Ohio State University's Devfinance listserv, an email network for students, practitioners and researchers of development finance and economics, is one of my go-to lists for fresh debates and hot-off-the-press publications and research on all sorts of microfinance issues. Every once in a while it's also surprisingly entertaining.  Take, for example, last week's pro-thirft/anti-debt post announcing a new competition to develop a thrift-focused video game (re-posted here with permission from Jane, the original author):

It's not as cool as buying a beneficent bank in Bali or doing an IPO or private placement, nonetheless it is a counterpoint to the current credit mania.

The Peter G. Peterson Foundation is sponsoring a campaign to encourage personal and governmental frugality in the U.S.  One element of this is issuing what they call an INDEBTED $10,000 Challenge.  It is aimed at college students and will award $10,000 to the student(s) who develop the most effective video game about the U.S. fiscal mess.   I suspect they would like to see the video game promote saving.

Ellen Seidman, director of Financial Services Policy in the Asset Building Program, recently sat down for a short discussion with Michael Barr of the University of Michigan Law School and Eldar Shafir of Princeton University for a short discussion on their new paper Behaviorally Informed Financial Services Regulation.

Our newly released report on thrift in the United States has gotten some good play in the media but has also sparked internal and external debate, domestically and internationally, on the importance of savings and thrift relative to credit and consumption. The report advocates a culture of thrift and a renewed focus on savings (as opposed to our current focus on credit and culture of indebtedness). As a team, the Asset Building program promotes these goals and others heavily in our domestic work as well as internationally through the Global Assets Project.

A curious piece ran today on the Washington Post's opinion page.  

President of the Southern Christian Leadership Conference Charles Steele Jr. wrote an article called the "The Color of Credit" which noted the racial disaprity of wealth in America. Good, that's a fact that needs some more attention. It highlights the history of housing discrimination, policy efforts to address it, and the rise in minority homeownership rates since the mid-90s. Fine, that's a story worth knowing. It then discusses how recent declines in the housing and mortgages market will erode these gains. Great, that's an essential perspective to have right now, especially as we think about crafting future policy interventions. It takes issue with proposed restrictions on credit providers that would cap their fees. Wait a minute, what's going on here?

Credit is a critical element to asset building, but credit that is badly structured, difficult to understand, or abusive generally results in the destruction of assets, not their creation. Credit cards and overdraft protection programs have often shared these characteristics-and the asset stripping results.

On Friday, bank regulators will release proposed regulations under Section 18 of the Federal Trade Commission Act concerning unfair and deceptive acts and practices (UDAP). The proposal will apparently be a joint release by the three agencies that have jurisdiction to write rules under the Act, the Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration. This will be a rare instance of the agencies exercising rule-making, in contrast to enforcement, authority under the statute.

The proposal, which is expected to cover both credit cards and bounce protection, would require major improvements in practices, including generally limiting credit card interest rate increases to new balances, requiring opportunities to opt out of bounce protection, and prohibiting overdraft and overlimit fees that arise because of holds on debit or credit card purchases. While there will be objections from both the industry-asserting the proposed rules stifle competition-and consumer advocates-arguing that they do not go far enough-this is an extremely welcome development, one long overdue. The agencies have said they intend to make the rules final by the end of the year.

The 75-day comment period will coincide with both Congressional and electoral activity. And of course, year end will be a time of transition no matter who wins the election. It has taken a very long time to get this far; it's important that the regulators finish the job, and finish it strongly.

Many experts have predicted that our economy is moving into a recession and as the economy declines, it will become even more important for college students to graduate with as little credit card debt as possible to enable them weather tough times. A recent article in the Washington Post stated that college students can least afford to graduate with debt these days with an unstable job market. Many college students are crippled with debt. They graduate with credit card debt as well as student loan debt and in today's economy they may not be able to find a job immediately upon graduation. In spite of these facts, research shows that college students continue to accumulate credit card debt.

A recent study by the US PIRG Education Fund showed that nearly two thirds of students reported that they had at least one credit card. Seniors reported carrying more than $2,500 of credit card debt. This debt was incurred to pay for college expenses as well as living expenses. Students reported using credit cards for "day-to-day" expenses (55%) and books (55%). The next highest categories reported were "weekends and pizza" and emergencies.

As college costs continue to soar, college students are increasingly turning to credit cards to cover costs.

It's all we hear about these days: The U.S. subprime mortgage bubble -- created by poor and at times predatory lending practices and lax banking regulation and creative investment products -- has burst. Of the approximately 7.7 million subprime loans outstanding, over 2 million are at risk of foreclosure and 600,000 borrowers are expected to lose their homes this year. The majority of us are left in shock as we watch the devastation unfold, the bubbles aftermath wreaking havoc on the U.S. (and increasingly global) economy, ensuing fears of recession and economic pain to come, and leaving politicians, economists, and regulators all scrambling to pick up the pieces.
However, in the meantime, the 2006 Nobel Peace Prize winner on Tuesday proudly hailed microfinance -- the innovation of providing small loans to poor, traditionally financial excluded individuals, mainly women -- as "sub sub sub subprime" lending. That means that globally, more than 3300 microfinance institutions provide such "super-subprime" loans to over 100 million clients and growing. Just to be clear: I'm a huge fan of microfinance. However, I'm left perplexed by this dichotomy: How can a lending practice that is almost singlehandedly dragging the whole of the U.S. economy in to a hole simultaneously and sustainably end third world poverty?

The credit crunch currently constraining consumers and financial institutions threatens to spread to high-grade corporate bonds, according to analysts. Defaults on corporate bonds are at an all-time low at 1%, but more corporate bonds may default in 2008. Moody’s predicts default rates to rise to 10% in 2008, well above the historical average of 5%. Constrained corporate credit may may be another signal of the looming recession.

Financial Times – Default rates fail to detect cold front approaching
Financial Times - Default rates ‘to surge from 26-year low’
Bloomberg – CDO Losses Driving Credit-Default Swaps to Record, Analysts Say
Wall Street Journal – New Hitches In Markets May Widen Credit Woes
Wall Street Journal – Credit Jitters Hit Leveraged Loans
Bloomberg – Junk Bond Default Rate to Rise Ninefold, Altman Says
Fitch Ratings (free login) – Developments in the US Leveraged Loan and CLO Markets