Finance Coach

Who really is sqeezing interest rate margins

2010-10-01T09:07:00.001+10:00

Banks are threatening to raise interest rates by more than any official rise in the cash rate by the Reserve Bank of Australia. They further threaten that these additional rises might come about even if the RBA does not raise interest rates any time soon. They say this is necessary because funding costs are reducing their margins.

Question: If bank interest rate margins are really threatened by increased funding costs, why are banks offering generous discounts on home loans - in some cases up to 0.80 per cent?

Aussie reaches parity with Loonie

2010-09-30T19:28:00.000+10:00

for the first time in six years, the Australian dollar was on equal footing with the Canadian dollar, widely referred to as the loonie because of the imprint of a loon on the dollar coin.

The Aussie was fractionally more valuable than the Canadian currency briefly overnight and this morning was fractionally lower. It is the first time the two currencies have been one-for-one since 2004.

The Australian dollar broke through the 97-US-cent mark yesterday afternoon and touched the 97.3 mark again in evening trade. This morning it was buying 96.88 US cents and about midday east-coast time it was buying 96.8 US cents after taking a drop on the news that building approvals were worse than had been expected.

The softer housing figures means there is now some doubt about the Reserve Bank's resolve to increase interest rates when its board meets next week.

(Source: Sydney Morning Herald)

Breakdown Shocker

2010-09-17T11:27:00.001+10:00

When marriages and de facto relationships fail, the finances of the separated couples are almost always badly damaged. And particularly for older couples, rebuilding personal finances from failed relationships can be particularly difficult, especially for older separated couples.

A recent study, Divorce and the Wellbeing of Older Australians, published by the Australian Institute of Family Studies highlights a particularly shocking statistic: More than a quarter of the population age 55-84 have been divorced. The institute attributes such a large percentage to an extraordinarily high number of divorces in the late seventies, which is “compounded” by the rapid ageing of the Australian population.

The institute studied the probable impact of marital breakdown using information gathered by the Household Income and Labour Dynamics in Australia survey (HILDA).

“Divorce has a long-lasting negative impact on well being and the effects appear to persist later in life for men and women,” according to the study.

Apart from the social and medical effect of divorce, the study emphasises the financial fallout. The financial consequences, of course, are extremely difficult to measure. But just think that savings and possibly earning capabilities are cut in two – not necessarily in equal proportions.

And the sheer number of baby boomers on the eve of retirement or in retirement who have been divorced at least once in their lives is staggering.

It is often said that people should ideally enter retirement with mortgage-free homes and without debts – not to mention sufficient retirement savings. But that can be extremely hard for separated older couples, particularly those whose relationship failed later in their lives.

(Source: Article reproduced in full from Vanguard Investments)

Credit cards fatten their margins

2010-09-16T15:56:00.000+10:00

Credit card companies in AUSTRALIA have increased the average rate on non introductory credit cards by 2.36 percentage points to 17.16 per cent over the period from December 2007 to July 2010. Within that same period, the Reserve Bank cash rate has fallen from 6.75 per cent to 4.5 per cent.

(Source: Ratecity)

Aussie dollar reaches new high

2010-09-15T20:04:00.000+10:00

The Australian dollar reached a fresh two-year high against the U.S. dollar early Wednesday as strong retail sales and a banking report of more help from the U.S. Federal Reserve lifted the currency.The Aussie was further boosted in Asian trading after intervention by Japanese authorities to sell down the price of the Yen. Japan stepped into the currency market on Wednesday for the first time in six years, selling yen to stem a rise that is threatening its fragile economic recovery.

(source: Wall Street Journal; Business Spectator)

Commercial finance commitments improve

2010-09-13T18:21:00.000+10:00

Total personal finance commitments fell 0.7 per cent in July $6.833 billion, down from $6.882 billion in June, according to data released by the Australian Bureau of Statistics. This is for stuff like personal loans, personal credit cards and store finance. No doubt we'll soon hear from Gerry Harvey about the need for further government stimulous if this trend is maintained.

However, on a more positive note for the economy, total commercial finance rose 8.2 per cent in July to $29.785 billion, up from $27.537 billion in June. Lease finance was up 3.2 per cent $386 million, compared with $374 million the month before, and housing finance for owner occupation rose 2.3 per cent to $13.761 billion in July, up from $13.458 billion in June.

(Source: Business Spectator)

Australia - we're a nation of givers

2010-09-12T21:52:00.001+10:00

According to a report by the British-based Charities Aid Foundation, AUSTRALIA is a nation of givers, tying equal first with our cousins across the Tasman, New Zealand as the countries whose citizens are most willing to donate their time and money to charity.

