Monday, March 02, 2009

The Root of all evil is NOT money, It's . . .

I’ve read lots of opinion pieces and blog posts, and have listened to pundits out the ying-yang on how this current economic crisis came about. Actually, it’s not all that hard to explain. It’s quite simple in fact, it comes down to one word: credit.

Kat, a very young up-and-comer, and one of my favorite internet writers, wrote a little piece on the subject a few days ago. She proudly proclaimed that she had just repaired her credit after getting out of a failed faulty marriage. One of her more humorous remarks from that piece was that anyone who pays for major items in full with cash (and not with a credit card) MUST be able to do so because they have “obscene wealth.” I’m still chuckling over that one, because she’s describing ME, at least partly (because I AM obscene (to some)...grin... but MOSTLY because I DO pay for everything with cash).

I know I can’t add anything new to what we’ve all heard are the fallacies of what the current congress and administration is doing to try to stem our economic downturn, but I have to wonder if we are ever going to be able to dig our way out, when in fact, with these spending bills, they are actually shoveling even MORE dirt into this credit hole we find ourselves. Ever hear of the word “counterintuitive?” Well, it applies.

Not that I’m hurting during this crisis; after all, I’m retired and am doing okay so far on pension and disability. The only way I can go into hurting status is if the entire federal government crashes and burns; although I’m fearful that that might just happen with the idiocy called “the stimulus package” now coming out of that loony bin in Washington.

You know, it wasn’t that long ago when credit was a super precious commodity, something that had to be cultivated and earned. No one had credit until they first “proved” themselves, not like today where apparently it has become “a right.” I’m surprised they don’t issue credit cards to babies, along with their social security numbers.

In 1978, I was a 21-year-old newlywed and a sergeant in the marines with more than a year’s time in grade. I had plenty of cash for back then, more than $12,000, money that I had been saving from the time I had started delivering newspapers at the age of 13. Even so, despite the fact that I was relatively cash rich, I had absolutely no credit whatsoever. Today, in the same situation, I would have credit card companies literally throwing their plastic at me.

But back then, it wasn’t so easy to get some plastic in your wallet; and remember, I’m only talking about 30 years ago. Sure, that's seemingly a long time for someone like young Ms Kat, but not all that long relatively speaking.

My “credit story” begins when I proudly brought my new Filipina bride to NAS Alameda, California, after having gone through hell and high water to marry her in Africa (but that’s another story). Besides having my new wife in tow, I came back to the US with literally nothing but a suitcase and a trunk.

So, to get my new life as a married consumer (sans credit) started, I bought my dad’s 3-year-old AMC Pacer for transportation, and similarly wrote checks for all of our new furniture. I had never needed any of that stuff before, having lived frugally, and I might add, quite happily, in the barracks for the first 3 years of my military career as a single man. (Oh, for the good old days!)

Then, I got into my head that I SHOULD have a credit card. I think someone told me that a credit card was a necessity for people who considered themselves grownups, and I took him at his word. I’m pretty sure that whoever it was, he told me that a man without credit was a financially incomplete person. Now, I couldn’t have that, wanting to be a real grown up adult and all; so, acquiring a credit card became a high priority for me.

As soon as I figured out how and where to do so, I sent an application in to VISA, which they immediately denied, stating that I needed to “prove” first that I was able to make payments, having never made a single payment, other than cash in full, for the entire 21 years of my life up to that time. (Can you imagine such a thing happening now?)

So here’s what I had to do to “earn” my first credit card: I went to Sears because I needed a washer & drier. I could have easily paid for it in full, but instead, I told the salesman that in order to establish credit, I wanted to pay for it with installments. Believe it or not, just to show that I was fiscally responsible, I had to forego taking home a washer and drier that I could easily afford immediately. I recall now that the reason I went to Sears in the first place is because they offered an installment plan, which was more like a layaway plan.

