Here's what a credit crunch is...

[Mr. Bloom]

Copied from a GMAC Press Release:

GMAC Financial Services Statement on Automotive Finance Purchase Policy

DETROIT (Oct. 13, 2008) GMAC Financial Services today implemented a more conservative purchase policy for consumer auto financing in the United States as a result of the lack of stability in the global capital and credit markets. The changes include limiting purchases to contracts with a credit score of 700 or above. Additionally, the company will restrict contracts with higher advance rates and longer terms. Last week GMAC also increased by 75 basis points the rate it charges dealers for providing non-incentivized consumer auto financing.

These changes in pricing and underwriting are related to the current market environment, which has reduced access to funds and increased the cost of funds. The company currently expects these actions to remain in place until the credit markets stabilize and accessibility improves.

Translation:

"We can't borrow, so we won't lend unless you are gold plated...and even if you are, it will cost more."

Doesn't affect me directly, but you can be sure that many dealers and manufacturers will be hammered by this

[GLC1968]

The typical American way of life is about to change - drastically.

[ilima]

Can't be good for GM's already sorry bottom line...

[Fredwina]

The rumor i heard is the GM will swap its half of GMAC to Cerebus(who owns the other half) for Chrysler.
Not sure how this helps either party.

[DDH]

Seems we have gone from one extreme to another.

Credit has been way to easy for way to long, and now it will be so hard that everyone will be made to suffer, including those that have tried to do things right.
I always thought paying my bills on time, paying credit cards in full every month, keeping my credit clean, paying my taxes, not being up to my neck in debt, having some savings and a few investments would help me in the long run.

Now I feel like it was all for naught. I'm no better off than the guy that didn't pay his bills on time and got himself in way to much debt.


Well, that's a little extreme, but you get my drift.

[Mr. Bloom]

Now I feel like it was all for naught. I'm no better off than the guy that didn't pay his bills on time and got himself in way to much debt.

You've done the right thing and it's not for naught...the guy who didn't pay will suffer considerably more.

That's the difference between the "bailout" that is recapitalizing banks vs. the plan to purchase the defaulted mortgages. Purchasing the defaulted debt would have had the effect you feared...the bailout will replace the liquidity lost in the system without forgiving overextended consumers.

Keep doing the right thing

[madscot13]

I know it is one of the more trivial aspects of the credit crisis but have you ever noticed how easy it is to get a credit card. Basically everytime you walk into a major retailer they offer you a card and it will be accepted on the spot as long as you already have one. I think it is another facet of the easy come, easy lend policy.

[Pax]

Two of my wonderful sweet smart undergrads have to drop out and move home...no one will fund their student loans and their folks are working class without the funds to pay up front.

[smilingcat]

staying clean, out of debt and paying on time IS worth doing. Like Mr. Silver says those who don't will suffer treamendously. New bankrupcy law is very tough on those who file. And those who buried themselves in debt may find that the bankrupcy court will not discharge their debt. So they WILL have to repay no matter what.

As for GM and Chrysler. It's about the dumbest thing I heard when I first saw. Too bad there isn't a 10k statement from Chrysler. The word on the street is that Chrysler's burn rate is even higher than GM. GM is burning $1billion per month. Expected time to run out of cash is sometime next summer.

Get rid of Chrysler in exchange for complete control of GMAC then keep the good part of GMAC and jettison the bad part to the federal bailout. Cerbus will have a profitable operation.

kind of simplistic. I heard that the talks fell apart. I wonder why

smilingcat

[smilingcat]

oh and credit tightening. expect the following to start:

1. if you had maxed out your card and paid down a bit, expect your limit to be reduced.
2. if you paid off your card, don't be shocked if your CC to be cancelled.
3. penalty cost to go up
4. payment schedule may become every two weeks instead of monthly. (less likely)

[Tuckervill]

There are two extremely informative podcasts from This American Life which helped me understand the whole thing a lot better:

http://thisamericanlife.org/Radio_Ep...px?episode=366
http://www.thislife.org/Radio_Episode.aspx?episode=355

Also, on the TAL homepage there is a link to the Planet Money podcasts on the same subject.

Karen

[Red Rock]

Ok, I understand all the basics of all of this but my question goes to what smilingcat had to say.

On your last post you say that if you pay off your credit card-no matter what the balance is-they(the company) will cancel it for no apparent reason? This seems a bit strange to me. That or I am not understanding this fully. Why not reduce the amount that can be used-or something to that effect?

Red Rock

[smilingcat]

Ok, I understand all the basics of all of this but my question goes to what smilingcat had to say.

On your last post you say that if you pay off your credit card-no matter what the balance is-they(the company) will cancel it for no apparent reason? This seems a bit strange to me. That or I am not understanding this fully. Why not reduce the amount that can be used-or something to that effect?

Red Rock

if the creditors/bank think you are a credit risk and even though you have paid down your card to zero, they rather not have you because of a poor credit score. In other words, they don't want you to lower the overall "quality" of the credit they extend. So they cancel you.

I've actually heard this happening to some home crafters who are involved in street fairs and art fairs.

smilingcat

[smilingcat]

Mr. Silver,

I hope your bank is doing alright. I've heard two banks were taken over in Ill just this past Sunday. Main Street and Meridian Bank were seized by FDIC. Meridian Bank is in Ill and I thought you might be from Ill.

sending you and silver a calming thoughts,
smilingcat

[Red Rock]

smilingcat-thankyou for your explanation for this.

Yes-we wish Mr. Silver is doing ok through all of this mess. Hope things are ok.

Red Rock