Picture an industry where you raise capital then assertively invest that capital to the tenth degree, highly leveraged.

What's more, you take large risks, investing in one speculative project after another, sometimes in regions of the country that are showing signs of a loss of economic momentum.

And all the while, you collect a handsome fee for each investment project.

Even better, if the investments work out, you're enormously profitable, and a large bonus heads your way by the end of the year.

And if the investments turn out to be foolish and don't work out? Noooo problem. Noooo problem at all: the U.S. government will step in and take over your business, make peace with your business's creditors and share holders, while you're free to take on an executive post in another corporation.

Does the above remind you or any business/sector you know. Yes, that's right: it's the U.S. banking sector as currently configured.

There are signs that banks and others are expecting another round of credit write-offs. Banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens, Bloomberg News reported Monday.

For borrowing, banks are charging each other a 77-basis-point premium above what traders predict the U.S Federal Reserve's daily, effective Federal Funds rate will average over the next three months, up from 24 basis points in January, Bloomberg News reported.

Banks concerned about potential write-offs, global slowdown

Economist Peter Dawson said Monday two factors are driving the widening short-term lending spread.

"Rightly or mistakenly, there's a suspicion that selected banks will announce another round of write-offs," Dawson said. "Second, banks are coming to grips with the reality of the global slowdown. The slowdown suggests reduced revenue for banks, which would further hurt already strained balance sheets, and make banks more-reluctant to lend."

In August 2007, banks began to hoard cash and pare-back lending after subprime mortgage defaults forced two Bear Stearns hedge funds to seek bankruptcy protection. A series of regional, mortgage asset-related write-offs followed, as the housing boom ended, first in the United States, then in the United Kingdom. Mortgage-related credit losses now total more than $500 billion worldwide, Dawson said.

With all the negative headlines that the subprime lending industry is getting lately -- and deservedly so -- it's easy to forget about how important it is. Without question, the availability of credit can be an extremely potent force in the battle for upward mobility.

For 25 years, Muhammad Yunus's Grameen Bank have been doing subprime lending right: making small loans to people in developing countries to give them a chance to start their own businesses and provide for their families -- About 97% of Grameen's borrowers are women.

This weekend's Wall Street Journal reports that "Mr. Yunus has now brought Grameen to this borough of New York City. Since taking off in January, Grameen America has lent out a total of $145,000, with interest rates at around 15% on the declining loan balance. The money will be used for everything from taxi registrations to sewing machines."

Reading Mr. Yunus's interview with the Journal -- where he opines on the American subprime mess -- I can't help but feel crotchety about how badly we have messed up lending in this country. Yunus has built an institution with an extremely low default rates based on loans to driven entrepreneurs.

Credit Suisse (NYSE: CS) believes that the global credit crisis will bottom in a few months. Brady Dougan, the bank's CEO, said in an interview in the Neue Zuercher Zeitung that "he was an optimist and it could take three, four, five months before the crisis bottomed out," according to Reuters. He indicated that an improvement in housing prices in the U.S. would help matters.

Credit Suisse management carries some weight with its predictions. It is one of the few large global banks that has not taken massive write-offs due to the subprime crisis. Its leaders are therefore viewed as being "smart" compared to most of their counterparts at other banks.

The problem with the prediction is that it relies to some significant extent on improvements in the U.S. housing market. This could take some pressure off the subprime lending market. But, many experts believe the real estate problems here could extend well into 2009.

In other words, Mr. Dougan could be off by more than a year.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Prosper.com is one of the most amazing things I have ever seen and a grand statement of the pioneering spirit that keeps the wheels of prosperity in motion. At Prosper.com individual private investors are able to assist in serving the needs of potential borrowers via a bidding process to finance a wide variety of loan requests.

It works like this: First you register for the service, which the site says is fast, easy and free. Then, you create a loan listing that states how much you want to borrow and the interest rate you are willing to pay. Potential lenders can begin bidding on your loan request as soon as your listing is created. As lenders compete to finance your loan, the interest rate can become more favorable to you. After your listing closes, if you have successful bids, apparently the funds are then deposited in your account. I believe Prosper.com acts as the intermediary for these deposits. Finally, fixed monthly payments are then automatically withdrawn from your account. Prosper.com claims that there are no hidden fees and that the loan can be paid off early without penalty.

I can't actually endorse this service because I have no personal experience with it but it sounds extremely interesting, and the site appears to be for real. I'd love to get some feedback from people who have successfully used this service. If it's as valid as it appears to be, we just might have a new era of personal financing coming over the horizon.

The Wall Street Journal headline says it all: "Lax Lending Standards Could End Up Fueling Sudden Acceleration in Auto-Loan Delinquencies".