The report found 70 per cent of Australians had given money to a charity, and 38 per cent had donated their time, in the month before they were surveyed. Almost two-thirds had given assistance to a stranger.

(source: Sydney Morning Herald)

Home buyers returning to market

2010-09-09T19:52:00.000+10:00

HOME buyers, lured by a steady interest rate outlook and cooling house-price growth, have been returning to the market, with demand for home loans picking up. At the same time, there are
emerging signs that some banks are again letting home owners borrow more, with some lenders starting to relax recent tight standards with the reintroduction of higher LVR loans.

Demand for home loans eased earlier this year, pressured by three consecutive monthly interest rate rises and ballooning prices along Australia's east coast. In May, housing credit was running at a three-month annualised growth rate of 6 per cent; however, this had since increased to 8.2 per cent.

Yesterday the Australian Bureau of Statistics released figures showing housing finance commitments rose 1.7 per cent in July, seasonally adjusted. The result easily beat the market forecast of a 1 per cent rise.

(Source: Sydney Morning Herald)

Money makes you think you're happy

2010-09-08T23:26:00.000+10:00

Does money make you happy?

It's an age-old question, and two American researchers think they have the answer: it does ... and it also doesn't.

More money may bring a life you think is better, but on an everyday basis you won't actually be any happier for it, according to Daniel Kahneman and Angus Deaton from Princeton University, who authored the study in the Proceedings of the National Academy of Sciences,

Previous studies have found the relationship between wealth and well-being to be fairly weak

Two types of happiness

Kahneman and Deaton, however, made a subtle but important distinction between two types of well-being: life evaluation, which is a person's thoughts about their life over a long period, and emotional well-being, which is a measure of their daily emotions, such as joy, affection, anger and anxiety... read more

(source: Cosmos: The science of everything)

Rate rises do matter to consumers

2009-10-16T23:26:00.002+10:00

Just incase you think that a rate rise wont dampen consumer confidence, or that it takes time to work its way through to discretionary expenditure, maybe you should consider the take up of pay TV as a guide.

Robert Gottliebsen was interviewing Kim Williams for Business Spectator. Williams is the head of Foxtel in Australia. If you've been watching any TV lately, you'll know that Foxtell are currently conducting a major marketing campaign (perhaps irritatingly so). In the interview Williams mentioned he noticed that when the Reserve Bank increased interest rates last week, pay TV order conversion dropped sharply, despite inquiries remaining strong.

Bull market or just bull?

2009-10-16T12:28:00.005+10:00

"Foundations for a bull market are now as strong as they've been in years,
though an early and sustained uptrend can't be taken for granted"

"I think it is pretty well conceded that we have reached or passed the bottom of
this depression and from now on can look to gradually improving business"

Do these quotes from news reports sound familiar?

They probably should. Lately we've been hearing them as regular as clockwork. However, these particular ones aren't from last weeks papers or your favourite business show, they're from the Wall Street Journal back in October, 1930

This is not 1930 but back then, a few good months months lured investors back into the market, just like they're doing now. Hindsight is a wonderful thing and it tells us that the optimism apparent the year after the 1929 stockmarket crash soon proved woefully premature.

Back in 2009 and the Australian sharemarket has risen by more than 50 per cent since it bottomed in March. Even more incredibly, the troubled US market is up almost 50 per cent! What is driving these gains?

There are concerns we're becoming a bit complacent – and in some cases, even irrationally exuberant. Cautious optimism beats irrational exuberance in any market, but especially this one.

(source: Sydney Morning Herald)

BIS says rate increases a mistake

2009-10-15T06:37:00.003+10:00

Chief economist for BIS Schrapnel, Frank Gelber, thinks the Reserve Bank has increased interest rates too soon. Glenn Stevens was as nervous as all hell about a cash rate at 3 per cent but rates in most other economies are going to be stagnant and hovering at less than 1 per cent for some time to come. Although a significant contributing factor, the Aussie dollar was rising independent of interst rates. Further increases in the dollar's value is going to have an real impact on a range of sectors beyond commodity exports.

Here is Gelber's argument;

We all know that interest rates have to rise, and rise substantially, at some stage. These are emergency rates resulting from the global financial crisis and intended to prevent recession.
Australian rates aren't nearly as low as overseas rates. Mind you, most of the Western world really needs low rates. They face severe recession. To turn around the old saying, America has a bad flu but we're only sneezing. The US, Britain and parts of Europe are experiencing financial crisis but we're experiencing a credit and equity squeeze.

