Slaves to Debt

Making money with money, that’s where the real money is. The banks of today are mammoth multinational financial machines.  Interest rate restraints vanished in the ‘90’s and America’s debt soared.  Since our wages stalled years ago, we’ve financed our lifestyle with debt.  Americans have lived on our home equity lines and credit cards.  Our home equity has paid for exotic trips and new cars.  We stripped the value of an appreciating asset to buy depreciating assets.  Then our appreciated assets suddenly depreciated themselves.  We are now paying the price for such greed and irresponsibility with what’s been called by many including the Wall St. Journal as the

“worst crisis since the 1930’s.”

Yes the greed of Wall Street and deregulation is to blame, but so is the excessive American lifestyle that is supported by debt.  In “A Silver Lining to the Financial Crisis” Morgan Housel states,

“The larger picture is that it wasn’t just Wall Street gorging on more debt than they could handle and taking excessive risks. It was nearly everybody. By 2005, over a quarter of Americans’ income went toward revolving debt payments. Debt was the lifeblood of the economy, and the chickens have come to roost.”

The average American household owes $9200 in credit card debt.  Half of cardholders pay only the minimum payment each month.  Creditors send out statements within seven days of the due date, and then suddenly, oops, you’re late – you now pay penalty fees and jump to a 27% interest rate.  Banks make more on penalty payments than on interest. What a business! (See also Credit Card Industry Facts (2006-2007)

You see, when maximizing shareholder value became gospel, everything legal became ethical.  The taboo against predatory lending was labeled old-fashioned.  Predatory lending lures unsophisticated people into borrowing money they have no reasonable hope of paying back quickly.  There used to be laws against it.  Not anymore.  Today there are more strip-mall paycheck loan stores than McDonald’s.  They charge an average 300% interest and their customers take out an average of 13 “loans” per year.   They make Junior Soprano look like Mother Theresa.  Many loans charge interests and fees of over 1000%.

Five billion “pre-approved” credit card offers a year now flood our homes, and lots of them are going to our teenage children.  Our nation’s largest 100 universities make over $300 million a year selling our children’s data to banks for credit solicitation Why would anyone offer credit to impulsive, inexperienced, desire-crazed teenagers before they’ve ever held a job? Simply to create a life-long relationship.

There is current proposed credit card legislation, the Credit Card Holders Bill of Rights, but it faces an “uphill climb on Capitol Hill” and apposed lobbying by the banking industry.  “Credit Card ‘Bill of Rights’ Inches Forward” discusses how the legislation has provisions such as credit card companies are required to give cardholders 45 days notice of any interest rate increases, retroactive rate increases are prohibited unless the card holder is more than 30 days late, and billing statements must be sent 25 calendar days before the due date under the legislation. The article also states that Barack Obama has proposed his own credit card bill of rights as part of his economy plan that would among other things apply interest rate increases only to future debt, prohibit interest on fees, and ban unilateral charges. We could find no specified credit card rules from McCain’s camp.

Regulations may help, if they ever come to be, but the problem is moneylenders are eager to sell us “priceless” experiences followed by years of debt slavery and too many of us are too eager to take the bait.  For moneylenders, the best thing that could happen is that we spend a lifetime in debt.  Our job is just to keep the interest current.  In fact, if we could pass on our debts to our children, they all like that even better.  Want proof?  Watch for 50 and 100-year mortgages.  They are coming.  Eternal, endless balances earning daily interest.  Have you seen the T.V. commercials to buy furniture and TV’s today with no payment for five years?  That’s modern America.  It’s the reverse of delayed gratification.  It’s delayed responsibility.  We start paying for stuff after it’s old, broken, or used up.

It used to be we borrowed to build factories and do research.  We borrowed to invest in our future.  Now we simply borrow our future.

Today, most Americans, maybe 80%, are slaves to debt, the price of oil, and the costs of education.  But increasingly, the top 20% who run business, government and the media tell us it’s our own fault.  If life is stressful, it’s because we made it that way.  The free market is sacred, and it’s what makes America great.  The selfish, lucky and advantaged have always said that, but what if free markets don’t really exist?  What if government favors the big public companies and harms and restrains smaller businesses that actually create jobs, growth and innovation?  What if free trade is not fair trade at all?  What if we allow foreign piracy of our intellectual ideas and encourage the “dumping” of under priced foreign-made goods on our shores to keep consumer prices low?  What if we foster an economy that creates millions of low paying jobs that only a poor immigrant would do because it allows our big employers to avoid investing in the development of their employees’ skills, safety, health insurance, and working conditions?

America’s economic genius has come from public policy that allowed ordinary, hard working, responsible folks to become extraordinary. Unfortunately, the business sector has gotten so concentrated, powerful, and wealthy from the results of technology and globalism it has become the patron of our government, corrupting the very system that originally made them succeed.  And that problem is unlikely to end no matter whose elected.  The financial bailout is causing mergers that will only make the concentration of power, wealth, and corruption worse.

The problem with unrestrained capitalism is that it rewards monopolies, which promotes bureaucracy and exploitation, losing innovation and efficiency in the process.  Using government to tame capitalism’s abuses is a losing battle because government itself is so vulnerable to corruption.  The private business and the public sector have become locked in a lethal partnership that is burning up our trust, our hope, and our natural resources.

What’s the Greatest Thing We Can Do?

We must create our own “Citizen” Economy, which means:

1.  Spend less than we earn.

2.  Create career capabilities that will enable us to earn money until we’re 80 or beyond.

3.  Develop a personal relationship with a banker at a local commuity bank or local credit union.  Most small banks and credit unions do not play the Wall St. game.  Most are responsibly managed by local people.  Often their interest rates are lower, fees lower, and value your relationship.  By supporting local financial institutions, you are making a statement of resistance against money-center banks who play financial casino games an make most of their profit from charging you fees for your mistakes.