A Lender or A Borrower Be…

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A Lender or A Borrower Be…
The American economy is so powerful that a sniffle here can cause hacking and sneezing around the globe.  Some of the risky—or maybe it was just stupid and greedy—behavior of the investment banks and, later the commercial banks, in America has caused a great deal of fear and may yet cause even more pain to the finances and futures of Americans.  But having commuted between Paris and Washington for 20 years now, my feeling is that individual French families are less fearful now and for good reason.     Using the word “good” here may sound antithetical to our notions of a consumer driven-economy, so I admit that consumer buying which makes up nearly 70 percent of America’s GDP may not be the best way to have stability and security.  I believe this because the French banks, when dealing with private citizens, are downright stingy compared to their American counterparts.   For example, it used to be in the States that a minimum of 20 percent was required as a down payment to buy a house or an apartment.  That is more the exception than the rule these days.  Moreover, only loans with a loan-to-value ratio of more than 80/20 require private mortgage insurance.  In France, down payments have been traditionally much larger and remain so today—and all mortgages, not just those on the edge of respectability, require mortgage insurance, which is expensive and can’t be escaped even when the loan-to-value ratio becomes extremely favorable.  A simpler way of saying this is that credit is not easy—and bankers aren’t so generous.   A friend’s experience might give you an idea of just what I mean.  A few years ago, he went to get a mortgage from his bank.  The banker asked the regular (if impertinent) questions, like how much do you earn, what are your prospects for employment, and so forth.  Once my friend had answered, the banker offered him a mortgage for twice the amount he was intending to pay for the house.  As my friend said, “The banker was willing to lead me half a million dollars.  I wouldn’t lend me that much.”   Mortgage loans are just one problem in the current mess.  People are living on credit—and living beyond their means.  I just got an offer for a credit card with a $150,000 limit.  Can you imagine what would happen if I actually used all that credit and had to pay 18% or more on the unpaid balance?  I can imagine it, but I don’t want to.             The French on the other hand don’t use credit cards, with some exceptions.  For most walking-around cash and non-cash transactions they use debit cards (also confusingly called ATM cards and check cards).  They don’t have to carry much cash, but the money is taken out of their checking accounts immediately as it is in America when you use an ATM card.              When the French do have credit cards, they work differently from American cards.  In America, you charge something at a store, wait a while for the bill to come, then wait until the last minute to pay the bill—and often only part of it.  In France the charge is applied to the credit card, but on a fixed day every month the amount owning is automatically subtracted from your bank account.  No floating loans, no drawing them out forever, no hefty interest payments.  And no living beyond your means. I’m not sure the French system is perfect—it does tend to make the consumer sector of the economy sluggish.  But perhaps there’s a way between the French and the American systems that would let us enjoy the good material life—and not get stuck with a bill that takes our breath, and our good credit, away from us.   © Paris New Media, LLC   [email protected]     
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