Sunday, November 16, 2008

The Consumer Trap

Let me begin by saying a word about the photo I picked. It is a trapdoor spider and my original thought upon Googling the image was to get one lurking in its trap. There are lots of those. But this one was so pretty. And in a way that illustrates my point better.

We, as consumers, were enticed into spending way too much with tarted up merchandise we were made to believe we needed. A friend of mine with a good and secure job in government said he had gone from buying things he did not need to buying things he did not even want. I figured we were in trouble when the big box stores switched from selling us new linens and clothes and things to selling containers to put them into or storage systems to make those containers look so good in our closets. Products never got better. They just got bigger or brighter or with some new feature we really did not need. But we were sold on the fact that they were necessary for our peace of mind and standing in our community.

And wasn't it so easy to get those new necessities with the tarted up credit cards that you can even put your picture on and donate to your favorite charity every time you swipe it thought those oh, so easy to use card readers. Using cash or writing a check was viewed as slowing progress down. Everyone behind you and the clerk waiting on you expressed their discontent.

I fell into that trap seven years ago after my head injury. I literally could not write a check. Nor could I really keep track of all those complicated credit card statements or notice when they had raised my low entry rate to astronomical heights. Because of being out of work and medical expenses and credit card fees I became one of the last to declare bankruptcy before Bush toughened up the laws in 2005 that was suppose to end personal bankruptcy.

So I read this morning the New York Times' series the The Debt Trap with great interest. Bankruptcies are up. They jumped nearly eight percent in October. "Filings totaled 108,595, surpassing 100,000 for the first time since a law that made it more difficult — and often twice as expensive — to file for bankruptcy took effect in 2005. That translated to an average of 4,936 bankruptcies filed each business day last month, up nearly 34 percent from October 2007."

Banks are not lending money so easily anymore. As banks have pulled back on lending consumers have been finding it more difficult, and in many cases impossible, to use credit cards, refinance their home mortgages or fall back on their home equity lines to get them through a rough period. New credit card offers with lower interest and even zero after roll over of another card debt are slim and far between. And some homeowners have already maxed out their equity in their homes to get out of credit card balances.

Remember when you could get your home refinanced for 125% of its value? Or when if you wanted a home refinance or home improvement loan the estimator sent out to value you house stayed in the driveway so he got the address right and filled in the value number the bank wanted for the loan? We all though home values were going to continue to rise. My father, whose parents rode out the Great Depression, told me to never borrow more than 70% of what my home was worth and only believe 80% of what I was told it was worth and don't buy what you cannot afford.

But even those that stick by those rules can get caught when they lose their jobs, or have a major medical crisis that results in the loss of a job and escalating medical debt. If the United States is bailing out those companies that set the trap why are they not helping those that fell into it. The first group is being investigated for felonies by the FBI. The second group is being thrown out of their homes.