Sunday, June 3, 2012

Should We Go Back to the Good Old Days?

People have selective memories as to what comprises the "Good Old Days".


Many Republicans decry the newfangled things going on in our country.   Using subliminal glurges they send over the Internet (or publish in Reader's Digest) people on the right try to paint "the Good Old Days" as a time of peace and harmony and heaven-on-earth.   No, we didn't need no Internet back then, or Women's rights!   And everyone was happier, too!

Well, except maybe the Blacks who were lynched and kept in economic oppression.   And women who were treated as property and beaten by their husbands and denied almost any career opportunity.  Or any minority group back then, who would be allowed to live, so long as they "knew their place" and didn't get too "uppity".

So what we have here is a selective memory on the part of folks on the right.  Or worse yet, a false memory of days gone by.   People create scenarios out of whole cloth to "provide their point" that the old ways are best.

Gold Bugs, for example, claim that if "we only went back on the gold standard" our economy would once again be as stable as it was in 1900.  But of course, this is just nonsense.  Our economy was actually more unstable during the 1800's and early 1900's, with cycles of boom and bust, worse than today.  The stock market crash of 1929 occurred while we were under this Gold Standard panacea.

It is easy to paint a rosy picture of the past, particularly if you never lived through it - or are selling the image to people born long after.

But it struck me that one example of this rosy past the people on the right never talk about, is regulation of our financial industries.   And I lived through this change, and can witness, firsthand to the changes that have taken place - and none for the better.   But, like cooking a frog, the water temperature has risen so gradually over the years that we tend not to notice these changes - and never objected to them - until it was too late.

Back in the 1960's, when I was a kid, we didn't have the following rip-offs, mostly because they were illegal, or that people simply didn't stand for them:
  • Payday Loans
  • Check Cashing Stores
  • Rent-to-own Furniture
  • Title Pawn Loans
  • Buy-Here, Pay-Here, used cars
  • Automobile Leasing for Consumers
  • Frequent Flyer Miles Credit Cards with 14% interest rates
  • Adjustable Rate Mortgages
  • "Optional Payment" Mortgages
  • Casino Gambling (outside of Vegas)
  • Lotteries
  • Etc. Etc.
What changed since the 1960's?   Well, some of it had to do with the economy in the late 1970's.   When inflation soared into the double-digits (still think we have it so bad today?) and interest rates went up to 14% just for a home mortgage, State Usury laws ended up being repealed or modified, so that interest rates once unheard of, became the norm.

Since then, inflation has eased, and interest rates are at an all-time low, at least with regard to the Prime Rate.  But a funny thing - today Credit Card rates are at an all-time high.   The media touts a 14% interest rate on a credit card as "reasonable" and 10% as"low".   And we are told that 25% rates are "OK" so long as you are getting some cash-back or flyer miles out of the deal.   When did we become idiots?

Leasing of cars - for individuals - was unheard of in the 1960's.   I didn't see this advertised until the late 1970's and early 1980's, when car dealers became desperate to move iron.  Before then, leasing was something that only businesses did - as it allowed them to expense out the cost of the vehicle on their taxes, as opposed to depreciating it.   Today, nearly one in every five cars sold to consumers is leased.  And these leasing deals are usually raw deals - where the dealer hides the purchase price and interest rate in a mountain of paperwork, pushing only the "monthly payment" at the consumer.  And lets not even talk about back-end and front-end charges.

Yes, we had pawn shops, back in the day.  But these were mostly in the inner-city, and not very prevalent.   In fact, they nearly went extinct by the mid-1970's, as the cost of consumer goods continued to fall.   But Pawn Shops came roaring back in the 1990's, and are the number one source of crappy financing for the very poor (and even the middle class!), offering interest rates well above 30% or more to the people who can afford it least.  Pawn shops today are more loan businesses than shops selling secondhand merchandise.

And today, you can pawn your car, as well, at exorbitant rates.   You can even pawn your paycheck, getting a "payday loan" a week in advance, and paying 30% interest for the privilege.  Rolling over each loan into a new loan can piggyback the interest to 300% or more, in a short period of time.

The mortgage thing is the same deal.  In the 1960's, mortgage rates were fairly stable.   So no one even dreamed of a variable-rate note.   By the late 1970's, rates had skyrocketed and banks were struck with 6% notes in an era of 14% rates.   To avoid this, they pushed the adjustable-rate note, which also allowed them to offer lower rates during an era of high rates.

But like with the credit cards, once rates dropped, the adjustable rate notes were still being offered.   And people bit on them, convinced that rates would never again go up (and not understanding that when rates go up, housing prices go down).   And making matters worse were scary new mortgages with "teaser" rates and "optional" payment plans, where the balance on the note actually went up over time.

As I have noted before, when I was a kid, gambling was illegal, outside of Vegas.  Today, almost everyone lives within 30 minutes of a casino, and the government is even in on the game with State Lotteries - which didn't exist in the 1960's, but came into being during the economic downturn of the 1970's.

What happened in the last 50 years that changed everything so much?   I believe two things are at work here.  First, a lot of the banking and consumer protection regulations passed since 1929 have been eliminated or reduced.   Banks are now free to speculate in almost any market, and as a result, our banking systems is more unstable than ever before.  In addition, raw deals that would have been illegal in 1965, are routinely offered to consumers today.  And consumers accept them as "good deals," too.

