Your Best Deals in Loans
It used to be that borrowing could actually save you money in the long run. When inflation was running wild, it made sense to avoid future prices increases by buying on credit. No longer, inflation has been so low lately that the real cost of borrowing has been at one of its highest points in year.
There is nothing wrong in borrowing-provided you do it wisely. Never borrow more than you can reasonably pay off. Never borrow for luxuries, such as gifts and vacation travel, if that means you will not be able to borrow for necessities, such as mortgage, medical expenses.
You should be sure, of course, that you are getting the most economical interest-rate deal. you may well be best off borrowing from a credit union, if you belong to one. Or taking out a lump-sump loan from a bank or a savings institution and paying it back in installments. Bankers were charging a percentage for personal loans that you could secure with collateral such as savings account, stocks or bonds.
For unsecured loans-which you often can get if you have a good job or regular income and can afford the repayments-they were charging a percentage too. The rates are considerably less than you pay on your credit-card debts. So, if you are paying interest on big credit-card balances, it makes sense to switch to an unsecured credit line and pay off your credit cards.
If you own publicly traded stocks or bonds, you can go to a stockbroker and take out a margin loan, commonly for half the value of your securities. He or she will charge you interest of only a point or two avobe the prime rate.
When you are looking for money, you generally should canvass several different kinds of lenders.
The best place to start searching for a general -purpose loan is where you keep your checking and savings accounts. Many banks charge as much as two percentage points less loans to customers than to noncustomers.
Financing for a new car
If you are shopping for financing for a new car, you can often drive a better bargain on the showroom floor than at the bank.
Purchase of a House or Apartment
If you want to finance the purchase of a house or apartment, you will find that rates on mortgages do not vary a lot from lender to lender. Still, it pays to shop around because small variation can become significant over the long term of the mortgage. Generally, you will get the most competitive rates and terms at savings and loan associations and at mortgage banking firms.
If you already have bought a home, you can turn it into a piggy bank. you usually can borrow up to 80% of your equity - that is, the current market value of your house or apartment minus the amount that you still owe on your mortgage. you do that by applying for either a second mortgage or a home-equity line of credit.
Second Mortgage
The place to get a second mortgage is a bank or savings and loan association.You can get a home-equity credit line from banks, savings and loans and brokerage firms.Another source of cheap credit may be your whole life insurance policy.Many companies also let employees borrow from their assets in corporate profit-sharing or stock plans, and from corporate savings plans.
January 15, 2009
General Purpose Card
Card that identifies its owner as one who is entitled to credit when purchasing goods or services from certain establishments. Credit cards originated in the United States in the 1930s; their use was wide-spread by the 1950s.
They are issued by many businesses serving the consumer;
such as oil companies
retail stores and chain stores
restaurants
hotels
airlines
car rental agencies and banks
Some credit cards are honored in a single store, but others are general-purpose cards, for use in a wide variety of establishments.
Bank credit cards are examples of the general purpose card. Establishments dispensing almost every form of product or service are honoring such cards, and it is predicted that credit cards might some day eliminate the need for carrying cash.
When a credit card is used, the retailer records the name and account number of the purchaser and the amount of the sale, and forwards this record to the credit card billing office. At intervals, usually monthly, the billing office sends a statement to the cardholder listing all the charged purchases and requesting payment immediately or in installments.
The billing office reimburses the retailer directly.Most of the work involved in credit card operations is now handled by computers. Charges for the use of a credit card are sometimes paid directly by the cardholder, and sometimes borne by the retail establishments that accept them.
In the latter case, the cost is absorbed into the price of the merchandise. Department stores usually charge interest to credit customers who do not settle their bills within a month, but certain credit plans do not charge interest until a bill has been outstanding for several months.
Interest rates for overdue balances are regulated by state law. A continuing problem involved in the use of credit cards is the ease with which they can be used fraudulently if stolen or lost, although the liability of the owner is limited.
They are issued by many businesses serving the consumer;
such as oil companies
retail stores and chain stores
restaurants
hotels
airlines
car rental agencies and banks
Some credit cards are honored in a single store, but others are general-purpose cards, for use in a wide variety of establishments.
Bank credit cards are examples of the general purpose card. Establishments dispensing almost every form of product or service are honoring such cards, and it is predicted that credit cards might some day eliminate the need for carrying cash.
When a credit card is used, the retailer records the name and account number of the purchaser and the amount of the sale, and forwards this record to the credit card billing office. At intervals, usually monthly, the billing office sends a statement to the cardholder listing all the charged purchases and requesting payment immediately or in installments.
The billing office reimburses the retailer directly.Most of the work involved in credit card operations is now handled by computers. Charges for the use of a credit card are sometimes paid directly by the cardholder, and sometimes borne by the retail establishments that accept them.
In the latter case, the cost is absorbed into the price of the merchandise. Department stores usually charge interest to credit customers who do not settle their bills within a month, but certain credit plans do not charge interest until a bill has been outstanding for several months.
Interest rates for overdue balances are regulated by state law. A continuing problem involved in the use of credit cards is the ease with which they can be used fraudulently if stolen or lost, although the liability of the owner is limited.
American Express Company
American Express Company, financial and travel services company based in New York City.
American Express invented the traveler’s check and introduced one of the first credit cards in the United States.
These financial services established American Express worldwide and helped build the company into a multibillion-dollar corporation with dozens of subsidiaries.
