Sunday, January 16, 2011

Banks Loosen Purse Strings

One of the headlines on the front page of the 15-16 January 2011 WSJ read "Banks Loosen Purse Strings." That turns out to be a bit misleading.

The good news is that banks are willing to lend money. The bad new is that most Americans do not need more debt.

It is good news that credit-card usage is up 10% year-over-year? It is good news that banks issued 3.4 million new credit cards in the fourth quarter, up 4% from the same period a year earlier?

J.P. Morgan Chairman James Dimon said "we see the consumer is getting stronger...that many Americans are still saving and paying down their debts, which will make them better borrowers." Better borrowers? Only from the mouth of a banker.

Less consumer debt is a good thing. It is not a good thing if we go back to more personal debt. Credit cards are only good for consumer if they pay of the balance monthly. If they pay anything less, then they are hostage to loan sharks.

Being able to get a loan for a car, house or college education are the only reasonable items the typical person should go in debt for -- homes, cars and schools that are prudent for the family income.

It is good that banks are loosening their purse strings but consumer beware. Banks will go back to marketing their services to many that should not have the loans, often with unexpected terms. We don't want to be right back where we were before this recession began.

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