A Quote by Henry Paulson
When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans, and investments to create jobs.
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Starting in late 2007, faced with acute financial market distress, the Federal Reserve created programs to keep credit flowing to households and businesses. The loans extended under those programs helped stabilize the financial system.
Payday loans are but one of many financial techniques - from overdraft fees to student loans subsidizing for-profit colleges - specifically designed to pull money from the pockets of the poor. This problem generally goes unrecognized by policy makers.
A world where wages no longer rise still needs consumers. Middle-class purchasing power has been maintained through loans, loans and more loans. The Calvinistic reflex that you have to work for your money has turned into a license for inequality.
If you have loans, the first thing you want to do is say, "Okay, look I have a credit card, if I really need to borrow, I have this emergency money that I can get, but for now there is no reason for me to keep cash at zero percent interest rate and at the same time, pay all of this money out. So, I think people need to figure out quickly how to pay loans and how much cash they should really keep.
If I'm a bank, and I'm making risky loans, I have an incentive, if I can, to make those loans using other people's money: in other words, to make highly leveraged loans.
What people do is they pay the small loans first. Why? Because they enjoy making the number of loans smaller. But of course it is a very ineffective way to pay debt down.
A consolidation makes sense only if you can lower your overall interest rate. Many people consolidate by taking out a home equity line loan or home equity line of credit (HELOC), refinancing a mortgage, or taking out a personal loan. They then use this cheaper debt to pay off more expensive debt, most frequently credit card loans, but also auto loans, private student loans, or other debt.
Why do we have financial crises? Why do banks lose money? If history is any guide, it hasn't often been the result of speculative bets. It has been the result of banks making loans to individuals and businesses who can't pay them back.
When students have access to low-interest loans and government aid, colleges have no incentive to cut costs. Why should a college lower tuition if more students are able to pay with subsidized loans from the government?
Homeowners refinance their loans when interest rates go down. Businesses refinance their loans.
Imagine you have six loans, small to huge. People want to close loans and because of that, they try to pay off the small loans, but that's not the right strategy. The right strategy, of course, is to pay the loan with the highest interest rate. People make this mistake and it costs them lots and lots of money, it's a very expensive mistake because interest rates accumulate and become very, very expensive very quickly.
We must fundamentally restructure our student loan program. It makes no sense that students and their parents are forced to pay interest rates for higher education loans that are much higher than they pay for car loans or housing mortgages.
Ending up-front fees should make it far easier for all students to go to university as they will no longer have to pay up to /1,125 out of their loans at the start of each year. Student loans will also rise to meet average living costs.
Our focus is more on secured retail business like housing and car loans. While we will do some unsecured loans - credit cards and personal loans - we will do it primarily with existing customers.
In a crisis, stocks of financial companies are great investments, because the tide is bound to turn. Massive losses on bad loans and soured investments are irrelevant to value; improving trends and future prospects are what matter, regardless of whether profits will have to be used to cover loan losses and equity shortfalls for years to come.
If there were not derivatives, there would be no bank loans at all today, because people want to get fixed-rate 30-year loans, but banks don't want to keep 30-year loans on their books.
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