American Express invented the traveler’s check and introduced one of the first credit cards in the United States.
These financial services established American Express worldwide and helped build the company into a multibillion-dollar corporation with dozens of subsidiaries.
American Express
American Express began in 1850 in New York City as a company that transported valuables. It resulted from the merger of three rival express transport companies: Wells & Company; Butterfield, Wasson and Company; and Livingston, Fargo and Company.
Henry Wells served as the first president of American Express and William G. Fargo was the vice president. In addition to their duties at American Express, Wells and Fargo began a separate company two years later, Wells Fargo & Company, which provided express delivery and banking services to California.
American Express prospered in the 1850s by transporting money and other valuables on rail and steamship lines in areas north and west of New York. The company grew even larger during the American Civil War (1861-1865) by transporting supplies, parcels, and other items for the Union Army.
Henry Wells served as the first president of American Express and William G. Fargo was the vice president. In addition to their duties at American Express, Wells and Fargo began a separate company two years later, Wells Fargo & Company, which provided express delivery and banking services to California.
American Express prospered in the 1850s by transporting money and other valuables on rail and steamship lines in areas north and west of New York. The company grew even larger during the American Civil War (1861-1865) by transporting supplies, parcels, and other items for the Union Army.
American Express Money Orders and Traveller's Checks
Fargo became president of American Express after Wells retired in 1868. Fargo died in 1881 and was succeeded as president by his brother, James Fargo, who further expanded the business. He guided the introduction of the money order in 1882 and the traveler’s check in 1891.
Most money orders could be issued and redeemed only in banks or post offices, which distinguished them as exceptionally reliable draft notes—or certificates negotiable as money—for a variety of personal and business transactions.
The American Express traveler’s check was a draft note purchased from a bank or directly from American Express. It could be redeemed for goods or services in many businesses around the world.
The American Express traveler’s check was an immediate success with travelers who found that the checks were easier to redeem than letters of credit from banks, which were commonly used overseas instead of cash. In addition, travelers preferred American Express traveler’s checks because the company would reimburse them if the checks were lost or stolen.
Traveler’s checks provided a substantial infusion of revenue to the company, and helped establish the American Express brand name among American travelers.
Most money orders could be issued and redeemed only in banks or post offices, which distinguished them as exceptionally reliable draft notes—or certificates negotiable as money—for a variety of personal and business transactions.
The American Express traveler’s check was a draft note purchased from a bank or directly from American Express. It could be redeemed for goods or services in many businesses around the world.
The American Express traveler’s check was an immediate success with travelers who found that the checks were easier to redeem than letters of credit from banks, which were commonly used overseas instead of cash. In addition, travelers preferred American Express traveler’s checks because the company would reimburse them if the checks were lost or stolen.
Traveler’s checks provided a substantial infusion of revenue to the company, and helped establish the American Express brand name among American travelers.
American Express business in 1918
During World War I (1914-1918) the U.S. government nationalized and consolidated express deliveries on American railroads, eventually forcing American Express to discontinue its express business in 1918.
In an effort to maintain steady revenues, American Express diversified by offering international banking services in 1919. After steady but relatively modest overseas growth during the 1920s and 1930s, the company dramatically increased the number of its offices around the world during the late 1940s and 1950s.
In an effort to maintain steady revenues, American Express diversified by offering international banking services in 1919. After steady but relatively modest overseas growth during the 1920s and 1930s, the company dramatically increased the number of its offices around the world during the late 1940s and 1950s.
American Express Card
In 1958, eight years after Diners Club came out with the first credit card that could be used at a variety of establishments, American Express introduced its own credit card.
The American Express credit card offered cardholders the convenience of being able to buy goods and services without needing cash at the time of purchase. The company generated revenues by charging cardholders an annual fee and by receiving a small percentage of card purchases from participating businesses.
American Express did not charge cardholders interest for using the card, but it required them to pay their balances in full each month. Within three months of the card’s introduction, half a million people became American Express cardholders.
In less than ten years, 2 million people carried American Express credit cards and annual charges on those cards exceeded $1 billion.
The American Express credit card offered cardholders the convenience of being able to buy goods and services without needing cash at the time of purchase. The company generated revenues by charging cardholders an annual fee and by receiving a small percentage of card purchases from participating businesses.
American Express did not charge cardholders interest for using the card, but it required them to pay their balances in full each month. Within three months of the card’s introduction, half a million people became American Express cardholders.
In less than ten years, 2 million people carried American Express credit cards and annual charges on those cards exceeded $1 billion.
American Express as Global Financial Giant
During the 1960s, 1970s, and early 1980s American Express grew into a global financial giant, acquiring a number of companies, including Fireman’s Fund Insurance Company in 1968 (which it sold in 1985) and the brokerage firms Shearson Loeb Rhoades Inc. in 1981 (which later grew into Shearson Lehman Brothers Holdings Inc.), Investors Diversified Services in 1984, and E. F.
Hutton in 1987. In 1987 the company introduced the American Express Optima credit card to compete with the growing popularity of cards issued by competitors MasterCard and Visa.
Unlike its original American Express credit card, the Optima card did not require cardholders to pay their balances in full each month. Instead, like MasterCard and Visa, the Optima card allowed cardholders to pay balances in installments, plus interest.