I thought the rate rises would start later. But now that they have begun, the question is not so much how many more rises are to come, but when. One, or even several, rate rises won't be fatal. The damage would come from a series of aggressive rate rises, stifling recovery.
And there is still time for the Reserve Bank to postpone further interest rate rises until the economy does strengthen. By the end of the tightening process, cash rates will go back to a neutral rate of about 5.5 per cent. Indeed, we think they'll overshoot and end up at about 6.5 per cent. But we think that will be in 2012 when the economy is strong.

Timing will be important. As always, for the RBA it's a balancing act. The trick is to tighten from the current unsustainably low levels without damaging economic recovery.
Why did they raise rates so early? What are they trying to achieve? I hate trying to second-guess the RBA's logic, but this is important. The RBA obviously thinks the economy is a lot stronger than we do. Even in these more open and enlightened times, RBA statements tend to be vague, and open to several, often contradictory, interpretations.

Having said that, they seem to think that investment is recovering. It's not. The capital expenditure figures were boosted by the tax concessions on equipment investment. And government building and infrastructure spending, though strong, won't be enough to offset the prospective collapse of business investment.

The construction sector's direct and indirect contribution of about minus 2.5 per cent this financial year, won't be as bad as the negative 4.7 per cent that caused the downturn in 2001. But the shock will be hard to withstand. Worse, not only will investment decline this financial year, but it will happen when household disposable income is weak. Business profits have started to fall. The sector is just emerging from a credit squeeze and, when finance is available, companies face high interest rates. So business is in cost-cutting and cash preservation mode, curtailing unnecessary investment.

Meanwhile, sluggish wages and employment growth means that household disposable income is weak, indeed negative in real terms, and that will constrain spending. Rising interest rates will further weaken household incomes. The run of good data will end. There will be some pretty weak readings towards year end as government stimulus recedes. The data will weaken with the economy. And confidence will sag with the data.

Confidence can't be sustained under its own steam. It's strong now with the improvement in the economic indicators and less fear of unemployment. But the world isn't a series of indicators in isolation. When news on the weaker economy comes through, the indicators will deteriorate and confidence will weaken.

Having said that, a few interest rate rises won't do a lot of damage. And just as well.
In this environment, households are tending to absorb much of the stimulatory effect of last year's interest rate declines by maintaining their mortgage payments, thereby reducing debt more quickly.

The other side of the coin is that this gives them more leeway to maintain (and not increase) payments in the face of rising interest rates, thereby cushioning the impact on spending. The cohorts most affected are recent housing buyers who stretched to finance large mortgages.
But it's bad for the dollar and competitiveness. And that's contractionary. Australia is tightening before other Western countries, raising the interest rate differential and boosting the Australian dollar.

That's a disaster for what's left of the domestically produced tradables industries -- in particular manufacturing, tourism and education for overseas students. And, while primary production and Chinese demand remain strong, the higher dollar hurts prices received for agricultural and minerals commodities. With weak investment, weak household disposable income and an overvalued dollar, I wouldn't be surprised to see a negative September or December quarter gross domestic product result.

Only housing is picking up. But we need the housing recovery to drive growth. And we need the housing. The rate rise will reduce household disposable income and therefore expenditure and reduce the affordability and hence demand for residential property. Maybe the RBA is trying to dampen the aggressiveness of housing owner-occupiers and investors so that there is less damage as interest rates do rise.

Meanwhile, there is no hurry to raise interest rates. With overseas rates likely to remain low, the resultant strong dollar will dampen already weak growth and perhaps cause structural damage to the remains of our tradables industries. I would have waited until well into next year.

Budgets: A tale of two garages

2009-10-14T01:37:00.001+10:00

Of course budgets can be very useful, it’s just that when created they usually require a great deal of self discipline. The simple fact that you need a budget to get out of financial trouble is exhibit number one that self-discipline was probably absent in the first place. Pinning your financial dreams on the assumption that you’re going to be “good” next month generally leads to devastatingly poor results. Your personal finances are too important to risk with little more than hope and optimism.

Just incase you think that the previously absent self discipline will save you from financial flagrancy tomorrow, take this brief exercise:

Question: How much self-discipline do you have today?
Answer: Exactly the same amount as you’ll have tomorrow.

