The Simplest, Most Obvious Solution to our Credit Problems

If you ever find yourself in this situation, you will know why I am making this proposal: you feel bad, you reach in your wallet for that little piece of plastic with your name and a set of numbers embossed on it and you go out and buy the thing you need least in the world. If this sounds like you, then you have what all of us have -- an addiction to credit. This addiction is enabled by everything and everyone around you and it will take a huge amount of willpower to end it. But if all of us try to end it together, then we can eradicate the addiction before the addiction eradicates the global economy.

Some necessary prerequisites will be needed before we can reap the benefits of this cure. First, we must demand of the people who believe unfailingly in the wisdom of the markets to correct and fix everything to find a better fixation. They need to move on in life, get help with their delusions. Once we get these market correctors corrected, then we need to ask the fiscal conservatives in our midst to stop their lying and deceptive practices as to what a healthy economy needs. What a healthy economy needs, my friends, is not an "acceptable level of unemployment," or social systems based on corporate profit or a military whose only goal is the continued acquisition of weaponry based on the pipedreams of sadists.

The final requirement is to get the Congress people to refrain from ever taking one penny from anyone, no matter what they are selling or in whose interests they are told this project will work.

Then we can take immediate action that must, in my estimation, last for one generation, at least. We must end all credit purchases. No longer will we be able to purchase something with that weird little piece of plastic. The only numbers we will need to remember are the ones in our pocket on the face of the currency we carry there. Think about my proposal for a short moment before you go into shock, because this is a form of shock therapy for the entire financial and wealth industry.

According to this recovery plan, the only way you can ever purchase anything no matter its size or its type is to pay for it in cash. We need to kill the credit industry. It is a plague which will not die at its own hand. So long as we are allowed to pay for something with a promise of some day actually paying for it, the credit addiction will not end. The other side of the coin though may be that by having to pay now with money we have earned we may also question whether what we are buying is a necessary purchase. It is also hoped that we will regain our respect for work, for the wages we earn and for the ways in which we plan to spend those wages. It may also move this country out of the trap of being a purely consumer society with no other real industry.

It will also make us think about time in a different way. While we count down the years until we can pay for something on credit again, we could ask ourselves what it means to buy something on time. What can that mean? We have no control over time or how it proceeds or what it brings. Why should we be allowed to buy things on time -- that means we all believe that time will keep us true to our word that we will pay our debts. Things happen to us that can change how able we may become to pay off that mortgage or car payment.

By giving ourselves a generation without credit, we can also think about how to radically alter the system so we can retool what credit is, what it should do and how we can control it. Perhaps we will discover that we cannot control it, that greed is as basic to our being as is the need for air and water and that credit needs to be outlawed.

Not being in the prediction business, the only thing I can predict about this total abstinence is that I predict it will make you uncomfortable to think about this. Maybe you will dismiss my proposal as just a parody of other indecent proposals. But something is greatly wrong with the economy and we all need to help in finding a solution and not just rely on the people who got us in this mess to find the way out.

No matter how indecent a proposal this is, it can help us give up our addiction to buying things in order to feel better. It can end the ways in which the media pester us to buy things in order to woo and satisfy their advertisers. It can change the ways in which we work and play. It will ultimately, I hope, put an end to all evil in the world and make everyone as happy as happy can be. Perhaps I am overstating the benefits, but I am sure you can understand why I feel the urgent need to do that.

Comments

[Henry]

Your prescription is, of course, sort of like saying that the solution to the fuel crisis would be reverting back to the horse and carraige! You cannot be serious. There were no credit cards in communist Poland. Think that would be a good idea for us?
You should think about the capital in capitalism.

[NoPCZone]

It seems to me that it worked fairly well until a few 'changes' were made.

1- A steady withdrawal of state usury laws or a raising of the limits until they had no practical use.

2- Repeal of many provisions of the Glass-Steagal Act.

3- A profound failure of government to protect the public and the banking system from predatory credit practices. When the fox watches the hen house there is no protection.

