Your Personal Debt and the Economy

Currently I’ve been reading Age of Turbulence by Alan Greenspan, former Fed Reserve chairman. The book is basically about his life growing up and the decisions he made on economic policy during Nixon, Ford, Bush I and II, and Clinton administration. The more I read this book the more I realize that if the American public does not get more informed about how the US government spends our tax dollars, preserving our personal wealth, and the power of marketing on our buying patterns and behavior, we will not be able to achieve fiscal responsibility in our lives.

If the Fed did not facilitate the bail out of Bear Stearns there probably would be a domino effect of pain that would have led to other investment firms being financially compromised. Not to mention the psychological trauma and financial panic that would of happened with tons of investors moving their assets out of BS [and others] (Which was already happening, but the Fed bail out, lessened the run on the bank). How ironic is the same predatory lending practices from many of these banking firms practiced was the nail in the coffin that did them in. So what does Bear Stearns have to do with you?

To put things in more simple terms, Bear Stearns did not have enough liquid assets (cash) to pay its bills (clients/investors). A similar problem that many American households suffer from. They don’t have a lot of cash to get through financial emergencies, hence causing them to borrow against the equity (yet another loan) on their house (if they own) and/or use credit cards (yet another loan) to shore up the cash deficit in the household. So a good friend of mine put me on to a documentary called The Secret History of the Credit Card. A Frontline documentary done in 2004 about how the credit card was created. Here is the video link:

and

The Day of the Dollar (a fictional hour by hour presentation of what would happen if the dollar collapsed)

Basically the Marquette Decision in 1978 opened up the flood gates for consumer credit with banking companies as they did not need to follow the state laws that the company was chartered in, but the card issuer need only follow the law of the state in which its credit card operations are located.

Some interesting Credit card facts..
- Universal default..If you look at the credit card contract (that folded piece paper with the -8 font size and questionable law jargon), you might see something called universal default which is gives the credit card company the ability to increase your interest rate if you are late on any payment from any lender that is unrelated to the credit card company. So you could be late on, let say, your insurance payment, or car loan, or gas bill, etc and if the credit card company finds out you were late they have the authority to increase your interest rate on your credit card..say what? Word..check it out:

- 50% of revenue from the lender (Bank) on many credit cards is fee income (late fee, bounced check fee, finance charge fee, over-limit fee, etc)
- Ed Yingling (Banking Lobbyist) and Andrew Kahr (Credit Card consultant) are two of the most dangerous and influential people in the banking world who are responsible for many of the questionable credit card practices that you see today.

Last year was one of the most financially trying times of my working history. After all was said and done, I experienced thousands and thousands of dollars in unexpected expenses that needed to be immediately taken care of. To be honest, a lot of my finances are tied up in non-liquid assets (Like Bear Stearns), but unlike Bears Stearns I had a enough liquidity (cash) to whether the storm. Most people who know me, know that I’m quite an obnoxious saver and I sometimes wonder if all this frugality really matters. Then the emergency hits and all those years of saving for a rainy day pay off. Had I not prepared for the unexpected, I might have been in the same dire financial situation that a lot of Americans across the nation are in.

The last and final part of this email is the impact of corporations and marketing companies on our buying patterns. This has contributed to normalizing a debt consumption lifestyle. I’m sure I’ve posted this before, but there was a blog I posted in November 2006 on the impact the corporations and how it affects our behavior:

A GOVERNMENT IS ONLY AS GOOD AS THE PEOPLE WHO SUPPORT IT!

• The Age of Turbulence: Adventures in a New World by Alan Greenspan
• The Millionaire Mind by Thomas J. Stanley
• Naked Economics: Undressing the Dismal Science by Charles Wheelan
• The Third House: Lobbyists and Lobbying in the States by Alan Rosenthal
• The Automatic Millionaire : A Powerful One-Step Plan to Live and Finish Rich by David Bach
• The Money Masters: How International Bankers Gained Control of America
• by Bill Still (Author), Patrick S.J. Carmack (Author)

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