In his book “How to live within your means and still finance your dreams”, Robert Ortalda suggests that to understand the discipline required to maintain a budget; “you have to think about garages”. He says, and I agree, there are generally two types of people when it comes to garages. There are those that have clean and tidy garages, and those that have messy ones.

The clean ones are maintained by an exclusive group of garage zealots. They have peg-boards on the walls with pictures of the tools and things that should be hanging there. You never get to see the picture of the thing because the thing that should be hanging there always is. Jam jars are screwed into lids that are nailed to shelves. These contain every sort of nut, screw, nail, grommet and widget any self-respecting handy-person could ever need. Everything has a place and everything is in its place. And may whatever god you believe in help you if you move anything or don’t put something back.

The other type of garage is always full of mess. Things go in there and then they don’t come out again. The car has trouble fitting in. It’s full of dust and empty paint tins. The people who have these kinds of garages have a mantra they keep chanting over and over again “One day I’m gunna clean out the garage”.

Finally that day eventually does arrive and after several mini-skips, the garage is beautifully clean. It’s so good its just missing the peg-board with the pictures. But after a while is gets messier and messier and finally it’s back to the way it was. Then the mantra begins again “one day I’m gunna clean the garage”

The people who own the first type of garage demonstrate a tremendous amount of self-discipline. They have to. It takes a lot of thought and a lot of work to keep a garage that clean. Daily maintenance – sweeping, tidying, putting things back on the pegboard after you finish with it – not leaving it where you were working.

For a budget to work, it’s got to be designed with the second type of person in mind. Those who sporadically like to clean out the mess.

If you think it’s easier to tweak the little expenses and do it week after week to save twenty or thirty dollars, then go ahead and knock yourself out. I reckon it’s a lot easier to just to do one or two biggies and enjoy the savings over and over without the effort. Why scrimp on essentials that call out to you every time you shop when you can just scrap the cable TV and save heaps. These are ‘structural’ changes to the way you previously spent your money. Doing things this way makes daily self-discipline significantly less important. Kind of like ripping off a band-aid – do it fast and do it once. Or if you’re into it, you can go the other way and slowly take it off over and over again, day after day of band-aid ripping.

Sure the once off clean-out can cause pain. I know you can’t watch re-runs of Seinfeld and keep up with the latest on Fashion TV when you dump cable but when you get your financial house in order you can always put it back on. When you do you might find that Jerry has come out of retirement and you can watch new episodes – oh but wait, you’ve already seen those on free to air!

October interest rate rise?

2009-10-06T11:49:00.006+10:00

(source: Sydney Morning Herald, 6 October 2009)

40 per cent less millionaires

2009-10-05T09:06:00.001+10:00

Australia has taken third place in a survey of the biggest casualties of the global financial crisis, a report shows. Boston Consulting Group's latest Global Wealth Report found Australia suffered the third largest drop in personal wealth among 62 countries surveyed, due to a high exposure to equities markets.

Personal wealth in Australia - excluding housing and self-owned businesses - fell 27.1 per cent to $1.67 trillion in 2008, from $2.3 trillion in 2007. Only the UK and Sweden experienced larger declines in personal wealth, losing 32 per cent and 28 per cent respectively.
Globally, personal wealth dropped to $US92.4 trillion in 2008, from $US108.5 trillion in 2007.

The report also shows that the financial crisis slashed the number of millionaire households in Australia by 40 per cent. Millionaire households in Australia, as measured by households with minimum personal wealth of $US1 million, fell to 49,452 in 2008, from 82,242 in 2007.

(source: Sydney Morning Herald)

US economic recovery - slow and painful

2009-09-23T11:08:00.006+10:00

A year after the US financial markets went into a tailspin, the US economy is showing tentative signs of a weak recovery but jobless numbers are continuing to rise, though not at the terrifying rate of six months ago, when 600,000 people a month were joining the unemployment lines.

Something else is happening in America as well. The era of easy credit which fuelled two decades of spectacular growth is over. The American consumer has started saving. Mortgages, personal loans and even credit cards are harder to get. Consumer credit was down 5.2 per cent between April and June. Revolving credit, which includes credit cards, was down 9 per cent. As a result, the turbo-charged consumer market that has powered the American economy since the 1980s has run out of puff.

These developments are likely to define the trajectory of the US recovery - it will be slow and painful.

The US jobless rate rose to 9.7 per cent in August and is expected to peak above 10 per cent in the months ahead. It's already at that level in at least 15 US states and it could be five years before the national economy generates enough jobs to overcome those lost and to employ the new workers entering the labour force.

