Monday, September 29, 2008
A World Made by Hand
Are we ready to go back to small-scale enterprise? To more things made by artisans or by small factories? To a slower, smaller, less frenetic world?
We'd better be ready, because when the process of de-capitalization happening now has run its course, that's what kind of a world we'll find ourselves in.
As the great 700-billion-buck bailout sank like a stone today and the markets melted before our eyes, we could no longer doubt that the massive re-ordering of the capitalist domination of our lives is under way. It's going to be a rough transition, but it's not all bad.
The AOL financial news page ran an excellent (for a change) article describing eight specific examples of how our lives are changing today as a result of the collapse of mega-capital. These are worth commenting on one by one.
1. Credit Card Limits Reduced
Even if you have a high credit score and a blemish-free payment history, your credit limit may have been cut. American Express recently cut the credit for 10% of its cardholders, but most banks have reduced credit limits for some customers since last summer.
Smaller credit card limits mean that people won't load as much debt onto them. That's good, because credit card indebtedness right now is at critical mass. It has to be reduced for the sake of our economic health, and we need to re-learn the virtues of saving. You're going to see more and more of this from now on.
2. Student Loans Yanked
It's not just banks and mortgage lenders that are suffering. The student loan industry is in crisis. Private lenders are going under and some state agencies and large banks, including Bank of America and Wachovia, have stopped issuing student loans.
This is better than it looks. Others will disagree, but I've long considered the student loan industry as it's developed over the last 25 years little better than the great credit card swindle. Students in recent years have been borrowing unrealistic amounts of money when they could make do with a little less and work more to make up some of the difference. Excessive and prodigal borrowing for college isn't sacred just because it's for college. It's just like reckless borrowing for anything else, and another example of living for today and saying "To hell with tomorrow."
3. Money Market Mutual Funds Safer
To stave off investor panic after one prominent money market fund "broke the buck," or posted a small decline in value, the government has promised it would cover any losses. Not all funds are covered in the new program, so check with your fund company if you are worried.
Good call, gov. Because of the intimate connection between mutual funds and the retirement prospects of millions of workers, this protection is needed.
4. More Incentives to Open Bank Accounts
One result of the credit crisis is that banks are trying their darndest to attract more deposits. Chase is currently offering $125 (at least in New York City) to open an account with direct deposit. Citibank is beefing up its "Thank You" rewards program. Refer a friend, and Bank of America will give you both $25.
Yes! We need to learn how to save money, not spend it like there's no tomorrow, plus spend money we don't have. See comment appended to item #1 above.
5. Easier to Get a Loan With Good Credit
Don't forget, even in the current crisis, banks want to stay in business. So they are continuing to make loans to borrowers with with good credit records and plenty of assets.
6. Harder to Get Loan if You Have Weak Credit
If you have a tarnished credit history, don't expect to get a loan any time soon -- even if you're willing to pay high interest rates. Banks continue to tighten their lending standards as the credit crisis deepens.
So ex-management of WaMu, Lehman, etc., you guys standing there with your bare sterns, did you learn anything this time?
Numbers 5 and 6 are actually one number, and they're pretty much a no-brainer for any society that takes itself seriously and has any self-respect. These should be laws, not rules or principles.
7. More Store Deals Ahead of a Weak Holiday
With the economy slowing and family budgets tightening, retailers are anticipating a tough holiday sales season ahead. So they are layering on the deals early. Black Friday, the day after Thanksgiving when the holiday shopping season kicks off, should provide a bonanza of deals. Consumer electronics will offer particularly good buys.
Yay! Let's go shopping at one of the big box stores that survives the collapse. But we're not spending too much! We'll set a strict limit before we go.
8. Investment Returns Are Down
The stock market has taken it on the chin in recent weeks. But sharp sell-offs on bad news have been followed by major relief rallies a day or two later. The worst thing you can do is panic and sell at the bottom.
Stocks are the big question mark for the future. Once the metdown is all melted down, I'd expect market activity to be drowsy and sluggish for years. The age of the capitalist pirates and their magic paper ships is over.