You remember the seventies, don't you?
Oil embargo; running out of gas in the gas lines… Prime rate soaring over 20%; mortgage interest rates in the double digits… The economy was pretty much in the crapper back then…probably worse than it is now, in spite of what the media would have you believe. To all those thirty-somethings who seem to be running everything these days, the 70's were forever ago. They don't remember it, so it didn't happen. But it was not that long ago, folks. I remember. And I'm not THAT old.
I was married in 1976. We bought our first house in 1978. We had no savings, and we did not get a wad of money from Mom & Dad for a down payment. We got an FHA loan at something between 11% and 12% interest. Our payments were $550 per month.
But do you know what? During that time, my husband and I, on the salary of a K-Mart Department Manager and a restaurant Kitchen manager (combined gross income of around $20,000 annually) bought a house and two brand new cars. On credit. Credit that we could afford. In a credit system that would not let us overextend. We never missed a payment.
I clearly remember the qualification process for our first mortgage. No solid work history? Forget it. House payment that would constitute more than 25% of your gross income? Not gonna happen. Credit was so strictly regulated that one small thing like a late payment on a credit card could scrap the whole process. You were cautioned not to let any large deposits that might look like loans for the down payment appear in your bank accounts during the qualification period. Debt-to-income ratio was minutely scrutinized. Too many credit cards or car payments would immediately scotch the deal. And bankruptcy? You were screwed royally if you had filed bankruptcy. You couldn't buy a candy bar on credit for at least seven years after a banko.
Fast forward to the 21st century. The economy is in the crapper again. Only this time, it's because we decided to send all our jobs overseas and base our economy on the consumer frenzy that would result from flooding the market place with cheap foreign goods, and then throwing away the rule book when it came to credit. People moved into houses they couldn't afford, strapped with two mortgages from the outset—one for the down payment, and another for the rest. People signed on the dotted line for credit cards with insane interest rates, just so they could be the first on their block to own the latest cel phone, computer, flat-screen television or gaming system. And then, when THEIR job got sold to the Chinese or Indian middle class, they ran up thousands of dollars in fees, got repossessed, declared bankruptcy…and started all over again, without missing a beat.
A local radio station has been running commercials for debt consolidation services—one business that is sure to be booming these days. They sound like this:
There you were, just trying to help your family get ahead, and suddenly, you're overwhelmed with credit card debt. Where's your bailout?
Did you know that most debt consolidation services are owned by the CREDIT CARD COMPANIES???
Learn how YOU can become debt-free in only a few months. We don't just reduce your debt…we eliminate it.
As if the credit card companies were the bad guys. As if there's some legitimate reason why YOU shouldn't be held responsible for the debt you have racked up trying to live like the Other Half. We used to call that "having a champagne taste on a beer pocketbook." Stupid. Irresponsible. Something from which no good could come. Only for the last ten years, it has been the ideal rather than the cautionary tale. Drink all the champagne you want! You DESERVE it! You can pay for it later...
Maybe we were lucky in the "olden days." The system would not let us borrow more than we could pay back. There were checks and balances in place that protected the system and US. Now, consumers—many of whom do not have the benefit of having been schooled by the old system, or have chosen to forget the lessons—have to BE more aware. We cannot afford to think, "Well, they wouldn't lend me the money if it wasn't okay." Yes, they would.
The credit companies have trashed the "modest profit from responsible lending" business plan. They've become speculators. Gamblers. Betting that the profits they could rake in by freeing up credit to a ridiculous degree—basically lending money to anyone who is breathing—would outweigh the losses they might take in bad debt. Our whole economy was built upon that great, gaseous balloon of lending money that didn't actually exist to people who were not likely to be able to pay it back. Not just AIG and Citicorp. You and me and the guy next door.
We ALL have a lot of soul-searching and re-directing to do. We all have to reacquaint ourselves with the concept of self-discipline rather than self-indulgence.
It will be interesting to see if we can…