By Patricia Lee Sharpe
In America today, you must borrow money, even if you don’t need to, to get a “credit record,” which is a ticket to borrowing more money, a vicious circle for many people. Meanwhile, interest paid is money wasted, money that could have earned interest or dividends or capital gains. Given the miracle of compounding, the less you buy or borrow the faster and larger your nest egg grows. Then you can pay cash, even for big things. But financial prudence, aka living within your means and saving regularly, horrifies bankers who dole out mortgages. Savers, in America today, are not creditworthy. Savers are worthless.Buy, Baby, Buy
Why? People who save present an existential challenge to elements of the banking system. Why didn’t you buy more stuff? Why didn’t you finance your cars? Why have you cheated us out of interest all these years? But the bankers can get their revenge; they can refuse a mortgage if you have no credit record (as defined by those very banks). At the very least they can make you sweat—and they will. They’ll drown you in paperwork as you try, anxiously, to prove you won’t be a deadbeat now that they’ve finally got you in their clutches. In fact, I know a case in point, now pending. This person went the saving route. Bought nothing on time. Paid credit card balances down to zero every month. Saved enough for a 20% down payment without shrinking the remaining nest egg all that much. Had a secure job with a good salary, so any monthly payments would be comfortably affordable. But the bank said—Hmm, is this guy a risk or what?
Is something crazy here or what? I mean we taxpayers just gave these banks and mortgage companies billions for the express purpose of unclogging the credit pipeline. Solid small businesses are also having trouble obtaining the routine loans they need to maintain workable inventories. Many are going out of business as a consequence.
Skyrocketing Rates
Meanwhile, I received an interesting little notice in the mail a few weeks ago from the issuer of one of the three credit cards I keep active, meaning I charge and pay in full monthly. My interest rate had been low, low, law, as befits a pay-on-time “good customer.” Only 6%. However, I was informed, my interest rate had been raised to more than 13% for a number of inapplicable reasons, except for the kicker, which equated to “we need more profit.” Wow! I’d heard about banks determined to change the status quo before reforms go into effect and here was proof. The bank went on my black list. It will never get interest or penalty fees from me. But I was also amused. Did they think I’d be more likely to string out payments at 13% than I was at 6%? For some people rate upping unconnected to changes in creditworthiness were worse—new rates of around 25%! What a slap in the face from financial institutions that are still on life support from public money. Our leaders put the fear of god into us. The financial system is crashing! We must save key institutions at any cost—and much cost! Months later the banks are roaring back. All they’ve learned from the rescue is that the serfs have no choice but to support the lairds. It’s the new feudalism. Trickle up economics. Brilliant!
New Citizenship Test
I guess the real problem is that my mortgage-seeking friend and I are un-American. Super patriots used to shout: America—love her or leave her. Now it’s this: America—buy, buy, buy or butt out. After 9/11 George W. Bush told us to save America by going on a shopping spree. Now that many of us have had our savings wiped out, economists are afraid that we’ll continue to save instead of buying and borrowing again, paying yet more interest to the guys who crashed the economy in the first place. Meanwhile, there’s nothing like universal affordable health insurance in this country. Maybe we should continue to salt that money away, to pay for insurance and/or possible health care bills, which are expected to rise by 10% next year. Remember, Congress not so long ago made it much more difficult for ordinary people to declare bankruptcy.Instant Money
I’ve received other sorts of interesting mail, recently. Back again are inundations of sweetened credit card offers, complete with blandishments that don’t have to be put in readable type and understandable English. What’s more a number of companies actually want to lend me money—cash, here and now, regardless of my credit rating. I’m invited to “prepare for the holidays” and call immediately for a cash loan of up to $1000. “It’s quick, easy, and confidential.” I’ll bet the interest rate is sky high, too. Oh yes, since April is approaching, there’s also this note: “Professional tax preparation; lightning fast tax refund,” although “all loans are subject to our usual credit policies,” which I take as code for a confiscatory interest rate. Attempts to reform such usury usually falter in state legislatures and in Congress.
The Odds on Real Reform?
Now Senator Chris Dodd and Representative Barney Frank are working on reforming the overall American banking and financial system—while the institutions likely to be affected are spending millions and millions (of bailout money?) to make sure that reform is purely cosmetic. At the moment the system works like this: the financial institutions are too big to fail; the rest of us are too insignificant to care about, although some of us will be out of a job for years, according to most projections. Wall Street hot shots make nine figure bonuses for gaming the system; most of us get peanuts for an honest days’ work. This sounds pretty disillusioned. I’d like to be proven wrong.