The credit crunch and how we're all fucked...

By now everyone has heard of the sub-prime mortgage crisis, brought on by the practice of giving home loans to consumers who cannot realistically pay them off. What has not been talked about is the way other business sectors besides the real estate and financial sectors have been doing their part to screw us all over by enticing "high risk" consumers to "buy now, pay later" for whatever widget they're selling. (I'm not even talking about credit cards, here.)

Today's businesses are not interested in making money, they are interested in the price of their stock. The more a stock is valued, the happier shareholders are. It would seem like the best, most logical way to make a stock comparatively valuable would be to maximize the amount of money the company makes. Not so, anymore...

In the past few years, since Enron collapsed, more and more businesses appear to be content to count money owed as "money in the bank." The money owed to a business is reported essentially as gross profit, making the stock look better, but the fact is, that money simply isn't there. Consumers who have a history of not paying off debt, or even consumers who have outstanding debt with that very same company, are encouraged to sign on as "new" customers, perhaps with some limitations or strings attached. These "chronic" debtors then repeat their pattern of not paying for their goods or services, and the company counts what they once again haven't paid as revenue. More customers + more "hypothetical" money made = more valuable stock. A stock perceived as being more valuable attracts more investors, the more investors who want said stock, the more valuable said stock becomes.

One major factor leading to the infamous stock market crash known as Black Tuesday that heralded the start of the Great Depression was investors buying stocks on credit. The more investors who bought the stock, the more the stock was valued. When investors buy stock with money they don't have, that stock cannot possibly be worth what it was supposed to be worth if the investors were good for what they owed. Hence, when it comes time to "call in the chips," many of the investors don't have what they represented themselves to have had, and the stock takes a nosedive as more and more people come to the realization that a stock's value was overinflated.

If our chips are called in within the next few years, likely by foreign entities who have heavily invested in American stocks, the value of our stocks will be found to have been overinflated. By acting as though money owed is somehow money made, American corporations have set us all up for a spectacular economic downfall, where even those of us who manage to stay out of debt will be affected in the form of job losses. Those with debt, both legitimate (sensible mortgages, car loans, student loans, etc.) and illegitimate (credit card debt, loans that cannot be paid off at one's current income level) will all be in the same boat as these companies, in a mad dash to become solvent again, aggressively do everything they can to get what is owed as quickly as possible - at a time when many more Americans will find themselves out of work and unable to get work as these companies slash payroll in attempt to get out of their, self-imposed, debt.

Which brings us to an old pro-capitalist/pro-business/pro-libertarian catchphrase: "Rational Self-interest." Where is the "rational" self-interest in the scenario outlined above. If Tom owns his own restaurant and Joe skips out on the bill, Tom won't let Joe ever eat there again. But a typical modern American corporation these days is willing to take a look at Joe, consider how much he already owes, and bring him the most expensive dish in the house (but Joe can't have silverware, he'll have to eat Filet Mignon with plastic utensils.) Joe finishes his meal, walks out on the bill, and the corporation figures in a few months, they'll let Joe back in. You never know, maybe one of these days he'll not only pay his bill for *that* meal, but he might also pay up for the last three meals he skipped out on.

Joe's never going to pay up. If he ever intended on paying, he would have by now. And while he may be responsible for his own actions, it is the company that has allowed him to put the company in debt - multiple times. The problem is, it's all the rest of the customers who are going to have to pay Joe's bills in the end.

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