Extra, Extra. Dollar Gobbled by Credit Beast
By Chelle Stockman
Our representatives aren't able to act when we send them our warnings. How many of us does it take to inform our representatives of a potential problem before any solutions can be offered and why do they fail to see the connection of inflationary prices in a sector to the devaluing of our currency, from the devaluation of our currency to the loosening of lending practices, from the lack of regulation to the rape of the consumer?
It isn't like our representatives were not aware of this. They've had six years to prepare for this. I know I wasn't the only constituent who consistently wrote to them about each and every wave that affected me or my business. I know many of you wrote to them as well.
Our president thought he'd boost our nations economy through new construction, focusing on the housing sector. For many of the states, the housing market was in a moderate to slow growth cycle which made new housing a crazy idea at that time. People simply were not able to buy the houses at the current rates back then. Building new houses at the newer costs and expecting people to suddenly be able to afford them meant you had to know it would force the lenders to change and the tradeoff would mean further deregulation of that industry which could spell major trouble. But, our president did this anyway.
What had to happen to pay for the new housing? More credit would have to become available on a much larger scale. How could more credit become available? Loosen the lending criteria.
Contrast to 1980
In 1980, you met with your real estate salesman. They would take down your combined annual income, figure your current debts and record assets if you had any. You were required to put a down payment of ten percent or more which was do-able because the housing market was under a controllable inflation rate compared to average salaries. The real estate salesman would take the differences of money coming in and money owed and then figure out eleven percent. Back then, 11 was the magical percentage rate for maximum amount of money the buyer could reasonably afford to pay out annually. They broke the figure down into approximate monthly payments and that was what they were willing to allow you to pay. They set the maximum amounts you were allowed to pay back then. In retrospect, those lenders were ethical.
They weren't shoving FICA scores down our throats in those days. They were shoving our ability to pay down our throats. If you were not able to show a large enough amount of money to pay for the goods under their 11 percent rule, you were denied. You also didn't have hundreds of lenders competing for your business either. They didn't solicit you, you solicited them.
Fast forward to the year 2002, the new housing boon. A two-bedroom one bath house two blocks away from my salon went for 95,000. This particular home's value in 1980 was a mere 45,000. I wanted to divorce my husband and sat down with the same formula in mind and worked up to see what I could afford as the real estate salesperson showed me back in 1980. I was going back and forth with the idea that I would be over extending myself and thought I'd hold off for another six months to see if I could save a larger down payment. Bad move, at least that's what I thought.
That house suddenly went from 95,000 to 186,000, in a six month period. I was supposed to think that was still a fair price because the newly built condos were now 365,000. What no one was getting was that if it was a tight squeeze at 95,000, it would be larger squeeze at 186,000. That house finally sold nine months later for 385,000 (15 months after I first looked at it). How could people suddenly afford to buy this house when they couldn't 15 months earlier, when the house was selling at one-third of the cost?
My answer was this. To qualify for a half million dollar home in 2004 you didn't have to offer a down payment. Suddenly you weren't qualifying based upon 11 percent of your annual income; all you needed to qualify was something called a FICA score.
The better your FICA score, the less interest you'd have to pay on your loan. If you had a low FICA score, your rates would be higher, but you wouldn't be denied. In fact, you were told that you should do it, go for it, and in a few years with consistent payments you'd be able to apply for a loan and a betterinterest rate; refinancing is what that's called. Typical lending ethics of today, where the poorer you are the more you pay and the better off you are the less you pay. Oh, the poorer consumers never learn, do they. Good for those lenders, bad for the taxpaying citizens being asked to bail them out.
The problem began when people's salaries weren't keeping up with the costs of goods. That was never addressed through legislation but was addressed through the creditors. We were flooded with credit cards. Larger goods were still not moving as was the case of homes and businesses. So the larger scale lending practices had to loosen to keep things moving along because we still hadn't addressed the problems with our purchasing power. We didn't realize it back then but America's largest gross domestic product would become our debt.
The first problem that has led us to this "Bail Out" was that our purchasing power was on the down low without the help of credit. The second problem was created by the credit industry flooding us with the illusion of having the necessary purchasing power to keep going.
We bottomed out. Our representatives failed to address the problems about the average Americans dependence on credit to purchase. Secondly they failed to address the inflationary sectors credit helped to create and lastly, they failed to handle the problem of our falling values of our currency. They are all interdependent upon one another.
When a woman has to use credit to fix a tooth, pay for a son's ticket, get a new water-pump in her car, buy clothing for her growing children and pay for groceries for a week here and a week there, our nation is in trouble. Necessity overtook our desire for frivolous purchases when it came to spending on credit. You can't rent a car without a card, barely book a flight without one. Credit has killed the dollar bill.
We are being told that this bail out was important to us so we could have access to credit, when it's using credit in place of currency that is the real problem. The creditors all know this and has this stopped them? NO. As our representatives voted in favor of the bail out, my 19-yr-old unemployed and troubled son just got a credit card from Bank of America. Think the credit companies care? Why should they? We will pay them one way or another. ENOUGH!
Power to the People. Power of Currency. Screw Usuary.