Hutton in 1987. In 1987 the company introduced the American Express Optima credit card to compete with the growing popularity of cards issued by competitors MasterCard and Visa.
Unlike its original American Express credit card, the Optima card did not require cardholders to pay their balances in full each month. Instead, like MasterCard and Visa, the Optima card allowed cardholders to pay balances in installments, plus interest.
American Express Recent Developments
In the late 1980s and early 1990s a downturn in the U.S. economy, coupled with increased competition from other credit card companies, led to a sharp decrease in earnings for American Express.
In 1991 the company initiated a major reorganization at a cost of $110 million. At the same time American Express invested $155 million in a reserve to cover expected losses from its various credit lines.
Harvey Golub took over as chairman of American Express in 1993. Golub sold many of the company’s holdings and cut millions of dollars in costs. Earnings at the company rose steadily during the mid-1990s, as American Express broadened its credit card business, strengthened its investment-services group, and expanded its international business holdings.
The number of American Express cardholders grew from 26 million in 1993 to 59 million in 2001.
In 1991 the company initiated a major reorganization at a cost of $110 million. At the same time American Express invested $155 million in a reserve to cover expected losses from its various credit lines.
Harvey Golub took over as chairman of American Express in 1993. Golub sold many of the company’s holdings and cut millions of dollars in costs. Earnings at the company rose steadily during the mid-1990s, as American Express broadened its credit card business, strengthened its investment-services group, and expanded its international business holdings.
The number of American Express cardholders grew from 26 million in 1993 to 59 million in 2001.
MasterCard International Incorporated
Credit card and payment system company based in Purchase, New York, near New York City. As of 2001, MasterCard had more than 1.7 billion credit, charge, and debit cards in circulation.
MasterCard is collectively owned by more than 20,000 member financial institutions around the world. Each of these institutions issues its own localized version of the MasterCard, and each establishes the terms—such as fees and interest rates—that it offers to cardholders.
MasterCard is collectively owned by more than 20,000 member financial institutions around the world. Each of these institutions issues its own localized version of the MasterCard, and each establishes the terms—such as fees and interest rates—that it offers to cardholders.
MasterCard Origins
In 1966 a group of bankers from across the United States organized the Interbank Card Association (ICA) to establish credit card transaction procedures for their member institutions. ICA issued its first credit card for nationwide use in 1966.
In 1968 the ICA began to form partnerships overseas, beginning with Banco Nacional in Mexico, and then with institutions in Europe and Japan later that year.In 1973 ICA established the Interbank National Authorization System (INAS), a computer system that eliminated the need for merchants to place telephone calls to bank clerks to get authorization for transactions.
In 1974 the ICA introduced magnetic strips on its credit cards that contained encoded information about the cardholder’s account. By swiping the cards through electronic devices at the place of purchase, this information could be quickly read and transmitted to banks, enabling merchants to authorize transactions even more quickly.
Use of the Master Charge card increased during the mid-1970s, accounting for 60 percent of all credit card transactions worldwide by 1977.
In 1968 the ICA began to form partnerships overseas, beginning with Banco Nacional in Mexico, and then with institutions in Europe and Japan later that year.In 1973 ICA established the Interbank National Authorization System (INAS), a computer system that eliminated the need for merchants to place telephone calls to bank clerks to get authorization for transactions.
In 1974 the ICA introduced magnetic strips on its credit cards that contained encoded information about the cardholder’s account. By swiping the cards through electronic devices at the place of purchase, this information could be quickly read and transmitted to banks, enabling merchants to authorize transactions even more quickly.
Use of the Master Charge card increased during the mid-1970s, accounting for 60 percent of all credit card transactions worldwide by 1977.
MasterCard Reorganization
ICA changed the name of both its organization and its card to MasterCard in 1979. In 1980 Russell E. Hogg became president of the company. Hogg restructured the organization, relocated several support offices, and began pursuing the international market more aggressively.
That same year MasterCard began offering debit cards, or cards that drew money from consumers’ bank accounts rather than from lines of credit. Many of the changes to the company were made in order to challenge Visa, which had bypassed MasterCard to become the worldwide leader in credit card transactions, owning 60 percent of the billings by 1983.
Despite losing this market share to Visa, usage of credit cards in general increased dramatically during the 1980s, enabling MasterCard to continue expanding.
That same year MasterCard began offering debit cards, or cards that drew money from consumers’ bank accounts rather than from lines of credit. Many of the changes to the company were made in order to challenge Visa, which had bypassed MasterCard to become the worldwide leader in credit card transactions, owning 60 percent of the billings by 1983.
Despite losing this market share to Visa, usage of credit cards in general increased dramatically during the 1980s, enabling MasterCard to continue expanding.
MasterCard New Services
In 1988 Hogg engineered the purchase of Cirrus, the world’s largest automated teller machine (ATM) network. ATMs—electronic machines in public places that enable users to conduct cash withdrawals and other banking transactions—had gained widespread popularity during the 1980s.
By 1990 the Cirrus system was linked with MasterCard’s existing ATM system to form the MasterCard/Cirrus ATM Network, with more than 50,000 locations worldwide. Within five years that network featured more than 200,000 ATMs.During the early 1990s a lackluster U.S. economy and fears about growing credit-card debt brought about a brief slowdown in the use of credit cards.