[ultomatt]

The credit industry is designed to delude people into thinking they're "millionaires". Or whatever other descriptive might serve for being filthy rich. Pseudo wealth is what makes the world go round in America. Asking "millionaires" to give up their world of fake fortune is a losing proposition. They won't respond.

Unfortunately, financial collapse is likely the only reality that will turn the herd. When reality blows through the wall of denial that credit has built, it will be a harsh awakening. As my parents did in the "Great Depression", so shall another generation. It won't be the 2nd great depression this nation has suffered, or the last. There've been five depressions (with the last one being "The Great Depression") as follows...

1807-1814
1837-1844
1873-1879
1893-1898
1929-1941

The main problem is that the current generation, and the one before that, have grown up in a world where credit is simply an accepted fact of life, part of being an American. And as a result, everyone is up to their eyeballs in debt, trying to be successful Americans. You need stuff to be an American, and if you don't have the money, usurers (aka credit card companies) do their best to take advantage of you and your magical American Dream, to turn what used to be, illegal profit. I think it fair to say, the American Dream has been paid for on credit.

At least two generations are cradle to grave victims of usury...the kind of stuff that Jesus trashed temples about. Usury used to be a crime. Predatory lending practices have become commonplace now however. Now there's at least two generations who think usury is a proper way to do business.

[Dendroica]

Oh well, can't buy that house anymore.

Or that car, come to think about it.

The problem is party with the industry, and partly with people. You see many people can't live their lives happy with simple things. They want expensive homes, outlandish weddings, outrageously lavish vacations. And they can't simply pay in cash, because while they have significant income they prefer what they want NOW, and not to wait for it. I've got family members that are quite extravagant, and because they've got the income, willing to take loans and go into debt to afford the best. Now they do earn well enough to afford it, should nothing go wrong.

But I also know people that want that lifestyle, but aren't in that lofty a position. They carry debt too, but not low-interest debt. They are always behind, and have little equity in their lives. One minor disaster, and their ruined. Do you really need the ML, and the Lexus for the wife, and the giant balloon mortgage at the same time?

There is nothing wrong with credit, when the lenders are cautious and the market is balanced. We aren't in that phase, we've had artificially low interest rates cause a huge housing bubble, while simultaneously generating a speculation crisis. In some parts of the country, this is hardly felt at all. In others, where income is in no way enough to purchase and maintain the homes at those costs, disaster awaits.

The fault lies both in the system, and the individuals. Shared mistakes should lead to shared pain.

[babybelle]

Easy credit should be killed!
Fee Harvesters who are mentioned in The National Consumer Law Centers 36 page report should have their loan shark operations closed down. Pay Day loan sharks should be closed.
These things would do a lot to help this country!

[larryo]

Since virtually all our currency is debt-based, i.e., printed by the Federal Reserve and then loaned to the US at interest, what this solution means is that there would be no currency in anyone's pocket and thus no necessity to remember any numbers.

The availability of credit is not the problem - economic growth requires credit. The problem is the deregulation of the banks, credit card companies and private equity funds. The spider in the middle of the web is the Federal Reserve.

[texanna]

Interesting idea, but do you really think the odds of the consumer public putting the crack pipe of credit down are very good? Also, how on earth will be able to follow The Decider's order to "go out and shop" in order to support our troops?! Elections that were funded by the government (that's us, the citizens) instead of by corporations might help us get the credit industry under control. This is a possibilty, but sadly too many people think this is a bad idea on the rationale that the country can't afford it. Of course, they ignore the billions of dollars it really does cost us in expensive, but bad health care, high-priced drugs,and a credit industry run amok among other things that the corporations get as ROI for their political contributions.

[vaman]

I try to buy things with cash as much as I can. Why should I involve a third party (credit card issuers) when I am buying, let's say, a dinner, or a piece of clothing or a cup of coffee. It doesn't make sense to borrow money from someone else when I have my own money. Why should the credit card companies know everytime I buy something?

