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Posts Tagged ‘credit creation’

The CEO of Citigroup, Vikram Pandit, delivered a speech to end the first day of the National Summit in Detroit. The purpose of the summit is basically just a meeting of the minds, business, economic and government leaders, to develop strategies to keep Am

In synopsis, Pandit told the mass that America needs to accept the fact that tighter credit is just going to be the standard now. He says we are in a new world where borrowing will be harder, loans will be harder to get, and tighter, more expensive, credit is just going to be the case, even after the financial market has recovered. ?U.S. consumption and credit creation were the two main drivers of growth. The world needs new drivers of growth ? and a new business model,? Pandit told the group at the meeting.

He said he wants loans to be more limited and costly. Those lesser APRs are a fixation of the past in his eyes and even as rally occurs, banks will be cautious with giving out loans, almost to a liability. He also expects corporate reorganization over a quantity of industries. He agreed that Citigroup has received ample support from the state and praised ?strong state action? for the place they are growing themselves back to. He in addition talked about that Citigroup has reorganized its business plan, reducing costs by 25% and job force by 20% as well as shrinking their confidence upon credit and spending.

He also blamed the credit crisis on free-for-all banks that he accused of being a ?shady banking structure? that packaged wholesale money into student loans, housing mortgages and credit cards, a plan that was to blame for over half of credit through the preceding five years. Pandit also held responsible the ?shady banking organization? for a large credit opening when that marketplace fell apart and credit was reserved.

It is obvious that we are in a new age of credit with more regulations on credit cards that will bring about credit issuers to put into practice new fees and amplify APRs and shorten credit, at least for a time, but are we in fact to the point where we can no longer rely on credit? That may also fail, because you will see less consumers worrying concerning their credit scores and financial institutions will lose money from lack of credit issuing. Streamline all you want, but no financial institution can rely so little on profit from borrowing that they will be able to tighten credit that much. It sounds like another one of my infamous ?self fulfilling prophecies?, as the credit market will ?cut off its own nose to spite its face? and the financial institutions will forbid themselves from further growth. What do you suppose?