I remember my Daddy saying that credit would be the downfall of America. That was about the mid 1950’s. In those days if a person wanted to buy groceries, they paid cash. Real honest to goodness paper folding ‘greenbacks’. At that time paper money actually stated on the front that it was redeemable for silver. In addition, our coins, except for nickels and pennies, were made of real silver. Our economy was based on something of value. Somewhere along in the 1960’s that changed when we went off of the ‘silver standard’. Federal Reserve Notes (our paper money), are no longer redeemable for anything other than more of the same. Our coins are now made mostly of nickel and copper, not silver.
My Daddy wasn’t a fanatic, like most honest people at that time, he just believed that if a person didn’t have the money to pay for something, then they should work hard and save until they had the money. When a person wanted to save money they either stuffed it under the mattress or they opened a savings account in a local, often community owned, bank. When my Daddy walked into the bank, the banker knew his name and would call him Mr. Kendall. Now my Daddy wasn’t a rich man. He worked hard all his life. After he got out of the Army (after World War II), Daddy was a farmer, a part time electrician and a rural mail carrier. He didn’t make millions of dollars, but we were rich in a lot of other ways.
In the 1950’s a person could pretty much trust their banker. If a person needed money to buy a ‘big ticket item’, such as a home, and they didn’t have sufficient savings, they would go to their banker. The banker was considered a trustworthy person that was knowledgeable about financial matters. After discussing the pros and cons of the purchase, how much money was needed versus how much money the person had in savings and what other collateral they possessed, the banker would either loan the additional money needed, or not. If the banker said ‘no’, then you kept saving your money until you had enough.
It was not easy to get a loan from a bank. One reason for this, was the banker usually lived in the community and had a responsibility toward the community. If the banker loaned money on a bad risk, it hurt the community as a whole. The banker wasn’t loaning his own money, he was loaning money deposited by those who lived in the community. Of course, the money was insured by the Federal Deposit Insurance Corporation (FDIC), which was set up after the ‘Great Depression’, so the bank customers were insured against loss. However, if the banker wanted to stay in business, they had to be financially responsible.
In recent years banks have failed to be financially responsible for their actions. Rather than being community owned and thus responsible to their local community, many banks are now national or even global business units. These banks have no real responsibility to their local patrons. They don’t make any major amount of money from making small loans to local customers. The majority of their money comes from investing their customers checking and saving account money in stocks and bonds and other financial paper. If they fail, so what, the bankers will have made their profit and the government will bail out the customers through FDIC.
It has taken about 50 years, but my Daddy was right. Easy credit has caused the downfall of our country. However, I find one small glimmer of hope. Most people are tightening their belts, becoming more frugal, relying less on credit, and are beginning to become more financially responsible. Another good step would be to cut up their credit cards.