I was in Venice yesterday and I came across this guillotine. What caught my eye was the blade (credit card shaped like a blade). Doesn't this represent many Americans today? We are losing our heads in debt! We are borrowing today at an alarming rate and conveniently postponing our repayment for years! Not to mention our Government whether Republican or Democrat the same thought process is exasperated to unimaginable disproportions! We are passing on debt to our great grandchildren for crying out loud! I don't have the answers, there is no quick fix, but I did want to touch upon one aspect of this problem. Our reliance on computer models such as FICO (Fair Isaac Corporation) in determining who gets a loan and who doesn't, and now more importantly in this high unemployment environment, who gets a job, and who does not!
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I find it deeply disturbing that those running both Fannie Mae and Freddie Mac have not been held responsible for the mortgage debacle we find ourselves in today. These two entities that are responsible for mortgages are not under investigation, nor are being asked to reevaluate the way they are doing business, no reforms, no congressional hearings, no nothing, nada, Zippo. Why is that? The previous real estate market failures were blamed primarily on Real Estate Appraisers. Now with licensing and other measures enacted since, it makes it more difficult to just blame it on the appraisers. We all know that Wall Street had an enormous appetite for mortgage backed securities which were largely underwritten using models such as FICO to determine their credit worthiness. Common sense underwriting has been replaced with computer models primarily because of its objectivity and speed in decision making?
So with all these revelations you would think we may want to reevaluate this tool (FICO) in determining someone's creditworthiness as well, right? Maybe make some adjustments, tweak it here, and there, to improve its accuracy and reliability? Well that hasn't happened to date.
To add insult to injury this same system which has already proven itself unreliable in the mortgage market is now keeping well qualified applicants from getting jobs. So much for objectivity, anyone who has lost a job and had their credit suffer as a result finds themselves in a catch 22. Many employers rule out candidates immediately from the running using their credit scores to determine their hire ability. The thought process behind this is that someone with money problems is more likely to steal from the company, or the bad credit demonstrates the character of the applicant. With so many applicants applying for jobs this is a major reason millions continue to remain unemployed.
No meaningful reforms or changes in unemployment rates can occur without this issue and other related issues being addressed in future job creation efforts. Job seekers must begin to ask there local representatives to address this problem and ask employers to take into consideration the job applicants prior credit history before the job loss for starters. It is ironic that this same system is now being used to rule people out for jobs. The saying "common sense isn't all that common anymore" sure applies to this dilemma, or as one person put it "You have to be psycho, to rely on FICO"
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