By BRAD WARTHEN
EDITORIAL PAGE EDITOR
Credit used to make sense to me, and now it doesn’t. Here’s the way it once worked, according to my sepia-toned memories:
When I got out of college in 1975, I went to work for The Jackson Sun in West Tennessee as a copy editor for the lordly sum of $130 a week. That’s $6,760 a year. After a three-week trial period I got a $15-a-week raise, which was quite a thrill at the time. I was married, my wife was in graduate school, and our first child would arrive about a year later.
My first week, a woman who also worked on the copy desk, taking me under her wing, told me her husband worked at one of the banks, and to contact him if I needed help in that line. As it turned out, I did soon need a loan to pay for a used Vega (yes, I know, a bad call there).
After the baby came, we decided we needed a credit card to help us through the weeks when my pay (by then $160!) didn’t meet the necessities. So I went to see Paul at the bank, but he said I couldn’t get one until I had established more of a credit record. The car loan helped, and so did the fact that we paid the hospital for the baby in installments. But that wasn’t enough to get a BankAmericard.
Paul suggested I go to Sears, because they’d give a credit card to anybody. So I did (after which we rewarded Sears’ faith in the proletariat by buying most of the children’s clothes, and all tools and appliances, from there for years to come). Once I produced my Sears card at the bank, I got my “real” credit card.
My wife, who handles the accounts and pays the bills at our house, now curses the day that piece of plastic came into our house — she has told me more than once in the past week, and apparently will keep telling me until it sinks in, that at our current rate of payment, we will not live long enough to pay off our credit card debt, according to all the actuarial tables or something like that (in one ear, out the other).
But back then the card was helpful, and actually earning the privilege of having one seemed a sort of milestone. I was now someone deemed worthy of credit.
In the intervening years a lot has changed. For instance, the Sears card morphed into a Mastercard that I no longer use (under threat of bodily harm) because the usurious rate is high even for a credit card, but that I carry in my wallet for sentimental reasons: It still says “member since 1976.”
That’s a distinction that wore off long, long ago, though. Today, on the rare occasions when I get to the mail before my wife does, there is always at least one offer of a new credit card, and usually more than one. My children have been getting those come-ons at our house since they entered their teens. Even with all of them moved out, they still come. And my wife still throws them away.
But that’s credit cards. Let’s talk mortgages.
My understanding of mortgages does not extend beyond the explanation offered by George Bailey in “It’s a Wonderful Life,” which Robert Ariail lampoons in his cartoon today. Here’s the original dialogue:
No, but you’re… you’re, you’re, you’re thinkin’ of this place all wrong, as if I had the money back in a safe. Th-th-the money’s not here… why, your money’s in Joe’s house, that’s right next to yours, and in the Kennedy house, and Mrs. Maitland’s house, and, and a hundred others…. Why, you’re lending them the money to build, and then they’re gonna pay it back to you as best they can, now what’re you gonna do, foreclose on them?
That I understand. And while my mortgage might not be with ol’ George down the street, I did take it out with a very nice person in an office that I could go to and ask questions later if I needed to. But before long my mortgage and yours got bundled up with a thousand others and turned into a financial product that greedheads would buy and sell back and forth across the country as though the biggest contract I’ll ever enter into were merely another drop in a barrel of oil.
Meanwhile, mortgages were being extended as casually and promiscuously as those credit card solicitations, without regard to the buyers’ ability to pay back, which eventually, as near as I can make out, led to this bizarre situation in which the president of the United States went on the TV last week to tell us that if we don’t come up with $700 billion in one quick hurry, we’ll all soon be living in Pottersville instead of Bedford Falls.
Apparently, this happened in part because as a nation we decided that everybody ought to have a mortgage, whether they could afford one or not. That sounds really nice and egalitarian and everything. It also sounds just like the arguments I hear from the payday lending industry — that they have to exist because everybody needs to be able to take out loans, and you don’t want to be all paternalistic and tell them they can’t afford it.
But I’m of the paternalistic school, I guess, if that’s what you want to call it. For years, I was on the local Habitat for Humanity board, and we didn’t sell those houses to just anybody. We made sure that while the families were low-income enough to need our service, they had enough income to make their payments. We provided counseling. We required that they pile up sweat equity by working to build other people’s houses before their own foundation was laid.
Those hurdles existed to keep the unwary from getting into debt over their heads, just as Paul’s bank once required certain demonstrations before I could have that card.
And now, apparently the whole nation is being sucked into a vortex of bad decisions chasing each other ’round and ’round.
And to me, that just doesn’t make sense. But that’s because I don’t understand credit. Not anymore, anyway.
Go to thestate.com/bradsblog/.
Related Posts
We had a Sears card, which morphed into a Mastercard and like the Warthen family, our Sears Mastercard had a payday lending rate.
I called Sears to ask them if they could lower their interest rate and they said it was a non-negotiable item. So we suffered for about a year and then we paid it off.
