According to every analysis of our current economic problems, credit is the reason for the situation. In one sense that’s like saying that long distance running causes heart attacks. Intelligent running is an asset to good health for a healthy person.
If it weren’t for credit the American standard of living would be nowhere near what it has been during the best of times. If people had to save up enough money to pay cash for a new home there wouldn’t be anywhere near the number of real estate agents plying their trade.
If people had to save up enough money to buy a motorized vehicle we would have a lot more bicycle paths and sidewalks than super highways. In fact if it weren’t for credit a number of people wouldn’t have to worry about their television sets not working when the switch to digital broadcasting takes place next February.
In Shakespeare’s Hamlet a grouchy old man tells his son, “Neither a borrower nor a lender be.” Some folks who think Hamlet is a small town in Indiana and Shakespeare is what Hagar the Horrible does have oft repeated that line.
However, many economists have maintained that a workable debt is an asset to a productive individual or business. It’s an incentive.
In short, the reasonable use of credit is a great contributor to a healthy economy. But like all good things, too much is worse than none at all.
Though many consider a workable debt an asset for producing people and businesses, the use of credit started getting out of hand 40 to 50 years ago and became a financial catastrophe even more recently.
Once upon a time not too many years ago first-time debt was an incentive to young people starting out in life on their own. After four years of eating beans and corn flakes, washing dishes in the diner in order to scratch together a few dollars to take a girl to a movie on Saturday night while living in a dormitory with dozens of students, a student graduated from college debt free. But that had to change as the new grad started out in the real world. A car became necessary in a first job and the only way to get one was to buy a used one with car paper...a loan.
In the past 20 or 30 years, though, the young person is deep in debt when he or she finally gets the sheepskin. Many new graduates accumulate a college debt equal to that of new homeowners in past years.
All of this of course provided good business for the lenders. It is right and proper that lenders get paid back a little more than what they lend out. But there comes the importance of responsibility for both the lender and the borrower. There will be no interest earned for a lender who lends money to someone whose financial ability makes it impossible to pay back.
And it makes no sense for a borrower to borrow more money when he or she should know there is no way they are going to pay back the loan. Too many people took out loans that were obviously out of their financial ability to pay back in the allotted time, simply trusting that something would change that would allow them to pay off the debt.
Both lenders and borrowers have not been using common sense in recent years, which is why the Congress and the President just approved the use of $700 billion of taxpayers’ money to pay off those bad debts.
If the Administration and Congress are right to put up that $700 billion, both those who borrowed too much and those who allowed people to borrow too much should be held responsible for the government recovering the $700 billion...with interest.
Those responsible for making and approving such loans should be held responsible for repaying the tax money. I understand there are restrictions that those approving such stupid and immoral loans (CEOs) can’t realize salary and bonus increases but that’s not enough. My suggestion is that any income they receive over $50,000 for a year be taxed at 95 percent.
After all, they undoubtedly got raises and bonuses in the past on the assumption of the profit that would be earned from the bad loans. Such assumption was either terribly poor business or just plain crooked. In either case it was getting rewarded on false pretenses.
Trivia Time What did the Church’s Lateran III in 1179 decree about collecting interest on loans? Answer to last question. Ben Franklin’s contribution to winning the Revolutionary War was to negotiate an alliance with France against the British.
George Frasher, an independent columnist, is a retired News-Leader Inc. editor and may be contacted at 337-238-3433, E-mail frasher@cebridge.net.