If we examine the current state of affairs in the credit industry through the lens of common sense, it is not difficult to overcome the insane tendency to ascribe Solomonesque wisdom where it doesn’t belong. The simple truth is that the credit and banking industry has been in the process of grooming itself for collapse for many years, particularly in the handling of private consumers.
No matter how brilliant you believe the gurus and CEO’s may be, they have clearly been myopically focused on the economic pie and how to divvy it up for the benefit of their respective interests, institutional and personal. The trouble with this tunnel view is that it ignores the foundation on which the pie is built.
The pie pan (the consumer) makes the pie possible. When the pie pan is allowed to rust through, the pie will pour out and a gooey mess is left behind. Myopic know-it-alls will stand looking down from on high, seeing the deflated pie crust, and believing that a pie continues to exist. In fact it is now an empty shell.
This begs the question, who is to blame for the rusted out pie pan? A standard retort from the “all is well” crowd is that irresponsible borrowers are the culprits. Unfortunately, this snappy (condescending) attitude fails to recognize that the “all is well” crowd could not even begin to form the pie pan on which their own stable economy depends.
People come in many shapes and sizes; widely varying income generating abilities, life changing circumstances and events, and regional employment opportunities and constraints. The collection of regular folks that possess a meaningful disposable income after living accommodations and transportation requirements are paid, is relatively small.
It does not take much of a disruption, such as a period of unemployment or unexpected and unavoidable expenses to knock hard working families on their tailbones. This is where the phenomenon of institutional greed meets the pie pan, when corrosion begins to eat at the very foundation of the economic pie.
Take a typical working family that has been tooling along, enjoying what most would recognize as the average American lifestyle. The family depends on two incomes, not atypical in today’s reality. Each working member needs transportation, and the traditional expectation in American is to purchase a home.
Gone are the days when a modest home could be purchased for less than twenty-thousand dollars; a sum that will barely construct a garage today. In fact, gone are the days when an older home can be purchased for less than eighty-thousand, as was the case for us in the 1980’s. Those homes are now $120,000 and up.
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