Is Stricter Credit Here To Stay?

The CEO of Citigroup, Vikram Pandit, delivered a speech to end the first day of the National Summit in Detroit. The purpose of the summit is basically just a meeting of the minds, business, economic and government leaders, to develop strategies to keep Am

In synopsis, Pandit said to the group that America needs to recognize the fact that stricter credit is just going to be the rule at the present. He says we are in a new world where borrowing will be harder, loans will be harder to get, and tighter, more expensive, credit is just going to be the situation, even after the fiscal market has improved. ?U.S. spending and credit conception were the two main drivers of expansion. The world wants new drivers of enlargement ? and a new business model,? Pandit said to the assembly at the meeting.

He said he expects loans to be more limited and expensive. Those smaller APRs are a fixation of the past in his eyes and even as rally occurs, banks will be careful with giving out loans, almost to a fault. He also expects corporate restructuring over a number of industries. He acknowledged that Citigroup has received ample assistance from the government and praised ?strong government action? for the position they are building themselves back to. He also mentioned that Citigroup has modernized its business plan, cutting costs by 25% and labor force by 20% as well as dwindling their reliance upon credit and utilization.

He also held responsible the credit critical situation on free-for-all banks that he accused of being a ?shady banking organization? that packaged wholesale money into student loans, home mortgages and credit cards, a format that was responsible for over half of credit over the last five years. Pandit also blamed the ?shadow banking system? for a large credit gap when that market fell apart and credit was withdrawn.

It is obvious that we are in a new age of credit with more regulations on credit cards that will bring about credit issuers to put into practice new fees and amplify APRs and shorten credit, at least for a time, but are we in fact to the point where we can no longer rely on credit? That may also fail, because you will see less consumers worrying concerning their credit scores and financial institutions will lose money from lack of credit issuing. Streamline all you want, but no financial institution can rely so little on profit from borrowing that they will be able to tighten credit that much. It sounds like another one of my infamous ?self fulfilling prophecies?, as the credit market will ?cut off its own nose to spite its face? and the financial institutions will forbid themselves from further growth. What do you suppose?