But by the mid-1990s a rejuvenated economy helped push card usage past all previous levels. MasterCard attracted consumers to its card by expanding the range of its services. The company signed agreements with companies to offer users airline rebates and other premiums; increased the use of debit cards; and encouraged a wider variety of businesses to accept the cards, including supermarkets and health care providers.
MasterCard and Visa continued to dominate the market during the mid-1990s. MasterCard’s sales increased from $450.5 million in 1992 to $946 million in 1996. Of the $798.3 billion in credit-card transactions in the United States in 1996, 27.6 percent used MasterCard and 49.2 percent used Visa.
By 1990 the Cirrus system was linked with MasterCard’s existing ATM system to form the MasterCard/Cirrus ATM Network, with more than 50,000 locations worldwide. Within five years that network featured more than 200,000 ATMs.During the early 1990s a lackluster U.S. economy and fears about growing credit-card debt brought about a brief slowdown in the use of credit cards.
But by the mid-1990s a rejuvenated economy helped push card usage past all previous levels. MasterCard attracted consumers to its card by expanding the range of its services. The company signed agreements with companies to offer users airline rebates and other premiums; increased the use of debit cards; and encouraged a wider variety of businesses to accept the cards, including supermarkets and health care providers.
MasterCard and Visa continued to dominate the market during the mid-1990s. MasterCard’s sales increased from $450.5 million in 1992 to $946 million in 1996. Of the $798.3 billion in credit-card transactions in the United States in 1996, 27.6 percent used MasterCard and 49.2 percent used Visa.
Visa International
Credit card and payment system company based in Foster City, near San Francisco, California. Visa is the world’s largest consumer payment company, with more than one billion cards issued, more than $1.8 trillion in transactions annually, and more than half of the world’s market in transactions.
Visa is collectively owned by more than 21,000 member financial institutions around the world. These institutions issue Visa cards, and each establishes the terms that it will offer to consumers, such as rates and fees.
Visa is collectively owned by more than 21,000 member financial institutions around the world. These institutions issue Visa cards, and each establishes the terms that it will offer to consumers, such as rates and fees.
Visa International Origins
Visa traces its roots to 1958, when Bank of America, based in San Francisco, issued the BankAmericard. At the time, many banks in the United States offered charge cards, or cards that enabled consumers to charge goods and services to an account.
Banks required cardholders to then pay their account balances in full each month. Unlike charge cards, the BankAmericard offered cardholders credit privileges, so they could pay their balance over a longer period of time in increments, plus interest. Bank of America licensed the card throughout California and eventually in other states as well.
The BankAmericard suffered from transactions problems and fraud during the early 1960s because of unreliable interchange systems between Bank of America and other banks licensed to issue the card. In 1968 Dee Ward Hock, an executive of the National Bank of Commerce in Seattle, Washington, headed a committee of BankAmericard licensees that was formed to resolve the problems among credit-card issuers.
Two years later Hock was instrumental in creating National BankAmericard Inc. (NBI), a consortium of BankAmericard licensees designed to conduct more reliable transactions between the banks. NBI bought the domestic bankcard system from Bank of America, and Hock became the head of NBI.
By 1970 the BankAmericard and its biggest competitor, Master Charge (later MasterCard), were offered nationwide, and most banks had eliminated their own bankcard programs to join one or both of the national systems.
Banks required cardholders to then pay their account balances in full each month. Unlike charge cards, the BankAmericard offered cardholders credit privileges, so they could pay their balance over a longer period of time in increments, plus interest. Bank of America licensed the card throughout California and eventually in other states as well.
The BankAmericard suffered from transactions problems and fraud during the early 1960s because of unreliable interchange systems between Bank of America and other banks licensed to issue the card. In 1968 Dee Ward Hock, an executive of the National Bank of Commerce in Seattle, Washington, headed a committee of BankAmericard licensees that was formed to resolve the problems among credit-card issuers.
Two years later Hock was instrumental in creating National BankAmericard Inc. (NBI), a consortium of BankAmericard licensees designed to conduct more reliable transactions between the banks. NBI bought the domestic bankcard system from Bank of America, and Hock became the head of NBI.
By 1970 the BankAmericard and its biggest competitor, Master Charge (later MasterCard), were offered nationwide, and most banks had eliminated their own bankcard programs to join one or both of the national systems.
Visa Card introduced
In 1974 Hock formed IBANCO, which took over administration of BankAmericard’s foreign operations. In 1977 Hock changed the name of the BankAmericard to the Visa card.
NBI became Visa U.S.A. and IBANCO became Visa International. Visa International Incorporated became the umbrella organization for Visa’s business units.
Visa International and Visa U.S.A. share corporate headquarters in Foster City.
NBI became Visa U.S.A. and IBANCO became Visa International. Visa International Incorporated became the umbrella organization for Visa’s business units.
Visa International and Visa U.S.A. share corporate headquarters in Foster City.
Visa International Growth
In 1977 MasterCard held 60 percent of the bankcard business, compared with 40 percent for Visa. By 1983 those percentages were reversed, making Visa the leading U.S. credit card.
Credit-card use expanded dramatically in the 1980s, and Visa continued to dominate the market. Visa had 56 million cardholders worldwide in 1979, but that figure rose to 220 million ten years later.
Credit-card use continued to grow in the 1990s as businesses ranging from supermarkets to health care providers began accepting payment with cards. Visa also offered premiums, such as airline discounts, for using its card.
