Friday, October 21, 2011

Email: A couple quick [?] anecdotes

I'm glad you have a decisive opinion about this situation.  I thought I'd share a couple little personal anecdotes of my experience of the credit insanity that has been going on, since you were too young to experience these things first hand.

The first isn't a specific event, more just a description of things when you were 1 or 2. While I was in college, credit card sign-ups for college kids was a distinctly predatory business. Companies (and later campus organizations doing fundraisers, once the companies got kicked off campus) would run give-aways, sweepstakes, and all kinds of gimmicks to sign college kids up for credit cards. Sometimes, the sign-ups didn't even tell the students they were applying for a credit card. An 18 year old could probably have easily gotten well over $100k line of credit with absolutely no pre-qualifications other than being a college student. That was insane. Obviously the end responsibility was on the student, but the entire reason they were targeted was their ignorance of the process, and effects this would have on their financial future. Bottom line, this was a calculated risk on the part of the credit card companies, assuming enough of these kids would start making some money by the time they maxed out the card, or get bailed out by their parents. I don't really have a problem with this, but it sets the stage for the credit culture of the last 10 years.

Fast forward to when you were 5 or 6. I was applying for a car loan, which was no big deal, but gave the bank all there was to know about my credit history (which was fine), income, outstanding loans, etc. I had just graduated from college, and like most kids that age, was not making very much money, and I had a decent amount of school loan debt. During that loan app, I was offered, unsolicited, a mortgage for a ridiculously high house purchase price. The loan salesman was estimating, but based on what we've learned about that time period, they were probably doing about as much checking as those credit card companies had, and I have no doubt I would have qualified. I knew that I had no business whatsoever taking that kind of financial liability. I told the loan salesman that, and he suggested that I could easily flip the house, due to the market. It was also insane. This was, again, a calculated risk on the part of the banks, attempting to make money off of lending. But it was a very irresponsible risk. In many cases, they were illegal risks. 

When that risk came back at them, the banks could not pay the consequences. This caused a few things to happen: the credit market was shot, which was the equivalent of draining the oil from the engine of our economy (causing layoffs and businesses to collapse altogether); people that did trust their banks were offering them a responsible deal lost their houses (causing family economies to collapse), and the government had to cover the risk for the banks (essentially enacting a socialist domestic economic policy, and causing serious political issues).

Personally, I was able to recognize this bubble and avoid personal financial catastrophe, but many reasonable people did not.  I guess time will tell. If the OWS people are right, you're likely facing a pretty dismal time to enter the job market or start to build any kind of credit history.  The unemployment numbers don't look good, and I don't think the financial collapse just happened to coincide with a 10% increase in national laziness.

So many of the issues the damn hippies are protesting are exactly the same as the Tea Party. I don't think we'll ever see them together, if for no other reason, I can't imagine patchouli blending with country music... 

Too long, oh well.