I called Sears to close the account and gave the reason why. The customer representative said that may have been the policy then, but it’s not the policy now. I don’t recall what the interest rate was, but I said no. He even offered to give us $200 to keep our card. That was tempting to take the money and then close the account afterward, but I said no. We had been a Sears customer for over 30 years.
I closed the conversation saying that we are severing our relationship with Sears and that we are on the Do No Call list. Any call from Sears would be reported to the FTC.
We quit using our Sears Mastercard for the same reason — a ridiculous interest rate, and an absolute refusal to offer a better one despite all our years as a customer.
With a couple of minor differences, my story mirrors Brad’s. (I chose to be in debt before I got married, and it was an old Ford Torino rather than a Vega). And, like Brad and Ralph, it was also a Sears card, based on Daddy’s suggestion.
Daddy also stressed the importance of making my payments on time and protecting my credit record. (It’s that paternalistic thing–his definition of a millionaire is “someone who owes a million dollars”.) I once ate pork and beans for a week so I could make my payment for that incredible stereo I picked up at Radio Shack. Man, that was a nice system.
After building a debt that was small by some standards, but large enough to grieve me when I wrote the payment checks, I vowed to get out of debt for everything except our home and cars. We’ve managed to live that way for several years. If we can’t pay cash, then it’s not something we need.
With two kids heading off to college in the next 24 months, and a need for an additional vehicle (we just confirmed our Smart Car order), we’ll be assuming more debt in the next couple of years. We keep one credit card for emergencies, but haven’t used it in years.
This economic mess created by bad credit means that we would have been better off keeping much of our college fund in a Folger’s Coffee can than putting it a Roth. If the bailout reverses that, go ahead and bail the bastards out. If the bailout makes credit available to me so that we can get the loans we need when we need them for the kids, go ahead and bail the bastards out. They don’t deserve it, but we’re going to need the credit they’ve managed to freeze.
I can’t say I understand credit and the economy either, but I am trying to understand it more than I have ever tried before. I learned my lesson the hard way, and it has made me a better and more cautious user of credit. If any good comes from the bailout, I hope it teaches the same lesson to lenders and borrowers. I don’t hold much hope for Wall Street learning a lesson.
I no longer have my Sears card, either.
Try coming back to the U.S. after nearly 30 years living overseas and then establishing credit. It took us nearly two years, and I still have to live off my wife’s credit, since I had an ER bill going back to 1999 that went years unpaid, and I never got it, or knew about it.
Herb,
I understand about hospital billing snafu’s. My wife had a routine X-ray with the interpretation and when we got the bill from the hospital, the insurance company rejected the bill; the reason was because the policy was not in effect. I looked at the bill and the hospital transposed letters in the account number. I called the hospital and told them that they submitted the wrong account number. They said that they would refile.
A few months later, we receive another bill from the hospital that we need to pay for the X-ray and interpretation. I looked at the account that they billed it to and it was still wrong!
I wrote a letter telling them of their error in insurance billing and also said that I would not pay for their incompetence. A few weeks later, we got our normal co-pay bill.
I have a horror story about an insurance company preauthorizing an MRI and then refusing to pay for it. That hospital threatened a collection agency.
I offer one tip to all: do not schedule an MRI for the day after Labor Day!
Sears was my first in 1972 when as a PFC (E-3) at language school in Monterey CA my base pay was $180 and my rent was $147. I got no allowances, so the wife (the first one) worked and a buddy and I repaired foreign cars that other students drove. Thank goodness for Lucas and MGs… My first charge was a $62 dwell-tach it took me two months to pay off.
I’ve understood credit and haven’t been bitten badly by cards or other loans despite some tough times and some good times too. I’ve been lucky too in that when we’ve had to move, housing markets and mortgage rates were stable.
The financial mess we’re in was based in good intentions: let’s make it easier for folks with poor credit to purchase homes. Instead of doing it through grants or some sort of non-profit that would apply the personal touch and, yes, discrimination based on character, we lowered underwriting standards. We also empowered government sponsored enterprises to buy up the substandard paper, encouraging lenders like Countrywide to make even more risky loans because they could unload them in a skinny minute.
There were warnings. Look at this 1999 article from the NYT entitled “Fannie Mae Eases Credit To Aid Mortgage Lending.” Rave reviews, but there was this warning:
Find that man and give him a medal!
Too bad public schools stopped teaching Home Economics.
Every student should read a book like Dave Ramsey’s TOTAL MONEY MAKEOVER.
We’re not seeing a lot of the impact locally yet, but in other parts of the country, folks are hurting, especially senior citizens forced to scale back through no fault of their own. Pretty disturbing, no?
Ralph,
The big problem was that nobody told me there would be four or five different bills from different doctors/sections of the ER. Since we were still living in Germany, I wasn’t used to the way they do things here, and of course they didn’t get my address straight, so at least one of the bills never arrived. Hospital bills really can be a nightmare.
