Credit: A Vicious Spiral

How 720 became the new 680? article in the Washington Post drew the following reaction from Tom:

Credit: A Vicious Spiral
by Tom aka Rusty Rustbelt

Somehow over the years I became known as a bit of an expert in personal financial planning, I suppose the tax background plus getting dragged into senior financial planning (via my involvement in nursing homes and eldercare) and business client planning. I was also pretty good at assembling professional teams and keeping the right focus.

While I do not really practice any personal financial planning (except at the coffee shop pro bono) I do keep informed and I do troll my network for updates, and lecture now and again.

The Great Recession is hammering credit scores, for all of the obvious reasons. At the same time lenders, have been whipped for lending too easily, are raising standards and looking for higher credit scores.

So we get into a spiral of lower credit scores, higher credit standards, less lending, more credit problems, lower credit scores, etc. etc.

And if the economy does not come around soon, we may require a generation to get totally out of the cycle.

There will likely be more subprime credit available, at higher rates. Some retailers (such as auto makers) will use their own credit subsidiaries to lower rates and keep traffic coming. All in all, it is going to prolong the mess and prolong the misery.

The big reset, the “new normal” is upon us.

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