Monday, November 15, 2010
I Want It NOW! And with Zero Interest and Payments for 6 Months!
I think our political environment has become much like this cartoon. We have become so impatient and disgusted with the status quo that we want to have things fixed overnight. It's not an unreasonable feeling. When something is going poorly we all want to correct or change it so it moves in the proper direction. Certainly, our economy can stand to get much better more quickly can't it? We'd all love the unemployment rate to go down tomorrow and the market to shoot back up to more than 14,000 on the Dow. That would be terrific wouldn't it? Yes it would. But, in our haste to correct what we believe to be broken, we sometimes over look that age-old maxim "Good things come to those that wait". We make sacrifices for expediency sake. We've heard over and over, "Don't make perfect the enemy of good" which implies that get it just good enough and it will be OK. That works some times. We know it doesn't in others.
We've seen an acceleration of dissatisfaction among our electorate for some time. Since the early '90's, with the ability to put snap-polls in place, and the advent of cable news with a 24 hour cycle that must be filled, we are constantly barraged with news of this poll or that. In general, we respond to polls viscerally, that is, with emotion versus thought and reason. Usually, poll respondents do not send in written answers, which would be the "saucer that cools the coffee" in that it would allow for the respondent to reflect and think before answering. No, we do it on the Internet with a snap-poll, or over the phone with a young and eager poll taker throwing questions at us willy-nilly until we get done, hang up and wonder what in the hell we just responded to.
We are a people of speed. We like things now. I remember becoming impatient waiting in the drive through at Starbucks the other day because it was taking me too damn long to get my uber-caffineated beverage that would make me think faster. The reality was it took about 5 minutes. Impatience is our ethos. We must be satisfied quickly. Whether it's consuming more bandwidth so we can download Halo faster, or it's a microwave pizza that only takes 3 minutes to make so you can have supper, our life has become one quickly done event after another. Compare and contrast the taste of the 3-minute pizza with a leisurely meal at an Italian restaurant where the food was cooked to order and you didn't have to jump up and immediately do something else after having the last bite. I was recently on a plane ride (too slow of course) to San Francisco last week and as usual thumbing through the Skymall catalog and came across an ad for book summaries. Now this service summarizes the best of the business books and presents them in significantly shortened formats for the "busy executive". This "Readers Digest Condensed Books" version of the business tomes got me thinking about life in general. We have somehow moved away from appreciating the totality of the book, or movie, or song, or painting, or whatever to sound-bites, portions (of course the most relevant ones), you-tube clips, and computer wallpaper that can instantly provide you with the image of the Mona Lisa. Why go to a museum when you can get a digitized version for your computer? Now don't get me wrong, providing digitized versions of the old masters to people who cannot afford to go to the museum in Paris (Louvre) or acquire the painting outright is terrific. It exposes art to people who might otherwise not know of its existence. But tell me, do you appreciate it more if you physically see it or if it is rendered via pixelated spots on a computer screen?
I'm meandering on this post purposefully. It's taking me time to get to the points I want to make, so if you will stay with me (have patience), I'll eventually get to where I want to go.
I think we have lost sight of one of the good gifts that being alive brings. The gift I refer to is anticipation. When I was a kid, I was moderately poor. We had food, clothes, shelter and parents who loved us, but my brother and I were not sated with instant gratification on those things we wanted. Certainly as I look back, the gifts I got that I appreciated the most were the ones I waited for. I got a bicycle when I was ten that I had wanted for well over a year. My Dad and I made an agreement that I would work for it and he'd help, but he would not get it for me when I wanted it and I had to wait until I had saved the requisite amount of money to get it. For some reason, that bike meant more to me than all the other ones I had before or since. It was worth the wait. The anticipation of thinking about that bike was terrific, and when I was finally, with my Dad's help able to buy it, I was ecstatic.
Today, as a people (me included, as evidenced by the aforementioned Starbuck's incident) have become an impatient people. We have become a people who expect immediate gratification. Don't have enough money to buy the flat screen? No, problem, we'll put it on credit. Stores and dealers are most willing to allow you to buy on credit. They will even allow you to defer payments, no money down, low interest rates all so you can have it now! It is convenient, it's easy (some times too easy), it's gratifying, and like Chinese food, will leave you hungry for more in about an hour. Our thirst for getting the stuff we want now has driven our economy from a production oriented economy to a consumption oriented economy. This has all occurred in the last 60 or so years. Understandably, we want things. It makes us feel good when we get them. If we can get them faster, then that's OK too. Or is it? Debt is a tool, that can be leveraged for good things if managed properly. If it is not managed properly, then it can quickly become a bad thing. Mounting debt is a cancer that can demolish a life-time of good work in a short period of time. Most of us carry as significant amount of debt in the form of a mortgage. I have one, and most people who "own" their home also carry a mortgage. It's the way we have spurred economic growth for many decades. It's also the principal reason the economy melted down in 2008. The mortgage crisis was precipitated by two primary actions: 1. The efforts by Congress to spur home-ownership by passage in 1977 of the Community Reinvestment Act, which legislated protections against discrimination in housing by requiring lending institutions who received FDIC (Federal Deposit Insurance Corporation) insurance that they could not discriminate on who they were lending money too., and 2. The creation of a financial instrument called a Credit Default Swap (CDS) which, while not tied directly to mortgages, were basically a method of trading risk that allowed for mortgage backed securities along with other financial instruments to essentially be insured against loss thereby driving up the ability of the instruments to be sold over and over and over again with little regard to the underlying assets that supported this scheme. It is kind of like that movie "The Producers", where the producers sell 100% interest over and over again in a film to get rich, hoping that the movie fails which would absolve them of any responsibility to pay the investors. When the movie succeeded however, they were responsible for paying back percentages of the profits to the investors which got them in trouble. When the CDS market fell, the insurance companies who insured the instruments had to pony up. They couldn't, because they too had invested in the CDS market, which, as we all know the story of AIG, was a house of cards, meaning they were overleveraged and could not pay. As a result, loans were called in, forclosures heated up, and we now have a busted housing - bubble.