I paid it off in with the minimum of installments that would “prove” my credit worthiness, after which Sears was kind enough to issue me a Sears card, mostly based on my hefty savings account and the fact that I was a sergeant in the military, the importance of which is that they knew where to “find” me in case I defaulted perchance. Finally, I was able to parley that card into getting my VISA card. (I think they gave me a whole $500 credit line!) It sounds convoluted and ridiculous, but that’s the way it used to be, and as I said, it was not so long ago.

Flash forward just 17 years later to the late 90s: My three children from that (my first) marriage are graduating from high school. Without ever even having worked a real job yet, credit card companies are mailing them preapproved credit cards! And being kids, within a couple years they had maxed them all out, and I’m pretty sure at least one or two of them filed for bankruptcy. I know their mother certainly did.

And you know what? I don’t fault any of them for it. They were just kids, and their mom had very little financial experience at all before being on her own with the kids before those same reckless companies shoveled credit cards at her as well. What would anyone expect as far as the outcome?

My question is “Why the drastic transformation in credit policy?” In a very short time frame it happened all across the board, it wasn’t just credit cards. Federal and state governments virtually began forcing banks and loan agencies to grant home mortgages to people who had absolutely no business getting them; and while these new home-owning credit-risky people were at it, they went ahead and filled those homes with lots of expensive goodies by using credit cards that they ALSO had no real business having.

Oh, and let’s not forget the people who actually COULD afford their abodes. What did THEY do? Many took out two, even three, new mortgages on their over-inflated homes, another form of easy “crazy credit.” Of course, we all know that these same homes just crashed in value, even while their extra mortgages are STILL owed at the inflated value—just another example of the deadly effects caused by the credit happy society that we turned into.

Luckily for me, I never allowed myself to fall into the “credit trap.” I’m proud to say that “I owe nothing to NO body.” I use my credit card only as a form of cash; I pay off the balance two or three days before each due date. I don’t like buying anything unless I can pay for it in full. The one exception: I bought one new car in my life, and I was in agony until I had that last payment mailed in. I told myself “never again.”

Even when I got fleeced by a con artist between marriages and suddenly found myself thousands of dollars in debt, even then, I DIDN’T file under any of the bankruptcy chapters (what are they, 9 and 11? Another 9/11 coincidence?). I made my support payments, and put the bulk of the rest of my salary into repaying the debt that I had nothing to do with by sleeping on the floor in a friend’s spare bedroom, and basically living a pauper’s life for two years until I had it paid off.

Okay, so I’m beating my chest a little there, but still, there IS a point, and it comes down to my original premise: CREDIT, and the fact that it IS an evil thing. So many people are looking for someone to blame all our current economic woes on. “Who do we pin this on?” we all want to know.

Sure, the credit card companies dumped their plastic on us; and sure, our own government faultily encouraged risky loans, but ultimately, we need to look into our societal mirror. WE put OURSELVES into this mess! And I can tell you this, it ain’t gonna be easy getting out of it! Not with THIS government in charge, and not with THIS constituency STILL not apparently willing to learn it’s hard lesson.

Try this on for size: “If you can’t afford it without going into hock, don’t buy it!” I know, I know, it's a little late for that now, isn't it? After all, the barn door is open, the horse is gone, the barn burned down and it ain't insured. We are well and truly screwed.


Ed said...

Wow, I wish someone had let me know sooner that I was obscenely wealthy. To think all these years that I have paid by cash and never knew this fact.

By the time I came of age fifteen years behind you, they were throwing credit cards at me. Fortunately, my parents drilled into me the proper use of credit cards and the only time I missed paying it off was once while at the bottom of the Grand Canyon. I did make a prepayment but miscalculated and ended up being a bit short. After seeing what they charged in interest, I've never done that again.

I still owe some on my mortgage but up until recently with the stock market going crazy and paying only 4.25% interest, I haven't been in a hurry to pay it off. I'm guessing if I still remain employed and the stock market stays down over the next year or two, I might just pay it off and join your rank of being totally debt free. However, I still wouldn't consider myself obscenely wealthy even then.

PhilippinesPhil said...

We both seem to have that in common; when it comes to money, we are both a couple of geeks.

The notion of "saving up" for what you want is foreign to most people.

Anonymous said...