The number of Visa cards worldwide increased from 255 million in 1990 to more than one billion in 2000. The company’s revenues grew from $720 million in 1990 to $1.8 billion in 2000.Of the more than $1.6 trillion in credit-card transactions worldwide in 1996, 55.8 percent used a Visa card, making it the worldwide leader in the credit-card industry.
Credit-card use expanded dramatically in the 1980s, and Visa continued to dominate the market. Visa had 56 million cardholders worldwide in 1979, but that figure rose to 220 million ten years later.
Credit-card use continued to grow in the 1990s as businesses ranging from supermarkets to health care providers began accepting payment with cards. Visa also offered premiums, such as airline discounts, for using its card.
The number of Visa cards worldwide increased from 255 million in 1990 to more than one billion in 2000. The company’s revenues grew from $720 million in 1990 to $1.8 billion in 2000.Of the more than $1.6 trillion in credit-card transactions worldwide in 1996, 55.8 percent used a Visa card, making it the worldwide leader in the credit-card industry.
Credit Control Act
The Credit Control Act of 1969 authorized the U.S. president to give additional controls to the Federal Reserve.
In 1980 the act was used as a means of controlling various types of consumer credit. The Gramm-Leach-Bliley Act of 1999 gave the Fed regulatory authority over the new financial services holding companies.
These companies can offer banking, issue securities (stocks and bonds) and insurance, and other financial services all “under one roof.”
The Glass-Steagall Act of 1933 had prohibited banks from engaging in many of these activities, such as underwriting securities and insurance, because they were deemed risky at the time.
In 1980 the act was used as a means of controlling various types of consumer credit. The Gramm-Leach-Bliley Act of 1999 gave the Fed regulatory authority over the new financial services holding companies.
These companies can offer banking, issue securities (stocks and bonds) and insurance, and other financial services all “under one roof.”
The Glass-Steagall Act of 1933 had prohibited banks from engaging in many of these activities, such as underwriting securities and insurance, because they were deemed risky at the time.
Credit Enhancement
Another important business service performed by banks is a credit enhancement. Commercial banks back up the performance of businesses by promising to pay the debts of the business if the business itself cannot pay.
This service substitutes the credit of the bank for the credit of the business. This is valuable, for example, in international trade where the exporting firm is unfamiliar with the importing firm in another country and is, therefore, reluctant to ship goods without knowing for certain that the importer will pay for them.
By substituting the credit of a foreign bank known to the exporter’s bank, the exporter knows payment will be made and will ship the goods. Credit enhancements are frequently called standby letters of credit or commercial letters of credit.
This service substitutes the credit of the bank for the credit of the business. This is valuable, for example, in international trade where the exporting firm is unfamiliar with the importing firm in another country and is, therefore, reluctant to ship goods without knowing for certain that the importer will pay for them.
By substituting the credit of a foreign bank known to the exporter’s bank, the exporter knows payment will be made and will ship the goods. Credit enhancements are frequently called standby letters of credit or commercial letters of credit.
Credit Lyonnais
France has a large, well-developed financial system. Banking, finance, insurance, real estate and other business services accounted for nearly 30 percent of France’s GDP in 1998.
France’s major banks are among the largest in the world. They include Banque Nationale de Paris (BNP), Crédit Agricole, Crédit Lyonnais, and Société Générale.
The French insurance sector is the world’s fifth largest. In the late 1990s a wave of mergers, corporate restructuring, foreign investment, and continued privatization encouraged unprecedented consolidation in the banking and insurance sectors.
France’s major banks are among the largest in the world. They include Banque Nationale de Paris (BNP), Crédit Agricole, Crédit Lyonnais, and Société Générale.
The French insurance sector is the world’s fifth largest. In the late 1990s a wave of mergers, corporate restructuring, foreign investment, and continued privatization encouraged unprecedented consolidation in the banking and insurance sectors.
Credit Mobilier of America
Business venture that precipitated one of the greatest financial and political scandals of the 19th century in the United States.Oakes Ames and his brother Oliver, Thomas C. Durant, and other principal Union Pacific Railroad stockholders purchased the Pennsylvania Fiscal Agency in 1864, changed the name to Crédit Mobilier of America (named after Crédit Mobilier of France), and established it as a construction company.
Crédit Mobilier then purchased the remaining Union Pacific stock and offered a reissue to its stockholders. In this way, the ownership of the two corporations was combined.At this time, the federal government had chartered the Union Pacific to complete the railroad from the Midwest to the Pacific coast. Loans, subsidies, and land grants were also part of the government's assistance to the railroad.
The Union Pacific Railroad awarded the contract for the actual construction to Crédit Mobilier, in effect awarding it to itself as owner of the company. The construction costs reported by Crédit Mobilier for the 1074 km (667 mi) were grossly inflated. Crédit Mobilier charged more than $94 million for construction that actually cost only $44 million. As a result the company's dividends to its stockholders increased 500 percent a year in 1867 and 1868.
When suspicions became aroused concerning the relationship between the Union Pacific and Crédit Mobilier, Oakes Ames, in his capacity as a congressman from Massachusetts, attempted to stave off a congressional investigation into both the Union Pacific Railroad and Crédit Mobilier by distributing Crédit Mobilier stock among his colleagues in the House of Representatives.
