I’ve held my tongue for days as I’ve watched the supposed leaders of this country try to explain how they’re going to “solve” the current economic mess. Part of me enjoys the perfect timing of everything blowing up right before an election. The other part, well, it wonders why everyone is so shocked that the bubble popped. The United States and its citizens were testing the theory that they could live on credit indefinitely. Amazingly enough, running at a deficit has a cost that we’re all becoming intimately acquainted with.
I’ve waited with great patience for one, just one, person to accept responsibility, even if it’s only partial, for any part of the chaos. Surprise, surprise all I hear is both political parties blaming each other and talking heads on CNBC predicting a long-term recession. I hear everyone talking about Main Street bailing out Wall Street. I hear politicians assure me that they must intervene. Why?
Who Takes Responsibility
I’m not an economist, so my argument does not even attempt to address the financial side of things, but rather what I consider to be the moral and the ethical aspect of the situation. Accountability has been missing from society for a while now. Occasionally, you’ll hear about an investigation into corruption at City Hall or something similar. The prosecuting attorney gets some air time that will play well during the election and everyone gets to feel good that someone is getting the bad guys. Unfortunately, I don’t believe our current situation fits this mold.
Here’s the reality: I believe that each one of use is guilty to some extent for the situation we find ourselves facing. If you don’t own a credit card, you’re mostly excused, unless you took out a mortgage for more than you knew you could afford to pay. I believe this mess started when we started listening to the media, our friends, our family, telling us that we deserved to have what we wanted NOW, not later, but RIGHT NOW.
So we got sucked into the credit card offers that screamed, “One Year Without Interest” or payment plans that promised, “Only $88 A Month.” We bought the big screen, the boat, and all the others toys, believing that a “little” debt was ok, because our homes were worth double, triple, etc. what they were when we bought them.
But wait, why not sell my home and buy a bigger one, because my investment will increase even more in a bigger house that’s worth more. Oh, I can get in that bigger house for less with an adjustable rate mortgage that increases my payment by $1000 a month in three years? No problem. I’ll have enough equity by then that I can swing it or sell the house for twice what I paid for it.
The Gray Area
Before you jump on me for ignoring the plight of people who were taken advantage of by ruthless mortgage brokers whose only concern was earning a commission, I know that hundreds of thousands of people were misled. Everything from last minute rate changes to outright threats played a role in bad mortgage lending. However, even if you say these individuals make up 50% of the bad mortgages that still leaves another 50% who should know better.
Consider the words of consumer behaviorist Larry Compeau of Clarkson University from a Newsweek column in March 2008.
“People in their 30s haven’t really experienced a significant or long recessionary period…I am concerned that they won’t be able to respond quickly enough to mitigate what may be the damage ahead.”
The column’s author Eve Conant continues, “Not only do people under 40 save less, but they have less to save.” Indeed, savings as a percentage of disposable income have plummeted in the United States, from between 7 and 10 percent in the 1960s and ’70s to just 0.4 percent in 2007.” (link) Note that it’s savings measured against disposable income. Doesn’t that make us complicit?
I can also hear the argument that the cost of living has increased as wages have flattened, making regular use of credit a necessity. Health care, the cost of food, the cost of energy. You name it, most everything costs more. But let’s be honest, how many people are surviving on credit cards alone as a sole source of funds? Isn’t it more likely that the credit cards are paying for the vacations, the clothes, the iPods, and the toys of life?
I’m the first to acknowledge that the credit market is screwed up and not aimed at protecting consumer interests. (I strongly encourage Maxed Out, both the book and the documentary, for a look at the credit industry.) However, we keep going back for more. I find it telling that because I pay my balance in full each month, credit card companies refer to me as a deadbeat. Their number one customers are the ones caught in the revolving door of minimum payments, never touching the principal and only paying the interest. Doesn’t this outlook tell us something important about credit card companies?
Make Something Happen
Don’t we owe it to ourselves to protect our individual interests? For those who believe more government regulation is the answer, good luck. The $700 billion bailout started as a three page document in the White House and after the House and Senate got through with it, the number had increased, going from 110 to 451 pages. The Senate, because it’s constitutional barred from initiating finance bills, slapped multiple bills together to create a package that skirted that pesky rule. Any regulation will come with strings that may or may not benefit individuals, regardless of which party controls Congress and the White House.
So I say start small. Go to OptOutPrescreen.com and get your name removed from the list that the credit agencies provide to businesses extending credit offers or insurance. You can opt out for LIFE if you want. Start a savings account even if it’s pennies in a jar (example of government stupidity, it costs roughly 2.5 cents to make each penny, a loss of 1.5 cents per coin).
Finally, the thing I believe will save us, as it has in the past, is our ingenuity and willingness to innovate. Some have suggested, for example, that if the U.S. could create a green energy revolution through technology innovations, swinging things back to the positive side. At the foundation of whatever proves the solution will be people who made something, who didn’t just consume. We talk about the scales of justice being balanced. Doesn’t the same rule apply to what we do with our lives? If we take, doesn’t it make sense to give back?
UPDATE: If you’re curious, I wrote a post a little over a year ago about the history of credit cards and their role in the economy.