Montana Viewpoint


September 29, 2008

“Geniuses like them couldn’t keep their…banks from failing with everyone in cahoots ...and the power all on their side.”
~ Earl Thompson, A Garden of Sand

I think that understanding what is happening in America’s financial meltdown is beyond the grasp of ordinary Americans. Frankly, I think it’s beyond the grasp of those people regarded as experts in such stuff; it is unprecedented in the amount of money involved and the complex schemes that have apparently made the few rich and the many poorer.

But one aspect of the crisis that I think everybody understands is that greed had a heck of a lot to do with it. It’s not surprising, greed has always been with us, but the interesting thing about today’s version is that greed is promoted in advertisements as a virtue—as a need; we can have it all, and we can have it all on credit because there are lots of companies out there that are happy to loan us money at obscene interest rates so we can get it. Essentially they have taught all America to believe that wanting it all is OK by redefining greed as need. We don’t “want” it all; we “need” it all.

It seemed to be such a simple philosophy—don’t spend more than you earn. This was the basic principle of household economics when most of us grew up. Loans were not handed out indiscriminately, lenders wanted to know that they could get the money back so they went to great lengths to make sure that paying the cost of the loan was within the means of the borrower. After all, the lenders were really lending someone else’s money that had been entrusted to them. They had an obligation to protect it. You put money in the bank so that it would earn interest, and the bank loaned it out to make enough to pay you and make a little for themselves besides. They were responsible for the integrity of the loan.

Then came credit cards as a convenient way of racking up bills and paying them off later, and then came the inflation of the late 1970s and early 80s; interest rates went so high that most states’ usury laws—those laws that controlled the maximum interest rate you could be charged on a loan—were abandoned.

Interest rates are tied to the riskiness of the loan, or investment; just as people might not do a dangerous job for low wages, they will do it when the pay seems to offset the potential danger, so the more chancy the loan, the higher the interest. Now lenders whose interest rates were once subject to control found that they could increase profits by making riskier loans at higher interest rates—loans they might not have even considered making before.

There hasbeen an unprecedented glut of lenders willing to advance money to bad credit risks. Come to think of it, bad credit risks are the preferred customers of some lenders. Recently, mortgage originators were actually given bonuses for selling mortgages with repayment rates they knew the borrower could not afford. This was one of the causes of the recent home mortgage disaster.

If the lender charges a high interest rate across the board they can make up for the defaults with the increased interest income from the performing loans. So while there should be some low interest rates on credit cards for people with good credit, good luck finding them. Every time you pay interest or fees on a credit card you are subsidizing someone else’s bad credit.

The point is that the people at the top of the financial food chain found that by teaching their customers to want “stuff” galore they will buy it whether they can afford it or not. They have institutionalized greed in our culture to such an extent that it is seen as normal behavior; it shouldn’t be. Intentional or not, the merchants of stuff and credit have done America the great disservice of teaching us to think we can live well by continually spending beyond our ability to pay. The damage to our society is far greater than those few individuals at the top losing some money and the American people having to pay for it, although that’s bad enough on its own.

By teaching America to want, they have put the common person in such debt that for many there is little chance for them to recover from it. This is the legacy of Enron, WorldCom, American Home Mortgage, AIG, Washington Mutual, and their sorry friends. They have looked into their hearts and found that their greed was good, and taught all America that greed was good. They introduced irresponsible spending to a generation of Americans who didn’t deserve it. They created economic chaos and left the tab on the table for the American taxpayer to pay.

They need to be made to pay for their own mistakes. The American people do not deserve what they have given us.

Jim Elliott