I can’t believe I’m saying this…
I agree with Lee that schools should teach students the fundamentals of home budgeting and consumer credit, although my preferred book is Mary Hunt’s Debt-Proof Living. I looked at the book Lee recommends on Amazon, and it appears they have the same philosophical approach.
These stories reveal several things. (I too have my own credit horror stories and I’m paying dearly for bad decisions. I won’t go into the gory details)
First, we need to get back to some sensible credit policies. Folks need to understand that they just can’t have everything. Do we really need a home phone AND cell phones for every member of the family? Do we need a 2500 square foot house for 3 people to live in? It’s about living within your means.
Second, our healthcare system is obviously contributing to the financial problems we are facing. How many of those bad mortgages are the result of unexpected medical expenses that cost far more than what you expect even with good insurance.
Third, energy prices are taking their toll on the American pocketbook. We need to move in a different direction away from fossil fuels. Whether we drill or not the day of reckoning is upon us now, not 10 years from now. The current financial mess will look like a walk in the park compared to the coming energy crisis if we don’t get a handle on this. Too bad the dems threw away their leverage by allowing offshore drilling without getting tough conservation measures in return. But at least we’ll see fairly quickly how meaningless the offshore drilling really is.
Finally, our government needs to make some tough decisions about spending. The debate was very disappointing to me in that both candidates refused to address spending issues in a meaningful way. McCain for his part suggested a partial spending freeze and a crackdown on earmarks. But why would military spending be excluded? That boggles the mind. Of course we should cut the Pentagon budget. And cut it a lot. Worse, McCain still pushes for huge tax cuts for the very wealthy. They need to anti-up to pay for all these bailouts that largely benefit the rich.
Obama was somewhat more sensible in that he will tax the rich. That’s a good start but he really does need to scale back on his domestic agenda. I’d also like to hear him talk about cut backs for the military. It’s strange how one huge component of our budget, military spending, has become such a sacred cow, even for the so-called “liberal” candidate. Given our huge spending edge over the rest of the world this doesn’t make any sense.
These stories reveal several things. (I too have my own credit horror stories and I’m paying dearly for bad decisions. I won’t go into the gory details)
First, we need to get back to some sensible credit policies. Folks need to understand that they just can’t have everything. Do we really need a home phone AND cell phones for every member of the family? Do we need a 2500 square foot house for 3 people to live in? It’s about living within your means.
Second, our healthcare system is obviously contributing to the financial problems we are facing. How many of those bad mortgages are the result of unexpected medical expenses that cost far more than what you expect even with good insurance.
Third, energy prices are taking their toll on the American pocketbook. We need to move in a different direction away from fossil fuels. Whether we drill or not the day of reckoning is upon us now, not 10 years from now. The current financial mess will look like a walk in the park compared to the coming energy crisis if we don’t get a handle on this. Too bad the dems threw away their leverage by allowing offshore drilling without getting tough conservation measures in return. But at least we’ll see fairly quickly how meaningless the offshore drilling really is.
Finally, our government needs to make some tough decisions about spending. The debate was very disappointing to me in that both candidates refused to address spending issues in a meaningful way. McCain for his part suggested a partial spending freeze and a crackdown on earmarks. But why would military spending be excluded? That boggles the mind. Of course we should cut the Pentagon budget. And cut it a lot. Worse, McCain still pushes for huge tax cuts for the very wealthy. They need to anti-up to pay for all these bailouts that largely benefit the rich.
Obama was somewhat more sensible in that he will tax the rich. That’s a good start but he really does need to scale back on his domestic agenda. I’d also like to hear him talk about cut backs for the military. It’s strange how one huge component of our budget, military spending, has become such a sacred cow, even for the so-called “liberal” candidate. Given our huge spending edge over the rest of the world this doesn’t make any sense.
Bud’s mentioning of the “sacred cow” of defense spending reminds to once again recommend to anyone who has not seen it, Eugene Jarecki’s brilliant documentary, “Why We Fight.”
The House just rejected the bailout plan. The DOW sank 700 points before recovering somewhat. But in all this scary news a bit of levity came through. Here are the words of Rep. Gohmert from Texas on why he voted against the bailout:
“It’s like a big cowpie with a little bit of marshmallow inside and I don’t want to eat the cowpie,” said Rep. Louie Gohmert, R-Texas.
That about sums it up.
The bailout lard that failed to pass today”
http://i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf
Pelosi, Barney Frank, Harry Reid, and John Spratt were anxious to push though anything to avoid hearings that would reveal how they had created this mess.
Also, they tried to lard up the bill with bailouts of the bankrupt union pension plans and the bankrupt state and municipal pension plans.
Also, here is the list of people who voted for/against it. Definitely not a partisan problem: Plenty of Democrats and Republicans voted against it.
http://clerk.house.gov/evs/2008/roll674.xml