It makes perfect sense and could even be worse than the subprime home lending crisis in terms of its impact on the industry. Because taking out a car loan is pretty rarely a savvy financial move -- and people tend to use them to buy cars they really can't afford -- the industry may be especially vulnerable to an economic slowdown. Irresponsible borrowers are more likely to take out car loans than home loans, and also more likely to walk away from them. And there isn't going to be any federal bailout to help fast food workers keep their Escalades.

Analysts report that delinquencies in car loans rose sharply in late 2007. Consequently, it's important to look at the possible exposure any automotive-related company you invest in has to credit problems. Some companies do their own financing, others don't. A quick look at the risk factors disclosed in the 10-Ks filed with the SEC may provide some clues.

Consumers are still willing to run their lives based on credit, so says an Associated Press report. Consumer borrowing increased at an annual rate of 7.4% in November compared to an increase of just 1% in October - ah yes, the faux magic of a consumerist Christmas.

The truth of the matter rests in the cause for the rise. Is it because consumers are still confident in their earning potential? The more likely cause is that consumers are running out of funding options, read that -- they're running out of cash.

So why is it that mortgages are getting harder to write but consumer purchases can still be funded with just a signature? Although they're deflating in value, homes still provide significant backing for lenders to lean their bets on whereas credit cards float in the unknown. With bankruptcies at an all time high, are we setting up for the final crash?

People have been wondering when, and if, the Federal Reserve would take stronger action to protect borrowers hit hard by the housing and credit crisis. The Associated Press expects new rules to be released Tuesday that would apply to all types of lenders, including banks and brokers. You may wonder what gives the Fed the right to issue these new regulations. While the Fed primarily focuses on the health of financial institutions, it also plays a lead role in two key consumer protections -- the Credit Protection Act (which includes Truth in Lending Disclosures) and the Consumer Leasing Act. In recent years it's been a wild, wild west out there as money flowed freely and a lot of loans were made that helped brokers make money more than they helped consumers find good financing options.

Rules expected to be proposed Tuesday include:

• Barring lenders from penalizing subprime borrowers who pay off loans early. Often there is a $12,000 or more penalty for early repayment on subprime loans. I know people who could qualify for prime loans with lower rates but who are stuck with subprime loans because of a particular loan program that sounded good initially but is now beyond what they can afford. Yes they made a mistake, but paying $12,000 in penalties seems steep to me if someone wants to refinance to get out of a loan their broker steered them to.

Legally, E*Trade (NASDAQ: ETFC)'s press release announcing its deal with Citadel might have been fine.

But according to Fortune's Colin Barr, the 8-K detailing the transaction makes it sound a lot less appealing. Barr writes, "One reason the Citadel deal initially appeared so bullish for E*Trade was that Citadel was taking big, apparently unhedged, debt and equity stakes in the struggling online financial company -- seemingly betting that it could oversee a recovery in the company's fortunes."

But the reality is that much of the debt Citadel bought could become more senior than the other senior debt in the event of a bankruptcy.

This looks a little bit like the infusion that Countrywide Financial (NYSE: CFC) got from Bank of America (NYSE: BAC). The $2 billion investment gave Countrywide notes paying a 7.25% interest rate to Bank of America and providing the bank an option to purchase Countrywide shares at $18 -- 41% below their their market price back then (of course, the infusion has, long-term, done little to stop the bleeding: Countrywide now trades at just $10.42 per share.

The point is that hedge funds and banks, usually (Merrill Lynch (NYSE: MER) says hi) don't dole out money with pathological stupidity. Citadel invested as a vulture, and got a great deal by preying on E*Trade's desperation and fear of bankruptcy.

There's nothing wrong with that, but it's hardly bullish for E*Trade.

Documentaries like Maxed Out and In Debt We Trust have looked the problem of ever-growing consumer debt, and the role that government has played in its expansion.

Now , Senator and Democratic presidential candidate Barack Obama wants Washington to play a role in the solution too. Here are some clips from a statement Obama issued, as well as a discussion he had with debt counselors and consumers burdened with heavy debt. Courtesy of The Associated Press:

"The truth is, our middle-class families are not going to be secure so long as they can't get out of debt. If we're serious about stopping Americans from falling deeper in debt, we've got to crack down on predatory credit card companies that are pushing them over the edge....

"Many credit card companies are tricking Americans into agreements they can't afford because that's how they make big profits. Well, no company's bottom line should come before what's right for the American people."

Obama proposes a credit card bill of rights. From the Senator's website:

TheStreet.com's Jim Cramer gives you the questions you have to answer about this major issue affecting the market and the economy.

We never talk about "purchased loans," yet those are at the crux of what's wrong with the system. The big losses that E*Trade (NASDAQ: ETFC) (Cramer's Take) and Wells Fargo (NYSE: WFC) (Cramer's Take) had were all loans that were purchased that were originated by others.

