consumerism

There was a time when the advocates of socialism argued that it would lead man to material abundance, whereas free-market capitalism would lead only to increasing misery and would ultimately collapse under its own internal stresses. You don't hear that too much these days, and for good reason. A century of empirical evidence has shown the contrary — that the free market leads to increasing wealth and material freedom, while socialism leads us only to poverty, state supremacy, and ultimately, mass murder.

I’ve struggled with how to frame this article – and indeed, the purpose of this website. It’s gone through several rounds of iteration between Bitterman, Dirac, and I – and it will probably go through more. I’m going to attempt to answer the question, “Why is RoadToFailure here?”

We want to do our part to stop the self-destruction of America.

Perhaps it’s easiest to understand our purpose by hearing what this site was almost called: “Don’t Be a Fuck”. Tired of reading demagogues and hucksters such as David Broder or Robert Kiyosaki exploit a misinformed public, we were going to keep a running commentary on these scammers in an attempt to show the truth. Our goal would have been to help people become happier (and thus, not turn into “Fucks”) by steering them away from propagandists and “advice” given in bad faith. We’re still doing that, but we’ve adopted a larger scope...the threats to Freedom and Democracy.

The moves in the financial market and souring sentiment among bankers, consumers, and financial analysts over the past week has done nothing but reinforce the obvious cause and effect relationship between the ease of lending and cheap credit in recent years and insatiable appetite for credit the average American has developed, as I've outlined in my separate and ongoing series on Credit and Consumerism. The past few days have proved very interesting, with the markets remaining volatile while the major central banks in the world, including the Federal Reserve and European Central Bank, have pumped billions in dollars and Euros to spur liquidity in the markets.

A particular story stood out among the weeping and gnashing of teeth that's been plastered on front page of financial news sites over the past few days. The leading mortgage lender in the United States, Countrywide Financial, has decided to 'tighten lending standards' going forward. In addition, facing troubling financial standing as its subprime loans falter, the company is accessing an $11.5 billion line of credit to stay afloat.

This raises a few interesting points. First, why did it take a complete disaster in the subprime mortgage market to force the nation's largest mortgage lender to "decide" to tighten its lending practices? As always, the company thought that the climate of free and easy lending with no risk or accountability would continue indefinitely. Why deny lending to people who have over extended themselves when you can make billions off of closing fees and interest while the times are good? "Eat, drink, and be merry", so the saying goes, but it follows that "tomorrow we die." Just like a child in a candy store, Countrywide, along with most mortgage lenders, decided to gorge itself silly on the sweets available today, ignoring the bellyache to come tomorrow. Unfortunately, now all of these mortgage lenders have come down with a bellyache.

In the previous installment I introduced the lending institutions and practices that sate our country's desire for debt, especially the debt of those who have little regard for the consequences associated with irrational borrowing. In this installment, I wish to examine some of the products that have been introduced over the last decade that have lead to the decline in the financial health of the average consumer. These products were either non-existent before the late 1990s, or in a realm so dangerous that only speculators or the uneducated gambler would have the wherewithal to sign on the dotted line.

In light of last week's stock market selloff, pundits, columnists, and online journalist have in no short order offered insight, analysis, and predictions. Many expound a sky-is-falling mentality, committing the fact that the Dow Jones Industrial Average closed at an all time high above 14,000 points just the week before to ancient history. That was then, this is now, in their opinion.

While not all columnists have taken this view, many are running articles about 'what to do now' or 'safe bets in an uncertain market'. This sort of after-the-fact hindsight bias has been rampant in financial literature for longer than I have been alive and does nothing but reinforce a completely illogical 'buy high, sell low' strategy. This will certainly be the subject of many of my upcoming discussions.

That said, a few of the more in depth online journalists have provided excellent commentary on the underlying economic conditions that have lead to this series of events. It seems clear that to some extent the era of easy and cheap credit (cheap not only in interest, but in ease of acquiring loans) beginning in the 1990s has changed the socio-economic landscape of America and many other westernized countries. The subprime mortgage "meltdown" (as the large media outlets like to term it) that began several months ago has started to creep into prime credit holders and corporate debt.