Why is this?  Well, that is the second half of the equation.  Consumer education is at an all-time low.   The consumers of the 1960's either lived through the depression and World War II, or their parents did.   They knew that the economy could spin out of control - and their personal finances as well - if they were not careful with money.    So people were more skeptical about con artists and flim-flam men, and more careful with their money.  And perhaps, they were better educated back then, about basic economic life.

If you told a person, back in 1965, that they could get a second mortgage on their modest home and "cash out" and buy a new Cadillac with it, they would say you were crazy.  Or, if you told them, as one recent President did, that spending money was a "patriotic duty" they would have you committed.   And if you suggested to them that it was OK to run up thousands and thousands of dollars in credit card debt, and then pay it off by refinancing their home, they probably would punch you in the face.

Back then, even in an era of Corporate Socialism - where people had defined benefit pensions and health care - folks were more careful with money.   And in an era before the invention of the IRA and the 401(k), where we have to save for retirement, people saved at a rate nearly twice that of recent years.  Today we need to save more, yet we save less.   It makes no sense at all.

In short, people were more fiscally responsible back then.  Why is this?  Again, I think the experience with the Depression is one aspect.   But I think also our social values were different.  Odious deals just weren't advertised on television.   If you tried to go on television and hawk investments or crappy bargains, consumer protection agencies would jump down your throat - and likely the television station would not air the ads in the first place.

(Back then, there was something called "false advertising" and you could get sued for it.  And Police departments had "Bunko Squads" who went after criminal flim-flam artists.  Today, the Police yawn and say, "forgetaboutit!  Ain't noting we can do!" if you are ripped off.  And besides, the person ripping you off might have enough money to buy his own Judge.)

But that changed, with the advent of Cable TV.  Suddenly, we had 500 channels of poor normative cues to choose from - everything from trinkets sold on the home shopping channels, to poor investment advice shouted at us on financial channels.   People were trained to "want it all now" on e-z money terms, a trend that started after World War II, but one that accelerated rapidly in the 1970's and 1980's.  By the 1990's, most of us were heavily in debt, and the savings rate dropped to nothing, if not in fact, negative.

And the GOP - and the Democrats - told us that deregulation was the answer to all of our problems (a lot of the deregulation programs credited to Ronald Reagan, such as the airlines, occurred in the waning days of the Carter administration).

So, in terms of financial regulation, the "Good Old Days" were in fact better than today.  Of course, the "Good Old Days" are not going to come back.   I am not idiotic as a Republican to suggest such a thing.   Time doesn't work that way, and you can't "go back" to simpler times, only move forward.

But we do live in a different world today - a much scarier world in terms of finances.   Today, it is Dog-eat-Dog, look out for yourself, I've got mine, Jack, you get yours, kind of a world.   And while it is still possible to get ahead in this era, you really have to look out for yourself.

You see, what the GOP doesn't want, is for us to "go back" to a simpler time when companies couldn't exploit people mercilessly, often using their own weaknesses against them.   That is the name of the game today, as I have noted before.  You can make more money out of ruining someone than you can establishing a profitable business relationship with them.  And according to the GOP, this is not a bad thing, but just good old American Business know-how, unfettered by regulation.

To me, it is how Mexico ended up with seven families owning most of everything.   We are not growing as an economy, just taking away from the most impoverished sectors and redistributing the wealth to the richest.   Ahhhhh.... but the GOP doesn't like to talk about "redistributing the wealth" even as they do it.

So they use our emotions against us.   They tell an 18-year-old that they will be fabulously wealthy if they go to college and borrow $100,000.   And oh, by the way, it will be a ball - all the sex, pot, and beer they can consume!   And an 18-year-old believes this.   Or at least they did - perhaps the plight of these "OWS" idiots is waking them up to the real consequences of financial actions.

And Mr. and Mrs. Middle-Class is sold on the idea of "home ownership" and granite counter tops - all the better to impress the neighbors with.  So they go heavily into debt for nothing of real value.

Or worse yet, leased cars.   Or credit card debt - so they can charge crappy meals at chain restaurants in strip malls and pay for it all with a home equity loan.

They tempt us, but we needn't bite on the bait.   And perhaps, just as our parents learned the lessons of the Great Depression, this generation will learn from the lessons of our current recession (which, while officially over, is still not really doing very well).

And there may be evidence this is starting to happen.   Personal savings rates, after years of decline, are starting to rise.   But as the economy gets better, they are starting to fall, yet again.  And even though rates have risen in recent years, they are still low by historical standards.

The exploitation of the masses of Americans will continue, it seems.   Payday loans are still in business, as are the pawn shops and title pawn places.   Folks will still be suckers for rent-to-own furniture, and car leasing will no doubt take off again.

There is not much we can do about this, on a national level.  But on a personal level, you still have choices.  You can choose to consume less and save more.  You can walk away from bad bargains.   And you can point out these bargains as bad, to others.   Because in every instance, all of these crappy deals have one thing in common - there is a magic moment where you, the consumer, have to sign a piece of paper that obligates you into one of these shitty deals.

Just leave your pen at home.

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