[FogBelter]

Ms Emin, I don't think anything needs to be done to the Credit Industry ... the deed is done.

The Credit Card Industry has committed suicide.

For over a decade this industry has thrown credit cards to those who really aren't in the financial shape to maintain them ... and, in fact, to consumers who couldn't help but abuse them.

Now, the economy is hitting the skids. There are Pollyanna Analysts who say the sky isn't falling ... but millions of Homeowners will be losing their houses in the coming months. Already there are consumers that are forgoing their Mortgage payments to keep paying on their Credit Cards ... maybe so they still have financial access to food? Who knows ...

But this, I know ... at some point, if the economy doesn't right itself, these consumers who are overburdened with credit card debt ... will just stop paying ... basics come first. Paying on a Flat Screen TV you bought two years ago isn't as important housing or food ... or healthcare.

I'm not saying bankruptcy, I'm saying walking away, en masse, from unsecured debt.

Ah, you may say, these people will have to deal with the Law ... the courts! How? If the economy is trashed, the abandonment of debt will sweep the nation ... tens of millions of Americans are already over their heads in debt, living paycheck to paycheck ... they may want to pay ... but if they can't, they can't.

US Courts will be able to handle the tens of millions of lawsuits for default? With what infrastructure?

And how long will the Credit Companies be able to stay afloat with their customers defaulting while Washington wrangles for an answer? Days? Weeks? ... Months? Naw, the industry is toast.

It will be lights out for the Credit Industry ... pretty simple solution, don't you think?

[nomoredead]

Debt is slavery. Corporate american wants a nice quiet employee that is in debt up to his ass then he knows that person will not start trouble and work his ass off. Debt free with a wad of f*** y** money in the bank makes for a bad employee.

[TRYKER]

Bush knows credit...Bomb now, let your kids pay later.

[mmckinl]

Dear Ms. Emin,

If you are truly interested in the reform of our banking system then we must start with the privately owned Federal Reserve. For 90 years now , beginning in 1917, the Federal Reserve has made mess after mess of our economy.

How does this happen ? The Federal Reserve allows fractional banking . Fractional banking simply means that for every dollar of 'reserves' they get to lend out $10. This is leverage pure and simple and the reason our economy is based on debt rather than credit.

How so ? Well in order to increase the money supply money has to be borrowed , rather than have our government print it and place it into circulation , they print bonds that the privately owned Fed then buys with credits created by use of their charter. These credits are an illusion , they have no security backing them. With the bond purchases the Fed carries 10% of the face value then loans out the other 90% to member banks as colllateral to make loans equalling 10 times the collateral.

So , instead of the US Government just issuing currency and depositing it in banks at interest to loan we have a ponzi scheme that encourages leverage and debt at ratio of 10 to 1.

Our whole banking system is based on debt , not credit. It behooves the bankers to take on as many loans or CDOs or SIVs or derivatives as possible. Of course when the economy goes bad this 10 to 1 ratio comes back with a vengeance and destroys the very economic activity it supposed to have created.

An economy based on credit must be based on assets not leveraged debt.

Start with the privately owned , owners unknown , Federal Reserve Bank.

[Rokjok777]

It's not like this is a new problem. The writer Ro Tozan in 1746 in Japan wrote: "In recent years, buying on credit has become quite common...If as in earlier times, such credit was not offered, then peasants would make their own clothing, or even if they bought it they would save up the money first; but because these fellows come selling fine things on easy terms, the peasants go into debt to buy quite useless things..." The problem today is a lack of gov't oversight. Look at the new FASB rules that Bush's cronies pushed through (egged on by the banks): banks didn't have to "mark to market", in other words price their holding based on real world prices, but can now instead "mark to notional" which means they can make up a price of what they hold so their financial condition looks rosy when actually it's a house or cards. And when lenders can make NINJA loans (No Income, No Job, No Assets), you know the government has been asleep at the switch.