from The Worldview Literacy Book   copyright 2009            back to worldview theme(s) #45

Discussion for #45A & #45B:

Pat and Chris—both in their 30s, they work as interior design consultant and teacher, respectively—are considering getting married and starting a family.  Their previous discussions to assess compatibility have suggested the following differences in worldview.  Whereas Pat is comfortable with "Focused Vision" (theme #3), "Passionately Impulsive" (theme #18A), "Consumerism" (theme #26A), and "The Borrowing Mentality," Chris likes quite different ones: "Global Vision" (theme #4), "The Self-Restrained Person" (theme #29A), "Self Reliant Nonconformity" (theme #35A), and "Pay As You Go Approach."  Imagine their discussion.

Chris: I've been thinking about ways that we can get into our own house, but I don't especially like the idea of getting a mortgage—you know "mortgaging your future!"  Anyway, I've brainstormed on some alternatives.

Pat: I'd like our own house.  I don't have a problem with mortgages, everybody else has one: why not us too?

Chris: For starters, I don't want to commit to thirty years of house payments—seems like debt bondage!  If house prices rise it's not so bad I suppose, but those prices fell last year.  If we buy a house for $220,000, put $20,000 down and finance the rest for thirty years at 6 % interest, our monthly payments would be around $1200/month. 

Pat: That doesn't sound too bad—but I suppose we'd have property taxes, insurance, etc. on top of that, right?

Chris: Yes.  What bothers me is that over the life of that loan we'd pay around $232,000 in interest—ouch!

Pat: I think your problem with mortgages can be traced to your childhood: all that instant gratification type impulse buying your mother did, the chronically high credit card balances, and struggling to get out of debt!

Chris: Perhaps!  I don't mind working but at my salary paying all that interest will alone require many extra years of work! Here's an idea: I'll take a year off from my teaching job, we'll "make do" living on your salary in some apartment while I help build us a house!  I figure that my "sweat equity" can cut our loan in half.  And instead of spreading payments out over thirty years, if we could pay it off in five years, we'd save a bundle!

Pat: Whoa!  That's lots of hard work you're talking about, lots of "making do!"  A five year mortgage!

Chris: I figure over the loan's life we'd pay out only $16,000 in interest.  Payments would be $1933/month.

Pat: Hmmn...We could own our house free and clear by age forty, rather than age sixty-five!  But it would be tough!

Chris: Of course it would be tough: there is no such thing as a free lunch! Oh, I forgot to tell you: I just got my credit score... *************************************************


Discussion—continued                                             Borrowing allows people to have things like houses, cars, etc. they otherwise would have to wait for.  Driven by information (including advertising) that flows nearly instantly through  

electronic media, and tied together by high-speed transportation and globalization, much of the world moves at a much faster pace than in days past.  Not surprisingly, the thrift and frugality of societies once held captive by Confucianism, religious prohibitions against usury (Islam still forbids lending money with interest charged), or the Protestant Work Ethic, has been replaced by a modern, credit-driven way of doing business.  Debt permeates business sector thinking.  Considerations of it form the basis for investment decisions: typically they hinge on whether the expected rate of return on the investment exceeds the interest rate charged for the money borrowed to make the investment.  Once associated with poverty, taking on more debt or borrowing more money—and the capability of being able to continue to do so as in possessing leverage—is now associated with being wealthy.

    Few households are willing to patiently save money and wait for things they want now.  It seems that "have it or do it now, and pay later" is triumphing over financial restraint.  Desiring to have their "lunch" now, many heavily discount the future and overlook lots of real but hidden costs.  For many, it begins long before the traditional mortgage— two-thirds of college under-graduates are in debt: the average graduating senior by $20,000. It often ends with bankruptcy  (Figure #45b).  Clearly too much debt can lead to personal crisis, but can it trigger a national one? Based on recent American experience (foreclosures, bailouts, see Figure #45a) the answer seems to be “Yes!”

     While extending credit to already debt-strapped Americans has many critics, the concept and implementation of what has come to be called microcredit does not.  Pioneered by the Grameen Bank in Bangladesh, founded by Muhammad Yunus, this has been a developing world success story (Figure #45c).

Figure #45a American Debt Crisis Drama

Setting the Stage: Summing mid 2007 USA debt figures of  $11 trillion in public debt, $13 trillion in household debt , and $25 trillion of business & financial sector debt brought the total  to $48.4 trillion—over $160,000 per person and up (in constant, inflation adjusted dollars) by 5.6 times in the last fifty years! 

The Drama Unfolds: as reported by Bill Powell in “Life Without Credit” Time magazine, November 3, 2008  “The debts Americans have piled up are due…$13.8 trillion—the total amount of household debt in the U.S., up 20% since 2005, may finally have peaked…Our debt binge was fueled by easy money and the belief that the prices of assets—those of houses in particular —never went down…That era is over.  It will be replaced by one of the more painful and consequential economic chapters in our history: the great deleveraging of America. ” The following months brought record government spending to ease the pain.  The USA budget deficit of $500 billon/yr quadrupled to a projected $2 trillion/yr for 2009-10.  At least nationally, the Borrowing Mentality was not a casualty of economic crisis! 

Figure #45b

Bankruptcy—Practical Fix or Morally Wrong?

"Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching.  People who follow the bankruptcy rules receive a discharge— a court order that says they don’t have to repay certain debts.  However, bankruptcy information stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts." (from US FTC  booklet)


As Dr. Jukka Kilpi puts it, "The fundamental ethical problem in bankruptcy is that insolvents have promised to pay their debts, but cannot keep their promise."  In December 2002, when the Roman Catholic Archdiocese of Boston's finance committee gave Cardinal Bernard Law permission to file for bankruptcy, many priests objected.  As Michael Paulsen reported on the PBS news weekly Religion and Ethics program, "There are priests who don't like the symbolic import of the word "bankruptcy."  They think it suggests a kind of moral and spiritual bankruptcy as well as financial bankruptcy."


Figure #45c

Micro-Credit Summit

Feb 2 1997, Washington, DC


"[Micro-credit] is not just about giving individuals economic opportunity.  It is about responsibility.  It is about seeing how we are all interconnected and interdependent in today's world...It is understanding how lifting people out of poverty in India or Bangladesh rebounds to the benefit of the entire community and creates fertile ground for democracy..."

                             Hillary Clinton

"This summit is to celebrate the success of millions...who have transformed their lives from extreme poverty to dignified self sufficiency through...micro-credit"

                         Muhammad Yunus


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