Wednesday, January 16, 2008

AAA Part 2

This is a continuation from All About America Part 1.

  • It is said America revolves around credit - I read somewhere that if all the debts in the world were settled, there would be no money in circulation.
  • In America there is something called 'credit history' which every single American is obsessed about. It is basically a record(score or number to be exact) which shows how well you are willing to borrow money(credit) and repay it on time. The more, the better. The highest you can get is 850(FICO), and this is determined by how perfectly you repay your loans, how much risk you are willing to take(for e.g. how many credit cards you have), how often you take it(uniform usage of credit cards), variety of credit you have taken(mortgage, car loan, etc) and many others. FICO,or Fair Isaac(Vetti Suresh is in that company), is one such company which calculates the score. Three other agencies also calculate this score.
  • What the basis of credit history is shown by a simple story I read on some financial site: A lender lends $100 to a beggar who has zero bank balance for a month. He also lends $100 to a millionaire with millions in his name for a month. Suppose, the beggar repays that $100 on time, and the millionaire does not, the beggar will have a 'good' credit history and the rich man will have a 'bad' credit history. So the money you have does not matter, it is your ability to repay in the future which counts.
  • Why this is so important in America is because buying almost everything which will need a monthly maintenance - your car, your house, even your cell phone - is affected by your credit history. A good history will get you a lower rate of interest and a bad one means your ROI will be higher. It applies to cars and housing if you take it on a loan, not outright buying. When buying a car or renting a car or applying for a housing loan the agency will check on your history and accordingly grant or deny the loan.
  • This forms the basis for the famous sub-prime mortgage crisis. Some time back, when the interest rates were as low as 1%, banks started lending out mortgages to families with bad credit history - mostly African-Americans - but soon rates started increasing, and since many couldn't repay their loans, there were many foreclosures - repossession of property - and soon the lenders started shutting shop. The problem didn't stop there - the banks had sold these mortgages as financial packages overseas - basically these were investments funding the mortgage - so when their value started declining, they were cashed in, reducing the value further. As of now most of the major banks have posted losses in their earnings including Morgan Stanley which posted it's first ever loss last year.
  • To help with identifying each individual there is an SSN - Social Security Number - which is issued to every born citizen when they are children and to non-immigrants like me when we start earning in some form. This SSN is unique and is sufficient, with your other personal details, to check your credit history. It also helps during tax payment and pension, known as Social Security(I am not sure about this; please help yourselves).
  • This leads us to identity theft - divulging your SSN and personal details or discovery of these to or by some crook - is a major problem in this land and in UK. With these details, anyone can open an account, apply for a credit card and spend as they like - bothering never to pay, because the bills will come to you.
  • An SSN is essential to get a credit card - mostly an unsecured credit card(unlimited spending) will need you to have a good credit history.
  • I mentioned earlier that a cell phone will need a credit history. The 'wireless' industry as it is called here is pretty funny and damned compared to ours. Most of the cellular connections are post-paid(contract) and few are pre-paid('Pay-as-you-go). Many plans exist where you can get a phone free with a post-paid connection - if you have a good credit history that is - but usually these are not the latest in the market. So since businessmen aren't running charities to give away everything for free, it can be safely assumed that the cost of the phone is included in the monthly charges you will be paying. These charges consist of a fixed charge(rental) and a charge depending on how much you speak/message/browse. Even then, there are a lot of 'free minutes', so if you talk within those minutes, you would be paying only the minimum charges. Again, we can assume these are factored into the charges we already pay.
  • You will mostly enter into a contract for a period of time - usually two years - when you take up a service with a wireless provider. The cell phone he provides is 'locked' - and cannot be used with any other sim card. The cell phone is 'unlocked' only when you the contract ends or you break it, paying a hefty fine, usually roughly 4 months-worth rent.
  • I think you can bring your own cell phones and buy a sim from the service provider, as my U of Florida friends have done, and I guess post-paid works out cheaper than pre-paid.
  • It also has interesting situations for the mobile phone-manufacturing companies - since switching phones is unviable because of the contract, mobile phone companies have to approach the wireless companies to release their phones - so the wireless companies dominate the proceedings. This means sometimes you can't have your choice of phone and network - because either will be from rival networks.