O.k., so credit if allowed to run amok can do terrible things to most of us and great things for a few of us. If you are US Bancorp, Bank of America, Wells Fargo, Chase, etc. then it works well for you because all of us "hungry for having it now" people will gladly not read the fine print on our credit card applications and get the platinum card because it has a higher credit limit so we can by the LG flat screen instead of the off-brand or waiting on the purchase altogether. Then, as Claude Rains in Casablanca, we are "Shocked!" to find the minimum payment carries more than 30% interest and if we miss a payment, oh, my, we get socked with even greater fees. Now, the banks love this because credit card fees are the single most profitable revenue stream a bank has. Interest rates on Credit Cards are more than 25-30% greater than the prime lending rate that banks charge each other for loans. So, one dollar in credit extended to you or I in the form of a credit card transaction, that is not paid for within 30 days, is equal to one dollar and thirty cents on day 31. There used to be restrictions against the amount of interest paid on credit and those restrictions were called usury laws. The reason they were in place is because people could find themselves in so much hock to the creditors that they would have to go bankrupt. Usury laws were a firewall that restricted credit lenders from charging the clients so much they would never, ever pay the principal on the loan down and therefore would always be a client. In the 1980's the usury laws were effectively eliminated by Congress in order to stimulate the economy. We were after all a consumer oriented society and people should be able to manage their own money and finances. It's a personal responsibility thing you know. Well, as could be imagined, if there is an opportunity somewhere to make money someone will figure out how to do it. Here come the banks, the stores, the off bank money lenders (pay-day loans, etc) offering a service. All you have to do is sign up. We'll put the contract in 3 point type so you'll need the Hubble Telescope to read it, but don't worry, just pay your bill on time and nothing bad will happen. We've seen the fruits of this. What is more disheartening, is that it typically affects the people who can least afford it. The lower-income people, not just the poor, but middle class as well are constantly hammered with "you have to get the new stuff" if you have value, are cajoled by Madison Avenue into making a choice that they probably shouldn't make. Put it on credit. Some can manage it. Some cannot. The most insidious of these institutions are the Pay Day Lenders, some of which charge as much as 150% interest on short-term "bridge" loans that poor and lower income use to make their rent or mortgage payments while waiting on their paychecks.
Now of course, no one is holding a gun to any one's head and making them by the big screen TV when they can't afford it. Most of us who are older than 50 know what it is like to wait until we can afford to buy it. It is a lesson handed down from our parents who many of which lived through the Depression and definitely had to "wait" on those good things to come. However, this is not an issue that can be simply laid at the feet of those who purchase on credit. There are predatory institutions focused on nothing more than profit who will gladly allow their "clients" the easiest path they can take to become addicted to "getting the new stuff". They are as bad as the drug dealers. Offer a little for free or no-interest, get them hooked, then jack up the price. Caveat Emptor indeed.
Carry this ethos forward to our political environment and you find the same behavior just at a larger scale. The elections of 2010 told us nothing if not that we are impatient. We, as a nation overwhelmingly elected a young, charismatic, optimistic (Yes We Can) man as president in 2008 and have just recently repudiated him and his policies through sweeping the Republicans back into office in 2010, to take over the House of Representatives. Now, was this election because the Republicans have better ideas and methods and practices that since the election of 2008 they have shared with us that are better ways to get what we want? No, they have done absolutely nothing but obstruct for the past 2 years. It is not better ideas that carried the day. It is however that the things Obama promised he hasn't delivered in the less than 2 years he has been in office. We want good health care. We want to be secure. We want jobs. We want financial stewardship that won't drive our grand-children to the poor-house and dammit! We Want It Now!
The rise of the Tea Party is a collective example of our impatience as a country. Forget how long it took to get our financial house in the mess it is in. That socialist Obama is making it worse. He promised! Jobs would come in by the millions when we passed the stimulus package. They haven't! Throw the bums out. We Want it Now! The anger and demand for instant gratification has accelerated to the point where we are losing sight of reasonableness and rational thought. Of course, if you don't have a job and haven't been able to get one, then you definitely have a beef. It is understandable to be impatient in this context. I certainly understand the desire to try something new. I think the desire, while correct in thought, is an error in practice. Our country has been severely wounded. We have to treat this like someone going through re-hab. If one has major surgery such as a knee or hip replacement, then there is a long time of rehabilitation and therapy before the patient can run or dance again. Same with our economic situation. We will be in for a long haul, and we must prepare for it and part of that preparation must be learning to be patient. Pay down your debt where you can. Save for the things you want and pay cash. Give up something you want but do not need. Demand the same from your politicians. Demand they give up their pet projects or earmarks but focus on what must be done now. Beware the politician who doesn't give a damn about the deficit when his party is spending the money, only to decry the deficit when the other party is in power. They are wolves in sheep's clothing. It is vitally important that we set a course for remediation of our collective habits. Remember, it is easy to blame someone else for our own problems. Blaming Washington is easy but we must remember our government is a product of our behavior and desire. We get what we pay for and what we want, especially when we want it now.
Tell me what you think,