Pay day loans must be examined to counter the current conventional institutional lending practices globally.
The Obama administration, Federal Reserve and Senate announced February 9, 2009 the crisis of their attempts to quell the deepening economic waters in the U.S. further leading to heightened borrowing in the payday loan sector.
Simply how much debt is the U.S. in?
Firstly, the $3 trillion U.S. was denounced by the market as inadequate in solution current economic crisis we face. The problem occurring is that an actual estimated amount that would be relevant has not been produced by any institution at this point. The actual amount needed could very well be an additional $10 trillion U.S. It is the aftermath of a person unleashed with a blank checkbook now facing his consequences. If the eventual amount is perceived as too large by the market, market perceptions triggered would be devastating. Perception of an enormous debt burden in the U.S. taxpayer being beyond redemption could lead to final economic destruction of the U.S. financial sector. Loss of confidence in a weakened U.S. economy would heighten painful views of a worsening financial situation. Increased weakened views of the economy leads to further tightening of consumer loans public and private, paving the way for more nonconventional lending as within the installment and short- term loan sector.
The U.S. must balance their checkbook
Newly elected President Barack Obama’s plan in advance of action lacks critical details on how the huge sum of money will solve our mounting financial and economic crisis within the long run. To expect Treasury Secretary Timothy Geithner, President Obama and his cabinet to be able to come up with a convincing, workable and clear plan in advance is simply illogical with no detail in planning. Anyone could throw a large sum of money at a homeless person and expect them to now solve all of their economic problems but in a matter of time, they would be back on the streets if they had no further plans to use the cash to obtain more in long term positioning. Likewise, pay day loans are not in themselves a solution to solve financial hardship. They are merely a tool which will buy lenders time in order for making out their plan to solve their financial deficits in the long term. If it is possible to create a blueprinted road map on how to climb out of this crisis, there should also be a prepare of action that will counter preventing the crisis from occurring in the foreseeable future.
Our planet now is enveloped in this financial crisis
Market players realize the state of the international financial crisis, to which the solution may require a radically new way of thought. Current solutions being offered are considered by the market to become either radical or innovative enough. During a recent High Level Conferences, the current Bank Negara governor reiterated the need for reformation of a global financial system through progressive reformation. Unfortunately, the calls for a reformed architectural financial sector layout are found not to become new or innovative.
During the Asian financial crisis occurring over a decade ago, the world financial system heard comparable calls for heightened reforms to the global financial sector. According to some critics, significant reform has not occurred since then and that is one possible reason the snowball occurrence in the present much bigger and wider global crisis has now ensued. All market players must be able to recognize the current system being fundamentally flawed and that it should be abandoned. All financial crises typically result from the same problems of over-borrowing, over-lending and over-leveraging.
Track record of Lending for Profit
Financial crises are outcomes legalizing of the activity of lending for profit which led towards the growth in the lending-for-profit industry. Economic power now held by financial institutions would lead to an ultimate high. In addition, the second tiered sector of lending to service those who are turned away from these institutions now have little avenue to turn in order to meet their own needs. Altruistic reasons motivated lending in nearly all communities and societies within the world prior to the 15th century. Lending primarily existed as a means for assisting people in actual need. The scale of this type of lending activity was relatively small and to serve actual people in need, not to grow a business or help it exist. Since usury became legalized, lending is now a massive juggernaut industry and is now probably the most important industry that now drives all other economic activities.
Who are we getting the money from?
Lending and debt are now embedded in society that to be debt-free is an exception and not the rule. To be in debt is the norm as the average amount of per capita debt in the U.S. is $7,000 U.S. per person. From corporations to football clubs to countries and communities, everybody has now become indebted. However, economic policy has not governed economic stimulus to lending institutions and though bailouts have been prevalent, lending to consumers has become even less of the rule. Major corporations within the United States have become so leveraged by their debt that they cannot function without being able to borrow cash. This now puts their workforce in jeopardy but unlike major corporations who are serviced by financial institutions through lending, a majority of their workforce employees and laborers are not able to borrow from the exact same financial institutions. This leads to a top heavy financial sector with no base.
Once lines of credit freeze
Once credit lines slow, borrowers are in trouble and if the credit line ultimately freezes, borrowers now become completely dysfunctional. As interest payments are due on outstanding debts, a highly-indebted individual or company can easily become strangled by their mounting debts. Once any financial institution becomes unwilling or unable to assist, the stranglehold becomes tighter and tighter as the borrower begins to face the hangman. Personal bankruptcy and all its worst credit implications face individuals daily.
Assistance might arrive in the form of more loans to tide out the problem. However, without a feasible plan for the long term, any individual’s actions become simply equivalent to handing a person more rope to hang himself with.
Payday advances buy time and require little effort
Assisting any indebted person strangled in debt means assisting them with a user friendly loan that does not take so much time and effort. That way, the indebted might have more time to figure out a way to engage in meaningful economic activities to clear their debt. Bank and financial institutions requiring mounds of paperwork to put together a simple $500 consumer line of credit or loan and then denying the potential borrower should not be the case. There must be a greater marketplace of lenders such as payday loan companies who can compete for lending opportunities while conventional financial institutions for debtors have failed to assist them to find a way out of their circumstances. For this to occur, the lending and financial paradigm must change. Our actions described above must be motivated solely by a desire to help borrowers who are in trouble rather than to keep entire financial institutions afloat. Lending must be seen as an opportunity for an individual to get earlier on their feet instead of to enrich oneself. If our society is unable for making that paradigmatic change in how we see the purpose of extending loans, then any solution will lead towards the very same outcome of financial demise. At this point, there are no feasible solutions made by the U.S. government to layout steps to prevent future financial crises so that if we discover our way out this time, we nevertheless might not be so lucky the next.