Nah...getting screwed costs money you either pay for it outright or spend alot on a steak dinner...we are way past screwed.

PhilippinesPhil said...

I "hear" resignation in your words Hope. Sounds like you are about as demoralized as me. Sigh...

Marie & Barry said...

Thanks for putting out my business. I am not proud of what I did but I will say this. I did work since the day I turned 16 yrs old. I had to pay for everything that I wanted or needed in HS. Unfortunately, while you were living the good life of having all that you needed...I didn't. And after not having anything...I broke down and spent money I didn't have.

And to be honest...I didn't have to file for bankruptcy. I never was late on my payments...but that was it!! I was also never going to get out of debt and I felt that was my only way out. I got a clean slate so to speak.

And bc of my lack of knowledge of how to deal with my finances...I now know to educate my children the right way to spend their hard earn money!

But I do agree with you...if they would make people prove they are "worthy" to have the plastic. There wouldn't be so many out there with thousands in debt.

And just know...I am really not upset with you blasting my past finance "issue." To me it is a lesson learned and something that I strive never to do again...

I have more thoughts running in my head...but I have learned to keep the not so nice stuff in my head!!

love you!!

PhilippinesPhil said...

I was never sure exactly which of you, if any, actually filed. I had heard that it might have happened, although for your mom I did know for sure. Glad you agree that giving kids cards before they really understand the dangers of credit is a bad thing. I got scammed right when I needed money the most. Remember that crappy old Corolla that I drove forever? And oh my God, I know you remember that horrible Chevette we helped you get as a first car. Dang, those were some bad days. I can't tell you sorry enough about that kiddo. Glad we all mostly survived it. Thanks Marie.

Marie & Barry said...

What are you talking about Crappy Corolla?! That car has a history!! It was used to teach all of us how to drive. It lasted for so long...we loved that car!

As for the Chevette...I will never forget that car bc it caused me so much embarassment!! It backfired every chance it got and it did it when I was turning it off in front of my HS...people literally dropped to the ground bc they thought someone was shooting at them!! Becky named that car...da bomb!!

And just so you know...I wouldn't trade any of my life experiences growing up bc they made me who I am today. And just for the record...I LOVE the life I have. Everything happens for a reason. Always remember that!

love ya!!

PhilippinesPhil said...

There you have it. A life lesson from my very wise daughter, one that trumps the one I was trying to make in this post!

Anonymous said...

Wall Street created all the credit. They dumped so much money into the system that the system lowered their checks and bounds.

I would say greed is the real root. Most of these financial institutions knew it was wrong. But as long as the money was coming they were willing to dish it out. If they had placed restraints on the cash flow they dished out then the flow of money would have stopped. And their profits would have gone out the window.

I was at Little Rock AFB a couple weeks ago and wondered were the bike track was. The weather is warming up and the ticks are starting to show. The Buffalo Nat's are next until it gets to hot for them.

My father died so I had to come back and take care of my mom. We were coming back anyway as my wife needs a Social Security card or she can never collect my SS in the event I die before her. My ex could collect it but my wife can't until she has here own SS account.

I've seen many widows of Americans at the US Embassy outreach program at Clark crying because their former spouse did not have SBP and they can't collect SS because they do not have a SS card. So I will make sure my wife never has this problem (even though I have SBP for her).

KA said...

Haha, oh, hon, I have aout $10,000 in student loans, but that'll get paid off with one deployment. I also pulled a loan after my ex husband drained our joint account and "gifted it" to his mommy (he's a class act). Like I said, though, I'm paying it off to the point where I'm not saving a thing, and it'll just take training and Deployment to set me straight.

PhilippinesPhil said...

You sound like my daughter and son-in-law. He goes to war to pay his bills. (Just kidding; its not ALL about money).

Amadeo said...

An '81 Chevette was our first car in the US, doing family duty for almost 14 years.

It did most everything for our family of 4 kids. From transporting us to far places like LA, to carrying furniture and appliances during our several moves.

Thus, I have respectful memories of our Chevette hatchback, at one time the largest selling model in the mainland. GM did good for that model.