Turn OFF the spigot!

Twenty years of spending too much money has brought the financial market to its knees. Many say it was those greedy Wall Street types who took all those huge salaries of millions of dollars; sometimes after the company had been financially destroyed. Yes, this is probably some of the problem, but the blame for all these large lending institutions going belly up can be spread around.

Consumerism, which is a fancy word that can be defined as spending beyond one's means, is partly to blame. According to CNNMoney,com the average American that has at least one credit card holds nearly $9200 in credit card debt. It's amazingly easy to run these suckers up, especially when there is a need for plane tickets or shoes for the kids, or any number of things. Most people I know have one or more credit cards. I don't know what kind of balances they carry, but its safe to assume there is debt on them. So let's say that 100 million Americans have at least one credit card(that's roughly a third of the population). Can you see where this is going? 100 million times $9200 is.... lets see..... carry the one.... and... that's $920 billion. Wow.

I was watching Bill Moyers last night on PBS. I don't usually follow the national new guys, because mostly it's conjecture, speculation, and opinion, and that's not news. Anytime you hear, "many say", or "some say" or "could have" or "might bring" or "possibly due to" you aren't listening to news. News is facts, not somebody's opinion. You know what they say about opinions, right? Anyway, back to Bill Moyers. Well not Bill Moyers really, but his guest - Kevin Phillips, author of "Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism". Phillips sees this era of expanded finance and shrunken manufacturing as a dangerous mix as private debt has quadrupled to (hold on to you wig) $43 trillion. Bigger Wow.

While Kevin Phillips is a truly likable guy, his outlook for U.S. financial stability can only be described as moribund. He cites all the wealthy, powerful societies that have come to an end. He cites Spain, in the 17th century, Holland in the 18th century, Great Britain in the 19th and 20th centuries, and how they all fell victim to the over financialization of their economies. All of which were world powers, and are now playing fiddles below the United States. He contends that because the financial sector of our economy has doubled its share of GDP and the Manufacturing sector has been multiplied by .5 that we are in heepum big doo doo. Yes those countries are still alive and doing fairly well, but they certainly aren't as prosperous as they once were.

Much of the blame, however can be placed squarely at the feet of the federal government. These guys are the dirtiest of all, according to Phillips. Although he is not enamored of either of our political parties he points out that our old buddy, Slick Willie Jefferson Clinton was the catalyst for the securitization of consumer debt. Clinton's repeal of the Glass-Steagall Act in 1999 which was set up in the 1930's had a major impact on how financiers could manage risk. Glass-Steagall basically kept different sectors of the financial system from mixing.

To understand this, one should know a little bit about finance. People who buy risky assets, like Sudanese corn futures, can expect higher returns on their initial investment because of the higher risk, but they can also lose their you know what. When the idiots in congress (you'll remember Republicans were in charge in 1997) decided to allow Wall Street to mix these assets with our private lending instruments the risk of loss in the whole market was increased. Open the spigot. What this did was allow banks and financial institutions to take on more debt. Then in the name of diversity, the banks were pushed by the government to make riskier loans, because money for lending was so cheap to borrow. With prime rate as low as it was in the first few year of the Bush Administration, banks were pressed to get loans out the door to make up the for the lower interst payments by volume ( Number of approved loans). So what did they do -lent money to high risk borrowers a few million times over. Then they bundled the loans and sold them to big financial institutions.

And of course there was some amount of predatory lending. I see this as a failure of the education system. Economics and budgeting should be part of every highschool cirriculum. You've heard, "They didn't know what they were signing!" This may be true for some, but not for the speculators who got caught when the housing bubble burst.

So basically, It wasn't a problem of capitalism, it was a problem of poor management, corruption and incompetance. I learned to pay off the creditors and once that is done, I'll stay debt free for good.