year associate's degree from a community college -- loans now in
the hands of collectors. The remaining $10,000 or so includes old
credit-card balances, debt to a store that rents furniture, utility bills
and back taxes. Another obligation is $400 a month she contributes to the
rent on her grandfather's two-bedroom apartment, where her mother, uncle
and sister also live.

Ms. King's father died when she was four, and her mother reared her and
two siblings. A basketball star in high school, she was the first in the
family to pursue higher education. She got her first credit card when she
began college and was working at a fast-food restaurant. But, she says,
she never learned how to mind a budget.

Legislation passed this year will require that when banks issue a credit
card to someone under 21, a parent or guardian must co-sign and have joint
liability.

Out of college and working at the shoe store, Ms. King kept up a busy
social life, eating out several times a week and going to movies -- even
as the collectors called. But she lost the shoe-store job in January, and
then learned that a prospective new employer had rejected her after
running a credit check. Fearing that her credit record would trip her up
again and again, she resolved to fix her financial mess.

Gone are dinners at Red Lobster and Olive Garden and purchases like new
basketball shoes. She has a part-time job as a tour-bus driver that pays
$13 an hour plus tips. She held a second part-time job, in telemarketing,
for several months, but it was on suburban Long Island, and getting there,
using both the subway and a commuter train, finally became too much. She
now is looking for a second part-time job closer by.

One day, when the subway to her tour-bus job was rerouted, she had to take
a taxi. She watched the meter anxiously the whole way, groaning when she
had to hand over a $12 fare.

With the aid of a financial counselor provided by a nonprofit, Ms. King is
applying triage to her debts. "First, I want to take care of all the
little things," she says, "and then the student loans."

When a utility to which she owed $300 offered to settle for less, Ms. King
says, she declined, because she was told an overdue bill takes longer to
come off a person's credit report when it is settled for a partial
payment.

She rejected any idea of a bankruptcy filing for the same reason. "It
takes forever to come off" the credit report, she says.

To help people like her, several American cities have added
financial-counseling centers. In New York, their clients' average debt is
$18,000, and half have incomes under $10,000. Counselors work with
families to follow a budget, imposing choices they may not have had to
make in years.

On a warm day, Ms. King ducked into a bodega, H&M Madison Express. She
allowed herself a bottle of water, skipping a snack, unlike in the old
days.

Decisions like that add up, said the bodega's manager, Hekmat Mustafa.
Until 11 months ago, he accepted credit cards, but with fewer customers
using them he stopped, to avoid a monthly fee and small fixed fee on each
tiny purchase.

"The rise I see now is in food stamps, even from teenagers," Mr. Mustafa
said. The number of food-stamp recipients was up 22% in June from a year
earlier.

As he spoke, two customers walked in, both to buy individual cigarettes
for 50 cents. Not long ago, he said, they would have bought a pack, for
$9.

At the other end of the retailing spectrum, Sears Holdings Corp. last year
began promoting its layaway program to enable credit-deprived families to
continue to shop.

In Ms. King's world, she says, "all of my friends are going through the
same thing I am."

It looked that way at a cookout she held in late summer -- potluck, to
save costs. Her younger sister, Janice, said she was also awash in debt,
from medical expenses and a bad shopping habit. She has a part-time job at
a supermarket. Their mother, also named Janice, left her apartment amid
mounting utility bills and moved in with her father and daughters. She is
trying to pay off $5,000 of debt so she can rebuild her credit and get an
apartment of her own.

A 22-year-old friend, Norman Broggin, lost his job at the same shoe store
as Ms. King in the spring. He said he had no money to socialize anymore.
Looking around at the laughing group, he said it was the first time they
had been together in a long while. Before, "we would hang out every
weekend," he said. "Get a drink at a nice bar, eat dinner at a nice
restaurant. We don't do anything anymore."

Some are turning to wherever they can for credit. A publicly traded
pawnshop chain, EZCorp., reported a 37% rise in revenue in the second
quarter. "With credit limited and other options disappearing, there are
people looking for somewhere they can get emergency cash," said David
Crume, president of the National Pawnbrokers Association.

Cash-strapped workers have long obtained advances through "payday loans,"
available at storefront lenders for fees that equate to high annual
interest rates. Even that move is not so easy now.

"More customers are walking in the door, but turndowns are up," said
Steven Schlein, a spokesman for the payday-loan industry's trade group,
the Community Financial Services Association of America.

Federal Reserve data show that the use of credit cards has been eclipsed
by use of debit cards, which don't entail a loan. A counselor advised Ms.
King to use her debit card for purchases as she tries to rebuild her
credit score.

Sometimes, in spare moments between work and commuting and budget
calculations, Ms. King flips through a photo album that records her old
life: house parties, birthdays, pro-basketball games.

"I was a social person. I had interest in a lot of things," she says. "I
had dreams. Now I'm just paying off the past."

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