Thursday, October 23, 2008

The Credit Bomb Goes Boom

It's demoralizing reading about the meltdown in today's financial markets. Bank foreclosures, respected brokerage firms tanking, insurance company and bank bailouts, and sad to say, a serious erosion in investments for big and little players alike. I don't mean to depress you, but our reliance on credit has been our undoing. People getting mortgages they had no hope of paying off, greedy Wall Streeters coming up with "smoke and mirror" credit instruments that eventually sank us all, and consumers buying plasma TVs on plastic instead of waiting until they could afford to pay for them. OK, OK, I said I didn't mean to depress you and I'll stop now. You can read the headlines as well as I.

In the 1950s, credit cards were for the rich. If the average person couldn't afford something, they either saved up for it or did without. When credit cards first started being offered to "Joe the Plumber" it was the gasoline companies who led the charge. It was hard to get a credit card, even if it was only good for gas. The application form was pages long, you needed some type of credit history that demonstrated your credit worthiness, and they actually checked your information to make sure you were kosher. Many were refused and told to come back when they were better risks.

Today credit cards get mailed unsolicited to anyone with a pulse. The biggest deadbeats on the planet have wallets full of credit cards! If one is turned down by a store, they just whip out another. It never enters their empty heads that these bills will come due, they just keep swiping those cards until there is smoke coming off them. When the s**t hits the fan, they blithely declare bankruptcy, as if that solves everything. Soon their credit is trashed and they can't buy a pack of gum without cold cash.

Looking back, I remember that my parents never even had a checking account. Bills were paid in person in the days when the phone, gas and electric companies had offices in convenient locations, and people who (shocking) spoke English and took your money with a pleasant "Thank You". Insurance companies sent agents to your door to collect weekly premiums. My parents had a life policy, I think with Prudential, and their man rang our bell every week to pick up that week's payment....twenty-five cents! Some stores would allow you to buy on the "layaway plan" meaning you made installment payments on whatever item you bought, but only when it was paid off did you get to take it home. Banks offered "Christmas Clubs" where a customer could deposit as little as fifty cents a week starting in January and collect a whopping $26 at Christmas time to go shopping.

If you went for a bank loan, or even worse, a mortgage, you walked into that granite and steel building with a feeling of foreboding. You knew you would have to convince the meanest, most tight-assed bean counter that if he loaned you any money, he would be damned sure to get it back. The guy was ramrod straight with silver hair, a starched collar and a pocket watch that he looked at frequently to remind you how precious his time was, and that you'd better not waste any. He never smiled, never offered you coffee or a balloon for your kid...he just glared at you through those steel-rimmed spectacles and your blood froze. Bank tellers were cheerless folk ensconced behind steel bars waiting to take your money. It was far from a "customer friendly" environment, but deep down you knew your money was safe.

Today's banks are tiny storefront affairs with open cubicles, buckets of lolly pops and, and sappy elevator music. I can't tell if I'm in my bank or Starbucks. The bank manager looks like he or she should be behind the fryer at Wendy's. Your friendly banker will give you a wheelbarrow full of money if you pinky-swear to give it back.

Banks have to go back to being mean sons-of bitches. Credit card companies have to start actually checking who they are extending credit to, and brokerage houses have to stop this insane practice of "short selling" stock (delivering stock only on the buyer's promise to pay at a future date). Regulators have to (here's a novel thought) enforce the freakin' regulations!

I know we need credit to keep the economy moving and growing. All I'm saying is to set some reasonable parameters. It should be hard to get a loan. If you make a bad investment, why should I have to bail you out? Credit is like crack-cocaine, and consumers need to be weaned off. We can climb out of this hole, but it will take some tough love, baby.


LOOKING FOR A WORTHY CHARITY? TRY THESE FOLKS: Children's Craniofacial Association

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