Herman School of Business
The Birth of Creditalism...
My father was a welder who worked at the same bench for thirty years producing ductwork out of sheet metal for commercial buildings. He received his paycheck weekly, cashed it on the way home, and my mother slipped cash into small envelopes marked with the bills she had to pay. Until about 1960 if you wanted something in this country you used cash to pay for it.
About 1960 Sears started giving customers “revolving credit” which meant you could buy something on a plastic card and pay for it over time. Sears was at that time the number one retailer in America. There was a tire store in our neighborhood just like dozens of other tire stores…until…they instituted a credit buying plan where you could get four tires with a ninety day “same as cash” payment plan. The other tire stores disappeared and the little tire store became a huge chain…after all…you could get four tires and only pay twenty-five percent on the day they put the tires on your car. Thirty, sixty and ninety days later you made another 25 percent payment.
My first Botany 500 suit came from Young’s Men’s Store who must have noticed how well the tire guy was doing, so my suit was paid off in four payments. During the first ten years of my marriage I thought everyone owed Household Finance money…how else could you buy furniture? Next came VISA and MASTERCARD and wow…get it now and stretch out payments for years. We were addicted.
Business owners were also consumers…they bought their clothes and tires and furniture on credit and bugged the bankers to lend them money on inventories and accounts receivables…future sales would cover the interest rates being charged. Then leverage became an art…you could buy stock on margin…and pay for it later. By the year 2000 no one paid cash anymore.
Creditalism was rampant and Capitalism was gone. But our laws and our government philosophy and our people think we have Capitalism. Wake up folks…we have Creditalism and the bubble has burst. It became fashionable to over value everything…because we were borrowing against everything. And those controlling assets and lending at the highest levels were claiming huge profits from all that credit being issued. People owed more than they could pay. Business owners had Mercedes payments and started skipping the bank payment. The 800 pound Gorilla in the room (DEBT) finally has been noticed. You can’t pay off your house and still shop at the Mall. Then, the banker gets miffed and cuts off your credit cards. Boom…no one shops at the Mall and the shopkeeper fails. With less orders from less shopkeepers then manufacturers go bust. They stop paying the bank too.
The banks finally turn on each other. Selling their bad debt to other banks (at a deep discount) promising that the bank buying their debt will get a windfall when the debt is paid off. The debt they know will never be paid off. And then, while they are getting a massage and pedicure at the Spa the owners and managers of major companies feel cheated that the government won’t give them more money to play with…because the stress of all those loans they made not being paid back requires two massages a week where one used to suffice.
This is musical money chairs people. And the powerful lobbyists are going to make sure that when the music stops their clients will have a chair, and the politicians will have a chair…but the guy trying to get tires he can pay for over time…has no chair!
Yes it will be painful. We just fell down the economic stairs and it hurts. Stop crying about your pain. Start over…go back to having less stuff and no debt…and in a year or so your pain will subside and your life will get better. Americans are not good at handling pain…we want everyone else to suffer for us…but those who understand that Creditalism is a cancer on our personal and business life…will get out of the pain faster and regain success easier.
- Posted: 9 October 2008
- Comments: 1
- Category: Business success
John,
HERMAN SAYS: I will do a psoting on what those who stayed out of debt should do next. Thanks for the comment.Here is a subject I would like to see you post about.
I have been a good boy. I don’t carry extra debt. We have a mortgage (15 yr fixed), one car payment (just had twins, so we had to go for the minivan).
Yes, I know me and the other people who thought we were smart are going to pay for this mess more than anyone else. It is true, and I have already gotten over it.
What is your advice for those of us with money in the bank?
I took your advice to get out of the market in late Sept. My 401K was moved into a money market account, so I had no losses. I closed another poorly performing mutual fund. They have been dragging their feet, so the paper work just got done last week. Anyhow, thanks for the good advice.
Written by Doug on 9 October 2008