Congressmen were allowed to make long-term purchases of the stock by using the interest and dividends to pay for the stock itself. No risk was involved, and the profits were high; a reported $33 million profit was made by those who accepted these bribes.During the 1872 presidential election a list of those congressmen owning Crédit Mobilier stock was published by the New York Sun along with letters written by Oakes Ames describing his dealings. The taint of this scandal permeated the government.
Crédit Mobilier's operations were halted, and the Union Pacific Railroad, stripped of all its assets except the roadbed and the machinery in order to repay the government loans, was left debt-ridden. Among those implicated in the scandal were Vice President Schuyler Colfax, Representative James A. Garfield, House Speaker James G. Blaine, and Henry Wilson, the Republican candidate for vice president.Although not all charges were proven and the full investigation was finally dropped, many political careers were ruined as a result of these disclosures.
A number of judges were impeached or forced to resign, and Oakes Ames was finally censured by Congress in February 1873; he died a few months later. This scandal brought to the public's attention the extent of widespread political corruption and unethical business practices, and as a result, new concern was shown for reform in both areas.
Crédit Mobilier then purchased the remaining Union Pacific stock and offered a reissue to its stockholders. In this way, the ownership of the two corporations was combined.At this time, the federal government had chartered the Union Pacific to complete the railroad from the Midwest to the Pacific coast. Loans, subsidies, and land grants were also part of the government's assistance to the railroad.
The Union Pacific Railroad awarded the contract for the actual construction to Crédit Mobilier, in effect awarding it to itself as owner of the company. The construction costs reported by Crédit Mobilier for the 1074 km (667 mi) were grossly inflated. Crédit Mobilier charged more than $94 million for construction that actually cost only $44 million. As a result the company's dividends to its stockholders increased 500 percent a year in 1867 and 1868.
When suspicions became aroused concerning the relationship between the Union Pacific and Crédit Mobilier, Oakes Ames, in his capacity as a congressman from Massachusetts, attempted to stave off a congressional investigation into both the Union Pacific Railroad and Crédit Mobilier by distributing Crédit Mobilier stock among his colleagues in the House of Representatives.
Congressmen were allowed to make long-term purchases of the stock by using the interest and dividends to pay for the stock itself. No risk was involved, and the profits were high; a reported $33 million profit was made by those who accepted these bribes.During the 1872 presidential election a list of those congressmen owning Crédit Mobilier stock was published by the New York Sun along with letters written by Oakes Ames describing his dealings. The taint of this scandal permeated the government.
Crédit Mobilier's operations were halted, and the Union Pacific Railroad, stripped of all its assets except the roadbed and the machinery in order to repay the government loans, was left debt-ridden. Among those implicated in the scandal were Vice President Schuyler Colfax, Representative James A. Garfield, House Speaker James G. Blaine, and Henry Wilson, the Republican candidate for vice president.Although not all charges were proven and the full investigation was finally dropped, many political careers were ruined as a result of these disclosures.
A number of judges were impeached or forced to resign, and Oakes Ames was finally censured by Congress in February 1873; he died a few months later. This scandal brought to the public's attention the extent of widespread political corruption and unethical business practices, and as a result, new concern was shown for reform in both areas.
Letter of Credit
Letter of Credit, document issued by a bank authorizing the bearer to receive money from one of its foreign branches or from another bank abroad.
The order is nonnegotiable, and it specifies a maximum sum of money not to be exceeded.
Widely used by importers and exporters, the letter of credit is also made available to tourists by their home banks so that they may draw foreign currency while traveling abroad.
When the instrument is directed to more than one agent, it is called a circular letter of credit.
The order is nonnegotiable, and it specifies a maximum sum of money not to be exceeded.
Widely used by importers and exporters, the letter of credit is also made available to tourists by their home banks so that they may draw foreign currency while traveling abroad.
When the instrument is directed to more than one agent, it is called a circular letter of credit.
Financial cooperative and credit Association
Credit Union, financial cooperative and credit association that provides loans to its members at lower rates of interest than would otherwise be available. The capital funds of credit unions come from the purchase of shares by members, who receive yearly dividends on the basis of their investment.
Credit unions are operated for the mutual benefit of their members and are usually formed by persons who share a common bond, such as membership in a church, lodge, trade union, or professional association. Many corporations have assisted their employees in establishing credit unions, as has the civil service at the federal, state, and local levels.
The loans are usually for the acquisition of consumer goods rather than for the purchase of real estate.The first credit union was established in 1864 by a group of farmers in the German Rhineland. The movement was soon introduced to North America.
The first Canadian credit union was founded in Québec in 1900; the first in the United States was organized in New Hampshire in 1909. In the U.S. credit unions must be chartered by the federal or state government; federally chartered credit unions are under the supervision of the National Credit Union Administration.
Almost all credit union savings are insured by the federal government or by cooperative insurers. In 2000 the over 10,000 federally insured credit unions in the United States reported more than 77 million members and total assets of about $438 billion.
Credit unions are operated for the mutual benefit of their members and are usually formed by persons who share a common bond, such as membership in a church, lodge, trade union, or professional association. Many corporations have assisted their employees in establishing credit unions, as has the civil service at the federal, state, and local levels.
The loans are usually for the acquisition of consumer goods rather than for the purchase of real estate.The first credit union was established in 1864 by a group of farmers in the German Rhineland. The movement was soon introduced to North America.
