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Wednesday, September 24, 2008

America's Culture of Debt

With the Wall Street Crisis being declared a financial apocalypse, blame is being hurled at Wall Street Companies and at the Federal government, and while they both deserve the blame, the deeper reality is that the blame also lies with the general public.

Wall Street could not have banked so much on a culture of debt, if debt had also not become part of the American landscape.

Americans once used to be known as thrifty people and American banks only flourished in the first place because Americans worked hard and saved money. Debt was something shameful and people took on loans for serious ventures that would repay themselves.

Today much of that has vanished. Instead we live in a culture of debt, a system in which just about everyone has a credit card or several, in which people routinely buy cars, homes and even appliances they cannot afford to pay for.

That is the real ticking time bomb at the heart of our economy. We have gone from an economy based around creating value, to an economy that creates debt. We had plenty of encouragement from banks and financial companies that cultivated the culture of debt through advertising, thrust student credit cards with high interest rates at college students not even old enough to drink and taught Americans not to think of the cost of the money they spend, if they just charge it.

And so debt became normative. Where their great-grandparents would have viewed buying on credit as troubling or indicative of poor financial circumstances, today buying on credit is the norm. Commercials jeer at those who pay cash while endorsing those who use credit cards as smart shoppers. What all the loans and credit card debts and the myriad of lending services and services meant to consolidate and get us out of debt once we're too deep in debt added up to was a culture of debt.

Then credit became a civil right. Getting a mortgage wound up somewhere on the Bill of Rights between the 1st and 2nd amendments. It had begun under FDR but by our time the government was waist deep in the business. Political correctness meant that you could drive loans to people who couldn't repay them and didn't even have any right to them, so long as they weren't white Caucasian males. Illegal aliens got on board the train, so did organized crime, but no one cared very much so long as the money kept being moved around and politicians could claim credit for it. You no longer even had to be an American or even legally in the country to jump on the bandwagon.

Banks stopped caring all that much if people could even repay the loans. Financial institutions began canceling the credit cards of people who paid on time. Customers who weren't carrying a lot of debt became bad risks. The penalties had become their own reward and the goal was to actually lend to people who would rack up penalties, people who once upon a time would have been seen as a bad risk. Payday lenders became the new loan sharks. More and more sharks swam up eager to drag anyone already in debt further under, whether it was providing auto loans at terms that could never be repaid or phony loan consolidation services that would actually significantly increase the debt.

But none of this could have spiraled so far out of control if Americans had not lost touch with basic values of thrift and economic common sense.

If we have a government that acts like money comes out of a printing machine and debt is a problem for the next generation to worry about, it's because those have become the national values. The culture of debt has made money into something unreal and plastic. Spending has become a national duty as Bush demonstrated after 9/11 and saving has gone by the wayside.

Baby boomers are expected to leave less money to their children than any previous generation, in part because of debt and in part because they've chosen to spend it on themselves. Consumerism is the product of self-indulgence that has arisen in the wake of the shattered multi-generational family. And sustaining a consumerist lifestyle requires going into debt.

Americans have lost touch with the values of previous generations. Generations whose public morality abhorred gambling, and would have recoiled at the disgusting spectacle of a state sponsored lottery system for public utilities or schools-- established because state governments could not control their spending, and so found another way to bleed their own constituents.

At the government level money means power and elections have become high stakes battles for the power to administer vast fortunes that in turn enrich their sponsors. Federal, State and all branches of government have become giant vacuum cleaners sucking up as much money as possible in order to spend it on new programs to gain the approval of their backers. So much so that we're told that paying high taxes is patriotic by Joe Biden and that Democrats were positively outraged at Bush's tax cuts.

But the problem did not begin and will not end at the government level. Nor at Wall Street. Only with the American people. Government in the end is a reflection of us, our strivings and our shortcomings.

At every level, from the individual to the nation, we are in debt, because we have become a culture of debt.

Conservatives often focus on how our culture has become corrupted morally in terms of sexual mores, but rarely in terms of financial mores. Yet poor financial morals are as great a problem as poor sexual morals. Anyone who doubts that need only look at the mountain of debt, on the block he lives on or in the nation's capitol.

Our economic system has become virulently self-destructive. And we are the gears in that machine. Every time we buy something we can't afford, promote a program we can't pay for, buy a lottery ticket, buy on credit, we continue to be part of the problem. And part of the culture of debt.

5 comments:

Keli Ata said...

Absolutely right. My parent's generation did indeed consider buying credit a source of shame.

Nobody wants to save to buy things anymore. They want instant gratification, even if it means using a credit card with an outrageous interest rate.

Those rent-a-center places are scams, too. Consider the interest rates and the length of the leases people are paying double what they would have, had they merely saved their money to buy it outright.

Somethings online require plastic so I just use a pre-paid debit card.

Anonymous said...

As a person who no longer has credit cards and pays in cash, I resent those who have overextended in buying a house or condo. Now, my taxes are going to bail them out. Topsy turvy to me...like Alice in Wonderland.

Lemon said...

It used to be that you could save up and buy a home outright. Same with a car.
My parents paid a whooping $5000 for their home which today would sell for around $500,000.
Most people cannot buy without a mortgage anymore. Credit companies cheat people also by adding on more and more penalties etc. that were not done years ago.hidden fees also run things up.
People are unaware of what they are paying with credit.
Credit is big business and a very lucrative way to make money. Just as your local loan shark.

You should never buy more on credit than you can safely pay for completely that month.

Keli Ata said...

Right, Lemon. It is legal loan sharking.


BTW: my parents also bought our house for $7,000in the '60s, made improvements and paid the mortgage off.

When I see people crying on the news about how they can't pay the mortgages on their $200,000+ homes and yet have two $30,000 SUVs that they're still paying on you wonder...are they really the "little guys" struggling to make ends meet or just self-indulgent yuppies who want it all but can't afford it?


Whatever happened to good stewardship when it comes to money?

ytba said...

"Wall Street could not have banked so much on a culture of debt, if debt had also not become part of the American landscape."

Is this like one of those "chicken or the egg" riddles?

I doubt Americans would have bought into the culture of debt had they not been encouraged to from the top down. But, I do think it would make an interesting sociology PhD thesis, to study the dynamic of how mass behavior is coupled to that of leadership in different areas, and vice versa.

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