There is a borrowing mania in the United States. If you want anything and you haven't got the money to pay for it just borrow, and bingo - you've got it. This is not the way it used to be in the first half of the 20th century - except for buying homes. After all you would never be able to live in a home if you needed to wait until you saved the amount of money needed to buy it. But even then, you needed to put down 20% in cash. Today you can buy a house with no down payment. And you can buy anything you desire with credit cards that charge usurious rates of interest.
Our government encourages it: you get a tax deduction if you borrow to buy a home. Repeal of the laws forbidding usury did not help either.
We have become addicted to credit. Once we get hooked by the shiny baubles we can obtain with credit, we want more and more of it. The more we want the more it costs until we must devote all our energies to paying the money back What promised to be so enjoyable becomes a life-destroying habit.
The banks used easy credit to rope in the unsuspecting individual who wanted to buy a home. If he could borrow the money he could have the home of his dreams. The bank or mortgage broker told him that though he has no savings and is not earning enough to take care of the monthly payments, he qualified for a loan. The financial people told indivudals clearly that the interest rate was low; then mumbled that the interest rate may rise in the future.
These home owners did nothing wrong. They were seduced by the easy credit offered them. Now they suffer while those who seduced them get free money from the government.
The banks were not satisfied merely to make loans. They combined them into complex securities that they sold. Supposedly this reduced the risk. So they made loans that nobody in their right mind would do. Why worry? These securities are wonderful protection.
The stock market boomed. Investors borrowed money to invest in "sure things." What did the SEC do? Nothing. With so much prosperity why bother?
Now that this whole house of cards has collapsed, the Treasury Secretary, together with our brilliant lawmakers, have come up with a bailout plan: "inject" money into the financial plundering organizations so they may increase lending. Did they give it to small financial companies that did not swindle the people? Of course, not. They gave it to the greatest swindlers, who happen to be "too big to fail."
"Too big to fail" in their their predatory lending practices!
We don't need to make borrowing easy. This is what brought us to the fix we're in. We need to make borrowing harder, to discourage it. Instead of focusing our help on huge financial institutions we must focus our efforts on those who are truly suffering: homeowners who are losing their homes and workers who are losing their jobs.
We need a stimulus package that helps workers build their economic fortunes, so they may buy or keep their homes and so they may have the confidence to buy cars and other gadgets. Michael Lewis and David Einhorn express it well:
Instead of buying dodgy assets and guaranteeing deals that should never have been made in the first place, we should use our money to A) repair the social safety net, now badly rent in ways that cause perfectly rational people to be terrified; and B) transform the bailout of the banks into a rescue of homeowners.
This is President-elect Obama's view: Leave the rich swindler alone. Help the little guy who has been wronged. Have a stimulus package that provides work, and helps entrepreneurs - especially in the green energy field - who will produce jobs.
Sure, the stimulus is a form of borrowing. But nobody encourages it as a prudent mode of living. We must do it now because we need to manufacture jobs. Once the economy improves we must reduce borrowing and we must reduce the deficit.
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