The first Canadian credit union was founded in Québec in 1900; the first in the United States was organized in New Hampshire in 1909. In the U.S. credit unions must be chartered by the federal or state government; federally chartered credit unions are under the supervision of the National Credit Union Administration.
Almost all credit union savings are insured by the federal government or by cooperative insurers. In 2000 the over 10,000 federally insured credit unions in the United States reported more than 77 million members and total assets of about $438 billion.
Creditor
More than 90 percent of bankruptcy proceedings are voluntary. They are initiated by the debtor, who files a petition with the appropriate federal court.
A bankruptcy trustee then collects and liquidates the debtor's nonexempt property for the benefit of the unsecured creditors. Secured creditors are not affected by bankruptcy liquidations because they have taken collateral (such as a home mortgage) to ensure repayment of debts.
Once distribution to unsecured creditors occurs, the court discharges the debtor unless that person's prior behavior justifies denying the discharge or granting it with certain specific statutory exceptions.
In order to limit or deny the discharge, the creditor must prove that the debtor has obtained credit by fraudulent practices or has engaged in other prohibited behavior.
Creditors can file an involuntary bankruptcy petition against a debtor, alleging that the debtor is
“generally not paying” debts, but this type of proceeding rarely occurs.
A bankruptcy trustee then collects and liquidates the debtor's nonexempt property for the benefit of the unsecured creditors. Secured creditors are not affected by bankruptcy liquidations because they have taken collateral (such as a home mortgage) to ensure repayment of debts.
Once distribution to unsecured creditors occurs, the court discharges the debtor unless that person's prior behavior justifies denying the discharge or granting it with certain specific statutory exceptions.
In order to limit or deny the discharge, the creditor must prove that the debtor has obtained credit by fraudulent practices or has engaged in other prohibited behavior.
Creditors can file an involuntary bankruptcy petition against a debtor, alleging that the debtor is
“generally not paying” debts, but this type of proceeding rarely occurs.
Credit
Credit, in commerce and finance, term used to denote transactions involving the transfer of money or other property on promise of repayment, usually at a fixed future date.
The transferor thereby becomes a creditor, and the transferee, a debtor; hence credit and debt are simply terms describing the same operation viewed from opposite standpoints.
The transferor thereby becomes a creditor, and the transferee, a debtor; hence credit and debt are simply terms describing the same operation viewed from opposite standpoints.
Types of Credit
The principal classes of credit are as follows:
(1) mercantile or commercial credit, which merchants extend to one another to finance production and distribution of goods.
(2) investment credit, used by business firms to finance the acquisition of plant and equipment and represented by corporate bonds, long-term notes, and other proofs of indebtedness.
(3) bank credit, consisting of the deposits, loans, and discounts of depository institutions.
(4) consumer or personal credit, which comprises advances made to individuals to enable them to meet expenses or to purchase, on a deferred-payment basis, goods or service for personal consumption.
(5) real-estate credit, composed of loans secured by land and buildings.
(6) public or government credit, represented by the bond issues of national, state, and municipal governments.
(7) international credit, which is extended to particular governments by other governments, by the nationals of foreign countries, or by international banking institutions, such as the International Bank for Reconstruction and Development.
Function of Credit
The principal function of credit is to transfer property from those who own it to those who wish to use it, as in the granting of loans by banks to individuals who plan to initiate or expand a business venture. The transfer is temporary and is made for a price, known as interest, which varies with the risk involved and also with the demand for, and supply of, credit.Credit transactions have been indispensable to the economic development of the modern world.
Credit puts to use property that would otherwise lie idle, thus enabling a country to more fully employ its resources. One of the most significant differences between some nations of Africa, Asia, and South America and the advanced Western nations is the extent to which the use of credit permits the latter to keep their savings continuously at work.
The presence of credit institutions rests on the readiness of people to trust one another and of courts to enforce business contracts. The lack of adequate credit facilities makes it natural and necessary for inhabitants of developing countries to hoard their savings instead of putting them to productive and profitable use. Without credit, the tremendous investments required for the development of the large-scale enterprise on which the high living standards of the West are based would have been impossible.
The use of credit also makes feasible the performance of the complex operations involved in modern business without the constant handling of money. Credit operations are carried out by means of documents known as credit instruments, which include bills of exchange, money orders, checks, drafts, promissory notes, and bonds.
These instruments are usually negotiable; they may legally be transferred in the same way as money. When the party issuing the instrument desires to prevent its use by anyone other than the party to whom it is issued, he or she may do so by inscribing the words “not negotiable” on the instrument.
Issuance of Credit
Creditors sometimes require no other assurance of repayment than the debtor's credit standing, that is, one's record of honesty in fulfilling financial obligations and one's current ability to fulfill similar obligations.
Sometimes more tangible security, such as the guarantee of a third party, is required. Also, the debtor may be obliged to assign the rights to some other property, which is at least equal in value to the loan, as collateral security for payment. Bonds placed on sale by a corporation are often secured by a mortgage on the corporation's property or some part of it.
Public borrowing, as by the issuance of bonds of a government, is usually unsecured, resting on the purchaser's confidence in the good faith, taxing power, and political stability of the government. When goods are sold on a deferred-payment plan, the seller may either retain legal ownership of the goods or hold a chattel mortgage until the final payment is made.
The depositing of funds in a bank for safekeeping may also be regarded as a form of credit to the bank, as such funds are used for loan and investment purposes, and the bank is legally bound to repay them as an ordinary debtor.
