Finance Test

Explain why buying things on credit was not common prior to 1917.

Prior to 1917 it was not legal for lenders to charge interest rates hight enough to turn a profit.

What legislative program, established during the Great Depression, helped shape consumer lending policies that convinced commercial banks that consumer credit could be a profitable industry? In what way was the program intended to help consumers?

The New Deal. -Attempted to help Americans regain their financial footing. -Mortgage and home loans

What was the major financial change between post-World War II borrowers and borrowers after 1970?

-Borrowers post WWII borrowed in the midst of prosperity. Financial institutions lent more money and borrowers paid it back. -Borrowers after 1970 continued to borrow as their parents had done, except they didn't have to postwar period's well paying jobs.

Federal Housing Authority (FHA)

-Established by FDR during the depression -provided low-cost housing coupled with sanitary condition for the poor

Write a paragraph summary of the history of credit and consumerism.

-Prior to 1917 credit was not common. -1920s credit laws were relaxed to create a mainstream, profitable alternative to loan sharks. -The Great Depression created home loans. -WWII revived American industry which improved the economy and Americans standard of living. -Post WWII birth of suburbs and the American Dream. Incomes continued to grow. -1970s consumer debt skyrocketed. Banks now look more like 1920s loan sharks than the 1950s banks.

Federal Deposit Insurance Corporation (FDIC)

-an agency created in 1933 to insure individuals' bank accounts -protects people against losses due to bank failures

What effects did the Great Depression have on the credit industry?

-convinced commercial banks that consumer credit could be profitable -created home loans and mortgages

What effect did the post-war era have on consumer borrowing?

-created the American Dream -Americans borrowed because they believed their incomes would continue to grow in the future...and they were right. -Financial institutions lent more money, and borrowers paid it back. -borrowing became a post war normalcy

Home Owners Loan Corporation (HOLC)

-loaned money at low interest to homeowners who could not meet mortgage payments -loans for people who faced foreclosure

Electric Home and Farm Authority (EHFA)

-part of the TVA (Tennessee Valley Authority) -purchased inexpensive electrical appliances and then made them available to working people through installment loans with -a typical repayment period of three to four years. -In an attempt to reduce farm foreclosures, loans were made available to farmers under this agency. -These loans were used to refinance farm mortgages or provide capital for agricultural production.