If you have heard any news from the UK in the past few days you would know that the savings bank Northern Rock has had people lining up to take their hard earned savings out of the bank and move them elsewhere. I was lucky enough at the weekend to talk to Ben Costella who is a financial consultant in the UK and understands exactly how all of this works.
Ben told me that a bank has to hold funds that are in the region of 10% of what their current lending is. This means that every time the bank lends out $100 they have to top up their reserves with $10. This is the way that banks work.
Banks have from the beginning of time been using this system, however due to there being a little bit of panic in the US market at the moment with over lending on mortgages and credit the banks have stopped lending money to each other. So now when Chase go to MBNA and ask them to top up their reserves the answer is no. This means that the banks have to borrow from the central funding that is available should they need it.
Central funding in the USA comes from the Federal Reserve and in the UK it is from the Bank of England. The reason that the Northern Rock currently have thousands of people lining up outside their branches all across the UK is because they asked the Bank of England for funding to top up their reserves. In the past this has been a sign of a bank being in financial difficulty and people have put their trust in the banks and lost a lot of money.
So now it has happened again people want to take their money from Northern Rock and place it somewhere safe, however there is a large amount of distrust in the UK when it comes to banks at the moment and the government are doing all they can to keep people calm but banks don’t get into financial difficulties unless there is something wrong.
Looking at this from a different angle it is something that happens all the time all around the world banks in Spain and Italy also borrowed from central reserves in the past few weeks in order to keep their top up reserve in touch. The difference being in the UK the last time a bank was in a serious financial state was the demise of Bearings bank back in the 1980’s where the bank went bust due to what they claimed was a rogue trader rather than their borrowing but they were topping up from the Bank of England on a regular basis.
So with Northern Rock facing a lot of questions over the coming weeks there could be more problems to come for the worlds economy due to the borrowing habbits that banks allow us all to participate in fairly freely.
September 19th, 2007
Lots of students graduate from colleges all over the country with lots of debt in the form of student loans. The primary strategy for saving money when paying back these loans is to consolidate multiple student loans into one loan with a (hopefully) lower interest rate which will reduce the amount of interest you are paying on the loan(s) and will also lower your monthly payment. You truly can save thousands of dollars by consolidating student loans.
But, there are other, lesser known ways to save even more money out of your pocket when paying back student loans.
Shrink Student Loans With Public Service
The biggest and most diverse program is AmeriCorps, which offers more than 75,000 positions each year. As a member of AmeriCorps, you can defer your student loans and receive a taxable grant of $4,725 per year for up to two years toward repaying them. AmeriCorps is a network of local, state, and national service programs that connects more than 70,000 Americans each year in intensive service to meet our countrys critical needs in education, public safety, health, and the environment.
The Peace Corps, AmeriCorps’ international cousin, has more than 7,000 volunteers working around the world in fields such as business development, health, agriculture and education. In return for a two-year commitment, you can defer your federal student loans. Perkins loan borrowers may have 15% of their loans forgiven for each year of service.
Government
To recruit and retain highly skilled employees, some federal agencies, including the departments of State and Justice and the Securities and Exchange Commission, offer employees a maximum of $10,000 per year (up to a total of $60,000) in student-loan repayment. These government programs can be difficult to find and get accepted into.
But listen to this: enlisting in the Army National Guard qualifies you for $3,000 a year in student-loan forgiveness, up to a total of $20,000. Now almost anyone can avail themselves of this program.
Health Care
If you happen to be a new young doctor each year the National Health Service Corps pays 4,000 health-care professionals to work in underserved communities. Health-care professionals qualify for loan-repayment assistance of up to $50,000 for a two-year commitment.
If you are a newly graduated nurse, in return for a two-year commitment in areas where there’s a shortage of nurses, you can wipe out 60% of your student-loan balances with awards from the Nursing Education Loan Repayment Program. In addition, 38 states offer loan-repayment programs to retain primary-care personnel. And some private hospitals use loan repayment as a recruiting tool. For information on health-related programs, go to the Bureau of Health Professions.
Lawyers
About 90 law schools offer loan-repayment awards to graduates who work in public service or other low-paying fields. I found one example where a young law school graduate working for a Legal Assistance Foundation in Chicago received a fairly good salary plus $14,500 in assistance one year to help pay off her student loans.
September 19th, 2007
