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About A Week: A Health Warning On Credit Cards

Neither a lender nor a borrower be, says Peter Hinchliffe.

At this time of year the valleys of West Yorkshire used to go grey with smoke from belching mill chimneys.

On cloudy days darkness began to descend at 3 pm. With it came fog which sometimes was so thick that buses had to be guided across road junctions by a man walking ahead of them.

There were more than 350 textile mills in and around the town where I spent many years as a newspaper journalist. And Huddersfield’s woollen cloth was prized the world over, worn by British prime ministers and American presidents.

One of the biggest of those mills was the Titanic, so called because its looms started their productive clatter in the year that the passenger liner of the same name was launched.

Linthwaite brass band played at the opening of Titanic Mill. Some of its members were hoisted in a large bucket to a platform specially erected on top of the tall mill chimney.

Workers producing the world’s finest woollen cloth were not well paid. They learned at their mother’s knee how to carefully manage money. Out of every pound earned a few pennies had to be set aside for a rainy day. Families who got into debt were marked out for disapproval by their neighbours living in the rows of stone-built terrace houses which surrounded the mills.

It’s not surprising that so many building societies were founded in this thrifty county. They were savings “banks’’ in which workers could store their cash, aiming for a nest egg big enough to serve as a down payment on a house. These societies were trusted by all: The Huddersfield, The Leeds Permanent, The Halifax...

And today the once mighty Halifax, once the king of all building societies, now merged into Halifax Bank of Scotland (HBOS), is one of the credit-crunched British banks having to be bailed out with an injection of 37 billion pounds of Government money.

Royal Bank of Scotland (RBS) is to raise 20 billion pounds, with the government buying 5 billion pounds of preference shares and underwriting 15 billion pounds of ordinary shares.

A further 17 billion pounds of taxpayer cash will be injected into HBOS and Lloyds TSB.

Four senior bank officials have resigned.

On this desperate day in their nation’s banking history British taxpayers now own about 60% of RBS and about 40% of the merged Lloyds TSB and HBOS.

As a condition of the deal, the Government says that senior directors should get no cash bonuses this year. Future bonuses should be in the form of shares, rather than cash.

Lloyds TSB will raise 11.5 billion pounds from taxpayers - made up of 8.5 billion pounds in ordinary shares and 3 billion pounds in preference shares, while HBOS is to get 5.5 billion pounds. Lloyds is renegotiating the terms set out last month of its takeover of HBOS. Since then HBOS shares have plunged in value. The revised deal gives HBOS shareholders 0.605 Lloyds TSB shares for every 1 HBOS share. Originally they were to receive 0.83 Lloyds TSB shares.

Prime Minister Gordon Brown said the bail-out was "unprecedented but essential for all of us", and would thaw frozen money markets.

He added that the Government would not be a permanent investor in UK banks. The intention, over time, is to dispose of all the investments in an orderly way.

Other European countries announced bank bail-out plans similar to those presented by Prime Minister Brown. Stock markets on both sides of the Atlantic reacted positively to the plans.

Humiliated British bankers are now the most reviled members of society, overtaking politicians and journalists to top the Most Distrusted list.

In the United States the FBI is investigating four major US financial institutions whose collapse helped trigger a $700 billion bailout plan by the Bush administration.

The Associated Press reported two law enforcement officials as saying that the FBI is looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International Group Inc. Additionally, a senior law enforcement official said Lehman Brothers Holdings Inc. is also under investigation. The inquiries will focus on the financial institutions and the individuals who ran them.

Of course banks shoulder the major share of the guilt of creating history’s most menacing financial crisis. But borrowers must also accept their part in contributing to this disaster.

The habit of saving in bank or building society then paying in cash is anathema in this must-have-it-today age. Why wait for that new watch? That exotic holiday in the Maldives? Use a credit card. Buy now, pay later.

The average American household’s credit card debt in 1990 was $2,966. In 2007 it was $9,840.

The average British adult now owes 33,000 pounds through mortgages, credit cards and personal loans, compared to 17,000 pounds in 2000.

A couple featured in a UK national newspaper last weekend admitted that they owed 40,400 pounds on six credit cards.

The couple, husband aged 39, wife 46, have three children, the eldest at university, the other two still living at home. They have spent money on Christmas and holiday breaks. With minimum debt repayments taken into account, their monthly outgoings now exceed income by about 1,100 pounds.

The husband was quoted as saying : “It is a sorry state of affairs and we feel terrible that we have got into this situation. We are just about managing to keep our heads above water at the moment, but we are in desperate need of some help.”

The first credit card was launched in the UK in 1966 by Barclays Bank. A converted shoe and boot factory in Northampton was the site for a revolution in the nation's borrowing and spending habits. The bank combed through its customer records and sent out the new Barclaycard to a million people thought to be credit worthy. Those customers had not requested that a card should be sent to them.

A year after the Barclaycard launch the Government allowed card issuers to offer extended credit. Now millions of credit cards are used daily. Many people, by misusing credit cards, are digging themselves into ever deeper financial holes.

Younger Brits seem likely to get into even more serious trouble by misusing credit cards than their parents have done. According to a survey by the Bank of Scotland the average Generation Y person (18 to 27 year olds) does not know the difference between a credit and a debit card.

By order of the Government graphic images began to appear at the start of this month on cigarette packets with the intention of shocking smokers into quitting their deadly habit. The pictures show throat cancer, rotting lungs and a corpse in a morgue.

As people begin to suffer from credit-crunch induced depression, the time could not be more opportune for the Government to demand warning notices on credit cards.



The slogans could be accompanied by compulsory pictures of bailiffs smashing into a debt-ridden household to seize goods, of furniture piled in the street, of anguished, tearful faces.


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