English

English > The State We're In > Themes

The right to borrow money?

Dave McGuire

10-04-2009

This week witnessed continuing turmoil in the realm of international finance. Stock markets are in free fall, and governments are struggling to find a solution. Most commentators agree that the source of the trouble lies in so-called ‘sub-prime loans'. These are home loans given out to people who, often, shouldn't have been borrowing so much money.

Most commentators agree that the source of the trouble in international finance lies in so-called ‘sub-prime loans'.

These bad loans were then sold from bank to bank around the world, and once people stopped being able to pay, the jig was up. And now Wall Street is a mess.
The result is that for the first time in years it's getting harder to get a loan. One person experiencing just that is Clifford Wynne. When his employer announced plans to move out of the U.S. city of Dubuque, Iowa, Cliff decided to quit.

Selling the house
He found another job, 100 miles away in Freeport, Illinois. He now wants to sell his house in Dubuque, and buy a new one in Freeport - but there's a problem. He can't get a loan to buy a house until he sells his old one.

"On our first house, we got a loan with no money down. Things have really changed - banks and lenders are tightening their restraints as far as no money down loans. Basically now you need to do 5 percent or more."

Until he sells his old home, Cliff can't get a loan on a new house because the banks would consider him a bad risk.

Senior citizens
Senior citizens are also considered as ‘bad risk'. Around the world, they have a hard time getting credit. Now imagine an older person, in a developing country, who has no collateral whatsoever. In most places it would be impossible for a person like that to get a loan. But not everywhere. An organization called HelpAge International gives business loans to the elderly in East African countries like Kenya, Uganda and Zambia.

Age Demands Action Photo: HelpAge International

One 60-year-old woman set up her own food service with an 80 dollar loan. Now, she can support her five grandchildren, and also employs two other people as well. Amleset Tewodros, the regional director for HelpAge, thinks credit is a human right:

"They should have that right. Poor people can borrow, and then can be responsible and pay it back. It's unfortunate how international financial institutions only think of profit, and do not consider the social side of economic empowerment."

Losing confidence in the banking system
So if loans are such a great thing, why don't banks just give money out to whoever wants to borrow some? Clemens Kool is a professor of finance at the University of Utrecht. He explains how that's almost already happened:

"Let's say the current state of affairs in the world is already giving evidence why they shouldn't be giving out loans so easily. If they give credit to everybody, every time, then at some point they will have a problem with repaying the money to whoever they got the money from - usually depositors in the banks themselves."

The result, banks that go broke, and people who lose confidence in the banking system, is familiar from the headlines of the past few weeks. Professor Kool argues that, while all countries need a healthy credit market to support development and improve people's lives, borrowing money is a long way from being considered a human right.

 

 

Tags: credit, finance, Kenya, lending, loans, money, mortgage, rights

Reaction(s):

D Sims, 17-04-2009 - USA

Your interview with Mr. Wynne left out one very important question. How did Mr. Wynne expect to pay two mortgages, when he couldn't pay his old mortgage and rent? The credit industry is alive and well in the United States. My wife and I just purchased a $250,000 home, and put 20% down. How did we come up with $50k? By living below our incomes for a very long time. By not taking vacations for three years. By being responsible with our finances. Mr. Wynne's problems are entirely of his own making. It's a pity this program did not interview someone who lived responsibly and is now being forced to bail out those who acted irresponsibly.

---

JM, 13-04-2009 -

How about the right to make a decision and then take the loss or profit from it? I haven't been able to buy a house for the last 5 years. I knew prices were over inflated and that these loans were scams. Forgive me if I don't feel sorry for someone whom can't sell their house that they should not have bought in the first place.

---

PJ Allen, 08-10-2008 - USA

No income qualification, no credit history; no problem, you have a "right" to borrow. A right to borrow money -- that was Franny_Mac's raison-d'etre and now all marvel at the results of such mindlessness.

---

Carlos Borjal, 04-10-2008 - USA

Executive salaries and bonuses are tied to the number of mortgage their banks issue. That alone invites corruption within the industry. That’s the correlation between investing heavily on sub primes to the eventual collapse of the system. When banks loan to people who can’t afford to buy homes just to increase statistical sales, greedy executives go home with fat bonuses. That’s as simple as one can define the state we are in. Solution? Find those corrupt people and throw them in jail for life, I mean for life. They caused a lot of anguish to a lot of unsuspecting people who thought they were getting great deals. Lock them all up with the rest of those common street criminals because that’s what they are, common criminals of the worst kind. That’s what I call justice in America.

---

---

Copyright Radio Netherlands Worldwide 2009 Disclaimer