This fear of joblessness is likely to keep consumers' wallets in their pockets. Without a return to spending - retail sales make up 70 per cent of the US economy - it seems inevitable that the recovery will be slower than in the past.

Of course the pace of a US recovery will have implications for economies worldwide. The Chinese depend on the US as a destination for their manufacturing, and Australia sells China the commodities and energy to power their factories.

As a result we can expect the Reserve Bank to hold fire on rate rises this year despite the recent raft of reasonable economic data here. Even though Glenn Stevens and the RBA board will be itching to get rates back to more normal long term levels, they will be mindful of the precarious state of the global recovery.

The US Fed will be forced to keep rates at near zero levels for some time yet. Increasing rates in Australia will put upward pressure on our currency and endanger the recovery of exports. The Debt futures markets have already reduced their outlook for interest rate rises by half of one per cent, expecting the cash rate to be 4.5 per cent by September 2010 (down from their previous forecast of 5 percent). The cash rate in Australia is currently 3 per cent.

(Source: The Brisbane Times, 21 September 2009)

US bank failures rise to 94 in 2009

2009-09-20T21:09:00.000+10:00

Two more US banks have closed down, including the sixth largest bank bankruptcy this year, to bring the total number of bank failures this year to 94, according to the government banking insurer.

The Indiana-based Irwin Union Bank was shuttered with a total of $US2.7 billion ($A3 billion) in assets and total deposits of about $US2.1 billion ($A2.41 billion), the Federal Deposit Insurance Corporation (FDIC) said in a statement on Friday."

(source: Sydney Morning Herald)

Weekend at Bernie's

2009-09-18T23:39:00.004+10:00

According to reports, Bernie Madoff's New York home, located on the beach at Montauk, with sweeping views of the Atlantic Ocean, has been sold for more than the asking price of $8.75 million.

While the property is under contract, the name of the buyer and the purchase price are not being disclosed "to protect the integrity of the sale," the U.S. Marshal's Office said in a statement.

Several buyers had submitted bids for the four-bedroom, three-bath, 3,000-square-foot home, which was on the market for two weeks. Sale proceeds will go toward reimbursing victims of Madoff's estimated $65 billion Ponzi scheme.

If you are in the market for real estate, Montauk is roughly 120 miles east of Manhattan on Long Island and is known for its many large summer homes owned by famous and wealthy people.

Note: wasn't to sure how to categorise this one, so I put it under "goal-setting"

(source: Reuters)

US house price crash - could it happen here?

2009-09-14T19:14:00.004+10:00

The Australian dream of home ownership is slipping away, leaving a threat of a US-style collapse in house prices, according to a team of university researchers.

Analysis by researchers from South Australia's Flinders University has revealed home ownership in the 10 years from 1996 rose only 0.8 per cent despite strong economic growth and low interest rates in that period. The Flinders Institute for Housing, Urban and Regional Research analysis found home ownership fell by 15 per cent over the two decades to 2006 for low income earners over 45 years of age and medium-high income earners under 45 years.

Other findings included large gains in national income from the resources boom were "wasted" by increasing house prices and accumulating debt to unreasonable levels. The analysis found the first home owners scheme boosted home purchases for people under 25 years of age but many lower income earners in the 25-44 age bracket were unlikely to ever own their own homes because their parents were spending their inheritances and prices remained high.

Dr Joe Flood, the institute's adjunct professor, said the "the writing is on the wall for the 'Australian dream'."

"The country that promised limitless land, cheap housing and near universal home ownership to all comers now has the most expensive housing in the world amid very tight housing and land markets and little prospect of restoring the balance," Dr Flood said in a statement on Monday.

Dr Flood and his team assessed Census data to conclude that Australia's housing market is in "a very dangerous and unstable situation which has received little adverse attention". The researchers found that after 1996, average house prices increased by three times on average - to around 6.8 times medium household income - and debt levels surged.

"On the one hand Australia is vulnerable to a collapse like the United States, where prices fell by a half during the sub-prime collapse ... or to a long slow decline as in Japan since 1988," Dr Flood said.

(Source: Business Spectator)

Americans continue to unload debt

2009-09-12T21:36:00.004+10:00

Several economic reports this week showed data that shows a change in the way Americans and U.S. businesses are handling their finance as debt has continued to fall and business inventories are leaner.