Credit Control
The groundwork of the American credit system was laid early in the history of the U.S. The 18th-century (public) loan offices and (private) land banks were the first American credit institutions. The Bank of North America, chartered in 1781, was the first commercial bank.
The U.S. Constitution, by affording protection to private property, by prohibiting laws impairing obligations of contracts, and by ruling out fiat money, did much to set the stage for the growth of many new credit institutions. Among those that arose during the succeeding half century were business corporations, the stock exchange, trust companies, savings banks, many more commercial banks, and credit-rating firms.
The development of a national banking system during and after the American Civil War, culminating in the creation of the Federal Reserve System in 1913, enormously enhanced the role of credit. In recent decades an estimated 90 percent of all business in the U.S. has been transacted by means of bank credit.Rates of interest charged by banks are influenced by discount rates, or the rates the banks have to pay central banks on loans and discounts.
In this way the discount policy is a means of regulating the volume of bank credit. Formerly, when credit control was not common and the international gold standard was in operation, discount rates were influenced chiefly by the movement of gold; an increase in the rate caused an inflow of funds from abroad and a drop in the rate caused a flow of funds out of the country. Between 1931 and 1936 all nations abandoned the gold standard.
Today governments employ numerous forms of credit control, and monetary standards themselves are based on the credit of each nation.The workings of credit control are well illustrated by the operations of the Federal Reserve System, which influences the volume of credit by buying and selling government securities, changing requirements for depository institutions, setting the discount rate, and altering margin requirements on security purchases.
Since the Truth in Lending Act became effective in 1969, advertisers of consumer credit have been required to reveal all relevant terms of their credit extensions if they advertise any one specific credit term, such as the down payment required, the amount of any installment payment, or the dollar amount of the finance charge.
Credit and Economy
All banking operations, and the methods for controlling them, are part of the credit system of a country. The state of business activity within a country at any given moment may be gauged from the condition of the credit system: expanding credit generally reflects a period of business prosperity, whereas contracting credit usually reflects a period of declining economic activity or depression .
Fluctuations in the credit system may affect the level of prices; that is, as credit expands the money supply increases; lending causes prices to rise. Some economists consider the credit inflation that preceded the 1929 crisis to have been the principal cause of the crisis.
The relative importance of credit in the economy of the U.S. is indicated by the fact that, at the end of 1986, the more than 14,000 insured commercial banks in the U.S. held over 85 percent of their total assets in loans and investments and U.S. government securities.
Also, installment credit transactions involving the purchase of consumer goods totaled more than $575 billion. Indicating the scope of credit activity handled by the U.S. government, from February 1932 to June 1957 the Reconstruction Finance Corporation lent more than $50 billion and collected nearly as much in repayment of loans.
In 1987 total direct loans outstanding at four major credit agencies of the federal government, including the financially troubled Farm Credit System banks, exceeded $230 billion.
related articles:
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World Market Watch
Fluctuations in the credit system may affect the level of prices; that is, as credit expands the money supply increases; lending causes prices to rise. Some economists consider the credit inflation that preceded the 1929 crisis to have been the principal cause of the crisis.
The relative importance of credit in the economy of the U.S. is indicated by the fact that, at the end of 1986, the more than 14,000 insured commercial banks in the U.S. held over 85 percent of their total assets in loans and investments and U.S. government securities.
Also, installment credit transactions involving the purchase of consumer goods totaled more than $575 billion. Indicating the scope of credit activity handled by the U.S. government, from February 1932 to June 1957 the Reconstruction Finance Corporation lent more than $50 billion and collected nearly as much in repayment of loans.
In 1987 total direct loans outstanding at four major credit agencies of the federal government, including the financially troubled Farm Credit System banks, exceeded $230 billion.
related articles:
Crude Oil
Commodities and Futures
World Market Watch
International credit
Since the end of World War II, the economic needs of war-devastated countries in many parts of the world have intensified the problems of international credit. Loans for the restoration of international trade and rehabilitation of industries were arranged through the International
Bank for Reconstruction and Development and the International Monetary Fund, organized by the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, in 1944. Through loan agreements, Lend-Lease, and the Economic Cooperation Act of 1948, or the Marshall Plan, the U.S. made credit available to several European nations.
The extension of credit to developing countries of Africa, Asia, and South America by such institutions as the International Bank for Reconstruction and Development contributed to their economic growth.Two major new credit problems arose in the 1970s and early '80s. The roughly tenfold increase in international oil prices starting in 1973 led many nations to seek credit from any big credit institutions willing to grant it.
Borrowing to finance overambitious development plans was another factor in leaving a large number of nations with a heavy debt burden, which then became insupportable when interest rates rose and commodity export prices declined.
Open-end credit loan
Open-end credit loans are loans for variable amounts of money up to a set limit. Unlike closed-end loans, open-end credit does not require a borrower to specify the purpose of the loan and the lender cannot foreclose on the loan.
Credit cards are an example of open-end credit. Most open-end loans carry fixed interest rates–that is, the rate does not vary over the term of the loan. Open-end loans require no collateral, but interest rates or other penalties or fees may be charged—for example, if credit card charges are not paid in full, interest is charged, or if payment is late, a fee is charged to the borrower.
Open-end credit interest rates usually exceed closed-end rates because open-end loans are not backed by collateral.
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