I have long held that there are specific parts of these bad loan amalgams that have made them so elusive to get your arms around, although we should be forever thankful to Citadel for placing a dollar value of 27 cents on this gunk.

Put simply there are five items on any check list of the purchased loans that are awful:

1. Who originated the loan? We know that the sloppiest lenders included NovaStar (NYSE: NFI) (Cramer's Take), New Century Financial, American Home Mortgage, Fremont General (NYSE: FMT) (Cramer's Take) and Ditech (NASDAQ: GM). If your collateralized debt obligation (CDO) has a lot of origination by them, you are in trouble. (I am excluding Washington Mutual (NYSE: WM) (Cramer's Take) and Countrywide (NYSE: CFC) (Cramer's Take) loans as we don't know enough about how much was packaged and sent and how much was bad.)

Richard Branson is one of the most innovative, creative billionaires out there, and his latest project provides further evidence of that. Virgin Money USA, which opened for business on Monday, is designed to make it easier to lend money to friends and family more formally. A little bit like Prosper.com, Virgin Money USA will act as a conduit between parties, providing a platform and legal/tax documentation for informal loans.

According to The New York Times, "Virgin Money USA will offer personal and business loans, mortgages and reverse mortgages. The average interest rate for loans is 6 percent, and for mortgages, 5 percent. Borrowers are charged a $9 per payment administrative fee and will pay an upfront charge ranging from $99 for unsecured loans to $2,000 for large mortgages. Borrowers can select terms of their loans, including the duration and rates. The bank will not retain any of the interest."

So technically the loans will be made by Virgin (just as technically Prosper loans are made by Prosper), but the risk will all be held by the friends and family of the borrowers.

The fees ($9 per payment adds up on a small personal loan) make this look like a very questionable move for consumers. And lending money to friends and family is something that should be avoided whenever possible anyway. But in the wake of the subprime meltdown, and the need for emergency loans from friends and family, Virgin Money USA could be well-positioned for success.

An article in BusinessWeek discusses the problems recent (and even not so recent grads) are having with college debt. Saddled with enormous student loans, many are taking jobs they don't really have a passion for -- just because they need the money.

Student loan debt has exploded to the point where some experts are wondering whether people will be able to repay. Even if they can, the struggles of that generation may serve as a cautionary tale for youngsters. A decline in the size and number of student loans is something that should be celebrated.

Rather than taking out huge loans, students should focus on options that they can actually afford. As college costs rise, I would predict a huge rise in the number of students opting to do 2 years at a community college and then transfer. State schools are also likely to see an influx of higher-quality, price-conscious applicants.

And those are two good things. No one should graduate from college with a 6-figure debt load. There's just no reason to. An ambitious, hard-working, intelligent youngster can do just as well going to a less expensive public college.

Every day we get another report of abusive and predatory practices in the consumer lending industry, and today is no different. Ohio's Attorney General has sued Citibank for its advertisements on the Ohio State University Campus, which included offers for FREE FOOD! -- if you'll just fill out this credit card application.

The lawsuit alleges that Citibank used bait-and-switch advertising and did not provide students with adequate information about everything they were getting into. BusinessWeek takes a look at the practice of "affinity cards" -- another form of credit card company malpractice with the help of friendly universities. In exchange for large payments, credit card issuers can gain exclusive access to a university's students at events like football games. In some cases, the schools even provide the companies with students' email addresses so they can be bombarded with offers.

These credit card companies have no business being on college campuses, and the universities are doing a disservice to their students by allowing them to be market to this way. if a student needs a credit card, he can go get one ... off campus. There can be no doubt that aggressive marketing on college campuses has lured many students into a cycle of financial woes.

If you have a story about credit cards on campus, please visit Student Public Interest Research Groups.

A piece on TheStreet.com confirms my suspicion that people are really not very intelligent at all. Car loans are getting longer and, according to Jesse Toprak of Edmunds.com, "Most consumers still come into dealerships and tell the salespeople that they want to pay a certain amount of money per month for their car. That is probably the single worst way to shop."

In the past five years, the length of the average car loan has increased by four months to 63.8 months. There are a number of reasons these long loans are really bad for the consumer:

• A long loan generally means you pay more in interest. To pay the least interest, go for the shortest loan possible: Pay cash!
• At some point, there is a good chance you will owe more on the car than it is worth, making it difficult to trade up if you want a new car.

As Toprak said, you should never ever, ever, ever, go into buy a car thinking in terms of "the monthly payment." That's how they want you to think, and it's a really good way to hoodwink yourself into buying more car than you can really afford. Call me a prude, but I'm of the school of thought that, when it comes to cars, "If you can't pay cash, that means you can't afford it."

To learn the tricks to buying a car the smart way, check out Read this Before You Buy a Car.