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Monday, August 20, 2007

Maxed out on debt

The Kiplinger.com article is based on an interview with James Scurlock, the directory of a documentary called Maxed Out. As per the director, as the banks make more money by having people borrow money from them rather than saving money, their preferred customers these days is some one who bankers and other lending firms encourage people to borrow as they make more money by lending. As per the director,

".....the point I want to make is that lenders discovered years ago that they can make more money by getting people to spend rather than save. It used to be that a preferred customer was someone who paid bills on time and paid down debt. Now a preferred customer is someone who floats debt, pays interest and pays fees. That's very different from a generation ago."

Am not surprised to read that - we keep getting multiple credit card and mortgage refinancing offers in the mail almost every week - all of them end up in our trash. However, I believe that many lenders overdid their quest of encouraging people to load up on debts - they were so interested in having people borrow money that they did not even pay much attention to those people's credit ratings. The recent fall of American Home Mortgage and other subprime lenders is a proof to this fact. Seems lenders forgot that lending makes you money only if the borrower pays back the interest and principal - but when the subprime borrower has no ability to pay back the money, then you are out of luck!

For complete article, see:

Kiplinger.com: Maxed Out on Personal Debt

Related article:

USAToday.com: American Home Mortgage files for bankruptcy

posted by Ruby @ 12:09 AM

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