The US Federal Reserve released the July consumer credit report. Data showed a $21.6 billion drop in consumer debt as both revolving and non-revolving facilities shrunk by more than 8 per cent compared to a year ago. This is the largest decline since records began in 1943. The decline in consumer credit came as a surprise to most economists who predicted a $4 billion drop in July following a $15.5 billion decline in June. Though consumer debt has fallen the past few months, total U.S. consumer debt still stands at $2.6 trillion.

While the lower debt levels are good for families and businesses on an individual level, collectively it will ultimately mean lower short run economic activity.

(source: All Headline News)

Banks may raise rates regardless of RBA

2009-09-11T10:09:00.001+10:00

Variable mortgage rates offered by the banks might increase by around 10 to 15 basis points regardless of what the Reserve Bank (RBA) does between now and Christmas.

At a historical low of 3 per cent, the cash rate is at emergecy levels and will have to rise in time anyway. With some good economic data lately leading to improved business and consumer optimisim, sentiment on a rate rise has shifted to sooner rather thna later. However, the last few days has seen a fall in retails spending and home loan approvals that will be giving the Bank reason to reconsider any upward movement in rates before Christmas. Regardless of any pause by the RBA, variable home loan rates might increase anyway.

An important contributer to the cost of bank funding is the 'Bank Bill Swap Rate' - the cost of short term funds lent between banks. Over the last few weeks this rate has crept steadily higher. In the event the RBA does increase rates before Christmas the banks would almost certainly tack on an extra few points when the pass the increase to customers. If the RBA decides to hold, the major banks may just go it alone.

This is ironic because the knowledge of the potential for an adjustment by the banks will most likely add to the RBA's decision to keep rates on hold a little longer.

US Consumer credit in retreat

2009-09-10T16:56:00.003+10:00

US consumers are reducing their use of credit at a much higher rate than expected, casting doubt on recent hopes of a robust economic recovery.

Consumer credit, including credit cards, car, student and personal loans dropped at an annual pace of 10.4 per cent in July according to the US Federal Reserve. Economists say the data is an indication of bank write offs of bad debts, though consumers may also be using the higher savings created by reduced interest rates to pay down debt. Recent surveys suggest banks will maintain tight lending standards until at least the second half of 2010.

(Source: Australian Financial Review, 10 September 2009)

Money doesn't buy happiness. Happiness buys money

2009-09-08T23:43:00.003+10:00

Arun Abey of IPac says the wealthiest and most contented people he knows were happy before they became rich. He says parents are better prioritising a love of learning and pursuit of passions in their children, rather than encouraging them into career paths based on income alone.

Aurn was interviewed by Richard Aedy on ABC Radio National's "Life Matters" program. Listen to what Arun has to say here.

Prime borrowers start to default - US

2009-09-08T00:31:00.004+10:00

In the US, the long recession and rising joblessness are taking an increasing toll on the nation's most credit-worthy borrowers, who are now falling behind on their mortgage and credit-card payments at a faster pace than people with poor financial histories.

This new trend signals more bad news for US banks. Rising delinquencies on prime mortgages helped drive the total delinquency rate to a record 9.24 per cent in the second quarter of this year, according to the Mortgage Bankers Association. The data reflect loans that are at least one payment past the due date.

The focus on prime borrowers comes more than two years after the housing meltdown took its first aim at subprime borrowers, who found themselves locked into unaffordable mortgages and weighed down by credit-card debt. These borrowers tend to have fewer financial levers to pull to stay ahead of their debt payments, so they default relatively quickly. Many of those bad subprime mortgages have already worked their way through the financial system, causing billions of dollars in losses to the nation's banks.

For prime borrowers, this recession has been especially tough because declining home prices have taken away one of the typical crutches for them, since it is harder to tap the equity in their homes to pay their bills if they lose their jobs.

In addition to cutting back on spending, strapped prime borrowers often can keep up with their bills longer than subprime borrowers by draining savings accounts, reducing contributions to retirement plans and turning to family members for money.

(Source: The Australian, from an article published in the Wall Street Journal)

US recession loosing its grip

2009-08-28T19:24:00.004+10:00

Evidence is mounting that the longest recession to grip the United States since World War II is losing its grip. The latest hint is due Friday when the US government releases data on consumer spending and income for July.

Importantly, personal spending is expected to have posted a modest gain last month, driven higher by the popular Cash for Clunkers program. Economists surveyed by Thomson Reuters expect personal spending rose 0.2 percent in July after a 0.4 percent gain in June. Economists believe that personal incomes, the fuel for future spending increases, probably rose 0.2 percent as well, following a 1.3 percent decline in June.

(source: Associated Press)