  • Hence some phones are exclusively part of one network, like the iPhone from Apple, Inc. If you want an iPhone, you will have to buy the phone for $399(as of date of this post) and take a 2-year contract with AT&T with a minimum of $59 monthly charges. Apple allegedly arm-twisted AT&T into an agreement skewed in favour of themselves, but that is a story worth of another blog post altogether. This why some predict this business model to fail in India - but they will simply do what they did in France - sell it for regular price bundled with a post paid connection and sell it for a much higher price for use on any other network. Let's see how this 'prediction' ends up.
  • Most Americans love flip-phones(just an observation), the Motorola Razr is a very popular model.
  • Of course, the Apple range of products are very popular here, almost every fifth person will have his ears plugged with an iPod. The Apple enthusiasts seem to be a bunch of ultra-loyal people, they look to have such undying faith and hope in Steve Jobs they would be ready to hunt down the other bad boy Bill if needed. It's also a wonder, how, Apple has maintained such a large 'fan base'.
  • I got to know that Americans don't save money as much as we do - they spend for today and worry about tomorrow tomorrow, which works hand in hand with the logic of credit history. I believe that is the strength of the American economy - instead of stashing away the money earned, they spend it - they buy today and repay it slowly later. So while we have black money, in America that money circulates within the economy, and this has 'a feel good' factor about it, as economists bank on it to make predictions and project sales. Americans just keep spending - new, in-fashion clothes for Christmas which are dumped by next Christmas, electronics, cars..... We don't care much about branding, but that is seen as a status symbol in business circles - you have to have branded, in-fashion gear and clothes on yourself or else you end up at the sidelines.
  • The consolidation of American companies has led to an unfavourable situation - a few market leaders manipulating and dominating the market. I seem to get the impression that the companies look not at serving the consumers but their stockholders, which is very dangerous, because the common man doesn't gain a thing from this.
  • The highest denomination of the dollar is $100. But if you withdraw money from an atm, the highest denomination you will get is $20. This is because many many establishments do not accept $50 and $100 notes - change may be harder to get, but another reason I guess is to avoid possible burglary. Robbing shops and eateries is big business, guessing by the number of video seen around the world. Given the fact that guns are easily available, burglaries(hold-ups) seem to be common. Maybe due to the fact that shops are spread over a large area, far from one another, and also because they are open late and dotted with customers.
  • Observing closely, you can notice various steps taken to catch burglars - video cameras in the establishment, notices saying : * "...we do not accept or keep $50 and $100 notes...."(which can thwart a potential robber because he will have to haul more), '... you are being watched on a video camera....', '...say cheese, you're on camera!', '......this keep more than $50 in our registers after 6pm..', in case of delivery boys, the pizza box has this printed: '... the delivery person has no more than $50 with him...' One other thing is that the exit doors will have a sticker indicating height in feet on their frames - obviously to guess the height of the robber as he exits the place.
  • And most transactions are cashless - credit cards or through university id cards - which have a magnetic strip and can be loaded with money for sake of transactions.
  • Internet banking is awesome - you can even set your ATM preferences via the your online account. Cheques(Checks, they are called in this crazy country) do not carry any charges, you get a certain number of check books free, they have multiple security features making forgery very difficult(as a result of years of experience at the receiving end of forgers...e.g. Catch Me If You Can)
  • For this post's final fact, what we call a rubber in India should be called eraser here. Because, here, if you ask the person behind the counter for a rubber, he'd give you what you wanted if you and your partner wanted temporary bliss but not a 'bundle of joy'.
More coming soon.

P.S.: I'm not a very good economist, please excuse my crude explanations. I'd be very happy for comments on any of the posts.


vignesh said...

Man, have you become a full-time blogger?

KRA said...

wow dude! gr8 series of post !
Kudos to ya

the last point was an "ICING on the CAKE" indeed !

«charlie|thotti» said...

@kra Thanks.... There are 6 posts so far, do share it with friends.. Thry too might find it interesting..

a fan said...

I think the Flip was made popular by Motorola. Because it holds the patent for Flip model :) And that is the reason why there are hardly any Nokia flip phone models...

«charlie|thotti» said...

Now, 2009, people are moving from flip to slide-with-keyboard, which have 2 screens and a full qwerty keyboard...