Thursday, August 9, 2007

Stock market melt down - August 9, 2007

If you eat too much, you get fat and you die. If you drink too much, you kill your brain and your liver and you die. If you drive to fast, you get pulled over, you're given a ticket (and even possibly hauled off to jail), and you eventually loose your license. Game over.

So, how many credit card offers have you received in the last week? I think we average one or two credit card offers per day. We went on vacation last month. We were gone for about 10 days. When we picked up our mail from the post office, there were approximately 20 credit card offers or second mortgage offers, or "convenience checks" (convenient for who?) that were mailed to us during that period of time. There were two or three from Washington Mutual. There were probably six or more from Chase (I'll never do business with them ever again). There were convenience checks from other people I do business with. Blah, blah, blah...

OK, I understand why we receive all these offers. I pay our bills on time. We're never late to pay on our debt. But what would happen if I started to apply for all these credit cards and I started to use them? I would get to a point where I could not keep up on my payments. Just the minimum payments. I would fall behind. And I would become delinquent. My delinquency would lower my credit score. The "easy" credit cards would go away. If it got really bad, I could loose my house and become homeless. OUCH!

I feel like the banks that issue credit cards are like drug dealers. Instead of being on a street corner trying to entice you to do illegal drugs, they are trying to push easy money. Everyone does it. Practically every store has some sort of credit available so that people can buy on time. Here is the problem.... They don't warn you about paying the money back. Or they advertise low payments (You can pay $15/month for the rest of your life!) that go on forever.

I remember when I was a kid it was cool to smoke. (Tom, what does smoking have to do with credit card offers. Give me a minute and I'll do the tie-in...) Everyone smoked. Then some research was done on the effects of cigarette smoke on the human body. The Surgeon General has been putting warning labels on cigarette packages for years. I remember as a kid reading the warning label: "Warning: The Surgeon General has determined that cigarette smoking is hazardous to your health." Hmmm..... That doesn't sound good, does it. But people still do it. Some people get away with it. Most people end of dieing from cigarettes in some form or another. If there are such dire warnings, then why do people continue to smoke? Because they gain pleasure from smoking. Besides, the effects from smoking won't happen for years to come. BUT, there has been a change in people's perceptions about smokers. Non-smokers have become annoyed. They have legislated that non-smokers should not have to bear the unwanted smelly second-hand smoke. There have been advertising campaigns against smoking. And people are quitting. Fewer people smoke today than they did 30 or 40 years ago.

I believe that easy money is bad for our economy, just like cigarette smoking is hazardous to our health. Maybe, just maybe, businesses should put warnings on credit card applications: "Warning: The Federal Reserve has determined that too much revolving debt can be fatal to your credit rating. It can lead to bankruptcy and foreclosure on your home. You can become homeless because you're buying on time. If you fail to make timely payments, your financial life will be ruined." Then there should be a spot to initial next to it indicating that you have read the and understand the stern warning you've been given.

________ (Please initial here): I understand the above credit card warning. I understand that if I fail to pay my debts that my financial life will be miserable. I will pay more for my car and house loans. I will pay more for home and auto insurance.

Or maybe credit card issuers should be required to send out a one or two page pamphlet that enumerates the consequences of too much credit. There could be a debt prevention hot line that people can call to talk them out of using their credit cards. Or maybe we should create public service announcements that tell people to not do drugs, err.. I mean to not use credit. Right now there is no social stigma against those who are in debt and those who go bankrupt. There used to be, but that stigma has gone away. That stigma needs to come back. People need to learn to save before they buy. It worked for smokers, so it should work for credit card-aholics.

Will there be opposition? You betcha! Big tobacco fought long and hard that their products were not addictive or that they caused bodily harm. That was an enormous fight. But we won. Credit card issuers have really, REALLY deep pockets. The fight to curb consumer debt will be huge. Bigger than big tobacco. So the financial institutions will fight to keep these measures away from the consumer. Will it be work the fight? I think so. Our society's debt will be a hinderance on our financial institutions. One good jolt and the nations largest banks can and will fail...

So the next time you receive that credit card application in the mail for that shiney new credit card, ask yourself if you think its worth it. Chances are, you won't think that it is.

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